Analyzing Pricing and Production Decisions with Capacity Constraints and Setup Costs

In this Bachelor Thesis we consider a problem for maximizing profit over the horizon, where we make use of setup costs and capacity constraints as explained in Deng and Yano (2006). For this problem we need to determine prices and demands and need to choose the best production patterns. We characterize properties of the optimal solution, consider cases with constant, increasing and seasonal demand and different capacity levels. For generating this, we use the Lagrange Multiplier Method and the Shortest Path Algorithm. An interesting aspect is that the optimal price increases when the length of the Regeneration Interval changes for increasing capacity. Another interesting thing is when the capacity increases the average unit price stays the same under certain settings, which means that the capacity is too big for the given demand. Finally, we discuss what kind of extensions are possible for our problem.