Reference no: EM133033582
While cleaning out your attic, you discovered a box of 200 vintage T-shirts of a formerly famous character/celebrity who is suddenly popular again. You'd like to sell these T-shirts in a flash online sale, but you're not sure what price to set to make the most revenue. If you set the price too high, you will earn more per shirt, but may sell too few to make a good profit. On the other hand, if you set the price too low, you will sell more shirts, but may earn too little per shirt. Any leftover T-shirts will be of no worth after the flash sale, given the fickle nature of the vintage T-shirt market.
Your pricing specialist has done substantial research on how online advertising affects T-shirt sales, and offers to run two types of campaigns for you: a banner ad campaign and a targeted email campaign. The specialist tells you that the number of T-shirts you will sell is given by the following formula:
Quantity Sold = (100 - T-shirt Price + Square Root of Banner Dollars / 2 + Square Root of Email Dollars)
The specialist informs you that you must set your shirt price to a minimum of $50. You must spend at least $100 on each campaign. You may spend up to $1000 dollars total on advertising (we'll call this the "budget constraint"). Finally, you must spend exactly as much on the banner campaign as the email campaign (we'll call this the "balance constraint").
a) Use the GOMP to determine your objective function, decision variables, constraints, and optimal decisions. What is your optimal price, banner advertising spend, and email advertising spend? What is your profit under the optimal solution? Don't be concerned if in your solution you sell a fractional number of T-shirts.
b) Drop the balance constraint and re-solve your model. How much more profit do you earn by dropping the balance constraint?
c) Add the balance constraint back in but drop budget constraint and re-solve your model. How much more profit do you earn by dropping the budget constraint?
d) Now drop the balance constraint and the budget constraint and re-solve your model. How much more profit do you earn by dropping both constraints together?
e) Compare the value in
d) against the sum of the values in b) and c). What does this tell you about the value of relaxing multiple binding constraints?
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