Joint Lot Sizing and Inspection Policy in an EOQ Model with Random Yield

We study a joint lot sizing and inspection policy under an EOQ model where a random proportion of units are defective. Those unitscan be discovered only through costly inspections. The problem is thus bivariate: both lot size and fraction to inspect are to be chosen. We first analyze a model in which the only penalty for uninspected defectives is financial, and then consider a model where defective units cannot be used and thus must be replaced by non-defective ones.