Medi Supplies Ltd has developed a quick test for the virus that has a 99% accuracy. The fixed cost estimated to be incurred with this test is $3,000,000 and the variable cost is estimated to be $15.00 per test. The CEO of Medi Supplies Ltd wants to have an introductory price for the test of $25.00. At this price demand is estimated to be 350,000 tests. The government is offering to subsidize the cost of the test which would reduce variable cost by $2.50 per unit but it is conditioned on capping selling price at $20.00 per test. Any price less than $22.00 is expected to increase demand by 70,000 tests. The management of Medi Supplies is unsure what action they should take and have reached out to you for help. They would like to know at a minimum:

Is it viable to introduce the test at a price of $25.00?

Should they accept the subsidy with the present condition?

If they could negotiate the selling price with the government what is the minimum price, they should accept so that they would be indifferent between taking the subsidy and not taking it.?

What other factor should they consider other than costs and revenues? Required Prepare a report recommending to the management of Medi Supplies Ltd outlining the action they should take concerning the introduction of this test. Present all relevant data to support your answer. (10 marks)