A company selling air-filtration systems is trying to evaluate the true economic value of its systems for an off-shore oil rig. The price of the next-best alternative is $80,000 Your new product (no price on it yet) has a 2% chance of a system crash and operating costs of $18 per hour. The next-best alternative has a 23% chance of system crash and lower operating system costs of $12 per hour. The cost of a crash is $350,000. Annual operation is 2500 hours. The system will only be used for one year and have no salvage value.

a) Calculate the true economic value. Show your work (the equation and what you plugged in) to demonstrate you know how to calculate and to get partial credit if your final answer is wrong.

b) What two pieces of information would you need to determine the customers incentive to purchase?

c) What two pieces of information would you need to determine the firms incentive to sell?