Question

In: Economics

Alienware and Foxconn are two multinational electronics company operating in a homogeneous computer hardware market. The...

Alienware and Foxconn are two multinational electronics company operating in a homogeneous computer hardware market. The engineering department at Alienware has been steadily working on developing a patented technology that has enabled the firm to reduce its marginal cost and emerge as a leader in the market.

The inverse demand function for the market is   P = 1200 - 6Q

Alienware's costs are TC = 60QA and Foxconn's costs are TC = 120QF.
The current output for Alienware is QA = 100 while Foxconn produces QF = 50. The current price is P = 300.

Ignoring antitrust possibilities, suppose Alienware makes an offer to Foxconn and they are in the process of negotiating a merger.

What is the potential price of the product after the merger?

Solutions

Expert Solution

Please give rating it will be appreciable, thank you

the solution of the above question is,

Merger or Cartels are same as Multiplant Monopoly,

Inverse Demand Function

P= 1200 - 6Q where Q = QA + QF

the two multinational electronic firms cost curves are

Alienware's costs curve -  TCA = 60QA

Foxconn's costs curve -  TCF = 120QF

The merger will aim to maximise the Total Joint Profit

Profit (π) = Profit of Alienware's(πA)+ Profit of Foxconn's(πF)

Profit (π) = P*Q - TCA -TCF

Profit (π) = (1200 - 6Q)*Q - 60QA - 120QF  = 1200Q - 6Q2 - 60QA - 120QF

Profit (π) = 1200(QA + QF) - 6(QA + QF)2 - 60QA - 120QF = 1200QA + 1200QF - 6(QA2 + QF2+ QA QF) -60QA - 120QF

Profit (π) = 1200QA + 1200QF - 6QA2 - 6QF2- 6QA QF) -60QA - 120QF

Profit (π) = 1140QA + 1080QF - 6QA2 - 6QF2- 6QA QF

Apply Profit Maximisation

Langarazian Function

∂π / ∂QA = ∂[1140QA + 1080QF - 6QA2 - 6QF2- 6QA QF]/∂QA

∂π / ∂QA = 1140 - 12QA - 6QF = 0

1140 - 12QA = 6QF​​​​

QF​​​​​ =(1140 - 12QA )/6 = 190 - 2QA    Equation I

∂π / ∂QF = ∂[1140QA + 1080QF - 6QA2 - 6QF2- 6QA QF]/∂QF

∂π / ∂QF = 1080 - 12QF - 6QA = 0

1080 - 6QA = 12QF ​​​​

QF​​​​​ =(1080 - 6QA )/12     Equation II

By Equation I and II

190 - 2QA = 90 - 0.5QA

190 - 90 = 2QA -0.5QA

100 = 1.5QA

QA = 100/1.5

QA = 66.6667

Put Above Value of QA into Equantion II

QF​​​​​ =(1080 - 6QA )/12 ​​​= (1080 - 6(66.666)/12 ​​​​ =(1080 - 400)/12 ​​​​ = 680/12 = 56.6667

QA = 66.66667

QF = 56.66667

P = 1200 - 6Q = 1200 - 6(QA + QF)

P = 1200 - 6(66.66667 + 56.66667) = 1200 - 6(123.3333)

P = 1200 - 740 = 460

the Potential Price is 460


Related Solutions

Youlett Packard Corporation (YPC) is a multinational computer hardware, software and services corporation. The company invests...
Youlett Packard Corporation (YPC) is a multinational computer hardware, software and services corporation. The company invests considerable amounts in research and development each year. In the most recent fiscal year 2012, the R&D expense was $1,020. The pre-tax operating income for YPC was $3,000m and the book value of capital was $5,000m. The R&D expenses for the prior 5 years are as follows: $950 (2011), $940 (2010), $930 (2009), $920 (2008), $910 (2007). The effective tax rate is 40%. (a)....
Select a multinational company from the following industries: Retail Pharmaceutical Computer Hardware Manufacturing Automotive Review the...
Select a multinational company from the following industries: Retail Pharmaceutical Computer Hardware Manufacturing Automotive Review the selected company's most recent financial statements. Calculate the following cash conversion cycle ratios based on the financial statements using Microsoft® Excel®: Average inventory Inventory turnover rate Average account receivable Account receivable turnover Average collection cycle Explain in 700 words the importance of the cash conversion cycle, including: Discuss the purpose of the cash conversion cycle and its components. Analyze the results obtained in the...
Select a multinational company from the following industries: Retail Pharmaceutical Computer Hardware Manufacturing Automotive Review the...
Select a multinational company from the following industries: Retail Pharmaceutical Computer Hardware Manufacturing Automotive Review the selected company's most recent financial statements. Calculate the following cash conversion cycle ratios based on the financial statements using Microsoft® Excel®: Average inventory Inventory turnover rate Average account receivable Account receivable turnover Average collection cycle
The operating system provides an interface between application programs and the computer hardware. Discuss the process...
The operating system provides an interface between application programs and the computer hardware. Discuss the process of the execution of any application program on the hardware using all managers of the operating system.
The operating system provides an interface between application programs and the computer hardware. Discuss the process...
The operating system provides an interface between application programs and the computer hardware. Discuss the process of the execution of any application program on the hardware using all managers of the operating system.
The operating system provides an interface between application programs and the computer hardware. Discuss the process...
The operating system provides an interface between application programs and the computer hardware. Discuss the process of the execution of any application program on the hardware using all managers of the operating system.
Recognize the ethical and social responsibilities of multinational firms operating in a global market.
Recognize the ethical and social responsibilities of multinational firms operating in a global market.
The XYZ block company purchased a new office computer and other depreciable computer hardware for $12,000....
The XYZ block company purchased a new office computer and other depreciable computer hardware for $12,000. During the third year, the computer is declared obsolete and is donated to the local community college. Using an interest rate of 10%, calculate the PW of the depreciation deductions. Assume that no salvage value was initially declared and that the machine was expected to last 5 years. Double declining balance depreciation 100% bonus depreciation Which method id preferred for determining the firm’s taxes?...
Please thoroughly explain each answer. A manufacturer of computer chips has a computer hardware company as...
Please thoroughly explain each answer. A manufacturer of computer chips has a computer hardware company as its largest customer. The computer hardware company requires all of its chips to meet specifications of 1.2 cm. The vice-president of manufacturing, concerned about a possible loss of sales, assigns his production manager the task of ensuring that chips are produced to meet the specification of 1.2 cm. Based on the production run from last month, a 95% confidence interval was computed for the...
The XYZ Block company purchased a new office computer and other depreciable computer hardware for $12,000....
The XYZ Block company purchased a new office computer and other depreciable computer hardware for $12,000. During the third year, the computer is declared obsolete and is donated to the local community college. Assume that no salvage was initially declared and that the machine was expected to last 5 years. Required: 1. Prepare a table with the depreciation schedules and book values for each method: a. Straight-line depreciation b. Double declining balance depreciation c. 100% bonus depreciation d. MACRS depreciation....
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT