Multi-Objective Optimization: Riccati Iteration and the Lotfi Manufacturing Problem

In current economic research, there are many problems that are difficult to solve without powerful computers, unique software, or novel approaches. I wrote this thesis because I believe that a powerful solution technique known as the Riccati Iteration is such a novel approach, and can be applied to complex problems that would otherwise be infeasible to solve. This thesis will demonstrate the power of the Riccati iteration by employing the Riccati iteration with spreadsheet software to solve a difficult dynamic optimization problem - a capital replacement problem posed by Lotfi where multiple objectives have been identified. The Riccati iteration will be shown to be the most practicable method for solving this problem, especially when compared to the Lagrange and Least-Squares solution methods. It is hoped that the demonstration in this thesis is so compelling that others may consider using the Riccati approach in their own research.