Wen, Yi (contributor) - 2005
possibilities. First, in the event
of no stockout due to a low demand, the firm gets to save on the marginal cost
of production by … postponing production for one period. The present value of
this term is βa and this event happens with probability
R
z(y)
A
φ …(θ)dθ. Second, in
the event of a stockout due to a high demand, the firm can sell the product at
the competitive market price, λ
t …