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 – 100PE and Qu = 1,500,000 – 20PU where 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. 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? (round dollar amounts to the nearest penny and quantities to the nearest integer) In Europe, the equilibrium quantity is 1000000 cars at an equilibrium price of S 30000 . While in the United States, the equilibrium quantity is 550000 cars at an equilibrium price of $ 47500 . BMW makes a total profit of S 15125000000 . b. If BMW were forced to charge the same price in each market, what would be the quantity sold in each market, the equlibrium price, and the company's profit? (round dollar amounts to the nearest penny and quantities to the nearest integer) To solve this problem, first find the combined market demand by horizontally summing the European and US demand curves: Q= Qg + Qu = 4,000,000 – 100PĘ + 1,500,000 – 20PU = 5,500,000 – 120P Thus, inverse demand is: 5,500,000 120 120 Q (To avoid rounding problems, do not convert the fractions to decimals) P = The equilibrium price would be S, and BMW would sell |cars in Europe and cars in the United States. BMW makes a profit of $.
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 – 100PE and Qu = 1,500,000 – 20PU where 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. 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? (round dollar amounts to the nearest penny and quantities to the nearest integer) In Europe, the equilibrium quantity is 1000000 cars at an equilibrium price of S 30000 . While in the United States, the equilibrium quantity is 550000 cars at an equilibrium price of $ 47500 . BMW makes a total profit of S 15125000000 . b. If BMW were forced to charge the same price in each market, what would be the quantity sold in each market, the equlibrium price, and the company's profit? (round dollar amounts to the nearest penny and quantities to the nearest integer) To solve this problem, first find the combined market demand by horizontally summing the European and US demand curves: Q= Qg + Qu = 4,000,000 – 100PĘ + 1,500,000 – 20PU = 5,500,000 – 120P Thus, inverse demand is: 5,500,000 120 120 Q (To avoid rounding problems, do not convert the fractions to decimals) P = The equilibrium price would be S, and BMW would sell |cars in Europe and cars in the United States. BMW makes a profit of $.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text: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 – 100PE
and
Qu = 1,500,000 – 20PU
where 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.
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? (round dollar
amounts to the nearest penny and quantities to the nearest integer)
In Europe, the equilibrium quantity is 1000000 cars at an equilibrium price of S 30000 .
While in the United States, the equilibrium quantity is 550000 cars at an equilibrium price of $ 47500 .
BMW makes a total profit of $ 15125000000 .
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? (round dollar amounts to the nearest penny and quantities to the nearest integer)
To solve this problem, first find the combined market demand by horizontally summing the European and US demand curves:
Q= Qg + Qu = 4,000,000 – 100P: + 1,500,000 - 20Py = 5,500,000 – 120P
Thus, inverse demand is:
5,500,000
P =
120
Q (To avoid rounding problems, do not convert the fractions to decimals)
120
The equilibrium price would be $
and BMW would sell
cars in Europe and
cars in the United States.
BMW makes a profit of $
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education