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 Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,000 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United States. The demand for BMWs in each market is given by:

QE = 4,000,000 – 100 PE and QU = 1,000,000 – 20PU

where the subscript E denotes Europe, the subscript U denotes the United States. Assume that BMW can restrict U.S. sales to authorized BMW dealers only.

Correction : Prices and costs are in dollars, not thousands of dollars as your book may indicate.

What quantity of BMWs should the firm sell in each market, and what should the price be in each market? What should the total profit be? Contemplating Starting a Business Business Finance

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