Optimal emission-dependent production policy with stochastic demand
by Jing-Jiang Zhang, Teng-Fei Nie, Shao-Fu Du
International Journal of Society Systems Science (IJSSS), Vol. 3, No. 1/2, 2011

Abstract: The paper addresses the issue of manufacturer's optimal production policy under stochastic demand in an emission 'cap and trade' system, in which emission permit becomes another essential factor for production. Three typical sources of emission permits are considered, including emission quota allocated by the government, permits purchased via emission trading, and emission savings via purification. The emission-dependent manufacturer will balance a tradeoff to enable effective production and to determine an appropriate production scale to maximise expected profit. With these considerations in mind, two different cases of single- and multi-time purification are investigated respectively, and the optimal emission-dependent production models are proposed. Moreover, the existence and uniqueness of the optimal policy are guaranteed, and several valuable managerial insights are further concluded.

Online publication date: Fri, 27-Feb-2015

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