Business Problem

Suppose that Nikola Inc. is one of five companies licensed to manufacture the new Last Long rechargeable battery. Suppose that the government wishes to maintain free markets for the benefit of consumers, and so it has passed legislation to make it is against the law for companies to communicate with one another to collude to fix prices. Thus, these companies are expected to act independently of one another in setting prices, but they do pay attention to demand by consumers for their Last Long batteries when they set their price. They also track the behaviour of the other companies and may respond to changes in production levels of these other companies. It is common when a small number of companies operate in the same market that they will each behave in a manner that will benefit the other companies in the hope that these other companies will do likewise. Thus, Nikola Inc. has decided to restrict its production of Last Long batteries in a way that raises the profits for all the other companies. The other companies likewise restrict their productions of electric cars in a way that raises the profits for Nikola Inc. (and the other companies). The effect of this behaviour is the price of Last Long batteries becomes set as if the companies have colluded to fix the price to their collective advantage Of course, an individual company may wish to break from this behaviour in an attempt to increase its own profit at the expense of the other companies. These other companies may signal their willingness to match the behaviours of the breakaway competitor in an effort to maintain the set price that is of benefit to all the companies. For example, a company may declare "we will match the price of any competitor for the Last Long battery!" as a means of dissuading other companies from increasing their production to lower the price. Thus, a company should analyse the likely responses of its competitors carefully before deciding to change its production level of Last Long batteries to increase its profits. Suppose that this "unspoken collusion" for the production and sales of Last Long batteries leads to Nikola Inc. producing 2000 batteries per day at a price of $10 per unit. = 2 means 2000 units), is Also suppose that the demand relationship for Nikola Inc. for Last Long batteries, where q is measured in 1000s of units (e.g. q given by for 0 q 2 12-4 40 3for 2 q 5. Assume that the marginal cost for making a Last Long battery is a fixed $7.50 per unit. Explain carefully, using quantitative reasoning in your analysis, why Nikola Inc. is unlikely to either raise or lower its production of Last Long batteries to attempt to increase its profits. Consider the likely behaviours of the other companies in your answer. Suppose that Nikola Inc. is one of five companies licensed to manufacture the new Last Long rechargeable battery. Suppose that the government wishes to maintain free markets for the benefit of consumers, and so it has passed legislation to make it is against the law for companies to communicate with one another to collude to fix prices. Thus, these companies are expected to act independently of one another in setting prices, but they do pay attention to demand by consumers for their Last Long batteries when they set their price. They also track the behaviour of the other companies and may respond to changes in production levels of these other companies. It is common when a small number of companies operate in the same market that they will each behave in a manner that will benefit the other companies in the hope that these other companies will do likewise. Thus, Nikola Inc. has decided to restrict its production of Last Long batteries in a way that raises the profits for all the other companies. The other companies likewise restrict their productions of electric cars in a way that raises the profits for Nikola Inc. (and the other companies). The effect of this behaviour is the price of Last Long batteries becomes set as if the companies have colluded to fix the price to their collective advantage Of course, an individual company may wish to break from this behaviour in an attempt to increase its own profit at the expense of the other companies. These other companies may signal their willingness to match the behaviours of the breakaway competitor in an effort to maintain the set price that is of benefit to all the companies. For example, a company may declare "we will match the price of any competitor for the Last Long battery!" as a means of dissuading other companies from increasing their production to lower the price. Thus, a company should analyse the likely responses of its competitors carefully before deciding to change its production level of Last Long batteries to increase its profits. Suppose that this "unspoken collusion" for the production and sales of Last Long batteries leads to Nikola Inc. producing 2000 batteries per day at a price of $10 per unit. = 2 means 2000 units), is Also suppose that the demand relationship for Nikola Inc. for Last Long batteries, where q is measured in 1000s of units (e.g. q given by for 0 q 2 12-4 40 3for 2 q 5. Assume that the marginal cost for making a Last Long battery is a fixed $7.50 per unit. Explain carefully, using quantitative reasoning in your analysis, why Nikola Inc. is unlikely to either raise or lower its production of Last Long batteries to attempt to increase its profits. Consider the likely behaviours of the other companies in your