Michael Dell is preparing for an investors’ meeting and is concerned about a number of issues that should be addressed in the efforts to restore Dell Inc.’s competitiveness in the personal computer industry. Given what you have learned in your Managerial Economics and Quantitative Analysis (MEQA) course, please respond to the following questions.

Part 1 (40%)
Only a conceptual outline is expected in each question of Part 1.

A.Describe the type of competitive market in which Dell competes. How important is product pricing in this market and how much influence does Dell have in determining prices for its products? What other factors do you believe are critical for Dell managers to consider in their efforts to restore the competitive position of the company within the industry? (20%)

B.As an economic consultant, what are the three or four major issues that Mr. Dell should emphasise in what he describes as “a clear focus on what we must do to increase our growth and competitiveness” (p. 12). (20%)

Part 2 (60%)
The following data were generated by Dell’s forecasting group to estimate the future demand for laptop computers sold by the company. These data are only to be applied in the MEQA section of the exam and are not applicable to other areas that you have been asked to address. You have data on the number of units sold (the dependent variable) and independent variables of price, per capita income, and a customer base.

A.Run the regression analysis using the Excel® spreadsheet data attached below. Evaluate the statistical significance of the varied parameters as well as the entire equation to estimate the demand for these computers. (25%)

B.Given a value of 40,000 for Per Capita Income and 62,000 for the Cust Base, derive a demand curve and determine the marginal revenue for this set of data. Given that Dell faces an average variable cost curve of AVC = 7078 – 0.026Q + 0.00065Q2, determine the marginal cost (MC) and find the optimum price and quantity at which Dell should operate. Compare this calculated price/quantity level to what Dell would operate if their MC was equal to zero. (25%)

C.What other factors beyond price should Dell managers consider to make this sector of the company a positive contributor to Mr. Dell’s effort to expand the growth and competitiveness of the company as outlined in Part 1. (10%)
Quantity (000’s)PricePer Capita IncomeCust Base (000)
199455014112665453549
199579015602725854060
199698018622833354538
1997108023393031955113
1998133023983115755612
1999152020513148156113
2000150023603229558069
2001164025273390958606
2002168029293545259147
2003159035163772559689
2004143040153950660227
2005111055074094760875
2006122048773863761401
2007129041013979162047
2008121050824156062646
2009107058014269362770

Note: The MEQA component of this exam has an attached Excel file.