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18. You are a pricing manager at Argyle Inc.âa medium-sized firm that recently introduced a new product into the market. Argyleâs only competitor is Baker Company, which is significantly smaller than Argyle. The management of Argyle has decided to pursue a short-term strategy of maximizing this quar- terâs revenues, and you are in charge of formulating a strategy that will per- mit the firm to do so. After talking with an employee who was recently hired from the Baker Company, you are confident that (a) Baker is constrained to charge $10 or $20 for its product, (b) Bakerâs goal is to maximize this quar- terâs profits, and (c) Bakerâs relevant unit costs are identical to yours. You have been authorized to price the product at two possible levels ($5 or $10) and know that your relevant costs are $2 per unit. The marketing department has provided the following information about the expected number of units sold (in millions) this quarter at various prices to help you formulate your decision:Argyle PriceBaker PriceArgyle Quantity (millions of units)Baker Quantity (millions of units)$ 5$103252031101012102011Argyle and Baker currently set prices at the same time. However, Argyle can become the first-mover by spending $2 million on computer equipment that would permit it to set its price before Baker. Determine Argyleâs optimal price and whether you should invest the $2 million.
