Fat Tire Bicycle Company currently sells 40,000 bicycles per year. The current bike is a standard balloon-tire bike selling for $120, with a production and shipping cost of $35. The company is thinking of introducing an off-road bike with a projected selling price of $370 and a production and shipping cost of $300. The projected annual sales for the off-road bike are 15,000. The company will lose sales in fat-tire bikes of 8,500 units per year if it introduces the new bike, however.

What is the erosion cost from the new bike?

Should Fat Tire start producing the off-road bike?