You are a revenue management analyst at a leather bag manufacturer company. You are figuring out the optimal pricing for your black bags. The company has the capacity of producing 150 black bags per day and it estimates the daily demand for these bags as follows: (Demand) = 400 – 0.4x (price).
a) Determine the optimal price to maximize revenue. What is the optimal price? What is the optimal revenue?
Based on the great demand, the company decides to produce brown leather bags as well. The company has the capacity of producing 150 brown leather bags per day. After careful analysis, demand for each type of color is estimates as follows:
(Demand for Black Bag) = 200 - 0.4 x(Black Bag price) + 0.3 x(Brown Bag price)
(Demand for Brown Bag) = 200 + 0.3 ? (Black Bag price) - 0.4 x(Brown Bag price)
b) What is the revenue, as a function of the two prices?
c) Determine the optimal prices to maximize total revenue. What are the optimal prices for each bag? What is the optimal total revenue?