Explain the Caculation Process

Since Rupert Murdoch took over the archrival New Yan Part, a series of price cuts and retaliatory moves have taken place. These events have severely affected industry prots. Leonard N. Stern, formerly owner of The Viiiage Voice, summarized the situation as follows: The Daffy News is the dominant tabloid of the city, and it is now under challenge for its life. This is it. I believe the battle has been joined. When it's over, things are not going to look the way they do today. And referring to Rupert Murdoch's willingness to take losses, he added: I've been in many businesses, including publishing. I can tell you categorically: I don't want to be in any business where I have to compete with Rupert Murdoch. You have been hired by the Dairy}! New: as a strategy consultant. During your rst meeting with the management of the Dizzy}; News, the situation was summarized as follows: Everything was ne until Murdoch took over the Post. Currently, we are both pricing at 25, down from our normal 50. True, circulation and advertising revenues have gone up, but the problem is that our net prot is down by a lot. You can look at it from two points of view. One is: with low prices we are leaving a lot of money on the table. The other one is: we are playing the game against a fellow named Murdoch. At the meeting, you were provided with circulation and revenue data for both papers, which is available in the dai lynews . xlsx spreadsheet. You'll see there that newspapers have two important sources of revenue: sales and advertising. Advertising is tied to circulation, so a lower price that generates higher circulation may raise advertising revenue. At the meeting with the Drug! Now, you were also told that overhead costs are in the order of $525,000 per week for both firms. Marginal costs are estimated to be 1293 per copy for the Past and 1393 per copy for the New. Also, for both papers, depreciation of equipment (printing presses, trucks, computers, etc.) averages at about Sgt a copy (although it is higher when circulation is lower and vice versa). All of this information is common knowledge throughout the industry. The senior management of the Baggy New: wants a short report that addresses the following questions with respect to the pricing of newspapers: (a) Suppose that each rm's newspaper price is set only once and must be either 25 or 5093. What price do you expect the Part to charge? And what price should the D335! New: charge? Explain. (b) Suppose that prices are set only once but each newspaper has complete flexibility as to what price to charge (rounded off to the nearest penny). What price do you expect the PM; to charge? And what price should the DMZ}! N 21w charge? Explain