Journal article

Capacity Investment in a New Production Location

Lusheng Shao

DECISION SCIENCES | WILEY | Published : 2020


Firms proactively search for low-cost production locations to enjoy cost-based advantages. In this article, we develop a two-stage stochastic program to study a firm's capacity investment and production decisions about the exploration of new production locations. In the first stage, the firm determines how much capacity to build at the new location, and in the second stage, after the product demand and the production cost at the new location have been observed, the firm determines the optimal production quantities. We first characterize the firm's optimal decisions and then examine how the optimal capacity level and firm profit are affected by the key parameters. We find that the firm may be..

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University of Melbourne Researchers