Economic Modelling 29 (2012) 2283–2288

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Economic Modelling
journal homepage: www.elsevier.com/locate/ecmod

Multi-item EOQ model while demand is sales price and

price break sensitive
Brojeswar Pal a, Shib Sankar Sana b,⁎, Kripasindhu Chaudhuri a
a
Department of Mathematics, Jadavpur University, Kolkata, 700032, India
b
Department of Mathematics, Bhangar Mahavidyalaya, University of Calcutta, Bhangar, Kolkata 743502, 24PGS (South), India

a r t i c l e i n f o a b s t r a c t

Article history: In this paper, the authors study a multi-item deterministic EOQ (economic order quantity) model for a vendor
Accepted 28 June 2012 when the demand rate of the essential commodities decreases quadratically with increasing sales price and
increase exponentially with increasing level of price breaks. A price discount is offered to the customers when
Keywords:
the revenue of the vendor crosses the level of price break. The main aim of the present article is to find out
Multi-item
the optimal order quantities, optimal selling prices and optimal level of price break in order to maximize
Inventory
Price-sensitive demand
the average profit of the whole products. Numerical examples are also illustrated to test of our proposed
Price-break model.
Discount © 2012 Elsevier B.V. All rights reserved.

1. Introduction control of a multi-item, multi-echelon, multi-indenture inventory

Nowadays, a shopping mall or a supermarket type retailing shop
has immense importance in modern civilization. The suburban super-
market or mall occupies a large amount of floor space, usually on a
single level. It is usually situated near a residential area in order to
be convenient to consumers. Its basic appeal is the availability of a
broad selection of goods under a single roof. Nowadays people are
so busy that they have no time to go to shopping for necessary com-
modities from different retail places. Everyone likes to shop for their
essential commodities in a single roof and save their time. That's
why the importance of malls or supermarkets is increasing with the
passage of time.
Traditional supermarkets or malls face intense competition from
competitor retailers. So, they take different types of strategies to in-
crease their profit. If there are similar types of retail malls and if
there is no cooperation among them, then they take various types
of strategies as someone offers discount on selling price, someone of-
fers quantities discount, someone offers lucky draw, etc.
Veinott (1965) studied a multi-product dynamic non-stationary
inventory problem. He assumed that the demand functions are not
necessarily independent or identically distributed and the system is
reviewed at the beginning of each of a sequence of periods of equal
length. Also, he considered partial or complete backlogging of unfilled
demand and deterioration of stock in storage. Miller (1971) studied
a one-period multi-item inventory model where the objective is to
minimize a function of item backorders subject to a budget con-
straint. Muckstadt (1973) developed a mathematical model for the
⁎ Corresponding author.
E-mail addresses: brojo_math@yahoo.co.in (B. Pal), shib_sankar@yahoo.com
(S.S. Sana), chaudhuriks@gmail.com (K. Chaudhuri).
system for recoverable items. They derived the logistic relationship
between an assembly and its subassemblies and computed spare
stock levels for both echelons for the assembly and subassemblies
with explicit consideration of this logistics relationship. Page and
Paul (1976) introduced the basic optimal lot-size inventory model
when there were a number of products for which inventories must
be maintained. They considered a situation where there is a restric-
tion either on the maximum capital invested in stock at any time, or
the maximum warehouse space available for storage. They also ob-
served that the equal order interval method is often significantly bet-
ter than the classical well known method of Lagrangian Multiplier.
Goyal (1978) wrote a note on the paper of Page and Paul (1976).
The note is intended to demonstrate that it is possible to reduce the
total requirement of the resource by considering the products belong-
ing to more than one group. Graves (1979) studied a model of two
single-machine multi-product scheduling problems with determinis-
tic demand. Hartley and Thomas (1982) developed a model of standard
deterministic inventory system for two products with a capacity con-
straint and described how to find the optimal policy amongst all policies
which have fixed order quantities. Eppen and Martin (1987) imposed a
useful taxonomy on production scheduling problems and developed
alternative formulations for a wide variety of problems within the tax-
onomy. They showed that Linear Programming relaxation values are
equal to the Lagrangian dual with respect to the complicating con-
straint. Rosenblatt and Rothblum (1990) studied multi-item inventory
systems under a single resource capacity constraint where the capacity
was considered as a decision variable. Guder et al. (1994) developed a
method for determining optimal order quantities for multiple items
given incremental quantity discount and single resource constraint.
They showed that due to the combinatorial nature of the method, it is im-
practical for a large number of items. Lenard and Roy (1995) introduced

