In the complementary-product pricing model in Example 7.3, the elasticity of demand for suits is currently _2.5. Use SolverTable to see how the optimal price of suits and the optimal profit vary as the elasticity varies from _2.7 to _1.8 in increments of 0.1. Are the results intuitive? Explain.
(Reference Example 7.3)
Sullivan’s is a retailer of upscale men’s clothing. Suits cost Sullivan’s $320. The current price of suits to customers is $350, which leads to annual sales of 300 suits. The elasticity of the demand for men’s suits is estimated to be 2.5 and assumed to be constant over the relevant price range. Each purchase of a suit leads to an average of 2.0 shirts and 1.5 ties being sold. Each shirt contributes $25 to profit, and each tie contributes $15 to profit. Determine a profit-maximizing price for suits.
Objective To use a nonlinear model to price men’s suits optimally, taking into account the purchases of shirts and ties that typically accompany purchases of suits.
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