I really do not know what to do!:(((

You are the marketing manager of the Bloomsbury Publishing that distributes the Harry Potter series. A new book is to be issued and you need to decide at which price it should be offered in US and European markets. On the basis of the sales of previous books in the series you estimated demand functions for the new book in two markets: Demand in United States: QU = 9 – 0,25 PU, Demand in Europe: QE = 6 – 0,25 PE, where PU and PE – the prices in dollars, QU and QE – the amount of demand in million copies. The marginal cost of printing the book in both countries is constant and equals 4 dollars.

Questions:

1. At what prices you should sell the new book in European and US markets? What will be outputs and profits in two markets? Draw the diagram with equilibrium.

2. How should you change your strategy if there is an independent wholesale company may buy the books in one country and transport it to the other at zero cost?

3. What if the cost of transportation in the previous case equals 1 dollar per book?

Hi mate, hope to get some answer before 00h00

To answer these questions, we need to understand the demand and cost functions provided and analyze how they affect pricing decisions, outputs, and profits in different scenarios. Let's tackle each question one by one.

1. To determine the optimal prices in the US and European markets and calculate the outputs and profits in each market, we need to find the equilibrium point where the marginal cost equals the marginal revenue.

a. For the US market:
Demand function: QU = 9 - 0.25PU
Marginal Revenue (MR) = dQU/dPU = -0.25
Marginal Cost (MC) = $4

To find the equilibrium price, set MR equal to MC:
-0.25 = 4
PU = $4/(-0.25) = -$16

Note: A negative price implies that the publisher would need to offer a subsidy to consumers. In this case, Bloomsbury would need to decide whether offering a subsidy or selecting a different pricing strategy would be more suitable.

b. For the European market:
Demand function: QE = 6 - 0.25PE
Marginal Revenue (MR) = dQE/dPE = -0.25
Marginal Cost (MC) = $4

To find the equilibrium price, set MR equal to MC:
-0.25 = 4
PE = $4/(-0.25) = -$16

Again, a negative price suggests the need for a subsidy or alternative pricing strategy.

To calculate the output in each market, substitute the equilibrium prices into the corresponding demand functions:
US output (QU) = 9 - 0.25*(-16) = 9 + 4 = 13 million copies
European output (QE) = 6 - 0.25*(-16) = 6 + 4 = 10 million copies

To calculate profits, subtract the total cost per market from the total revenue:
US profit = (PU - MC) * QU = (-16 - 4) * 13 = -$260 million
European profit = (PE - MC) * QE = (-16 - 4) * 10 = -$200 million

2. If there is an independent wholesale company buying books in one country and transporting them to the other country at zero cost, the pricing strategy would need adjustment. In this scenario, the publisher can set different prices in both countries to maximize profits.

To determine the optimal pricing strategy, we need to consider the relative demand in each market.

Assuming PU as the price in the US and PE as the price in Europe, the publisher should set prices to maximize the sum of profits. This means finding PU and PE that maximize (PU - MC) * QU + (PE - MC) * QE.

Given the demand functions, we can substitute them into the profit equation and solve for PU and PE. However, further information like the relationship between demand and price elasticities is needed to find the specific optimal pricing strategy.

3. If the cost of transportation is $1 per book in the scenario mentioned above, we need to adjust the profit calculation accordingly.

Assuming PU and PE as the US and European prices, respectively, the profit equation becomes:

US profit = (PU - MC) * QU
European profit = (PE - MC - 1) * QE

Substituting the equilibrium prices calculated earlier and adjusting for transportation cost ($1), we can calculate the new profits:

Adjusted US profit = (-16 - 4) * 13 = -$260 million
Adjusted European profit = (-16 - 4 - 1) * 10 = -$210 million

By considering the transportation cost, the profit in the European market decreases relative to the previous scenario.

Remember, these calculations are estimations based on the provided demand and cost functions. Real-world pricing decisions also consider market dynamics, competition, and other factors.