Question: A small manufacturing company with many products will soon begin producing a new product. The new product's per-unit variable costs will equal $3.00. The company's fixed costs are currently $12,000 per month and will not change when this new product is produced. A value-to-the-customer analysis has determined that the value of this new product to the product's target customers is $18. The company's management is considering what price it should set for this new product.
(a) According to the material on the bounds of the typical price, what is the high end and what is the low end of the range of prices that management should be considering? Briefly justify your answer.
(b) If this new product is patented and thus protected against direct competition, where within the range of prices you gave in Part (a) would you recommend the price of this product be set? Again, briefly justify your answer.