In this paper, we develop approximations that yield insight into the joint optimization of capacity and inventory, and how the optimal inventory policy varies with capacity investment in a single-product, single-station, make-to-stock manufacturing system in which inventory is managed through a base-stock policy. We allow for a correlated demand stream as we analyze our models in an asymptotic regime in which the penalty and holding costs are small relative to the cost of capacity. Although our

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... approximations are asymptotically correct, our Brownian approximation is accurate even under moderate tra±c intensity.