Wermers Industries Incorporated Has Developed a New Drill Press, Model

question 383

Multiple Choice

Wermers Industries Incorporated has developed a new drill press, model LS-88, that is designed to offer superior performance to a comparable drill press sold by Wermers's main competitor. The competing drill press sells for $31,000 and needs to be replaced after 1,000 hours of use. It also requires $6,000 of preventive maintenance during its useful life. ModelLS-88's performance capabilities are similar to the competing product with two important exceptions-it needs to be replaced only after 2,000 hours of use and it requires $7,000 of preventive maintenance during its useful life.From a value-based pricing standpoint what range of possible prices should Wermers consider when setting a price for model LS-88?

• A) $36,000 ≤ Value-based price ≤ $62,000
• B) $31,000 ≤ Value-based price ≤ $62,000
• C) $31,000 ≤ Value-based price ≤ $67,000
• D) $36,000 ≤ Value-based price ≤ $67,000

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Definitions:

Wholesale Rates

Prices charged for goods in large quantities, typically lower than retail prices and offered to retailers or other businesses rather than individual consumers.

Price Taker

A market participant that accepts the prevailing market prices as they do not have enough market power to influence prices.

Close Substitutes

Products or services that can easily replace each other in the eyes of the consumer due to their similar features or functions.

Total Revenue

The total income received by a firm from its sales of goods or services, calculated by multiplying the price per unit by the number of units sold.