0264-9993/$ – see front matter © 2012 Elsevier B.V. All rights reserved.
doi:10.1016/j.econmod.2012.06.039
2284 B. Pal et al. / Economic Modelling 29 (2012) 2283–2288
an approach for the determination of inventory policies based on the
notion of efficient policy surfaces and then they extended this notion
to multi-item inventory control by defining the concepts of family
and aggregate item. Lau and Lau (1995) studied a multi-product
multi-constraint newsboy problem with several resource constraints.
Ishi and Imorib (1996) formulated a production ordering system for
two-item, two-stage, capacity-constraint production and inventory
systems, which reduces the fluctuations in total work load and invento-
ry levels. They considered manufacturing two final products where
component parts are a standard one and one with optional specifica-
tions chosen by the customer. Gallego et al. (1996) developed two
economic order quantity models where multiple items use a common
resource. DeCroix and Arreola-Risa (1998) introduced a multi-product,
infinite-horizon production-inventory system with a modified base-
stock policy. They considered demand for the products is random and
the products share a finite resource every period and they characterized
the optimal policy for the case of homogeneous products. Bhattacharya
(2005) studied a two-item inventory model for deteriorating items with
a linear stock-dependent demand rate. Brandimarte(2006) formulated
a stochastic version of the classical multi-item capacitated lot-sizing
problem with demand uncertainty through a scenario tree, resulting
in a multi-stage mixed-integer stochastic programming model with
recourse. Hill and Pakkala (2007) discussed a retail inventory system
in which customer orders arrive at random and each order specifies a
list of items. They addressed a multi-item inventory model in consider-
ing the independence of the inclusion of item requests on a customer
demand—an assumption. Sana (2008) studied an EOQ model for a
retailer with varying demand followed by advertising expenditure
and selling price under permissible delay in payments. Haksever and
Moussourakis (2008) developed a mixed-integer programming model
for ordering items in multi-product multi-constraint inventory systems
from suppliers who offered incremental quantity discounts. Guchhait
et al. (2010) developed a multi-item inventory model of breakable
items. They considered demands of the items are stock dependent
and breakability rates increase linearly with stock and nonlinearly
with time. Sana (2010b) introduced a model over an infinite time hori-
zon for perishable items where demand is price dependent and partial
backorder. Das Roy et al. (2010) studied a stochastic EPLS (economic
production lot size) model with price sensitive demand when the
price is random. Also, they described a self-manufacturing system in a
finite planning horizon for a single item which fulfills the stochastic
market demand by its own product. Sana (2011a) developed an EOQ
model of deteriorating item over finite time horizon where demand is
a quadratic decreasing function of price. He developed the model by
dividing the time horizon into n equal periods with n different prices.
Many researchers such as Sarkar (2012a, 2012b, 2012c), Sarkar and
Moon (2011), Sarkar et al. (2011), Sana (2010a, 2011b), Sana et al.
(2009, 2011), You (2006), Zhang (2010) worked on price sensitivity
model. Tsao and Sheen (2012) discussed the variations in the
supplier's credit period, the retailer's multi-item replenishment and
pricing with credit periods and weight freight cost discounts, from
both the individual and channel perspectives. Li et al. (2011) developed
a multi-item capacitated dynamic lot-sizing problem. They investigated
a series of dynamic demands and considered limited production re-
