Avian Electronics, Inc. manufactures a model of portable music players that can play music downloaded from the Internet. It is considering adding a more advanced model of the product that can also download and play video files as well as music files. Avian's variable costs and prices to wholesalers are:
Current Audio model
New Audio/Video model
Unit selling price
$150.00
$250.00
Unit variable costs
$60.00
$120.00
The company expects to sell 2 million units of the new audio/video model in the first year after introduction, but it expects that half of those sales will come from buyers who would have purchased Avian's current audio model. Avian estimates that it would sell 2.5 million units of the current audio model if it did not introduce the audio/video model. If the fixed cost of launching the new audio/video model will be $800,000 during the first year, should Avian add the new model? Why or why not?