You are a pricing manager at Argyle Inc.-a medium-sized firm that recently introduced a new product into the market. Argyle's only competitor is Baker Company, which is significantly smaller than Argyle. The management of Argyle has decided to pursue a short- term strategy of maximizing this quarter's revenues, and you are in charge of formulating a strategy that will permit the firm to do so. After talking with an employee who was recently hired from the Baker Company, you are confident that: (a) Baker is constrained to charge $10 or $20 for its product, (b) Baker's goal is to maximize this quarter's profits, and () Baker's relevant unit costs are identical to yours. You have been authorized to price the product at two possible levels ($5 or $10) and know that your relevant costs are $2 per unit. The marketing department has provided the following information about the expected number of units sold (in millions) this quarter at various prices to help you formulate your decision: Argyle Quantity (millions of units) (millions of units) Baker Quantity Argyle Price Baker Price $5 $10 3 2. 20 3 10 10 1 10 20 Argyle and Baker currently set prices at the same time. However, Argyle can become the first-mover by spending $2 million on computer equipment that would permit it to set its price before Baker. Determine Argyle's optimal price: $ True or False? You should invest the $2 million: (Click to select) v
You are a pricing manager at Argyle Inc.-a medium-sized firm that recently introduced a new product into the market. Argyle's only competitor is Baker Company, which is significantly smaller than Argyle. The management of Argyle has decided to pursue a short- term strategy of maximizing this quarter's revenues, and you are in charge of formulating a strategy that will permit the firm to do so. After talking with an employee who was recently hired from the Baker Company, you are confident that: (a) Baker is constrained to charge $10 or $20 for its product, (b) Baker's goal is to maximize this quarter's profits, and () Baker's relevant unit costs are identical to yours. You have been authorized to price the product at two possible levels ($5 or $10) and know that your relevant costs are $2 per unit. The marketing department has provided the following information about the expected number of units sold (in millions) this quarter at various prices to help you formulate your decision: Argyle Quantity (millions of units) (millions of units) Baker Quantity Argyle Price Baker Price $5 $10 3 2. 20 3 10 10 1 10 20 Argyle and Baker currently set prices at the same time. However, Argyle can become the first-mover by spending $2 million on computer equipment that would permit it to set its price before Baker. Determine Argyle's optimal price: $ True or False? You should invest the $2 million: (Click to select) v
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:You are a pricing manager at Argyle Inc.-a medium-sized firm that recently introduced a new product into the market. Argyle's only
competitor is Baker Company, which is significantly smaller than Argyle. The management of Argyle has decided to pursue a short-
term strategy of maximizing this quarter's revenues, and you are in charge of formulating a strategy that will permit the firm to do so.
After talking with an employee who was recently hired from the Baker Company, you are confident that:
(a) Baker is constrained to charge $10 or $20 for its product,
(b) Baker's goal is to maximize this quarter's profits, and
() Baker's relevant unit costs are identical to yours.
You have been authorized to price the product at two possible levels ($5 or $10) and know that your relevant costs are $2 per unit.
The marketing department has provided the following information about the expected number of units sold (in millions) this quarter at
various prices to help you formulate your decision:
Argyle Quantity
Baker Quantity
Argyle Price
Baker Price
(millions of units) (millions of units)
$5
$10
3
5
20
3
10
10
1
2
10
20
1
1
Argyle and Baker currently set prices at the same time. However, Argyle can become the first-mover by spending $2 million on
computer equipment that would permit it to set its price before Baker.
Determine Argyle's optimal price: $
True or False? You should invest the $2 million: (Click to select) v
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