An integrated product pricing and batch sizing model with stochastic demand

In this paper we present an integrated decision model which combines the decisions of setting product prices and determining manufacturing batch sizes with an ultimate objective of maximizing a ultility function, defined as the trade-off between the expected return and the risk. The stochastic nature of the demand curves as well as the constraints on space and inventories and the risk of making a loss are all taken into consideration. After the theoretical treatment, a numerical example is given to demonstrate how to formulate the problem and show the necessary procedures to derive the optimal solution.