Here at Sculling Espresso Machines, we have experienced strong interest in a new "mini" espresso machine, which we currently do not produce. However, there are a several other companies that are currently producing these machines. We are interested in expanding our production to include a "mini" machine. However, we are not sure if this market would be profitable for us and if we should begin production and enter this market. Even if we do enter the market, we are unsure of how many espresso machines to produce and what price to charge to maximize profit. Based on our research, if we enter the market we would be competing in a competitive market. We have estimated the market demand and market supply for "mini" espresso machines to be Qd=9000-8P and QS=600+4P. Our costs of producing the machine are TC = 10,000+ 0.25Q2. We have also heard rumors that the existing firms in the market are considering temporary shutting down their production of their mini machines due to the high cost of raw materials.

Because of our competitors' behavior, we are considering buying these other firms so that we could become the sole producer (monopoly) of "mini" expresso machines. Fortunately, we have a great relationship with our raw material suppliers, and evidently are not being negatively affected by increased costs as other firms are. We would like your help in determining what our profit would be, based on the current market situation, if we would become the sole producer of the "mini" espresso machines, and furthermore, what is the maximum that we should be willing to pay to purchase these other companies?

Can you please provide an analysis to determine whether it is a good idea for us to enter this competitive market and begin producing "mini" expresso machines? Second, do you suggest that we attempt to buy the other firms and become the sole producer of these machines? In both situations, we would like to know how many machines to producer, what price to charge, and what our profits would be. Thanks in advance for your help? Joan