Susan Wang is a well-known software engineer. Her specialty is writing software code used in maintaining the security of credit-card information. Wang is approached by the Electronic Commerce Group (ECG). They offer to pay her $100,000 for the right to use her code under license in their e-procurement software package. Wang rejects this offer because it provides her with no upside if the e-procurement package is a runaway success. Both parties eventually agree to a contract in which ECG pays Wang a flat fee of $100,000 for the right to use her code in up to 10,000 packages. If e-procurement sells more than 10,000 packages, Wang receives an additional $8 for each package sold beyond the 10,000 level.
Required
1. What is the unit cost to ECG of Wang's software code included in its e-procurement package if it sells (a) 2,000 packages, (b) 6,000 packages, (c) 10,000 packages, and (d) 20,000 packages?
2. To predict ECG's total cost of using Wang's software code in e-procurement, which unit cost (if any) of (a) to (d) in requirement 1 would you recommend ECG use? Explain.