sources of products in each period. Also they extended the idea of the
special-purpose heuristics to solving multi-level lot-sizing problems.
Recently, Sana (2012) introduced a newsvendor problem with price-
dependent demand while selling price is a random variable.
In this paper, we develop a multi-item inventory model. There is a
restriction on level of price breaks. If the revenue of vendor at time t
crosses the level of price breaks, then a percentage of discount on price
is offered. We generalize our model by considering price-dependent
demand. The demand of customers decreases quadratically with in-
creasing selling price and it is also dependent exponentially on level
of price breaks. In the real world, one vendor always faces different com-
petitions actively or passively. So, in our model, vendor positively
overcomes by controlling selling price and level of price breaks. Over
all, the total profit per unit time of the vendor is evaluated and is op-
timized with respect to ordering lot sizes, selling prices and level of
price breaks by the method of Lagrangian multiplier.
2. Fundamental assumptions and notation
2.1. Assumptions
The following assumptions are made to develop the model:
(i) The model is developed for n items product.
(ii) Ordering lot size for a product at each period is a decision
variable.
(iii) Demand rate for a product at each period is dependent on sell-
ing price and level of price breaks.
(iv) If total revenue of the vendor at any time is more than the level
of price breaks, then vendor offers a percentage of discount on
price to the customers.
(v) Holding cost and ordering cost for the products are different.
2.2. Notations
Ci Purchasing cost ($) per item for i th product.
pi Unit selling price ($) for i th items.
B Price breaks level ($).
R(.) Rate of demand (Pound) for each product.
hi Holding cost ($) per unit item per unit time for i th product.
Csi Setup cost ($) for i th product.
3. Mathematical formulation and analysis of the model
In the model, we discuss about a multi-item retail shopping mall.
In the real world, retail shopping malls face different types of compe-
tition in the market. They take various strategies to overcome the
competition and to increase their individual profit. Here, vendor
takes a strategy of special type of discount. He fixes a price over rate
of demand at any time t. If the revenue of the retail mall at any time
t crosses the boundary of fixed price (level of price breaks), the ven-
dor provides a percentage of discount on selling price to the cus-
tomers. Demand of a common product is enormously dependent on
selling price, generally demand is inversely proportional to price. Be-
sides, there are some restrictions on price discount; demand showed
also be dependent on it. We consider that the rate of demand at any
time t depended on selling price as well as level of price breaks. The
vendor increases (or decreases) his demand by decreasing (or in-
creasing) selling price of the products and the level of price breaks.
We consider the rate of demand which is dependent on selling
price and level of price breaks such that the rate of demand decreases
quadratically with increasing selling price and exponentially with in-
creasing level of price breaks as
2 −βB
Rðpi ; BÞ ¼ ai −bi pi −ci pi þ α e ;
where ai ; bi ; ci ; α; β are all suitable positive constants and ai >> bi
and bi >> ci for i ¼ 1; 2; …; n:
On the basis of expenditure per unit time of retail mall and
customer's rate of demand, vendor announces the level of price
breaks. Here, vendor offers discount on selling price to the customers
on the restriction of that level of price breaks. According to the level
of price breaks, we divide the model in the following two cases.
 B. Pal et al. / Economic Modelling 29 (2012) 2283–2288 2285

