Here, you will notice that the marginal cost declines as a function of cumulative production. This illustrates the positive impact of experience on production costs. The question is, how should firms price their products over time by anticipating such experience effects. Please provide (i) the optimal prices over time and (ii) the maximized profit for the following problem.

Objective: Maximize the total profit over 10 weeks (no need to include discounting of cash flows since these are just weeks). Assume zero fixed costs.

Decision Variables: Prices in each week

Model:

St =ab(pt) St = Unit Sales in week t pt = Price in week t

Assume the following parameter values:

a = Intercept = 10 b = Price Sensitivity = 2 Unit marginal cost in week 1 = c1 = 1 Unit marginal cost in week t = ct = c1(Cumulative Sales at the beginning of week t)(-b1) Experience Effect Parameter = b1 = 0.3

Solver can be used to solve the above problem. Set the prices in the 10 weeks as the decision variables and the total profit in the 10 weeks as the target or the maximizing variable.

I need step by step guideline on how to solve on Solver