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Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,000 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States. The demand for BMWs in each market is given by:QE = 4,000,000 - 100 PE and QU = 1,000,000 - 20PUwhere the subscript E denotes Europe, the subscript U denotes the United States. Assume that BMW can restrict U.S. sales to authorized BMW dealers only. Prices and costs are in dollars (not thousands of dollars as your book may indicate).
a. What quantity of BMWs should the firm sell in each market, and what should the price be in each market? What should the total profit be?
b. If BMW were forced to charge the same price in each market, what would be the quantity sold in each market, the equilibrium price, and the company's profit?
Suppose you are designed a new computer and want to make sure it is optimal for your needs. Random Access Memory can be added to your computer at a cost of $100 per gigabyte. For you the benefit of the first gigabyte of RAM is $800, and the benefi..
Suppose the marginal benefit of writing a contract is $100, independent of its length. Find the optimal contract length when the marginal cost of writing a contract of length L is: a. MC(L) = 30 + 4L. b. MC(L) = 40 + 5L.
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buy a computer for $2,500 now, keep it for 8 years and then sell it for $800. The computer is not expected to require any maintenance for the first 3 years, but starting in year 4, the maintenance cost will be $250 per year. Alternatively, you can..
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