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:
Marginal Cost Function
A mathematical representation that describes how the cost of producing one additional unit of a good varies as the quantity of production changes.
Market Short-Run Supply
The total quantity of a good or service that producers are willing and able to sell at current prices in the short run, considering fixed and variable costs.
Units of Output
The individual items or quantities produced by a process or system.
Short-Run Elasticity
The responsiveness of the quantity demanded or supplied of a good to a change in its price over a short period.
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