In this paper, we consider how a company that has the flexibility to produc
e two substitutable products would determine optimal capacity levels and pr
ices for these products in a single-period problem. We first consider the c
ase where the firm is a price taker but can determine optimal capacity leve
ls for both products. We then consider the case where the Arm can set the p
rice for one product and the optimal capacity level for the other. Finally,
we consider the case where capacity is fixed for both products, but the fi
rm can set prices. For each case, we examine the sensitivity of optimal pri
ces and capacities to the problem parameters. Finally, we consider the case
where each product is managed by a product manager trying to maximize indi
vidual product profits rather than overall firm profits and analyze how opt
imal price and capacity decisions are affected.