February 19, 2017

Homework Help: Managerial Economics

Posted by Nicci on Tuesday, April 14, 2009 at 1:10pm.

You own and operate PC’s R Us, a firm that manufactures customized computers to meet the specifications of universities that offer online MBA programs. Nearly 70% of your customers are Webster University MBA students. Your firm is not the only business that makes the custom computers, but competes with other firms that sale via retail channels as well as by mail-order and online. You differentiate your product from that of your competitors by offering 2 years of free onsite repair for any system you sell. Because you wish to know more about the underlying market conditions that impact your business, you decide to trade a Webster Business 6120 student a free computer for a study on your firm’s demand and cost structure. The study results are:
Yearly cost of producing computers is: C(Q) = 20,000 + 2Q2 , where ‘Q’ represents the number of computer systems produced.
Marginal Cost (MC) = 4Q
Yearly demand for computers is: Q = 1,000 – P, where ‘P’ represents the selling price of a computer system.

a. How many PC’s should you produce to maximize profits?

b. If you charge the profit maximizing price, what is your firm’s profit or loss?

c. How much does the last unit you produce cost you to make?

d. How can you keep your profits from eroding over time as the market matures?

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