Question

Viking InterWorks is one of many manufacturers that supplies memory products to original equipment manufacturers (OEMs) of desktop systems. The CEO recently read an article in a trade publication that reported the projected demand for desktop systems to be:

Qd_desktop = 1600 - 2P_desktop + 0.6M (in millions of units), where P_desktop is the price of a desktop system and M is consumer income.

The same article reported that the incomes of the desktop system’s primary consumer demographic would increase 4.2 percent this year to $61,300 and that the selling price of a desktop would decrease to $980, both of which the CEO viewed favorably for Viking. In a related article, the CEO read that the upcoming year’s projected demand for 512 MB desktop memory modules is:

Qd_memory = 11,200 - 100P_memory - 2P_desktop (in thousands of units), where P_memory is the market price for a 512 MB memory module and P_desktop is the selling price of a desktop system.

The report also indicated that five new, small start-ups entered the 512 MB memory module market bringing the total number of competitors to 100 firms. Furthermore, suppose that Viking’s CEO commissioned an industry-wide study to examine the industry capacity for 512 MB memory modules. The results indicate that when the industry is operating at maximum efficiency, this competitive industry supplies modules according to the following function:

Qs_memory = 1000 + 25P_memory + N where P_memory is the price of a 512 MB memory module and N is the number of memory module manufacturers in the market.

Viking’s CEO provides you, the production manager, with the above information and requests a report containing the market price for memory modules and the number of units to manufacture in the upcoming year based on the assumption that all firms producing 512 MB modules supply an equal share to the market.

Instructions: Enter your responses rounded to two decimal places.

Market price for memory modules: $

Number of units to manufacture:  thousand


How would your report change if the price of desktops were $1,080?

Market price for memory modules: $

Number of units to manufacture: thousand

Answer 1

silation : Padesktop - 1600 – 2 Pärsk lop + 0.6M Setting price of leskløp = $988 = Paesklop Qdmemory = 11,200 - 100 pmemory - Piesktop = 11,200 - 100 Preemory – 2x $980 = !1,200 -1960 - 100 liremory Qdmemory 9240 – 100 Pmemory -0 Total no. of competitors a 100 fioms - N Qlsmemory - 1000 + 25Pmemory +N = 1000 + 25 (memory +100 lasmemory - 1100 + 25 lmemory - © At equilibrium, demand = supboly Therefore we will equate ① and @ ddmemory = Osmemory 9240 - 100Pmemery = 1100 + 25 memory 9240 - 1100 = 125pmemory 8140 = 125 Pmemory Pmemory = 81 to = 65.12 | 125

Substituting in © wwe get Ploumay - 9240 - 100(65.12) - 9240 - 6512 [ Idmemory - 2728) :. Mareket price fest memory malules = $65.12 Number of units to manufachere = 2728 units of 2.728 thousand y price of desktops - $1080 Pdmemory = 11200 - 100 pmemoy - Plesktop = 11200 - 100 pmemory –211080) = |200 – 100memory – 2160 Pomemory' = 9040 - 100 Pmemory) - ③ ols memory will remain same = 1100 + 25 Pomemory Now the new equilibrium will be : Odmemory' - & smemory 9040-100 pmemory = 1100 + 25 Pmemory 9040 – 1100 = 125[memory memony = 7970 - 63.52 125

Substituting in * we get Odmemory = 9040 - 100 Pmemory = 9040 – 100 (63.52) = 9040 – 6352 Idmemony = 2688 non Market price for memory modules – $63.52 memory Number of units to manufachere 2688 or 2-688 thousand

Answer 2

27.  Viking InterWorks is a manufacturer that supplies memory products to original equipment manufacturers of desktop systems. The CEO read that the upcoming year’s projected demand for 512 MB desktop memory modules is Where  is the market price for 512 MB memory module,  is the selling price of a desktop system, and  is consumer income.

 

a.     Are memory modules and desktop systems complements or substitutes. Please provide a reason for your answer. (2 points).

 

b.     What would be the impact on Viking InterWorks of a $2,116 increase in consumer income, accompanied by a $100 reduction in the price of desktops? (5 points)

 

c.     Calculate the income and cross price elasticities of demand when (8 points)

 

 

d.     A recent report indicates that the price of a memory 512 MB module would fall below $520 but remain above $307.44, other things remaining constant as in part (c) above. The CEO views this as favorable for Viking InterWorks. Use your knowledge of elasticity of demand and revenues to determine if you agree with the CEO. Show calculations to support your answer. (5 points)