​Ban Consultants a Firm and Its Supplier Are Going to Negotiate a Negotiate

question 37

Essay

​Ban Consultants
A firm and its supplier are going to negotiate a deal every quarter.Since the supplier's cost is $10 million per quarter and the value to the firm is $14 million per quarter,there is $4 million per quarter to split between the two.However,they can hire a negotiation consultant for a quarter for $500,000.If neither hires the consultant,each expects to get half of the $4 million pot.If only one hires the consultant,it expects to get three-fourths of the pot minus the consultant costs.If they both hire consultants,they cancel each other out and they expect to get half the pot minus the consulting costs.They expect to repeat this process every quarter for the foreseeable future.Can they agree to ban the consultants?

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Definitions:

Income Statement

A report detailing a corporation's income and expenditures within a certain timeframe, leading to either a profit or a deficit.

Sales Revenue

The earnings obtained through the sale of products or services during a certain timeframe.

Inventories

Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services.

Insurance Policy

A contract between an insurer and a policyholder that outlines the terms and conditions under which the insurer agrees to compensate the policyholder for losses under specified circumstances.