Abstract: With the deterioration of ecological environment and the shortage of natural resources, firms are forced to change and adjust their production planning along an environmentally friendly road to reduce the negative effects on the environment. This paper investigate the optimal production planning in a multi-product manufacturing system considering the product recycling mechanism and carbon cap and trade mechanism, in which a firm uses limited machine capacity, working time and carbon quotas to manufacture multiple products for fulfilling stochastic market demands. Based on the cost-volume-profit analysis, a profit maximization model is proposed to characterize the optimization problem. In this model, the cost structure consists of production cost, holding or shortage cost, recycling cost and carbon cost. The revenue structure consists of sales revenue and recycling benefits.According to the profit maximization model and the numerical example, the optimal production and recycling decisions are analyzed. Meanwhile, the effects of cap and trade mechanism and product recycling mechanism on production quantity, total carbon emissions and total profits are also investigated. The results indicate that under the carbon cap and trade mechanism and the product recycling mechanism, a higher carbon permit price can motivate manufacturers to produce green product, and that product recycling mechanism is beneficial to lower carbon emissions and increase the firm profit. Managerial insights and suggestions for future research are given.

Key words: production planning, carbon cap and trade mechanism, recycling mechanism, carbon permit price, profit maximization