Question
eBook Phillips Inc. produces two distinct products, A and B. The products do not compete with each other in the marketplace; that is, neither cost,
eBook Phillips Inc. produces two distinct products, A and B. The products do not compete with each other in the marketplace; that is, neither cost, price, nor demand for one product will impact the demand for the other. Phillips analysts have collected data on the effects of advertising on profits. These data suggest that, although higher advertising correlates with higher profits, the marginal increase in profits diminishes at higher advertising levels, particularly for product B. Analysts have estimated the following functions: Annual profit for product A = 0.9712LN(XA)+ 17.414 Annual profit for product B = 0.3970LN(XB)+ 16.109 whereXAandXBare the advertising amount allocated to products A and B, respectively, in thousands of dollars, profit is in millions of dollars, andLNis the natural logarithm function. The advertising budget is $500,000, and management has dictated that at least $50,000 must be allocated to each of the two products. Build an optimization model that will prescribe how Phillips should allocate its marketing budget to maximize profit and solve this model using Excel Solver. (Hint: To compute a natural logarithm for the valueXin Excel, use the formula =LN(X). For Solver to find an answer, you also need to start with decision variable values greater than 0 in this problem.) Round the first two answers (advertising) to the nearest whole number and to three decimal digit the last answer (total profit.) Advertising($000)Product AProduct B Total profit ($MM)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started