Answered: OA company has introduced a new product…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter4: Extent (how Much) Decisions

Section: Chapter Questions

Problem 4.1IP

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OA company has introduced a new product which is sold through an electronics retailer. The retailer has estimated that demand will depend on the final price (p) according to the demand curve: D=2,000,000−2000p. The production cost is $101 per product.

a.What wholesale price should OA charge? At this wholesale price, what retail price should the retailer set?

b.What are the profits for OA and retailer at equilibrium?

c.If OA decides to discount the wholesale price by $32, how much of a discount should the retailer offer to customers if it wants to maximize its own profit? What are the changes in profitsof OA and retailer?

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