Research Reports from the Department of Operations

Document Type

Report

Publication Date

6-1-1966

Abstract

Optimization problems in the extractive industries differ from that in other industries in that these industries are permitted to claim a tax allowance for depletion of natural resources. This depletion allowance must be calculated for each mining property separately, based on a relatively complex formula specified in the Internal Revenue Code. The problem of optimizing after-tax earnings for a firm with more than one mine is formulated under the following conditions: constant unit price, linear cost function, no annual change in inventory level and a fixed tax rate. The pre-tax and after-tax earnings functions under these assumptions are piecewise linear. The problem of allocating total production to the different mines so as to maximize after-tax earnings is formulated and solved by dynamic programming.

Keywords

Operations research, Mathematical optimization, Taxation--Law and legislation--United States, Mines and mineral resources--Taxation, Dynamic programming, Depletion allowances, Linear programming, Revenue management

Publication Title

Technical Memorandums from the Department of Operations, School of Management, Case Western Reserve University

Issue

Technical memorandum no. 46

Rights

This work is in the public domain and may be freely downloaded for personal or academic use

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