Document Type

Article

Publication Version

Accepted Manuscript

Publication Date

2004

Journal or Book Title

Engineering Economist

Volume

49

Issue

2

First Page

95

Last Page

118

DOI

10.1080/00137910490453301

Abstract

We formulate a model of capacity expansion that is relevant to a service provider for whom the cost of capacity shortages would be considerable but difficult to quantify exactly. Due to demand uncertainty and a lead time for adding capacity, not all shortages are avoidable. In addition, technological innovations will reduce the cost of adding capacity but may not be completely predictable. Analytical expressions for the infinite horizon expansion cost and shortages are optimized numerically. Sensitivity analyses allow us to determine the impact of technological change on the optimal timing and sizes of capacity expansions to account for economies of scale, the time value of money and penalties for insufficient capacity.

Comments

The Version of record of this manuscript has been published and is available in Engineering Economist 2004, http://www.tandfonline.com/10.1080/00137910490453301. Posted with permission.

Copyright Owner

Taylor and Francis Inc.

Language

en

File Format

application/pdf

Published Version

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