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    Calculating Dell's Profit Increase

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    Suppose your firm manufactures 3 million hard drives per year specifically for Dell laptop computers. Suppose your average variable cost C=$20/unit, annualized cost of investment to build a hard drive factory I=$30 million, and the market price (bailout market price in the event Dell does not buy) Pm=$22/unit. If Dell agrees to purchase the 3 million hard drives at a price P*=$30.2/unit and subsequently renegotiates to only purchase for $26.8/unit, how much has Dell increased its own profits?

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    The key to solving this problem is recognizing that most of the information given in question is a smokescreen. My production ...

    Solution Summary

    When given cost and price information for one of Dell's subcontractors, this solution shows how to calculate Dell's increase in profit when Dell renegotiates its contract.