3.1. Case I: when the revenue of vendor at any time t does not cross level From Eqs. (1.4) and (1.8), we have
of price breaks
 
hi C si
ð1−λÞ −p ð
i ib þ 2c p
i i Þ þ ðλ−1Þpi ðbi þ 2ci pi Þ ¼ 0
In this case, the revenue of the vendor at any time t does not sat- 2ððλ−1Þpi −C i Þ2
isfy the criteria of discount. So, there is no discount on selling price for 2
⇒4ððλ−1Þpi −C i Þ pi ðbi þ 2ci pi Þ ¼ hi C si ; where i ¼ 1; 2; …; n:
the customers. Total profit of vendor per unit time is
ð1:9Þ

EπðQ i ; pi ; BÞ ¼ Total revenue per unit time Now, we obtain the values of prices (pi) and Lagrangian multiplier
−Holding cost per unit time (λ) from Eq. (1.9). Also, we get the values of ordering lot sizes (Qi)
and level of price breaks (B) using the values of pi and λ in Eq. (1.8).
−Setup cost per unit time
ð1:1Þ Sufficient condition: A sufficient condition for Eπ(Qi, pi, B) to have a
−Total purchasing cost per unit time relative maximum at {Qi∗, pi∗, B ∗} is that each root of the polynomial zk
Xn  
1 Rðpi ; BÞ defined by the following determinant equation be negative
¼ pi Rðpi ; BÞ− hi Q i − C si −C i Rðpi ; BÞ
i¼1
2 Qi
 
 Lp1 p1 −z Lp1 p2 … Lp1 pn Lp1 Q 1 Lp1 Q 2 … Lp1 Q n Lp1 B gp1 
 
 Lp p Lp2 p2 −z … Lp2 pn Lp2 Q 1 Lp2 Q 2 … Lp2 Q n Lp2 B gp2 
 2 1 
 : : : : : : : : 
subject to total revenue at time t of vendor less than level of price 

 : : : : : : : : 
breaks  : : : : : : : : 

 Lp p Lpn p2 … Lpn pn −z Lpn Q 1 Lpn Q 2 … Lpn Q n Lpn B gpn 
 n 1
 L LQ 1 p2 … LQ 1 pn LQ 1 Q 1 −z LQ 1 Q 2 … LQ 1 Q n LQ 1 B g Q 1 
Δ ¼  Q 1 p1 ¼0
 LQ 2 p1 LQ 2 p2 … LQ 2 pn LQ 2 Q 1 LQ 2 Q 2 −z … LQ 2 Q n LQ 2 B g Q 2 
X
n 
 : : : : : : : : 
i:e: pi Rðpi ; BÞbB: ð1:2Þ 
 : : : : : : : : 
 : : : : : : : : 
i¼1 
 LQ p LQ n p2 … LQ n pn LQ n Q 1 LQ n Q 2 … LQ n Q n −z LQ n B g Q n 

 g B 
n 1

 LBp1 LBp2 … LBpn LBQ 1 −z LBQ 2 … LBQ n LBB −z

 g g p2 … gpn gQ 1 gQ 2 … gQ n gB 0 
p1

Now, we find the optimum values of prices, ordering lot sizes and
∂ L  

2
level of price breaks for which the profit function (1.1) of the model is where X ¼ fp1 ; p2 ; …; pn ; Q 1 ; Q 2 ; …; Q n ; Bg; Lpi pj ¼ X ; λ ; LQ i Q j
optimized with respect to the discount constrain (1.2). Here, we opti- ∂pi ∂pj
mize the problem by the method of Lagrangian multiplier. ∂ L  

2
∂ L  

2
∂2 L  

¼ X ; λ ; Lpi Q j ¼ X ; λ ; Lpi B ¼ X ; λ ; LBB

∂Q i ∂Q j ∂pi ∂Q j ∂pi ∂B
3.1.1. Solution methodology ∂ L  

2
∂g 
∂g 
∂g 

The Lagrange function, L, is defined by introducing one Lagrangian ¼ X ; λ ; g pi ¼ X ; gQ i ¼ X and g B ¼ X :

∂B∂B ∂pi ∂Q i ∂B
multiplier λ to the above constraint (1.2) as
Also, we have Lpipj = LQiQj = LpiQj = 0 for i ≠ j, i, j = 1, 2, …, n.
Xn  
1 Rðpi ; BÞ It is not possible to prove analytically that all the roots of the equa-
LðQ i ; pi ; B; λÞ ¼ pi Rðpi ; BÞ− hi Q i − C si −C i Rðpi ; BÞ
2 Qi tion Δ = 0 are negative; hence we show it numerically.
i¼1 " #
Xn
þ λ B− pi Rðpi ; BÞ : ð1:3Þ 3.2. Case II: when the revenue of vendor at any time t crosses the level of
i¼1 price breaks

