What quantity, Q, should Banana Republic order, and what price P should it expect to charge? Illustrate the situation in a carefully labeled diagram, including the graphs of demand, marginal cost, marginal revenue, average total cost. Highlight the region that corresponds to the profit of the firm.
Independently from all this, Banana Republic had placed an order for an additional 2,000 units to be sold (through a distributor) in an Eastern European country. The cost of this additional output (20*2,000) is paid at the time of contract signing with the manufacturer in April. Although the products are identical, the domestic and foreign markets are perfectly segmented, so there is no reason to be concerned that sales in the European market will affect domestic demand and prices.
In October, as shipments start to arrive, the Eastern European distributor unexpectedly experiences serious financial difficulties and cancels the order. Now, Banana Republic is stuck with an additional 2,000 units it had not planned on. Your problem is to decide on the best course of action under these unanticipated circumstances. The questions below compare three alternative scenarios
Attachment:- 596591_1_Question-1.docx