Optical Distortion, Inc. (ODI) is about to introduce its new product: contact lenses for

chickens. Unlike contact lenses for humans, which are designed to improve sight, these

contact lenses for chickens are designed to distort images so that the chickens become

half-blind. This is desirable to poultry farmers because chickens whose vision is impaired

will exhibit significantly less fighting (i.e., establishing of a pecking order). This will

reduce flock mortality from 25% to 4.5% (each chicken killed through this fighting costs

the farmer $2.40). The typical poultry farm consists of 10,000 to 50,000 birds.

Currently, poultry farmers deal with deaths due to fighting by debeaking the chickens.

Debeaking reduces flock mortality from 25% to 9% but is so traumatic to the chickens

that they stop laying eggs for a week after the operation (a chicken lays an average of five

eggs per week and the farmer sells eggs for an average price of $0.53/dozen). Moreover,

debeaked chickens have difficulty eating feed from a trough. The resulting spillage

causes increased feed costs to the farmer that amount to $0.084 per chicken per year (the

normal life span of a chicken is approximately one year).

The ODI lenses do not cause the chickens to become traumatized, and since it enables

them to keep their beaks, it does not cause any eating difficulties. A three-person crew,

which is able to debeak 250 chickens per hour could, after training, install contact lenses

in 225 chickens per hour. The average labor costs for this crew is $36 per hour. ODIs materials and manufacturing costs are $0.035 per pair of lenses. ODI is aware that

promoting their new product will not be easy. Many poultry farmers consider the idea of

contact lenses for chickens to be ridiculous and complain that their workers are

unfamiliar with the lens insertion procedure. However, ODIs immediate question is what

price to charge for a pair of lenses. (Total 15 marks)

a. What is the low end of the price range that ODI should be considering? (2 points)

b. What is the high end of the price range that ODI should be considering? (6 points)

c. What price within this range should ODI use for its new contact lens product?

Justify your answer, making use of what you know about the basic initial-pricing

strategies. (3 points)

d. Assume the contact lens price that you recommended in Part (c). If first-year fixed

costs are $68,000, how many pairs of contacts lenses would ODI have to sell

during the first year to breakeven? How does this number affect your confidence

in the price you recommended in Part (c)? (4 points)

please solve all the questions in detail