Stochastic production planning with regime switching

Dragos-Patru Covei; Elena Cristina Canepa; Traian A. Pirvu

doi:10.3934/jimo.2022013

Article Contents

2023, Volume 19, Issue 3: 1697-1713. Doi: 10.3934/jimo.2022013

This issue Previous Article A game theoretic strategic model for understanding the online-offline competition and fairness concern under community group buying Next Article A dynamic analysis of a monopolist's quality improvement, process innovation and goodwill

Stochastic production planning with regime switching

1.
Department of Applied Mathematics, The Bucharest University of Economic Studies, Piata Romana, 1st district, Postal Code: 010374, Postal Office: 22, Bucharest, Romania
2.
Department of Mathematical Methods and Models, University Politehnica of Bucharest, Splaiul Independenţei, 6th district, Postal Code: 060042, Postal Office: 313, Bucharest, Romania
3.
Department of Mathematics and Statistics, McMaster University, 1280 Main Street West, Hamilton, ON, L8S 4K1, Canada

^*Corresponding author: Dragos-Patru Covei
^*Corresponding author: Dragos-Patru Covei

Received: September 30, 2021

Revised: November 30, 2021

Early access: February 2022

Published: March 2023

Traian A. Pirvu acknowledges that this research was supported by NSERC grant 5-36700

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Abstract

This paper considers a stochastic production planning problem with regime switching. There are two regimes corresponding to different economic cycles. A factory is planning its production so as to minimize production costs. We analyze this problem and the optimal production is characterized through an elliptic system of partial differential equations which can be numerically solved. We perform a sensitivity analysis for which we provide an intuition. A model risk analysis reveals the effect of adding regime switching to the modelling.

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Mathematics Subject Classification: Primary: 90B30, 60H15, 65H10; Secondary: 35B38, 35B50.

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