A marginal cost analysis for prevetive replacement policies

Some well known preventive replacement policies are each characterized by a single parameter which governs the sequence of planned replacements. In this paper we define and compute for any one of these policies the marginal cost of a planned replacement in terms of the policy parameter. This function is used to obtain the equation of optimality, with respect to two common objective functions: the expected cost per unit time and the expected total discounted costs, and to investigate the existence of a unique finite solution. Moreover, the marginal cost notion provides reasoning to the mathematical results of the models and thereby clarifies the effect of the various components of the model on these results. This better insight into models is perhaps the most important benefit of a marginal cost analysis.