To be done in excel 19-8. Larry Jacava is considering producing a noveltyitem for golfers that will be sold through pro shops.Larry has decided on a selling price of $3.50 forthe item. The item's variable cost of production is$2.00 per unit, with fixed costs of $3,750. Larryhas marketed his product to local pro shops andbelieves the demand for the item will be either2,000 units, 3,000 units, 4,000 units, or 5,000 units.a. Set up the payoff table for Larry's decision.b. Determine the number of units that Larry shouldproduce using each of the following criteria:1. maximax criterion2. maximin criterion3. minimax regret criterion

Decision analysis is a technique that helps the users to choose the best decisions among the…

Answered: believes the demand for the item will…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter7: Nonlinear Optimization Models

Section7.3: Pricing Models

Problem 4P

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Pricing Decisions at Madison The Madison Company manufactures and retails a certain product. The company wants to determine the price that maximizes its profit from this product. The unit cost of producing and marketing the product is 50. Madison will certainly charge at least 50 for the product to ensure that it makes some profit. However, there is a very competitive market for this product, so that Madisons demand falls sharply when it increases its price. How should the company proceed?2 In the pricing model in Example 7.1 with the constant elasticity demand function, the assumption is that all units demanded are sold. Suppose the company has the capacity to produce only 200 units. If demand is less than capacity, all of demand is sold. If demand is greater than or equal to capacity, only 200 units are sold. Use Solver to find the optimal price and the corresponding profit. Then use SolverTable to see how sensitive these answers are to the production capacity, letting it vary from 170 to 230 in increments of 10. Discuss your findings relative to the original solution in Example 7.1. In other words, what is the effect of capacity on the optimal price and profit?
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