Question

Question 9 options:

A "What-If" analysis:

A department store sells two popular models of wireless headphones, model A and model B. The sales of these products are not independent of each other. Economists call these “substitutable products” because if the price of one increases, more people will choose to substitute the other product and sales of the other will increase.

The electronics manager wants to calculate prices that maximize revenue from these two products. Price and sales data shows the following relationships between the quantity sold (N) and prices (P) of each model:

_NA = 13 – 0.45 P_A + 0.35 P_B
N_B = 30 + 0.12 P_A – 0.64 PB

A spreadsheet for calculating the total revenue for various values of PA and PB is displayed below. It has been designed with the two prices as input parameters that are easily varied.

Price A	19
Price B	26
Number sold A	=13-0.45*B1+0.35*B2
Number sold B	=30+0.12*B1-0.64*B2
Total Revenue	=B1*B3+B2*B4

Copy-and-paste, or type, the Excel information given above into cells A1:B5 of an Excel spreadsheet.

Develop a two-way data table to estimate the optimal prices of each of the two products in order to maximize the total revenue.

Vary the price of each product from 25 to 40 in increments of 1.

Round the Total Revenue to two (2) decimal places.

Optimal Price A =

Optimal Price B =

Total Revenue =

Answer 1

Answer :

I have used Microsoft Excel to get the Total Revenue as stated in the question. Copy pasted the table in MS Excel, went to the What-if Analysis, then selected ‘Scenario Manager’. Added-value of B1 from 25 to 40 manually and then again B2 values from 25 to 40 manually. The maximum revenue out of these observations came out to be 948.64 at the Price of A at 40 and Price of B at 26.

Optimal Price A = 40

Optimal Price B = 26

Total Revenue = 948.64

The calculation sheet is attached below: