Average Cost Optimality in Inventory Models with Markovian Demands and Lost Sales

Dirk Beyer and Suresh Sethi

Chapter Chapter 1 in Analysis, Control and Optimization of Complex Dynamic Systems, 2005, pp 3-23 from Springer

Abstract: Abstract This paper is concerned with long-run average cost minimization of a stochastic inventory problem with Markovian demand, fixed ordering cost, convex surplus cost, and lost sales. The states of the Markov chain represent different possible states of the environment. Using a vanishing discount approach, a dynamic programming equation and the corresponding verification theorem are established. Finally, the existence of an optimal state-dependent (s, S) policy is proved.

Keywords: Inventory Model; Lipschitz Continuous Function; Admissible Strategy; Dynamic Programming Equation; Feedback Policy (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-0-387-25477-7_1

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DOI: 10.1007/0-387-25477-3_1

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