Determining optimal retail price and lot size under day-terms supplier credit

This paper deals with the problem of determining the retailer's optimal price and lot size simultaneously under the condition of permissible delay in payments. It is assumed that the customer's demand rate is represented by a constant price elasticity function which is a decreasing function of retail price. Investigation of the properties of an optimal solution allows us to develop an algorithm whose validity is illustrated using an example problem. Also, the effect of credit period on the retailer's pricing and lot sizing policy is examined through sensitivity analysis.