Accounting A business firm F wishes to sell a unique kind of widget that no other firms
Question:
(b) Now consider S’s decision to make the investment in the first place. S can decline F’s offer to make the investment at all, obtaining $0 zillion, or it can make the investment and subject itself to the manipulation described in the previous part. What is S’s optimal choice?
(c) Suppose that, before making the initial proposal to S, F can develop an international market for used widget making equipment. If F develops this market, then S would be able to sell the widget making equipment for $3 zillion after building it. (It still costs $2 zillion for S to build the investment.) F incurs a cost of $1 zillion to develop the international market for used widget equipment. Assuming F maximizes its total profit (revenue from widget sales minus all costs of investment, widget equipment market develop- ment, etc.), should F do this? Why or why not?
Managerial economics
ISBN: 978-1118041581
7th edition
Authors: william f. samuelson stephen g. marks