DETERMINING THE MOST PROFITABLE PROCESS LEVEL FOR A PRODUCTION PROCESS UNDER DIFFERENT SALES CONDITIONS

The choice of quality level for a production process have economic consequences, the size of which depends on both internal and external conditions. This paper derives and studies the optimal process level and the optimal expected net income for a production process with regard to both internal and external conditions. As internal conditions, production costs and process variability are considered, and as external conditions prices and control plan are considered. The cost and price functions are assumed to be linear, the quality characteristics is normally distributed with known process variability, and all items are inspected.