we derive the seller's optimal trade credit and lot
size policies in an EPQ model in which (1) the length of trade
credit period increases not only demand rate (i.e., the longer the
trade credit period, the higher the demand rate) but also the
opportunity cost and the default risk (i.e., the longer the trade
credit period, the higher the opportunity cost and the default risk),
and (2) the production cost declines and obeys a learning curve
phenomenon (i.e., the total unit production cost declines by a
factor of 10 to 50 percent each time the accumulative production
volume doubles). Then we establish the necessary and sufficient
conditions for finding the optimal solution, characterize the
impact of various parameters on the optimal solution, and provide
some managerial insights. Due to the complexity of the problem,
we are unable to obtain a closed-form solution to the seller's
optimal credit period. Consequently, we propose an algorithm to
obtain the seller's optimal trade credit. Finally, some numerical
examples are provided to illustrate the theoretical results and
obtain some managerial insights.