You Are the Manager of XYZ Inc XYZ and ABC Each Use Labor,materials,and Machines to Produce Output

question 58

Essay

You are the manager of XYZ Inc.and must decide how much output to produce to maximize your firm's profit.XYZ and its rival,ABC Corp.,produce a good that consumers view as essentially identical.These two firms make up the entire industry,so the market price for the good depends on the total amount produced by the two firms.A survey reveals that the market price of the product depends on total market output as follows:
$$\begin{array} { | l | l | } \hline \text { Cormbined Output of XYZ and ABC } & \text { Product Price } \\\hline 200 \text { units } & \$ 6 \\\hline 300 \text { units } & \$ 5 \\\hline 400 \text { urits } & \$ 4 \\\hline\end{array}$$ XYZ and ABC each use labor,materials,and machines to produce output.XYZ purchases labor and materials on an as-needed basis; their machines were purchased three years ago and are being depreciated according to the straight-line method.XYZ's accounting department has provided the following data about its unit production costs:
$$\begin{array} { r} { \text { XYZ's Unit Cost for ary Output of: } } \\\begin{array} { | l | l | l | } \hline \text { Itern } &100 \text { units } \quad\quad\quad& \mathbf { 2 0 0 } \text { units } \quad\quad\quad\\\hline \text { Direct labor } & \mathbf { \$ 2 } & \mathbf { \$ 2 } \\\hline \text { Direct materials } & \mathbf { \$ 3 } & \mathbf { \$ 3 } \\\hline \text { Depreciation charge } & \mathbf { \$ 2 } & \mathbf { \$ 1 } \\\hline\end{array}\end{array}$$ Reports from industry experts suggest that ABC's cost structure is similar to XYZ's cost structure and that technological constraints require each firm to produce either 100 units or 200 units of output.
a.Briefly explain which costs are relevant for your decision,and why.
b.Write this game in normal form.
c.How many units should XYZ produce:
100 units or 200 units?

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Definitions:

Chemical Evolution

The process by which simple chemical compounds spontaneously formed more complex molecules over time, ultimately leading to the emergence of life from non-living matter.

Organic Evolution

The process of change and diversification of living organisms over time through mutations, natural selection, and genetic drift.

Carbon Monoxide

A colorless, odorless, and toxic gas produced by incomplete combustion of carbon-containing materials, capable of binding with hemoglobin and reducing blood's oxygen-carrying capacity.

Water Vapor

The gaseous phase of water, present in the atmosphere and an important part of the Earth's water cycle and weather.