Paula boothe, president of the indigo corporation, has mandated a minimum 10% return on investment for any project undertaken by the company. given the company’s decentralization, paula leaves all investment decisions to the divisional managers as long as they anticipate a minimum rate of return of at least 10%. the energy drinks division, under the direction of manager martin koch, has achieved a 13% return on investment for the past three years. this year is not expected to be different from the past three. koch has just received a proposal to invest $1,800,000 in a new line of energy drinks that is expected to generate $234,000 in operating income.

calculate the residual income for the proposed new line of energy drinks.

Suppose that two firms produce differentiated products and compete in prices. as in class, the two firms are located at two ends of a line one mile apart. consumers are evenly distributed along the line. the firms have identical marginal cost, $60. firm b produces a product with value $110 to consumers.firm a (located at 0 on the unit line) produces a higher quality product with value $120 to consumers. the cost of travel are directly related to the distance a consumer travels to purchase a good. if a consumerhas to travel a mile to purchase a good, the incur a cost of $20. if they have to travel x fraction of a mile, they incur a cost of $20x. (a) write down the expressions for how much a consumer at location d would value the products sold by firms a and b, if they set prices p_{a} and p_{b} ? (b) based on your expressions in (a), how much will be demanded from each firm if prices p_{a} and p_{b} are set? (c) what are the nash equilibrium prices?