Reference no: EM133302560

You are the manager of a company that does digital imaging in the medical industry. You and your only competitor are contemplating the purchase of a new three-dimensional imaging device. If only one of you acquires the device, that firm will make $20 million dollars in profits and the competitor will lose $9 million dollars. There is only one of the devices available and another will not be available for the foreseeable future. A salesperson has contacted you and offered to sell you the imaging device for $23 million dollars. If you refuse, the salesperson will contact the rival firm with the same offer.

Should you accept or refuse the offer? Explain why. Writing this decision as a reduced form game may inform your decision making, include the table here if you use one in preparing your answer.

Price discrimination as a profit maximization strategy.

1. Describe price discrimination. What conditions have to exist in order for a business to be able to price discriminate?

2. Envision that you own a local retail store that sells shoes. Describe two specific price discrimination strategies that you anticipate would allow you to increase profit.

Envision a scenario where you have a strategic opportunity where you could invest a specific amount of money today, say $10,000 for an anticipated increase in profits that will continue each year for the next five years, say $3,000 each year.

1. Describe the process of how you would use the concept of the time value of money and net present value to consider this decision. How do you know if this is a "good" business decision? Be explicit about your thought process.

2. How would changes in the interest rate affect your decision? What if the increased profits didn't start until year 5 and continue until year? Explain how changes in the interest rate and the timing of costs and benefits (sooner or later) would affect the NPV of costs and benefits in the future.