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Assignment 1.docx - Problem 1 A computer products retailer...

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Problem 1A computer products retailer purchases laser printers from a manufacturer at a price ofRs. 25,000 per printer. During the year, the retailer will try to sell the printers at a pricegreater than Rs. 25,000, but may not be able to sell all the printers. At the end of theyear, the manufacturer will buy back any unsold inventory at 40 percent of the originalprice. No one other than the manufacturer would be willing to buy these unsold printersat the end of the year.1.At the beginning of the year, before the retailer has purchased any printers, whatis the opportunity cost of a laser printer?2.After the retailer has purchased the laser printers, what is the opportunity costassociated with selling a laser printer to a customer? (Assume that if thiscustomer does not buy the printer, it will be unsold at the end of the year.)3.Suppose that on December 1, the retailer still has a large inventory of unsoldprinters. The retailer has set a retail price of Rs. 30,000 per printer. Themanager of the store proposes that they should cut the price by half and sell theprinters at Rs. 15,000 each. The owner of the store disagrees, pointing out that atRs. 15,000 each, they would lose Rs. 10,000 on each printer sold. Is the owner’sargument correct?Solution –AssumptionsAdministrative/Selling charges incurred in the selling and/or buying process of printersis negligible compared to the price of each printer.The demand curve of printer is adequately elastic to spur demand. At Rs. 15,000, theretailer can find customers willing to buy the printers.The retailer is willing to deposit the money in a bank.1.When the retailer has not purchased any printer, he/she has two choices –a)To buy the printers from the manufacturer and sell them, ORb)Deposit the money the retailer would have invested into purchasing theprinters in a bank and gain interest.Opportunity Cost is the value of the best option that is forgone. So, if the retailer decides topurchase one laser printer, the opportunity cost is –Rs. 25,000 + income gained via interest from depositing the 25000 in a bank.(Ans)
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