Question: You are the manager of BlackSpot Computers, which competes directly with Condensed Computers to sell high-powered computers to businesses. From the two businesses perspectives, the

You are the manager of BlackSpot Computers, which competes directly with Condensed Computers to sell high-powered computers to businesses. From the two businesses’ perspectives, the two products are indistinguishable. The large investment required to build production facilities prohibits other firms from entering this market, and existing firms operate under the assumption that the rival will hold output constant. The inverse market demand for computers is P = 5,100 – .5Q and both firms produce at a marginal cost of $750 per computer. Currently, BlackSpot earns revenues of $6.38 million and profits (net of investment, R&D, and other fixed costs) of $1 million. The engineering department at BlackSpot has been steadily working on developing an assembly method that would dramatically reduce the marginal cost of producing these high-powered computers and has found a process that allows it to manufacture each computer at a marginal cost of $500. How will this technological advance impact your production and pricing plans? How will it impact BlackSpot’s bottom line?

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Since this is a homogeneous product Cournot oligopoly BlackSpots initial equilibrium output can readily be computed to be 2900 units Since the corresponding market price is 220000 and BlackSpots marginal cost is 750 it follows that its profit gross of fixed costs is P MCQi 2200 7502900 4205000 Since profits net of fixed costs are only 1 million it follows that BlackSpots fixed costs are 3205 million When marginal cost for BlackSpot ... View full answer

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