profits and competition

Question Four - Profit and competition Consider four companies (A, B, C, D) competing to produce the same product. The information about companies A, B, C and D is given below. Company Selling Unit Cost Normal Capital Profit rate Price (f) (f) Output Stock (f) (%) 120 110 100 10000 10.0 B 120 105 110 12000 13.8 120 100 120 14000 17.1 D 120 95 130 25000 13.0 Now assume that company D introduces a new labour-saving technology that would reduce its unit costs to $80. The new labour-saving technology costs $5000 (which would increase company D's capital stock to $30000). Following this investment, company D could reduce the selling price of the product to f100. The other three companies (A, B, C) also have to reduce their prices to f100 to remain in the market, whereas their normal output, unit costs and capital stock don't change. Company D also continues to produce 130 unit of normal output following the investment. a) Based on the profit rate definition of Shaikh (2016), calculate the new profit rates for A, B, C and D. 6 Marks b) What did company D achieve by introducing a labour-saving technology? Discuss. 4 Marks