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Approach 2: Using Solver

Step 3: Enter the Model In Solver

If you haven't already done so, include the Solver add-in following the instructions here. Then, from the Tools menu, choose Solver (in Excel 2007, the Solver button is under the analysis section of the Data tab on the ribbon). The following dialogue box will open. First set the target cell (objective variable) to B9, and choose Max (i.e., we want to maximize utility):

Next set the By Changing Cells to B3, D3. These are our endogenous variables:

Now we specify the equations. Because of the way the model has been laid out, this is relatively easy. For every green cell, we add a constraint such that the cell is equal to the cell to its immediate left. In Solver we click the Add button to display the following dialog. The first demand function is shown, click add to move to the next function and OK when finished. This should return you to the main Solver dialogue.

Setting the Solver options is usually not necessary, but can sometimes help if a model doesn't seem to be working as expected (and you are sure you have not made an error in the specification). The following option values are the ones we usually use:

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