MGEC Homework -1 - L4.docx - Managerial Economics: Homework...

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Managerial Economics: Homework 1Submitted by study group L4: Amar Parulekar (62110047), Arpita Khandelwal (62110835), SaurabhRathore (62110905), Shreya Gandhi (62110113), Vedant Raj Kabra (62110555)Problem 1A computer products retailer purchases laser printers from a manufacturer at a price of Rs. 25,000per printer. During the year, the retailer will try to sell the printers at a price greater than Rs. 25,000,but may not be able to sell all the printers. At the end of the year, the manufacturer will buy back anyunsold inventory at 40 percent of the original price. No one other than the manufacturer would bewilling to buy these unsold printers at the end of the year.a.At the beginning of the year, before the retailer has purchased any printers, what is theopportunity cost of a laser printer?
b.After the retailer has purchased the laser printers, what is the opportunity cost associated withselling a laser printer to a customer? (Assume that if this customer does not buy the printer, itwill be unsold at the end of the year.)
c.Suppose that on December 1, the retailer still has a large inventory of unsold printers. Theretailer has set a retail price of Rs. 30,000 per printer. The manager of the store proposes thatthey should cut the price by half and sell the printers at Rs. 15,000 each. The owner of thestore disagrees, pointing out that at Rs. 15,000 each, they would lose Rs. 10,000 on eachprinter sold. Is the owner’s argument correct?
Moreover, the revenue stream from reducing the price is greater than the revenuestream by not reducing the price. Let us look at two casesCase 1: The owner does not reduce the price of the printer on Dec 1o

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Term
Spring
Professor
Bruce Allen, Tarun Jain

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