In the theme of costs this week. we are going to think about costs for our Spectrum Case Study. Read the memo below and using the text area below (yes. I realize it's only the text area which should signal to you that the math in this one is minimal) to answer the following question: How low should we be willing to go with our prices before it makes sense to exit the Austin market? NOTE: I want you to respond as if you are responding to the Vice President of Marketing at your company. The goal with this memo is to determine which costs we will consider (and which ones we will ignore} with this decision. Memo 2 To: Pricing Manager, Austin From: Vice President, Marketing Re: Google Fiber As you are aware, Google has been entering select markets with its Google Fiber service that competes directly with our high- speed data and video services. Even though its market penetration has been moderate, Google has deep pockets and excellent brand awareness. As a result, we are paying close attention to markets that it is entering. Within the last year, we completed our own ber upgrade in the area at a cost of a little over $550 million. We are able to provide our high-speed data and video, and have a large number of bundled customers for our products. Unfortunately, many of them have been with us for a while and are no longer under any contract to remain with us. With Google's entry (along with existing competition), we may need to reduce our prices. The Austin sen/ice area for our services inciudes 340,000 households. Currently, in neighborhoods where Google competes, we provide bundled services that average $120 per household per month. in addition to monthly costs associated with the $550 million (which is being amortized over 15 years at 6.0 percent), agreements with program providers stipuiate that we pay them $41.50 per subscriber per month. In addition, we have maintenance, service. and billing costs of $9.20 per subscriber. i am concerned that increased competition will lead to a price war. and that prices may get to unprotable levels. if things turn really bad. we may need an exit strategy from this market. How low should we be willing to go with our prices before it makes sense to exit the Austin market