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You are the manager of BlackSpot Computers, which competes directly with Condensed Computers to sell high-powered computers to business.
You are the manager of BlackSpot Computers, which competes directly with Condensed Computers to sell high-powered computers to business. From the two businesses’ perspective, the two products are indistinguishable. The large investment required to build production facilities prohibits other firms from entering this market, and existing firms operate under assumption that the rival will hold output constant. The inverse demand for computers is P = 5,100 - .5Q and both firms produce at a marginal cost of $750 per computer. Currently, Black Spot earns revenues of $6.38 million and profits of 1 million. The engineering department at BlackSpot has been steadily working on developing an assembly method that would dramatically reduce the marginal cost of producing these high-powered computers and has found a process that allows it to manufacture each computer at a marginal cost of $500. How will this technological advance impact production and pricing plans? How it will impact BlackSpot’s profit?
