Develop a spreadsheet model to compute the total revenue for any price in Example 1.6 (prescriptive pricing model). Use the model to create a table for a range of prices to help you identify the price that results in the maximum revenue.

Data from Example 1.6

To illustrate an example of a prescriptive model, suppose that a firm wishes to determine the best pricing for one of its products to maximize revenue over the next year. A market research study has collected data that estimate the expected annual sales for different levels of pricing. Analysts determined that sales can be expressed by the following model: Sales = -2.9485 x Price + 3,240.9 (1.5) 

Because revenue equals price x sales, a model for total revenue

The firm would like to identify the price that maximizes the total revenue. One way to do this would be to try different prices and search for the one that yields the highest total revenue. This would be quite tedious to do by hand or even with a calculator; however, as we will see in later chapters, spreadsheet models make this much easier.   

Transcribed Image Text:

Total Revenue = Price x Sales = Price X (-2.9485 x Price + 3,240.9) = -2.9485 x Price² + 3,240.9 x Price (1.6)