Here, L is a the function of 2n+ 2 variables p1, p2, …, pn, Q1, Q2, …, Qn, In this case, revenue of vendor at a time t satisfies the criteria of
B, λ. The necessary conditions for the maximum of Eπ(Qi, pi, B)(where i = discount, i.e. the revenue of vendor at any time t crosses the level of
1, 2, …, n) give price breaks. So, the vendor provides a percentage of discount on sell-
ing price to the customers.
  Total profit of vendor per unit time is
∂L C si
¼ ð1−λÞfRðpi ; BÞ−pi ðbi þ 2ci pi Þg þ þ C i ðbi þ 2ci pi Þ
∂pi Qi EπðQ i ; pi ; BÞ ¼ Total revenue per unit time
¼ 0: ð1:4Þ
−Holding cost per unit time
−Set up cost per unit time
∂L 1 Rðpi ; BÞC si −Total
¼ − hi þ ¼0 ð1:5Þ " purchasing cost unit time
∂Q i 2 Q 2i Xn
1 ð2:1Þ
¼ ð1−μ i Þpi Rðð1−μ i Þpi ; BÞ− hi Q i
i¼1
2
#
Xn C 
∂L −βB si Rðð1−μ i Þpi ; BÞ
¼ αβe −ð1−λÞpi þ C i ¼ 0 ð1:6Þ − Csi −C i Rðð1−μ i Þpi ; BÞ
∂B i¼1
Qi Qi

Xn subject to total revenue at time t of vendor more than level of price

∂L
¼ B− pi Rðpi ; BÞb0 ð1:7Þ breaks
∂λ i¼1
X
n
i:e: pi Rðpi ; BÞ≥B: ð2:2Þ
Eqs. (1.5) and (1.6) give respectively i¼1

Now, we determine the optimum values of prices, ordering lot sizes

h Q2 C si and level of price breaks for which the profit function (2.1) of the model
Rðpi ; BÞ ¼ i i and Q i ¼ ; where i ¼ 1; 2; …; n: ð1:8Þ
2Csi ðλ−1Þpi −C i is maximized with respect to the discount constrain (2.2). Here, we
2286 B. Pal et al. / Economic Modelling 29 (2012) 2283–2288

Table 1
Data for the numerical example I.

Item 1 Item 2 Item 3

Parameters of demand function a1 = 170, b1 = 1.0, c1 = 0.005, a2 = 146, b2 = 1.1 c2 = 0.006, a3 = 129, b3 = 0.9 c3 = 0.004,
α= 5000, β = 0.0005 α= 5000, β = 0.0005 α = 5000, β = 0.0005
Holding cost per unit $0.5 $0.6 $0.45
per unit time
hi
Purchasing cost per unit $9 $7 $8
Ci
Set up cost per order $150 $200 $140
Csi

apply the method of Lagrangian multipliers to optimize the profit func- Δ = 0 should be negative. We show it numerically by the following
tion of vendor. numerical examples.

