Building Better Bulldozers

Yutani Corporation

You are the division manager for Yutani Corporation's industrial equipment division and have been contacted by Weyland Corporation as a possible source of earth-moving equipment in hostile environments. While you are able to provide such equipment, the cost of production will depend on the research that you do today. If you engage in r units of research, the total cost to produce Q bulldozers is Q²/2r, but the cost of doing r units of research is r².

Weyland Drives a Hard Bargain

The profits of Weyland are given by (8 p)Q, where p is the price Weyland pays for each bulldozer and Q is the number of bulldozers purchased. However, Peter Weyland, the head of Weyland Corporation, is known to drive a hard bargain. After you have made your investment to reduce the cost of bulldozer production, Weyland will name a price at which it will purchase as many bulldozers as you wish to supply; this price is non-negotiable. You will choose the number of bulldozers to supply after the price has been named. Profiting Tomorrow Your profits derive only from the bulldozers you can sell to Weyland; hence, profits are given by revenues less production and research costs.

How much research will you do? _______. What price do you expect Weyland to offer? ___________. How many bulldozers will you produce? _________. What are your expected profits? _________............