A typical tube-style incandescent light bulb lasts for 1,000 hours and is available to consumers for $3.30 per bulb. A manufacturer has produced a tube-style halogen light bulb that gives the same amount of light as the incandescent bulb but lasts for 1,400 hours. The halogen bulb also uses less energy than the incandescent bulb, saving the consumer $0.50 in electricity costs for every 1,000 hours of light-bulb use. (a) What is the value to the customer of the manufacturer’s tube-style halogen light bulb to consumers who are currently buying tube-style incandescent light bulbs? Show your work. (b) If the manufacturer’s variable costs for producing these halogen light bulbs are $2.25 per bulb, specify the price ceiling and the price floor for these halogen bulbs. Explain your reasoning. (c) According to the course material, what is meant by the strategic prominence of price? If the halogen light bulb manufacturer wants to make price the lead activity in the marketing mix, would he set the bulb’s price closer to its price ceiling or closer to its price floor? Explain your reasoning. (d) If the manufacturer wants to make price the lead marketing mix activity in selling the light bulbs, then how should he try to frame the bulb’s price to consumers: as one loss, as two losses, or as a loss and a gain? Explain your reasoning.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A typical tube-style incandescent light bulb lasts for 1,000 hours and is available to consumers for $3.30 per bulb. A manufacturer has produced a tube-style halogen light bulb that gives the same amount of light as the incandescent bulb but lasts for 1,400 hours. The halogen bulb also uses less energy than the incandescent bulb, saving the consumer $0.50 in electricity costs for every 1,000 hours of light-bulb use.

(a) What is the value to the customer of the manufacturer’s tube-style halogen light bulb to consumers who are currently buying tube-style incandescent light bulbs? Show your work.

(b) If the manufacturer’s variable costs for producing these halogen light bulbs are $2.25 per bulb, specify the price ceiling and the price floor for these halogen bulbs. Explain your reasoning.

(c) According to the course material, what is meant by the strategic prominence of price? If the halogen light bulb manufacturer wants to make price the lead activity in the marketing mix, would he set the bulb’s price closer to its price ceiling or closer to its price floor? Explain your reasoning.

(d) If the manufacturer wants to make price the lead marketing mix activity in selling the light bulbs, then how should he try to frame the bulb’s price to consumers: as one loss, as two losses, or as a loss and a gain? Explain your reasoning.

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