Coordination of production and advertising decisions in a single period with a budget constraint

Abstract

In this study, we consider the production and advertising decisions in a newsboy setting with a budget constraint. Regression models that elaborate the effects of advertising on sales are investigated and various sales response models are presented. An application in soluble coffee market is also provided. Linear and power response functions are incorporated to jointly consider the production and advertising expenditures in a single period newsboy setting. Our numerical analyses indicate that production and advertising expenditure percentages are more sensitive to budget than the lost sales cost and the uncertainty (variance) of the demand.