7. Inventory and Stock Adjustment Models

This chapter delves into the intertemporal problems of firms, particularly in production planning and inventory control, using dynamic optimization methods. It highlights the tradeoff between production costs and storage costs, emphasizing the need to balance marginal costs. The text presents deterministic models of stock adjustment, focusing on simple yet insightful examples. One key example involves a firm minimizing production and inventory holding costs to meet a target, demonstrating the use of variational calculus. Another example explores labor input and adjustment, illustrating the solution of a reduced-form homogeneous second-order differential equation. Additionally, the chapter provides a practical application in vaccine procurement, showing how inventory control models can be applied to healthcare. The conclusion underscores the importance of multidisciplinary approaches in solving complex inventory problems.