Optimal price, warranty length and production rate for free replacement policy in the static demand market

In the present paper, a decision model is developed for producers in the static demand market to determine the optimal price, warranty length and production rate of a product to maximize profit based on the pre-determined life cycle. The free renewal warranty policy is considered under which failed products are renewed before the end of warranty length at no cost to consumers. The expected number of renewals based on warranty length is derived for Weibull life distributed products. The objective function includes both demand and cost functions, where production cost, warranty cost and inventory cost are involved. A solution approach using the maximum principle is described, and is applied to two specific cases of markets. The first case of market considers positive discount rate, and the second case of market considers zero discount rate. The economic sensitivity analysis is conducted to evaluate the effect of model parameters on the optimal solution. Some conclusions are drawn based on the sensitivity analysis. (C) 2006 Elsevier Ltd. All rights reserved.