Question

Entry is a good idea only if it has a higher payoff than alternative strategies. Use the following decision tree to decide whether Apple should deter Dell from entering the market for very thin, light laptops. Assume that each firm must earn a 15 percent return on its investment to break even.

Answer the following questions with your response.
Should Apple deter Dell from entering? Why or why not?





Will Apple charge a high price or low price?





What profit will Apple and Dell get?

Answer 1

Apple should charge $800 for it's laptop to deter dell from entering the market and earn 20% return on investment at this price.

Step-by-step explanation:

Apple will earn profit if it charges $1000 for it's very thin ad light laptop. If apple charges this much amount and dell does not enter the market, then apple would be able to earn highest profit. But if dell enters the market, then apple will not be able to earn highest profit and it will have to split the market with dell, earning about only 16%.

But if apple charges $800, then dell will not enter the market because it will be a loss for it because it would be only able to cover 5% of it's return on investment. Thus it is best for apple to charge $800 to deter dell from entering the market. At this price, apple will get 20% of it's return on investment.