You Are the General Manager of TU Modems Inc The Market Is Saturated with Modems,and Your Sales Department Has

question 12

Essay

You are the general manager of TU Modems Inc.,and your accounting department has provided you with the following information about the total cost of producing three potential quantities of a commercial-grade modem:
$$\begin{array} { | l | c | c | r | } \hline & 100,000 \text { Units } & 150,000 U r i t s & 200,000 \text { Urits } \\\hline \text { Materials } & \$ 250,000 & \$ 375,000 & \$ 500,000 \\\hline \text { Depreciation } & 900,000 & 900,000 & 900,000 \\\hline \text { Labor } & 10,000 & 15,000 & 20,000 \\\hline \text { Total costs } & \$ 1,160,000 & \$ 1,290,000 & \$ 1,420,000 \\\hline\end{array}$$ The market is saturated with modems,and your sales department has been able to identify only one potential buyer of your modems.This customer has numerous options and as a result is only willing to pay $300 per modem for an order of 100,000 modems.You must decide whether to sign a contract under these terms or simply shut down your operations.What is your optimal decision?

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Definitions:

Positive Sum Game

A situation in which all participants can gain or benefit in some way, in contrast to a zero-sum game where one's gain is exactly balanced by another's loss.

Herfindahl Index

A measure used to calculate the size of firms in relation to the industry and an indicator of the amount of competition among them; higher values indicate lesser competition.

Concentration Ratio

A measure used in economics to assess the level of competition in an industry by calculating the market share of the largest firms.

Internet Search Industry

A sector of the economy that involves companies which provide technologies and services for searching information on the Internet.