This paper presents a production inventory model over infinite planning horizon with manufacturing process producing both perfect as well as imperfect items. Demand is stock dependent for perfect quality items and for imperfect items it depends on the reduction rate of selling price and the amount of imperfect production. The production rate is a function of demand. Reliability of the manufacturing system is assumed to be exponentially decreasing function of time. The objective is to determine the optimal policy for production system which maximises the total profit subject to some constraints under consideration. The results are discussed with a numerical example to illustrate the theory. The effects of important parameters on decision policy are also analysed through sensitivity analysis.

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