Question

19.- Marketers often assess the true economic value (TEV) by using all of the following EXCEPT:

1. the performance of competitors’ products.
2. the relative advantage or disadvantage offered by the focal product.
3. a cost structure study to understand the customer’s underlying economics.
4. the costs of competitors’ products.

20.- Mr. Smith at Acme Production, Inc. is trying to determine the true economic value (TEV) for a new computerized machine. This machine costs $20 per hour to operate and can be used for a year before it needs to be replaced. A system crash costs $500,000, and the probability that the machine will crash is 5%. The next-best alternative has a price of $150,000. It can also be used for a year and costs $15 per hour to operate. The cost of a system crash for this alternative is also $500,000, and the probability that it will crash is 15%. Acme plans to operate this machine 8 hours per day, 365 days, over the next year. The true economic value (TEV) of the machine is:

1. $185,400.
2. $175,000.
3. $154,000.
4. $210,400.

Answer 1

1) Solution: the cost of competitor's product

Working: Marketers usually assess the true economic value (TEV) by using the performance of products by rivals; the relative pros and cons offered by the focal good; and a study for structure of cost to know the customer’s underlying economics

2) Solution: $185,400

Working:

= Price of next best alternative + Expected crash system saving - Added operating cost true economic value

= 150,000 + [(15% * 500,000) - (5%*500,000)] - [(2,920*$20/hr) - (2,920*$15/hr)]

= 150,000 + 50,000 - 14,600

= 185,400