1. The profit for ABC X-Plode when both firms charge MSRP is $1,000.
Units ABC X-Plode will sell = 100 units
Profit per unit = $10 ($20 - $10)
Total profit = $1,000 ($10 x 100)
2. The profit for ABC X-Plode when it charges MSRP, but Boomburgs charges below MSRP is $500.
Units ABC X-Plode will sell = 50 units
Profit per unit = $10 ($20 - $10)
Total profit = $500 ($10 x 50)
3. The profit for ABC X-Plode when it charges below MSRP, but Boomburgs charges MSRP is $350.
Units ABC X-Plode will sell = 175 units
Profit per unit = $2 ($12 - $10)
Total profit = $350 ($2 x 175)
4. The profit for ABC X-Plode when both firms charge below MSRP is $250.
Units ABC X-Plode will sell = 125 units
Profit per unit = $2 ($12 - $10)
Total profit = $250 ($2 x 125)
Data and Calculations:
Cost per unit = $10
Quantity sold at MSRP = 100 units
Sales units below MSRP:
One firm sells = 175 units
Second firm sells = 50 units
Sales units for each firm when they sell below MSRP = 125 units
Let:
Price at MSRP = $20
Price Below MSRP = $12
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