Question

Verizon

Total cost = $23 billion

Opportunity cost of capital = 10%

Annual cost = $2.3 billion

Expected demand = q = 2,100,000 – 6P

AT&T

Total cost = $4.6 billion

Opportunity cost of capital = 10%

Annual cost = $460 million

Expected demand = q = 425,000 – 60P

5. Suppose that the expected demand equation for AT&T is wrong and the correct demand is Q=22,000 – 6P at $30 and $60 but that no one is willing to pay $100. How much will AT&T charge? How much profit will AT&T make?

(other questions)

1. Calculate the expected annual profit that Verizon will earn if they price at service at $30/month, $60/month or $100/month. At which price do they maximize profit?

2. Calculate the expected annual profit that AT&T will earn if they price at service at $30/month, $60/month or $100/month. At which price do they maximize profit?

3. If both Verizon and AT&T charge $100, which company has the higher profit? How much is the profit difference?

4. Suppose that the expected demand equation for Verizon is wrong and the correct demand is Q=210,000 – 6P at $30 and $60 but that no one is willing to pay $100. How much will Verizon charge? How much profit will Verizon make?

5. Suppose that the expected demand equation for AT&T is wrong and the correct demand is Q=22,000 – 6P at $30 and $60 but that no one is willing to pay $100. How much will AT&T charge? How much profit will AT&T make?

6. If the probability is 50% that the original demand equations are correct and 50% that demand equations are those in part 5 and 6, what network investment would you recommend?

Answer 1

This is my answer

Only answer 3 is available

Sorry for other parts

Thank you...