13. interactions in customer evaluation Return to the product evaluation discussion in the text, where a potential third product, with quantity q3, was under consideration. Presuming limited market conditions for the other products (of q1 ≤

2, 000 and q2 ≤ 2, 000), and a selling price of
P = 1, 000, we derived a break-even quantity of q3 = 15, 000/[1, 000 − 430] ≅ 26.32. We now assume there are no market constraints on the first two products

(thereby dropping the q1 ≤ 2, 000 and q2 ≤ 2, 000 constraints).

Suppose we acquire the necessary tooling, at a cost of 15, 000, and produce q3 units of this new product.

(a) Without the noted market constraints, the production of the first two products is affected by production of the third. Suppose 0 ≤ q3 ≤ 2, 000. Determine the best choice of q1 and q2, given an exogenous q3 in the noted range. (Recall their respective selling prices are
P1 = 600 and
P2 = 1, 100.)

(b) Now suppose the selling price of the new product is
P = 1, 000 per unit. How many units must be produced and sold if accepting this new product is a good idea?

(c) Carefully explain the difference between the original break-even calculation and that which you performed in

(b) above.

(d) Suppose q3 = 800 units. What is the minimum price for this to be an interesting product?

(e) Again presuming 0 ≤ q3 ≤ 2, 000, what is the incremental cost of the third product?