Managerial Economics

posted by .

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?

  • Managerial Economics -

    Take a shot. What do you think?
    Hint: always always always, maximize profits where MC=MR.
    Hint 2: Total revenue (TR) is P*Q

  • Managerial Economics -

    Ok well here is what I have so far:
    a.
    MC (Q) = MR (Q) P = MC
    P = 1000 – Q & C (Q) = 20,000 + 2Q2
    MR = a + 2bQ
    MR = 1000 – 2Q
    MC = 4
    1000 – 2Q = 4
    6Q = 1000
    Q = 167 units
    = 20,000 + 2(167) ^2
    =$75,778
    MC = 668
    MR = 666
    P = $833

    b.
    Profits are given by the difference between revenues and costs
    = P*Q* - C (Q*)
    = 833* 167 – 20,000 + 2(167) ^2
    = 139,111 – 75,778
    = $63,333 Profit

    c.
    The marginal cost curve intersects the average total cost curve and the average variable cost curve at their minimum points. The reason is that ATC and AVC are averages of the cost of the first unit of output, the second unit, and so on. If the average is falling, the last unit must have a cost below the average, in order to be bringing down the average. If the average is rising, the last unit must have a cost above the average, in order to be bringing up the average

    d.
    Due to the free entry of monopolistic markets, if we are earning a profit in the short run additional firms will probably enter the market too, in the long run to capture some of those profits. As new firms enter the market they will make different PC’s and offer other service plans, setting themselves apart from us. Some of our consumers will then use the newer firms PCs and substitute for our PC. As the demand curve decreases where it is just tangent to our average cost curve, we’ll be earning probably no profits and other firms won’t enter the market. So, for us to be successful over time we’ll have to charge a price that exceeds the MC of producing our PCs.

    How close am I?

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. Managerial Economics/Math

    I need help on some homework questions for an MBA-level Managerial Economics class. Here is the first question. 1. JALT, Inc. is a new firm offering investment consultant services to the rich. Harvey Milkemnow, having had experience …
  2. managerial economics

    Consider the one-shot, simultaneous move game below, and answer the accompanying questions: Player & Strategy Firm B Left Right Firm A Up 4,4 0,0 Down 0,0 2,2 (a)List the strategies for Firm A and Firm B (b)State the set of strategy …
  3. stat

    1. The MBA department is concerned that dual degree students may be receiving lower grades than the regular MBA students. Two independent random samples have been selected 350 observations from population 1 (dual degree students) and …
  4. marketing

    Which of the following statements regarding marketing strategies is FALSE?
  5. statistics

    GMAT and GPA Scores for 12 MBA Students Compute the covariance and the determination and interpret your findings. GMAT- 599 689 584 631 594 643 MBA GPA- 9.6 8.8 7.4 10.0 7.8 9.2 GMAT- 656 594 710 611 593 683 MBA GPA- 9.6 8.4 11.2 7.6 …
  6. Statistic

    GMAT and GPA Scores for 12 MBA Students Compute the covariance and the determination and interpret your findings. GMAT- 599 689 584 631 594 643 MBA GPA- 9.6 8.8 7.4 10.0 7.8 9.2 GMAT- 656 594 710 611 593 683 MBA GPA- 9.6 8.4 11.2 7.6 …
  7. Economics

    You are considering quitting work for two years to earn an MBA. Your current job pays $25,000 per year (after taxes), but you could earn $55,000 per year (after taxes) if you had a MBA at Southern University. Tuition is $10,000 per …
  8. managerial economics

    Total cost function of a firm is TC= 200+4Q+2Q squared If the firm is perfectly competitive and the price of its product is $24, what is its optimal output rate?
  9. Career

    Of the following career paths, which is NOT likely to have an apprenticeship program?
  10. Statistics

    It is pretty common across most schools to find the grades at the MBA level divided between A's and B's. As such, you expect the mean GPA to be around 3.50. Using the sample of 200 MBA students, conduct a one-sample hypothesis test …

More Similar Questions