The marketing team at Widgets Inc. is trying to determine the optimal price for a new product it has recently developed, code named “The Unicorn.” Management estimates that at a price of $179 per unit, it will sell 150,000 units. If it lowers the price to $159 it expects sales to increase to 200,000 units, and at a price of $139 it anticipates sales of 250,000 units.

Because “The Unicorn” is based on entirely new technology, management expects there to be a learning/experience curve (i.e., production costs per unit will decline as volume increases). At a production volume of 150,000 units management forecasts variable costs of $90 per unit. At a production level of 200,000 units variable costs will decline to $85 per unit; and at production volume of 250,000 units variable costs should average $82 per unit.

Fixed costs will total $8 million per year, regardless of the level of production. With this information in mind, what is the optimal price for the new product? Show your work and explain.

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To determine the optimal price for the new product The Unicorn we need to consider the profit at dif... View the full answer