Utilization and maintenance in a model with scrapping

George C. Bitros () and Elias Flytzanis

European Journal of Operational Research, 2009, vol. 194, issue 2, pages 551-573

Abstract: We consider a productive asset, called equipment or capital good, and we examine the properties of, as well as the interactions between, the operating policies, which are determined by its optimal utilization and maintenance, and the capital policy of scrapping, which defines the optimal time when the productive asset is retired from its current use. Starting with an abstract model and using the approach of optimal control, initially we characterize the various types of equipment by assigning to them a single total profit index, which indicates how the above policies affect the flow of operating revenues plus capital gains or losses. This index is a function of market-determined prices. So using it we then investigate how the operating and capital policies are influenced by the rate of discount, the price of new equipment, and the rise or fall of the price of new equipment relative to the value of its output. Among other interesting results, we find that the effects of these prices on the nature and interactions of optimal policies depend crucially on whether the equipment is of the usual profit making type, where output is the main source of revenue, or of the antique type, where the main source of revenue is capital gains.

Keywords: Utilization; Maintenance; Idling; Mothballing; Upgrading; Downgrading; Scrapping (search for similar items in EconPapers)
Date: 2009

Downloads: (external link)
http://www.sciencedirect.com/science/article/B6VCT ... cf3c67b7712dad32b72e
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:eee:ejores:v:194:y:2009:i:2:p:551-573

Access Statistics for this article

European Journal of Operational Research is edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Series data maintained by Heidi Boesdal ().