QUESTION 1

a. The Five Forces model of business strategy identifies threat of substitutes, threat of entry, power of buyers, power of suppliers, and the intensity of rivalry as the determinants of sustainable incumbent profitability in a particular industry. Discuss each of the Five Forces and provide relevant examples to support your answers. (10 marks)

b. Jane manages a small bakery that bakes only "make-to order" cakes. Her total cost (TC) and total revenue (TR) functions are as follows:

TC = 50 + 80Q - 10Q² + Q³

TR = 100Q - 8Q²

The bakery has a capacity of handling 30 units at any one time.

i.Determine the price she should charge if she wants to maximise total revenue.

ii.Compute the price she should charge if she wants to maximise profits.

(10 marks)

[Total: 20 marks]