Question: HEB is very popular in Texas whereas Walmart expands its business up to all 50 states, even crosses the boarder. For most of cities outside Texas, Walmart can be viewed as a first mover. HEB opened its first store outside of Texas in 1996, a 24000 square feet HEB pantry store Lake Charles, LA. However, it closed in 2003!. By far, HEB hasn't tried to open stores in most states yet. Now suppose both Walmart and HEB are considering whether and how to enter a potential market. Market demand is given by the inverse demand function p market price margin, q1 is the quantity sold by Walmart, and q2 is the quan- tity sold by HEB. To enter the market, a retailer must build a store. Two types of stores can be built: small and large. A small pantry store requires an investment of $50000, and it allows the retailer to sell as many as 100 units of the goods at zero marginal cost. Alternatively, the retailer can pay $175000 to construct a large full-service supermarket that will allow it to sell any number of units at zero marginal cost. 900 – q1 – q2, where p is the

Question: HEB is very popular in Texas whereas Walmart expands its business up to all 50 states, even crosses the boarder. For most of cities outside Texas, Walmart can be viewed as a first mover. HEB opened its first store outside of Texas in 1996, a 24000 square feet HEB pantry store Lake Charles, LA. However, it closed in 2003!. By far, HEB hasn't tried to open stores in most states yet. Now suppose both Walmart and HEB are considering whether and how to enter a potential market. Market demand is given by the inverse demand function p market price margin, q1 is the quantity sold by Walmart, and q2 is the quan- tity sold by HEB. To enter the market, a retailer must build a store. Two types of stores can be built: small and large. A small pantry store requires an investment of $50000, and it allows the retailer to sell as many as 100 units of the goods at zero marginal cost. Alternatively, the retailer can pay $175000 to construct a large full-service supermarket that will allow it to sell any number of units at zero marginal cost. 900 – q1 – q2, where p is the

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter5: Investment Decisions: Look Ahead And Reason Back

Section: Chapter Questions

Problem 5.6IP

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