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 Q = 5,000,000 - 100P 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 1500000 cars at an equilibrium price of $ 35000 While in the United States, the equilibrium quantity is 550000 cars at an equilibrium price of $ 47500. BMW makes a total profit of $ 27,625,000,000. 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 = 5,000,000 – 100PE + 1,500,000 - 20P,=6,500,000 -120P Thus, inverse demand is: 6,500,000 PD 1 a (To avoid rounding problems, do not convert the fractions to decimals) 120 120 The equilibrium price would be $ 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 Q = 5,000,000 - 100P 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 1500000 cars at an equilibrium price of $ 35000 While in the United States, the equilibrium quantity is 550000 cars at an equilibrium price of $ 47500. BMW makes a total profit of $ 27,625,000,000. 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 = 5,000,000 – 100PE + 1,500,000 - 20P,=6,500,000 -120P Thus, inverse demand is: 6,500,000 PD 1 a (To avoid rounding problems, do not convert the fractions to decimals) 120 120 The equilibrium price would be $ and BMW would sell cars in Europe and cars in the United States. BMW makes a profit of $
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Suppose that BMW can produce any quantity of cars at a constant marginal cost equal
in the United States. The demand for BMWS in each market is given by
$20,000 and a fixed cost of $10 billion. You are asked
advise the CEO as to what prices and quantities BMW should set for sales in Europe and
QE = 5,000,000 - 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 1500000 cars at an equilibrium price of $ 35000.
While in the United States, the equilibrium quantity is 550000 cars at an equilibrium price of $ 47500
BMW makes a total profit of $ 27,625,000,000
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 = 5,000,000 – 100PE + 1,500,000 - 20P = 6,500,000 – 120P
Thus, inverse demand is:
6,500,000
P=
1
190Q (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 $.
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