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beks73
2 months ago
12

You are the manager of BlackSpot Computers, which competes directly with Condensed Computers to sell high-powered computers to b

usinesses. 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 output firms operate under the assumption that the rival will hold constant. The inverse market demand for computes is P=5,900 – Q, and both firms produce at a marginal cost of $800 per computer. Currently, BlackSpot earns revenues of $4.25 million and profits (net of investment, R&D, and other fixed costs) of $890,000. The engineering department at BlackSpot has been steadily working on developing an assembly method that would dramatically reduce the marginal cost of producing these high powered computers and has fond 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 Blackspot’s bottom line?
Business
1 answer:
Nady [3.6K]2 months ago
4 0

Answer and Explanation:

To understand the impact on production, we must first analyze the quantities produced pre- and post-technological upgrade.

For maximizing profit, equate MR = MC (Marginal Revenue equals Marginal Cost)

TR = P x Q

TR= (5900 - Q) x Q = 5900Q - Q^2

MR = 5900 - 2Q (via differentiation)

Setting MR equal to MC

5900 - 2Q = 800

Q resolves to 2550

Post technological enhancement,

MR equals MC

5900 - 2Q = 500

Q resolves to 2700

With the advancement, Backspot Computers can now manufacture additional units, realizing an increase of 150. The tech improvement has proven beneficial.

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