Assignment: Managerial Economics
Question 1:
Following is a statically estimated demand Curve for Apple's next I-phone. The marginal cost of producing an I-Phone is given as $40. If Apple decides to produce 20 million next year, what will be its profit? Or Loss? Can you verify that they are maximizing profits or not? Furthermore, due to some advancement in Nano technology Apple is able to reduce their production cost (e.g., Marginal cost) down to $30. What might that mean to their sales and profits? Is the demand for Apple's I-phone elastic? What is that elasticity?
I-Phone Demand Curve: Q = 1040 - 0.5P; where Q represents Quantity demanded; and P is the price per phone
Question 2:
Describe Porter's five basic elements that are critical in shaping a market structure. Suppose you are a CEO of a start-up company that wants to market a cutting-edge genetically engineered product. This product has been clinically tested and has temporary FDA (Federal Drug Administration) approval. Your competition includes large and already known companies such as Genentech; Johnson and Johnson etc. Can you point out a few strategies/tools that you may apply (using Porter's guideline) to market your product? Be sure to include some of the key components of Ethical practices that you would like to see this Start-up company follows.
Question 3:
After having co-opted the Prime Minister's son as Director, the firm "K.K.N. Bhd" was granted the monopoly to deserve the air route between two cities of that faraway kingdom. However this did not guarantee any positive profit because, even if such patronage was the best entry barrier K.K.N. Bhd could buy from the government against potential rivals, it also created high fixed costs since nowadays politicians don't come cheap.
K.K.N. Bhd has isolated two distinct markets with the following demand:
Businessmen (frequent fliers, subscript B): QB = -1/2 PB + 150
Foreign tourists (subscript F): QF = -5/2 PF + 300
K.K.N. Bhd total costs are given by : TC = ¼ Q2 + 10 Q + 10,000
a) Initially K.K.N. Bhd charged a single common profit-maximizing price on both markets. Compute the common price and this maximum amount of profit. From a figure where the average cost and average revenue curves are drawn what is K.K.N. Bhd situation? Beware, with a common price, K.K.N. Bhd has the possibility to sell only to one market at a price too high for the other market , or to sell at a lower price to both markets, profits from both situations should be compared.
b) Realizing that the two markets are different and well insulated, K.K.N. Bhd plans to charge different prices on each market. What would be the maximum profit attainable then? Compare this solution to the earlier one for K.K.N. Bhd and for both groups of customers.
Question 4:
Alchem (L) is a price leader in the Polyglue market. All 10 other manufacturers (follower (F) firms) sell polyglue at the same price as Alchem. Alchem allows the other firms to sell as much as they can at the established price and supplies the remainder of the demand itself. Total demand for polyglue is given by the following function (QT = QL + QF )
P = 20,000 - 4 QT
Alchem's marginal Cost function for manufacturing and selling polylue is
MCL = 5,000 + 5 QL
The aggregate marginal cost function for the other manufacturers of polyglue is
S MCF = 2,000 + 4 QF
a. To maximize profit, how much Polyglue should Alchem produce and what price should it charge?
b. What is the total market demand for Polyglue at the price established by Alchem in part (a)? How much of total demand do the follower firms supply?
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also include a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also Include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.