Profit maximization and cost minimization considering total profit function, selling price, and warranty cost

This study evaluates the impact of warranty pricing on products characterized by increasing failure rates, focusing on strategies involving both replacement and repair. The main goal of this study is to determine an optimal strategy that balances the maximization of the profit function against the minimization of warranty costs during the warranty period. Recognizing the interplay between warranty durations and selling prices, a novel linear warranty period pricing model is introduced. This model aids industry professionals in effectively setting product prices and determining warranty length to enhance overall profitability. Additionally, the research offers managerial insights for developing competitive warranty policies and pricing strategies. The analysis demonstrates that under certain plausible conditions, this warranty-based pricing framework not only simplifies the pricing process with suitable warranty coverage but also achieves near-optimal profit levels and secures a larger market share for manufacturers. The practical applicability of the suggested methodology is presented through numerical examples.