Solution for Managerial Economics 4th Edition Chapter 17, Problem 1

by Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
147 Solutions 23 Chapters 104020 Studied ISBN: 9781305259331 Economics 5 (1)

Chapter 17, Problem 1 : 17-1 Global Expansion You’re the manager...

17-1 Global Expansion

You’re the manager of global opportunities for a U.S. Manufacturer, who is considering expanding sales into Asia. Your market research has identified the market potential in Malaysia, Philippines, and Singapore as described next:

Success LevelMalaysiaPhilippinesSingapore





The product sells for $10 and has unit costs of $8.

If you can enter only one market, and the cost of entering the market (regardless of which market you select) is $250,000, should you enter one of these markets? If so, which one? If you enter, what is your expected profit?

Step-By-Step Solution


Yes, you should enter.  The market you should enter is Singapore.  The expected profit is $890,000.

Malaysia: Expected unit sales = 0.3*1,200,000+0.3*600,000+0.4*0 = 540,000

Philippines: Expected unit sales = 0.3*1,000,000+0.5*320,000+0.2*0 = 460,000

Singapore: Expected unit sales = 0.7*700,000+0.2*400,000+01*0 = 570,000

Expected profit of entering Singapore: 570,000*($10-$8) - $250,000 = $890,000


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