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Modifying a product to increase its "value added" benefits customers and can enhance supplier profits. For example, suppose an improved version of a product increases customer value added by $25 per unit. (In effect, the demand curve undergoes a parallel upward shift of $25.)

A.If the redesign is expected to increase the item's marginal cost by $30, should the company undertake it, and (if so) how should it vary its original output and price?
B.Suppose instead that the redesign increases marginal cost by415. Should the firm indertake it, and (if so) how should it vary its original output and price?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9479641

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