An EOQ model with a varying demand followed by advertising expenditure and selling price under permissible delay in payments: for a retailer

This paper derives an Economic Order Quantity (EOQ) / Economic Production Quantity (EPQ) model with finite replenishment/ production rate, taking into account the effect of the suppliers' trade credit and the retailers' promotional effort made by the advertising and the sales-team. The rate of demand in market is assumed to be a function of the selling price and the budget for the advertising and the sales-team. The objective of this paper is to determine the optimal selling price, replenishment period and the above budget so that the average net profit is maximised. The associated constrained maximisation problem is solved by Interior-Penalty-Function Method (Fiacco and Mc Cormick). The model is illustrated with a result, using numerical example and it provides some insights into the effect of the retailers' promotional effort.