ABSTRACT
Capacity expansion decisions are made daily by government agencies, private corporations, partnerships, and individuals. Most decisions are small relative to the profit and loss sheet of most companies. (Aggarwal, 1993; Bussey, 1981; Daellenbach, 1984). However, many decisions are sufficiently large to determine the future financial health of the nation, company, partnership, or individual. Capacity expansion of hydroelectric facilities may require the commitment of financial capital exceeding the income of most small countries. Capacity expansion of thermal fossil fuel plants is not as severe, but does require a large number of financial resources including bank loans, bonds for long-term debt, stock issues for more working capital, and even joint-venture agreements with other suppliers or customers to share the cost and the risk of the expansion. This section proposes several mathematical optimization techniques to assist in this planning process. These models and methods are tools for making better decisions based on the uncertainty of future demand, project costs, loan costs, technology change, etc. (Binger, 1998). Although the material presented in this section is only a simple model of the process, it does capture the essence of real capacity expansion problems.
