You are the manager of BlackSpot Computers, which competes directly with Condensed Computers to sell high- powered
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 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 = 5,900 – Q, and both firms produce at a marginal cost of $ 800 per computer. Currently, BlackSpot earns revenues of $ 4.25 million and profits (net of investment, R& D, and other fixed costs) of $ 890,000. 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 techno-logical advance impact your production and pricing plans? How will it impact BlackSpot’s bottom line?
Step by Step Answer:
Managerial Economics and Business Strategy
ISBN: 978-0073523224
8th edition
Authors: Michael Baye, Jeff Prince