Please be aware that this case does not provide all the information you need to calculate your answers. You must make some assumptions. Think carefully about what assumptions you are making, and how they are justified, given the question. Mooseland is a small country on the edge of the tundra. It quite developed economically, and has a number of industries that are world leaders. However, Mooseland also protects its domestic industries to maintain employment and to help with its national balance of payments. Domestic industries tend not to be globally competitive. One significant domestic industry is the wimble industry. Wimbles became popular in the early 1970s, and in 1977, with government encouragement and assistance, two local wimble-producers were established. Some details of the two firms and their operations are given in Table 1 below. Wimbles are a relatively standardized product, and the two firms currently compete with very similar products. They both advertise their products in the local media, and undertake R&D to keep their products updated to customer requirements and to incorporate the latest technology. The equipment used to manufacture wimbles is fairly simple, and lasts for 20 years. Production in Mooseland is allowed 350 days a year. Other days are national holidays. Table 1: Summary details of Wimble Production in Mooseland ACo BCo Product Softies Cozies Annual Output 36,750 17,500 Advertising Expenditure $40,000 $30,000 R&D Expenditure $40,000 $30,000 Property Plant and Equipment [Current Value] $2,625,000 $971,250 Founding date of firm 1978 1978 Number of machines 10 5 Machine speed [Number of wimbles produced per day at 100% capacity] 15.0 11.1 According to data obtained from ACo during the course of a lawsuit in 2014, its direct and indirect economic costs of producing wimbles at 100% capacity are as follows: Table 2: Wimble direct and indirect production costs at ACo, 2014 Item Cost per Wimble in $ % of cost Labor 5.00 20 Raw materials 10.00 40 Power 5.00 20 Depreciation 2.50 10 Direct production cost 22.50 90 Overhead including Advertising and R&D 2.50 10 Total production cost 25.00 100 Julia Porter You have been called in by BCo to assess its competitive position and give it advice on future strategy. The firm tells you that its direct costs of production are very similar to ACos at full capacity. In particular, it pays the same unit costs for its machines, labor, power, and raw materials. Questions 1. What is BCos competitive position relative to ACo? 2. What advice do you have for BCo regarding their future strategy?

Table 1: Summary details of Wimble Production in Mooseland Product Softies Cozies 17,500 $30,000 $30,000 $971,250 Annual Output 36,750 Advertising Expenditure $40,000 R&D Expenditure $40,000 Property Plant and Equipment Current $2,625,000 Value] Founding date of firm 1978 Number of machines 10 Machine speed 15.0 [Number of wimbles produced per day at 100% capacity] 1978 5 11.1 Table 2: Wimble direct and indirect production costs at ACo, 2014 Item Cost per Wimble in $ % of cost Labor 5.00 20 Raw materials 10.00 40 Power 5.00 20 Depreciation 2.50 10 Direct production cost 22.50 90 Overhead including Advertising and 2.50 10 R&D Total production cost 25.00 100 Table 1: Summary details of Wimble Production in Mooseland Product Softies Cozies 17,500 $30,000 $30,000 $971,250 Annual Output 36,750 Advertising Expenditure $40,000 R&D Expenditure $40,000 Property Plant and Equipment Current $2,625,000 Value] Founding date of firm 1978 Number of machines 10 Machine speed 15.0 [Number of wimbles produced per day at 100% capacity] 1978 5 11.1 Table 2: Wimble direct and indirect production costs at ACo, 2014 Item Cost per Wimble in $ % of cost Labor 5.00 20 Raw materials 10.00 40 Power 5.00 20 Depreciation 2.50 10 Direct production cost 22.50 90 Overhead including Advertising and 2.50 10 R&D Total production cost 25.00 100