You are the manager of a retail electronic store. Recently,you purchased 200 What -A-Sound portable CD players from awholesaler in a going out of business sale. The units cost you $80each, about half of the normal cost of other brands that you sellfor $260. You expected to sell these units at the regular price andearn an above normal profit. After your purchase, you discoveredthat the units were poorly constructed and would probably lastabout a third as long other major bands.
Customers often ask for a recommendation when consideringthe purchase of a protable CD player. If you tell them the truthabout the What-A-Sound model, you may have difficulty sellingthe units, even if you offer a steep discount.
a. What will you tell a customer who asks about theseunits?
b. What are the short run and long run implications for yourcompany's profits if (a) you conceal the quality of the units andsell them at their regular prices or (b) reveal the qualityproblem? If you were to choose alternative b, what options mightyou consider in an effort to minimize the effect of these units onyour profits?