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# Tricky negotiations question

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Intern
Joined: 22 Jun 2008
Posts: 41

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06 Feb 2009, 00:05
This topic is locked. If you want to discuss this question please re-post it in the respective forum.

Company A assembles PC-laptops.

It has received a price quote for CPU (one of its critical component) from Company B, which is willing to sell it to Company A at a price of \$35. However, there is 50% chance that Company B's CPU price can be lowered to 20%, e.g. \$28.

Company A is about to begin its negotiations with Company C, another supplier of CPUs. What is Company A's reservation price, e.g., the most it will pay for Company C's CPUs?
SVP
Joined: 29 Aug 2007
Posts: 2457

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06 Feb 2009, 08:49
Daler wrote:
Company A assembles PC-laptops.

It has received a price quote for CPU (one of its critical component) from Company B, which is willing to sell it to Company A at a price of \$35. However, there is 50% chance that Company B's CPU price can be lowered by (to) 20%, e.g. \$28.

Company A is about to begin its negotiations with Company C, another supplier of CPUs. What is Company A's reservation price, e.g., the most it will pay for Company C's CPUs?

Since the chance of lowing the price of CPU from B is 50%, the reservation price should be
= \$35.00 - (50% of 20% of \$35)
= \$31.50

Anything below \$31.50 from C is profitable for A.

Note: This is not a gmat question and if you are looking for solution for your school assignment, this not a right place and approach. This could severely damage your record if your school knows it.
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Re: Tricky negotiations question   [#permalink] 06 Feb 2009, 08:49
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# Tricky negotiations question

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