Near-optimal solution of a two-type capacity expansion problem

Abstract Demand of two types is assumed to grow linearly over time. One type requires the installation of “deluxe” capacity, and the other can be served by either “deluxe” or “standard” capacity. Installation is instantaneous and “rearrangement” of demand from deluxe to standard facilities is free. It is shown that very quick heuristics, based on solutions of individual “deluxe” and “standard” capacity expansion problems treated independently, produce near-optimal solutions of the sample problem. Furthermore, the heuristics help to explain the structure of the optimal solution.