421 W2 - separate from other business segments. Question 4:...

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Writing Assignment 2: A Basic Model of the Netflix Problem Question 3: Total profit before the split: 15 Total Profit after the split: 12.5 Netflix profits decline as a result of the split from 15 to 12.5. I did anticipate a negative effect of their profits as a result of the split. Separating these two business functions make their firm less efficient and this can be seen as their demand curve gets significantly steeper post split. I expect that Netflix would only undergo this split if they were seeking the option in the future of discontinuing their disc service all together and exclusively offering streaming service. The inefficient line would be much easier to discontinue if it were
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Unformatted text preview: separate from other business segments. Question 4: The assumption that the marginal cost for the disc service doubles after the split is the main factor driving my conclusion. Additionally the demand curves for both markets were reduced equally. For the streaming video product line, marginal cost was cut in half from 2 to 1. However, for the disc rental product line marginal cost was doubled from 2 to 4. The increase in cost on the disc product line was greater than the cost savings on the streaming video line. This reduces total profit from 15 to 12.5....
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