Question

Capital Investments has to decide how much money to allocate to advertise their financial products next year. The company is also considering offering more innovative cutting-edge financial products that will cater to a new market segment. The marketing department was given $10 million to work with. Capital Investments want to push their new investment products and decided that at least one-half of the advertising budget should be devoted to their new product line. To make sure that their current products are given the right amount of exposure, the company plans to spend at least $2 million to advertise these. The marketing department estimates that each dollar spent on their current products will result into 100 completed financial transactions with the company. However, for their new products, the marketing team estimated that each dollar spent on advertising these will only translate into 50 completed financial transactions. To attract more new clients, Capital Investments has lowered their contribution margin to 2 cents per transaction, as compared with 4 cents per transaction for their existing products. Instructions: 1) Help Capital Investment determine the best allocation of its advertising dollars if it wants to maximize its profits while closing at least 750 million transactions next year. Note: Show your complete LP model and final answers for this problem. Be sure to include the following in your solution: Objective Function Constraints Allocated advertising $$$ for current products Allocated advertising $$$ for new products Optimal value of the objective function 2) Briefly discuss your thinking process or approach on this problem. 3) Based on your recommended optimal allocation, recommend an effective marketing strategy for Capital Investments.

Answer 1

please like this answer, so that I can get a small benefit, please

Answer:

1.

Variable Definition:

X = Capital spent on marketing new products (In Millions)

Y = Capital spent on marketing current products (In Millions)

Objective function :

The company wants to maximize profits.

Each dollar spent on marketing gets company 50 transactions & gets 2 cents in profit for new products and 100 transactions with 4 cents in profit per transaction for current products.

Profit = Dollar spent * Transaction per dollar * profit per transaction

Total profit = X*50*0.02 + Y * 100*0.04

Total profit = X*1 + Y*4

Constraints:

X + Y <= 10 ......... Constraint as there is a marketing budget of 10 million

X >= 5 .......Constraint as t least one-half of the advertising budget should be devoted to their new product line

Y >=2 ........Constraint as the company plans to spend at least $2 million to advertise current products

50*X + 100*Y >= 750 ............Constraint as the company wants at least 750 million transactions next year

X,Y >= 0 ............Non-negativity constraint as the Marketing amount cannot be negative.

Now solve suing Excel

Formulas are shown as below

Now solve using solver function from the Data tab in the menu bar:

1. Set objective as shown in the figure below to MAX

2. Add constraints as shown in the figure below from clicking the Add button on right side of solver window

3. Set the solving method to Simplex LP

4. Click Solve

Final answer as below

$ 5 Million for current products

$ 5 Million for new products