A B C D E F G H I J K L M

1 Pricing complementary products

2
3 Suits Complementary products
4 Current price $350 Ties Shirts
5 Current demand 300 Units sold per suit 1.5 2 Ties per shirt 1.3
6 Unit cost suits $320 Unit cost ties shirts $20 $15
7
8 Demand function Constant Elasticity
9 Constant 687,529,545 Demand function 75460 288500 This isis how
This how itit would
would bebesetset up,
up, where
where II have
have entered
entered
10 Elasticity -2.5 -1.6 -1.7 reasonableprices
reasonable prices for
for illustration.
illustration. However,
However,as as with
with the
the
11
model in the previous problem, this
model in the previous problem, this model is model is
unbounded. Infinite
unbounded. Infinite profit
profit can
can be
be obtained
obtained by by
12 Suit sales Tie, shirt sales (separate from sales of suits) increasing the
increasing the prices
prices of
of ties
ties and
and shirts
shirts indefinitely.
indefinitely.
13 Price of suits $320.00 Prices of ties, shirts $25.00 $20.00
14 Demand 375.3 Demand 437.5 1771.7
15 Profit from suits only $0 Profit $2,188 $8,859
16 Profit from shirts and ties $29,088
17 Profit from ties with shirts $11,516
18 Total profit $51,651