Blue Skies Aviation is a manufacturer of small single-engine airplanes. The company is relatively small and prides itself on being the only manufacturer of customized airplanes. The company's high standard of quality is attributed to its refusal to purchase engines from outside vendors, and it preserves its competitive advantage by refusing to sell engines to competitors. To achieve maximum efficiencies, the company has organized itself into two divisions: a division that manufactures engines and a division that manufactures airplane bodies and assembles airplanes. Consultants have estimated that: Demand for Blue Skies' customized planes is given by P=700,000 - 2,000Q. The cost of producing engines is Ce(Qe) = 4,000 Q², and the cost of assembling airplanes is Ca(Q) = 16,000Q. What problems would occur if the managers of each division were given incentives to maximize each division's profit separately? Lower profits due to double marginalization Lower profits due to block pricing Lower profits due to price discrimination O Lower profits due to randomized pricing What price should the owners of Blue Skies set for engines in order to avoid this problem and maximize overall profits? $

Blue Skies Aviation is a manufacturer of small single-engine airplanes. The company is relatively small and prides itself on being the only manufacturer of customized airplanes. The company's high standard of quality is attributed to its refusal to purchase engines from outside vendors, and it preserves its competitive advantage by refusing to sell engines to competitors. To achieve maximum efficiencies, the company has organized itself into two divisions: a division that manufactures engines and a division that manufactures airplane bodies and assembles airplanes. Consultants have estimated that: Demand for Blue Skies' customized planes is given by P=700,000 - 2,000Q. The cost of producing engines is Ce(Qe) = 4,000 Q², and the cost of assembling airplanes is Ca(Q) = 16,000Q. What problems would occur if the managers of each division were given incentives to maximize each division's profit separately? Lower profits due to double marginalization Lower profits due to block pricing Lower profits due to price discrimination O Lower profits due to randomized pricing What price should the owners of Blue Skies set for engines in order to avoid this problem and maximize overall profits? $

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter3: Demand Analysis

Section: Chapter Questions

Problem 1E: The Potomac Range Corporation manufactures a line of microwave ovens costing $500 each. Its sales...

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The Potomac Range Corporation manufactures a line of microwave ovens costing $500 each. Its sales have averaged about 6,000 units per month during the past year. In August, Potomacs closest competitor, Spring City Stove Works, cut its price for a closely competitive model from $600 to $450. Potomac noticed that its sales volume declined to 4,500 units per month after Spring City announced its price cut. What is the arc cross elasticity of demand between Potomacs oven and the competitive Spring City model? Would you say that these two firms are very dose competitors? What other factors could have influenced the observed relationship? If Potomac knows that the arc price elasticity of demand for its ovens is 3.0, what price would Potomac have to charge to sell the same number of units it did before the Spring City price cut?
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