3.2.1. Solution methodology 4. Numerical examples

In this case, we define the Lagrange function L1 by introducing
Lagrangian multiplier λ to the constraint (2.2) as Now, we illustrate our model numerically as follows. We could
" not show analytically that the sufficient condition for optimality is
Xn
1 Rðð1−μ i Þpi ; BÞ satisfied for both the cases, but we can illustrate it numerically.
L1 ðQ i ; pi ; B; λÞ ¼ ð1−μ i Þpi Rðpi ; BÞ− hi Q i − C si
i¼1
2 Qi
# " # ð2:3Þ 4.1. Example I
Xn
−C i Rðð1−μ i Þpi ; BÞ þ λ pi Rðpi ; BÞ−B :
i¼1 Let us consider a retail mall with three items with the following
parameter values to illustrate our model for Case I (Table 1).
Here, the above defined function contains 2n + 2 variables p1, p2, Applying the above numeric parameters in Eqs. (1.9) and (1.8) of
…, pn, Q1, Q2, …, Qn, B, λ. The necessary conditions for the maximum Case I, we have the following solutions of the decision variables. Using
of Eπ(Qi, pi, B) (where i = 1, 2, …, n) with respect to the 2n + 2 vari- these values, we find out the value of profit function per unit time
ables are given by with values of ordering sizes, sales prices and price break (put the
values here) which are given in Table 2.
∂L1 n o
2
¼ ð1 þ λÞ Rðð1−μ i Þpi ; BÞ−ð1−μ i Þ pi ðbi þ 2ci ð1−μ i Þpi Þ Now, we check that these values are optimal. Putting the values of
∂pi   above tables in the equation Δ = 0 of Case I, we have 6.1121 ∗ 10 −9 +
C si 0.0000349964 z + 0.0440955 z 2 + 20.8879 z 3 + 3432.94 z 4 +
þ þ C i ð1−μ i Þðbi þ 2ci ð1−μ i Þpi Þ ¼ 0; for i ¼ 1; 2; …; n:
Qi 11190.5 z 5 + 9158.24 z 6 = 0.
ð2:4Þ Roots of the above equation are {− 0.654424, − 0.561316,
− 0.0022351, − 0.00187009, − 0.00182185, − 0.000238583} all
∂L1 1 Rðð1−μ i Þpi ; BÞC si negative.
¼ − hi þ ¼ 0; for i ¼ 1; 2; …; n: ð2:5Þ
∂Q i 2 Q 2i Hence, the sufficient condition for optimality is satisfied. So, the
corresponding solutions for Case I are optimal. Therefore, total profit
n C
X  per unit time for the mall is Eπ = $11252.20.
∂L1 −β B s
¼ αβe i
−ð1 þ λ−μ i Þpi þ C i ¼ 0 ð2:6Þ
∂B i¼1
Qi
4.2. Example II

∂L1 X
n
¼ pi Rðpi ; BÞ−B≥0 ð2:7Þ As an illustration of the developed model for Case II, we consider a
∂λ i¼1 retail mall with the following parameter values (Table 3).
Putting the above parametric values in Eqs. (2.9) and (2.8) of Case
Eqs. (2.5) and (2.6) give respectively II, we have the following solutions of the decision variables. Using
these values, we find out the value of profit function per unit time
hi Q 2i C si h Q2 with values of ordering sizes, sales prices and price break (put the
Rðð1−μ i Þpi ; BÞ ¼ ; Qi ¼ and Rðpi ; BÞ ¼ i i
2Csi ð1 þ λÞpi −C i 2Csi ð2:8Þ values here) which are given in Table 4.
 
2 2 Now, we check that these values are optimal. Putting the values
−μ i bi pi − 2μ i −μ i ci pi ; where i ¼ 1; 2; …; n:
of above tables in the equation Δ = 0 of Case II, we have
1.76501∗10−12 + 4.71218 ∗ 10 −9 z + 4.68702 ∗ 10−6 z2 + 0.00209155
From Eqs. (2.4) and (2.8), we have z3 + 0.382204 z4 + 15.4149 z5 + 111.589 z6 = 0.
  n    o   Roots of the above equation are {− 0.108, − 0.0236, − 0.0017,
2 2
1 þ λ−μ i hi C si þ λpi ci pi 4−2μ i þ μ i −2bi μ i 1 þ λ−μ i pi −C i − 0.0013, − 0.0012, − 0.00234} all negative.
ð2:9Þ
¼ 0; where i ¼ 1; 2; …; n:
Table 2
Results of the numerical example I.
Now, we obtain the values of prices (pi) and Lagrangian multiplier
(λ) from Eq. (2.9). Also, we get the values of ordering lot sizes (Qi) Item 1 Item 2 Item 3
and level of price breaks (B) using the values of pi and λ in Eq. (2.8). Selling price per unit item $43.40 $35.22 $38.99
Sufficient condition: A sufficient condition for Eπ(Qi, pi, B) to have a Ordering lot size per order (in pound) 273.72 267.24 242.30
relative maximum at {Qi∗, pi∗, B ∗} is that each root of the polynomial zk Value of Lagrangian multiplier λ= 1.22
defined by the determinant equation Δ = 0 (similarly as Case I) be Value of level of price breaks B = $13,056.50
Total profit per unit time is Eπ = $11,252.20
negative. We cannot show analytically that the roots of the equation
 B. Pal et al. / Economic Modelling 29 (2012) 2283–2288 2287

