Managerial Economics

Question 1

Orders have picked up for the TESLA CYBER Trucks, tracking at over 500,00 from around a few thousands just a couple of years back. The company expects to have 2022 production sold out soon and believes the first 12 months of production could be sold out by the end of this year. The company is on track to launch the model by mid-2022, having now sourced virtually all of its components, providing better cost visibility versus a few months ago. This has also provided added confidence around the 25% -30% gross margin target for the program. With Tesla working successfully though many key design risks, Goldman now sees increased focus on managing vendor risk and large scale production. While the Sleek Model production target remains at 100,000 for 2021-22, Tesla is configuring their Fremont facility as well as a new facility in Canda to manufacture many more units on one shift per year, as opposed to a smaller capacity originally planned, in order to maximize upward production flexibility. The company has completed the build-out of numerous drivable alpha prototypes and expects to produce preproduction beta prototypes in the fall which will be shown to the public. However, there are other EV Trucks productions facilities are popping up including Amazons recent orders for 100,000 vehicles for themselves placed with Rivian, as well GM, Ford are also going to release EV Trucks in the market

Describe the market structure that Tesla is in particularly in the Trucking Business. Identify at least 3 key indicators (use Porters Principles) that Tesla should be monitoring in establishing herself as a leader in the EV (electric vehicle) market. What, in your opinion Tesla should be thinking? Whether to merge with say Toyota? Nissan? GM? And the likes? Or go on its own?

Justify your answers.

3.

After having co-opted the Prime Ministers son as Director, the firm "K.K.N. Bhd" was granted the monopoly to deserve the air route between two cities of that faraway kingdom. However this did not guarantee any positive profit because, even if such patronage was the best entry barrier K.K.N. Bhd could buy from the government against potential rivals, it also created high fixed costs since nowadays politicians dont come cheap.

K.K.N. Bhd has isolated two distinct markets with the following demand:

Businessmen (frequent fliers, subscript B): QB = -1/2 PB + 150

Foreign tourists (subscript F): QF = -5/2 PF + 300

K.K.N. Bhd total costs are given by : TC = Q2 + 10 Q + 10,000

Initially K.K.N. Bhd charged a single common profit-maximizing price on both markets. Compute the common price and this maximum amount of profit. From a figure where the average cost and average revenue curves are drawn what is K.K.N. Bhd situation? Beware, with a common price, K.K.N. Bhd has the possibility to sell only to one market at a price too high for the other market , or to sell at a lower price to both markets, profits from both situations should be compared.

Realizing that the two markets are different and well insulated, K.K.N. Bhd plans to charge different prices on each market. What would be the maximum profit attainable then? Compare this solution to the earlier one for K.K.N. Bhd and for both groups of customers.

Question 3.

Define and Illustrate the Following:

Nash Equilibrium (Construct your Own example)

Cartel like Oligopoly