Moreover we sell maximum number of units at this pricing (i.e. However if the cost of advertising is the price of the product is $2450 and earns profit of $2.74 billion. At $500 billion advertising cost, the company sells the product at a price of $2350 and earns a profit of $1.91 billion.
I decide to increase the advertising expenditure from $400 billion to $ 600 billion. The reason for this decision is – (a) we have to increase awareness and acceptance of the new technology to increase market, and (b) earn higher profit. Therefore, I decided to take Robert’s suggestion. Reducing the cost of advertising is not an option as in both the cases as suggested by Jane, we earn either negative profit (in case of advertising cost $100 billion) or lower profit than what we may earn by retaining last year’s advertising cost. 400, the price of the computer must come down to $ 2350 wherein the company earns a profit maximizing profit of $1.34 billion. If we keep, last year’s advertising budget i.e. Therefore, for a new product advertising budget and price according to it must be considered. However, optical computers have close substitutes in traditional microchip based computers. Phase 2: The profit-maximizing price is good at a situation where there is effect of advertisements and consumer choice on product buying decision and that are no close substitutes. In case of Quasar Computers, for Neutrons, the profit-maximizing price is $2550 and quantity demand at that price is 5 units. In order to maximize profit in monopolistic market, the economic solution is to equate marginal revenue to marginal cost, which will provide the profit maximizing price and quantity derived from the demand curve. Therefore, the market structure in which Quasar Computers operates is monopolistic in structure. Phase 1: Neutron being a technological innovation enjoys market monopoly. The following provides the strategies to be opted by Quasar computers at different stages. In order to earn economic profit on a sustainable basis the firm must consider the market structure and then choose from the pool of strategies available.
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