Yashoko Camera Company is the first to offer a new electronic camera that uses a magnetic disk to store visual images instead of film. After taking photographs in the usual way, the disk is transferred to a video player and the photographs may be viewed on the screen. Selected photo¬ graphs may then be printed from this machine, in full color or in black and white.

Yashoko predicts that demand for this product will grow rapidly at first, then grow at a declining rate, and finally sales per month will begin to decline as other manufacturers bring out competing products and the market approaches saturation. The firm’s demand function for the first year is expected to be Q = 5146.7535 — 2.2584E. The intercept term in this expression is expected to increase by 30 percent for the second year, then decrease by 10 percent for the third year, and finally decrease by another 30 percent in the fourth year.

The total variable cost function for this new product is estimated to be TC = 100,000 + 480Q + 0.25Q2 for the first 2,000 units, and then the learning effect in production will cause the intercept term of this cost function to decline by 15 percent each time cumulative output doubles.

(a) Advise Yashoko as to the price level that is profit-maximizing in each of the next four years.

(b) Considering the marketing benefits of having a stable price level over a period of time, and considering Yashoko’s interest in establishing their brand name and reputation as a manu¬ facturer of high-value products, recommend a pricing strategy that might be followed.

(c) Calculate the expected sales volume and profits for each year, given your choice of price(s) in part (b).

(d) Outline all qualifications and assumptions that underlie your analysis.