Bikes LLC is a company that manufactures and sells motorcycles in North America.
ID: 1110432 • Letter: B
Question
Bikes LLC is a company that manufactures and sells motorcycles in North America. It has the following demand function for its motorcycles: P = 30,000 – 100Q Bikes LLC has a marginal cost (MC) that is constant and equal to $4,000. What will Bikes LLC’s price be if it decides to sell the motorcycles by itself?
a) What will the price be if it sells them though MC Dealership, LLC an independent distributor?
Consider that when Bikes LLC contracts with MC Dealership, LLC, it takes into account that MC Dealership, LLC faces the same demand curve. Assume that (MC) is constant and equal to $4,000.
b) What is the impact of distributing the motorcycles through MC Dealership, LLC on the price of the motorcycles? Be sure to explain and interpret your calculations.
Explanation / Answer
If the LLC decides to sell the motorcycles by itself , then the company will sell that level of output at which price = marginal cost.
price = mc= $4,000
Quantity =(30,000 -400)/100= 260
a) if it sells them though MC Dealership, then company will sell that level of output at which marginal revenue = marginal cost.
totat revenue= PQ
TR = (30000 - 100Q)Q
TR = 30,000Q- 100Q2
differentiate with respect to Q
MR= 30,000 - 200Q
Now at equilibirium
mr=mc
30,000 -200Q= 4,000
Q= (30,000- 4,000)/ 200= 130
PRICE= 30,000 -100(130)= 17,000
C) Prior to mc dealership, price= 4,000 and quantity = 260. but after mc leadership price increases to 17,000 and quantity reduces to 130. so, mc dealership increases the price and profit of Bike LLC COMPANY.
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