Joint Price and Lot-Size Determination When Supplier Offers Incremental Quantity Discounts

This paper considers the joint pricing and the lot-size determination problem faced by a retailer when he purchases a product for which the supplier offers incremental quantity discounts. Two common demand functions are considered: (1) the constant price-elasticity function, and (2) the linear function. A procedure is provided for each case for calculating the optimal price and the lot-size.