In the basic EOQ model, revenue is often omitted from the model. The reasoning is that all demand will be sold at the given selling price, so revenue is a fixed quantity that is independent of the...

In the basic EOQ model, revenue is often omitted from the model. The reasoning is that all demand will be sold at the given selling price, so revenue is a fixed quantity that is independent of the order quantity. Change that assumption as follows. Make selling price a decision variable, which must be between $110 and $150. Then assume that annual demand is a nonlinear function of the selling price p: Annual Demand = 497000p^-1.24. (This implies a constant elasticity of approximately- 1.24 for the demand curve.) Modify the model in Example 13.1 as necessary and then use Solver to find the optimal selling price and order quantity. What are the corresponding demand and profit? Which appears to affect profit more in this model, order quantity or selling price?

Example 13.1