Question 3 - Technological Adoption (10 points)

Assume there are two companies in the region, A and B. You currently work for Company B. Both companies service the entire market and have a combined market share of 100%. At the start of the period, A and B split the market evenly with 50% share each. However, A has adopted a new customer retention tool and has projected the following switching matrix.

Given this switching matrix. You are to answer the following two questions:

1) What is the projected Market Share for Company A next period? (3 points)

2) Assume that each customer has a profitability of $30 each year. There are 10,000 customers in the market. How much profit per year, in the long run and assuming no other costs or changes to the market, can we assume that B will lose due to this new technology compared to their prior position? (7 points)