Question

D = demand rate, c = unit production cost, A = fixed setup, h = holding cost, Q = lot size

hQ AD Y (Q) =-+-+ cD 2 Q

Derive the EOQ model, optimal Q*, and optimal E(Q*) for the case that the assumption of instantaneous production is relaxed.

Show all steps including derivation of E(Q) and steps for determining optimal Q* and E(Q*).

Assume that production is linear.

Also, discuss how the model and the process for determining Q* an E(Q*) would change if backorders were allowed.

Answer 1