The question: Ray works for a major Australian bank. Ray is in charge of IT purc
ID: 1094574 • Letter: T
Question
The question: Ray works for a major Australian bank. Ray is in charge of IT purchases for the bank and has to make a large order to replace all the desktop computers in the head office. This question explores the options for Ray as to how he should structure this purchase in order to get the computers required by the bank at the lowest possible price. More generally, it is about a business designing the best procurement process it can to buy inputs into its production process.
a. Assume that Ray, through his vast industry experience, has perfect knowledge about the costs (and quality) of a computer supplier. Moreover, assume that the computer supplier acts like a price taker in the negotiations. What offer should Ray make to the supplier in order to get the best possible price? Make sure you highlight the intuition for your suggestion. Practically, if Ray does not have perfect knowledge, but instead has fairly accurate information about the suppliers costs, what are some of the potential problems that Ray might face? Can these problems be mitigated (and how)? Ensure you explain your answer.
Explanation / Answer
Since the condition specified in the question states that the supplier is price it means that the supplier is willing to take what ever price Ray offers. Theoritically that if Ray askes for a price very close to zero even then the supplier would be willing to take it. But here the supplier will be willing to accept any price that is above is Marginal cost to build one unit (Variable Marginal cost to be more precise; any price below this and the supplier will have to shut). So Ray needs to bargain the prices till the supllier says "NO." This would the lowest possible price.
In the even that Ray does have complete inforation, he will not no what is the supplier lowest accetable price and hence the supplier may at one point say that he cannot go any further without closing his business and this is what Ray will have to accept even if the price that the suppliers quotes is higher than his variable marginal cost.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.