Question

The Camera Shop sells two popular models of digital SLR cameras (Camera A Price: 200, Camera B Price: 300). The sales of these products are not independent of each other, but rather if the price of one increase, the sales of the other will increase. In economics, these two camera models are called substitutable products. The store wishes to establish a pricing policy to maximize revenue from these products. A study of price and sales data shows the following relationships between the quantity sold (N) and prices (P) of each model:
NA = 195 - 0.5PA + 0.35PB
NB = 300 + 0.06PA - 0.5PB
Construct a model for the total revenue and implement it on a spreadsheet. Develop two-way data table to estimate the optimal prices for each product in order to maximize the total revenue. Vary each price from $250 to $500 in increments of $10.
Max profit occurs at Camera A price of $_______.
Max profit occurs at Camera B price of $_______.

Answer 1

Answer:

Max profit occurs at Camera A price of $380

Max profit occurs at Camera B price of $460

Step-by-step explanation:

The price and quantity equation for Model A is;

NA = 195 - 0.5PA + 0.35PB

For model B is:

NB = 300 + 0.06PA - 0.5PB

The total revenue will be calculated by following:

T = PA (NA) + PB (NB)

T = PA (195 - 0.5PA + 0.35PB) + PB (300 + 0.06PA - 0.5PB)

By solving for equation we get total revenue of $88,600.

The max profit we can get after selling the Camera A at price of $380 and Camera B at price of $460.