Lincoln Manufacturing has just developed a more durable commercial carpeting. It has all the advantages of the currently available commercial carpeting and lasts twice as long. Lincoln’s materials and labor costs for producing this new carpeting are $14.50 per square yard. Buyers of commercial carpeting must have it installed by independent contractors whose installation charges for this new carpeting average $10 per square yard.
The price of the currently available commercial carpeting averages $12 per square yard. Independent contractors charge $8 per square yard for installing the currently available commercial carpeting.
(a) Use VTC analysis to calculate the VTC for commercial buyers of a square yard of Lincoln’s new carpeting.
(b) Recommend a price for a square yard of Lincoln’s new carpeting, and justify your recommendation. Your justification should make use of your estimate of the VTC of Lincoln’s new carpeting.