Consider the deterministic production inventory model

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In the real world, it is often difficult to estimate accurately the values of parameters such as A or i. Consider the deterministic production inventory model with no shortages allowed and a finite rate of inventory replenishment. The cost of setup has been estimated at A, but the true value is A'. Find an expression for the ratio of the actual annual cost over the true minimum annual cost. Plot the ratio as a function of A/A'. Comment on the sensitivity of the function to errors in estimating A (hint: Ignore the CD term in the cost equation since it is a constant)

Reference no: EM132245628

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