You own Earthworm Excavators. Your company is the sole manufacturer of super-sized excavators that are used in the world’s largest mining operations. The U.S. has recently lifted export restrictions on the product you sell, so you can now sell your equipment in the world market along with sales in the domestic market. You hire an economist to estimate the following (inverse) demand curves per year for these distinct markets: Domestic market : Pd = $1200 - $10Qd Foreign market : Pf = $600 - $5Qf where P refers to prices charged in each market in thousands of dollars and Q refers to the annual quantities demanded in each market. The total costs (in thousands of dollars) of your annual operation are given by: TC = 900 + 200Q a. If you decide to offer you machines at a single price to all potential buyers, at what price will the foreign buyers be priced out of the market? b. What is the market demand function if you decide to offer the machines to all potential buyers at a single price?
You own Earthworm Excavators. Your company is the sole manufacturer of super-sized excavators that are used in the world’s largest mining operations. The U.S. has recently lifted export restrictions on the product you sell, so you can now sell your equipment in the world market along with sales in the domestic market. You hire an economist to estimate the following (inverse) demand
Domestic market : Pd = $1200 - $10Qd
Foreign market : Pf = $600 - $5Qf
where P refers to prices charged in each market in thousands of dollars and Q refers to the annual quantities demanded in each market. The total costs (in thousands of dollars) of your annual operation are given by:
TC = 900 + 200Q
a. If you decide to offer you machines at a single
b. What is the
c. If you decide to offer your machines at a single price, what price will you charge and how many units will you sell? How many of the machines will be sold in each market?
d. If you decide to offer the machines for sale to each market at different prices (i.e., engage in third-degree
e. Compare the profits under the two pricing strategies. Comment on the comparison.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
