Pricing and Investment Decisions

In: Business and Management

Submitted By janpao
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You work for a drug manufacturing company that holds a patent on Hair Grow, the world´s most effective drug for restoring hair. Your job is to analyze the pricing and investment decisions facing the firm. Your marketing group estimates that Hair Grow has the following demand curve:
P= 101 - .00002 Q

1- Your marginal cost for producing a Hair Grow pill is $1. What is the profit maximizing price and quantity? What is your profit?

Profit maximization MR=MC
MC (Q) = 101 - .00002 Q
1 = 101 – 2 (.00002) Q
1 = 101 - .00004Q
101 - .00004Q = 1
-.00004Q = 1 -101
Q= -100 / -.00004
Q= 2,500,000 units

P= 101 - .00002 Q
P= 101 - .00002 (2,500,000)
P= 101 – 50
P= $ 51 optimal price
51 -1 = $50
La empresa genera una utilidad con $50 por unidad para una utilidad total de $125,000,000 (2,500,000 unidades * $50)

2- Suppose that your production facility can only produce 1,000,000 pills. What is your optimal price and quantity given the production constraint? What are your profits?

P=101 – 0.00002Q
P= 101 – 0.00002 (1,000,000)
P= 101 – 20
P = $81
81-1= 80

La empresa genera una utilidad con $80 por unidad para una utilidad total de $80,000,000 (1,000,000 unidades * $80)

3- Suppose that you could increase the capacity of your plant to 3,000,000 pills within a 2 year period for a cost of $30,000,000. Should you undertake the investment (for simplicity, assume you can borrow the funds for the expansion at a 0 percent interest rate)?

P=101 – 0.00002Q
P= 101 – 0.00002 (3,000,000)
P= 101 – 60
P = $41
41-1= 40

La empresa genera una utilidad con $40 por unidad para una utilidad total de $120,000,000 (3,000,000 unidades * $40)

Escenario 1
Utilidad anual (120,000,000) * 2 años= 240,000,000 utilidad total
Escenario 2
240,000,000 utilidad total en 2 años – 30,000,000 = 210,000,000 utilidad total

Si debe tomarse la decisión de hacer la…...

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