Question

Situation 4. (Basic Oligopoly Mode ls) You are the manager of PuntoNegro Computers, which competes directly with PuntoBlanco Computers to sell high-powered computers to businesses. From the two businesses' perspectives, the two products are indistinguishable. The large investment required to build production facilities prohibits other firms from entering this market, and existing firms operate under the assumption that the rival will hold output constant. The inverse market demand for computers is P = 5,900 Q, and both firms produce at a marginal cost of $800 per computer. Currently, PuntoNegro earns revenues of $4.25 million and profits (net of investment, R&D, and other fixed costs) of $890,000. The engineering department at PuntoNegro has been steadily working on developing an assembly method that would dramatically reduce the marginal cost of producing these high-powered computers and has found a process that allows it to manufacture each computer at a marginal cost of $500. How will this technological advance impact your production and pricing plans? How will it impact PuntoNegro's bottom line?

Answer 1

Answer: Given that P = 5,900-a me = $800 per computer Fixed costs = 890,000 ... The demand curve is P = 5960-01,00 Therefore, I, = 5900 al - ov, 2 a., 92-800 Tea 5900 ,- al, ₂ - 0 2 2 800 de First order condition (Foc) of profit maximisation is - 5900- 800 - 20,0 W, = 0 M2 - 59001 800 -,- 2002 20 Java Best response function is given by air sloo-ale o

Sloo. ale = 5100-a/ 2 -> on solving O&@ by symmetry W, = 02 :: WV, = V = 1700 Here P = 2500 Therf de total cost Tc= 3360000 fixed cost fc = Tc-8000 20OOOOO Given demand lurve P= 5900 - 9,92 A. Ti = 59ool- of 2 - 0 V₂ - 5000,- FC - l = sqood, - o aq - 02²-good, FC First rider condition of maximisation in = 5900 -500 - 200,- Qzo

JIT2 . CE 5900-800 - , -20.= 0 dala Best response function are 9,= Show more → We = 5100-00 3x2 - 2V, = 5400 - 02 @x1 => 2 = 5100- var 2 3 W, = 2850 =) W, = 2850 x şi : 0, -1900, N2 = 1600, P= 2400 i. T1,= 1610000 from above calculations technological avance impact is the increase in profit which is 1920,000 X