A firm currently has a 20% market share for its product, lint pickers.It has identified 2 plans to improve its market share.The transition matrices for both plans are listed below.Plan 1 costs $1 million and Plan 2 costs $1.5 million.The company's goal is to determine what its demand will be in the long-term.
A single percentage point of market share translates into an annual demand of 1,000 units per year.Also, each percentage point of market share means $100,000 of profit for the firm.Choose the plan that maximizes the firm's net income.
Definitions:
Price Range
The spectrum or extent between the highest and lowest prices of a commodity over a given period.
Shut Down Point
The point at which a company's revenue is exactly equal to its variable costs and it ceases operations to minimize losses.
Firm
A business organization, such as a corporation, partnership, or sole proprietorship, that sells goods or services in exchange for money.
Price
The sum of money anticipated, needed, or provided as compensation for something.
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