Microeconomic Optimization of a Retail Outlet: Combinatorial and Probability Theory Methods

6 Pages Posted: 13 Apr 2015

See all articles by Savva Shanaev

Savva Shanaev

Northumbria University

Mikhail Vasenin

Northumbria University

Date Written: April 12, 2015

Abstract

In this article we develop a completely new method of microeconomic optimization of a retail outlet. It shows how many substitute goods of each kind a firm should purchase within a trading period in order to maximize its profit given the purchase prices, trade margins and the preference structure of the customer base (i.e. a share of potential customers who prefer good A to good B, a share of customers who prefer good B to good A and an indifferent, "neutral" share, respectively). The element of uncertainty emerges due to the fact that the order in which the customers come to the outlet is not defined in advance. The method uses combinatorics and probability theory. The practical application of the method can be, particularly, airline meal optimization.

Keywords: optimization, probability theory, combinatorics

JEL Classification: C61, D21

Suggested Citation

Shanaev, Savva and Vasenin, Mikhail, Microeconomic Optimization of a Retail Outlet: Combinatorial and Probability Theory Methods (April 12, 2015). Available at SSRN: https://ssrn.com/abstract=2593471 or http://dx.doi.org/10.2139/ssrn.2593471

Savva Shanaev (Contact Author)

Northumbria University ( email )

Pandon Building
208, City Campus East-1
Newcastle-Upon-Tyne, Newcastle NE1 8ST
United Kingdom

Mikhail Vasenin

Northumbria University ( email )

Pandon Building
208, City Campus East-1
Newcastle-Upon-Tyne, Newcastle NE1 8ST
United Kingdom

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