CASE STUDY: PROFITS AND THE EVOLUTION OF THE COMPUTER INDUSTRY.

When profits in a given industry are higher than in other industries, new firms will attempt to enter that industry. 

CASE STUDY: PROFITS AND THE EVOLUTION OF THE COMPUTER INDUSTRY.

 When losses are recorded, some firms will likely leave the industry. This sort of "evolution" has changed the global landscape of personal computer markets. At the start of the PC era, personal computer makers enjoyed positive economic profits. These higher profits led to new entry and heightened competition. Over the past two decades, entry has led to declines in

PC prices and industry profitability despite significant increases in the speed and storage capacities of PCs.

Less efficient firms have been forced to exit the market. In the early 2000s, IBM—the company that launched the PC era when it introduced the IBM PC in the early 1980s—sold its PC business to China-based Lenovo. Compaq—an early leader in the market for PCs—has since been acquired by Hewlett-Packard. A handful of small PC makers have enjoyed some success competing against the remaining traditional players, which include Dell and Hewlett-Packard. By the late 2000s, Dell's strategy switched from selling computers directly to consumers to entering into relationships with retailers such as BestBuy and Staples. While only time will tell how these strategies will impact the long-run viability of traditional players, competitive pressures continue to push PC prices and industry profits downwards.

Required

1. 1:In reference to the case above describe the type of market structure the computer industry operates in.                                                                                               
2. 2:Suppose the demand and total cost function for IBM  firm is given as follows:

              Demand function:     Q = 100 - 0.2P

              Cost function:           TC = 50 + 20Q + Q²

 3;Calculate the price and output that maximizes the profit.                                      

1. 4: Compare and contrast this kind of an industry with a noncompetitive one                                                                                                                                                  
2. 5: What could be the barriers to entry of new firms in this industry?                       

b) XYZ company produces toys and the data for the production is given below;

Variable cost = K.sh10 per unit

Fixed cost =Ksh.50, 000

Selling price = K.sh 20

Calculate:

(a) Number of toys that will be produced in order to Break-even                                          

(b) Sales revenue to be attained to break-even                                                                       

(c) Contribution to sales ratio                                                                                                 

(d) Number of units to be sold to make a profit of Ksh.100, 000                                          

(e) Sales revenue required to make profit of K.sh 100,000