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Managerial Economics – 1 Question

You
recently acquired a bakery on the main downtown street. There is another bakery not far away. Otherwise, you face no real
competition. At this point, you are
still unclear about the personality and management style of the owner of
the other bakery. You have contemplated
three possible strategies: (1) produce a lot of cakes and mark down their
prices to try to sell a large quantity; (2) limit your production of cakes, but
charge a high price for them; or (3) politely engage the owner of the other
bakery in a conversation, and consider proposing that the two of you collude on
prices and adjust your production levels accordingly. Depending on what the owner seems to be like,
which of the choices would be best from the standpoint of profitability? Discuss the possibilities fully.

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