Decision Support Systems for Managers

The Radio Shop sells two popular models of portable sport radios: model A and model B. The sales of these products are not independent of each other (in economics, we call these substitutable products, because if the price of one increases, sales of the other will increase). The store wishes to establish a pricing policy to maximize revenue from the products. A study of price and sales data shows the following relationships between the quantity sold (N) and prices (P) of each model (i.e. PA Price of model A, NA Number of model A sold, etc.): NA = 20 – 0.62PA + 0.30PB NB = 29 + 0.10PA – 0.60PB

a. Construct a model for the total revenue (total price*quantity sold) and implement it on a spreadsheet.

b. Develop a two-way data table to estimate the optimal prices for each product in order to maximize the total revenue.

c. Use Solver to find the optimal prices.

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