Question: In the peak-load pricing model, the demand functions have positive and negative coefficients of prices. The negative coefficients indicate that as the price of a product increases, demand for that product decreases. The positive coefficients indicate that as the price of a product increases, demand for the other product increases.
a. Increase the magnitudes of the negative coefficients from - 0.5 and - 1 to - 0.7 and - 1.2, and rerun Solver. Are the changes in the optimal solution intuitive? Explain.
b. Increase the magnitudes of the positive coefficients from 0.1 and 0.1 to 0.3 and 0.3, and rerun Solver. Are the changes in the optimal solution intuitive? Explain.
c. Make the changes in parts a and b simultaneously and rerun Solver. What happens now?