Managerial Economics

 Part I

 

A television station is considering the sale of promotional DVDs. It can have the DVDs produced by one of two suppliers. Supplier A will charge the station a set-up fee of $1200 plus $2 for each DVD; supplier B has no set-up fee and will charge $4 per DVD. The station estimates its demand for the DVDs to be given by Q = 1,600 – 200P, where P is the price in dollars and Q is the number of DVDs. The price equation is P = 8 -Q/200.

 

  1. Suppose the station plans to give away the videos. How many DVDs should it order? From which supplier?
  2. Suppose instead that the station seeks to maximize its profit from sales of DVDS. What price should be charged? How many DVD should it order from which supplier?
Directions: You must solve two separate problems, one with supplier A and one with supplier B, and then compare profits. As the textbook explains (P. 42-47), maximum profit is found where Marginal Revenue (MR) to Marginal Cost (MC). Here, you need to set MR=MC for each supplier and compare the maximum profit attainable for each.

 

Calculating marginal products can be challenging. Here is one way to do it without using calculus.

 

To calculate MR, you can look at the bottom of page 44 in the book. It shows how to get it from the inverse demand equation (P=a-bQ).

 

The marginal cost (MC) is what each supplier charges to produce an extra DVD. This can be directly deduced from the text of the homework (the equations provided for the cost of suppliers). If you are not sure, one easy way is to calculate the cost for 1 DVD and the cost for 2 DVD. The difference would be the marginal cost.

 

 

Complete this assignment in a Microsoft Word document, APA formatted and then submit it as Assignment 3 by midnight, Day 7. Make sure to show and explain your work. There is no length requirement given the mathematical nature of this assignment.

 

 

 

 

 

 

 

 

Part II

As vice president of sales for a rapidly growing company, you are grappling with the question of expanding the size of your direct sales force (from its current level of 60  national salespeople). You are considering hiring from 5 to 10 additional personnel.

 

How would you estimate the additional dollar cost of each additional salesperson? Based on your company’s past sales experience, how would you estimate the expected net revenue generated by an additional salesperson? (Be specific about the information you might use to derive this estimate.) How would you use these cost and revenue estimates to determine whether a sales force increase (or possibly a decrease) is warranted?

p(3)

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