Warren Buffet Investment Bnsf Essay

1053 words - 5 pages

Ch 11 #1, 2, 4, 6, 7(DW), 12(DW), 18, 21, 22, TW11

Question 1. Based on the best available econometric estimates, the market elasticity of demand for your firm’s product is -1.50. The marginal cost of producing the product is constant at $75, while average total cost at current production levels is $200. Determine your optimal per unit price if:
a. You are a monopolist.
b. You compete against one other firm in a Cournot oligopoly.
c. You compete against 19 other firms in a Cournot oligopoly.
a. P=(EF/1+EF)*MC
=> (-1.50/-.50) * 75
=> 225
b. P = (NEm/1+NEm)*MC
=> (-1.50/-.50) * 75
=> 225
c. P = (NEm/1+NEm)*MC
=> (19* -1.50/1+ 19*-.50) * 75
=> (-28.5 / -8.5) * 75
=> 251

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In particular, you know there are three types of consumers (1,000 of each type) with the following valuations for the two products:

a. What are your firm’s profits if you charge $25 for product X and $50 for product Y?
3*1000*25 = $75,000
3*1000*50 = $150,000
b. What are your profits if you charge $60 for product X and $140 for product Y?
1*1000*60 = $60,000
1*1000*40 = $140,000
c. What are your profits if you charge $110 for a bundle containing one unit of product X and one unit of product Y?
3*1000*140 = $330,000
d. What are your firm’s profits if you charge $175 for a bundle containing one unit of X and one unit of Y, but also sell the products individually at a price of $60 for product X and $140 for product Y?
1*1000*175 = $175,000
1*1000*60 = $60,000
1*1000*140 = $140,000
This is your BEST option.

12. You are a pricing analyst for QuantCrunch Corporation, a company that recently spent $10,000 to develop a statistical software package. To date, you only have one client. A recent internal study revealed that this client’s demand for your software is Qd = 100 - 0.1P and that it would cost you $500 per unit to install and maintain software at this client’s site. The CEO of your company recently asked you to construct a report that compares (1) the profit that results from charging this client a single per-unit price with (2) the profit that results from charging $900 for the first 10 units and $700 for each additional unit of software purchased. Construct this report, including in it a recommendation that would result in even higher profits.

per-unit pricing - optimal per-unit price is where MR = MC.
The inverse demand f(x) = P = 1,000 −10Q
MR = 1,000 − 20Q; MC = $500, fixed costs = $10,000 so 1,000 − 20Q = $500 .
Q = 25, and P =...

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