whereas the quantity supplied by the manufacturing division is
PT = MCMfg
In this instance of excess internal supply, the distribution division will purchase all 5,000 units desired internally, while the manufacturing division will offer an additional 25,000 units to the new foreign distributor. Again, the price impact for customers and the profit impact for Josiah Bartlet & Sons are dramatic. Domestic customer prices and total profits are now as follows:
= $100(5,000) - $0.001(5,0002) + $80(25,000) - $250,000
- $20(30,000) - $0.001(30,0002) - $62,500 - $5(5,000)
Under this scenario, Josiah Bartlet & Sons' domestic market shrinks from an initial 15,000 to 5,000 units, and prices rise somewhat from $85 to $95 per unit. At the same time, foreign customers benefit from the increased availability of goods, 25,000 versus none previously, and the attractive purchase price of $80 per unit. The opportunity to sell at a price of $80 to a foreign distributor has also benefited the company, because profits grew from $250,000 to $625,000. The company now distributes only 5,000 of 30,000 units sold to customers and has become much more of a manufacturer than a distributor. By emphasizing manufacturing, Josiah Bartlet & Sons makes its business and profits grow by focusing efforts on what it does best.
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