Table 3
Data for the numerical example II.

Item 1 Item 2 Item 3

Parameters of demand a1 = 161, b1 = 1.0, c1 = 0.005, a2 = 166, b2 = 1.1 c2 = 0.006, a3 = 135, b3 = 0.9 c3 = 0.006,
function α = 5000, β = 0.0005 α= 5000, β = 0.0005 α = 5000, β = 0.0005
Holding cost per unit $0.5 $0.6 $0.45
per unit time
hi
Purchasing cost per unit $9 $7 $8
Ci
Set up cost per order $300 $350 $320
Csi
Percentage of discount 10% 12% 9%
on price
μi

Hence, the sufficient condition for optimality is satisfied. So, the
corresponding solutions for the Case I are optimal. Therefore, total
profit per unit time for the mall is Eπ = $14257.60.
5. Conclusion
In this article, we study a multi-item EOQ inventory model. The
model is developed by considering price and level of price breaks de-
pendent demand rate. In this study, vendor offers discount on selling
price to the customers according to level of price breaks. If the reve-
nue of vendor at any time t crosses the level of price breaks, then
the vendor offers discount on selling price. In the practical situation,
there are various types of competitions among the vendors of a city.
They take different types of strategies to motivate the customer to
buy their products. According to our model, the vendor notifies the
situation of market and examines the strategies of other vendors.
Then he may change the previous selling price and level of price
breaks to increase selling of his products. We formulate a maximizing
profit model by considering selling prices, ordering quantities of
products and level of price breaks as decision variables with respect
to the restriction on revenue at any time t. We solve the model by
the method of Lagrangian multiplier and satisfy all the necessary
and sufficient conditions for the optimality with respect to the deci-
sion variables.
The major new contributions of our model compare to the existing
literature are as follows:
We study a multi-item deterministic EOQ inventory model for a
vendor by considering price-dependent demand and by taking the re-
striction on level of price breaks. The demand of customers decreases
quadratically with increasing selling price and it is also dependent
exponentially on level of price breaks. Also, we assume that if total
revenue of the vendor at any time is more than the level of price
breaks, then vendor offers a percentage of discount on price to the
customers.
This work can be extended in several ways. We may introduce
some other restriction like storage, capital, etc., in our model. We
could also consider the effect of deterioration of products. In addition,
the model can also be extended by imposing different credit periods.
We may consider more than one source of capacity per period, e.g., reg-
ular time production and overtime production. We could extend the
Table 4
Results of the numerical example II.
Item 1 Item 2
Selling price per unit item $56.33 $51.50
Ordering lot size per order (in pound) 349.75 356.23
Value of Lagrangian multiplier λ= −0.725
Value of level of price breaks B = $14,032
Total profit per unit time is Eπ = $14,257.60
model by considering positive lead-times and uncertainty in supply
uncertainty. One important development would be to extend our
model to multi-level considering more members in the groups of sup-
plier, manufacturer, etc.
Acknowledgements
The authors would like to thank to the editors and referees for their
constructive suggestions and corrections to improve the clarity of the
article. The first author expresses his gratitude to the the Department
of Mathematics, Jadavpur University and Council of Scientific & Indus-
trial Research, New Delhi, for funding to carry out the research.
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