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(1) Macrohard Corporation is a new business based out of Puerto Rico that is considering a plan to manufacture and market cellphones in Peurto Rico starting in 2022. However, before it decides to take the plunge, it needs to understand the feasibility of breaking even. Macrohard is planning to sell the cellphones to wholesalers at $25. The electronic circuitry costs $7.50, CORNING supplies the screen for $3.75, and the battery costs $1.25. Additionally, the cost of a fabrication facility is $8.5 million, and Macrohard estimates that it will need to spend $2 million on sales and marketing expenses in order to achieve its objectives, and $2 million on general and administrative expenses. Calculate the break-even volume, and explain how feasible it is for Macrohard to break even.

(2) When wholesalers sell to retailers, in order to ensure suitable margins, they typically add a 10% markup to the price at which they buy cellphones from Macrohard. Additionally, when retailers sell to consumers, to ensure their own margins, they typically add a 15% markup to the price at which they buy cellphones from wholesalers. What is the price that wholesalers charge retailers, and what is the price that retailers charge consumers?

(3) Now assume that Macrohard has started its operations and is doing fairly well. However, based on some market research about economic demand curves and price sensitivity, Macrohard is considering lowering its price to $20. What is the incremental break-even volume as a percentage of the old no. of units? Explain whether or not this incremental level of sales appears feasible. Hint: Gross Margin % is the same as Unit Margin %.

(4) Macrohard has commissioned some more market research to understand how consumers make their buying decisions, with specific focus on how consumers evaluate alternatives. Create an expectancy-value model that depicts three cellphone brands (including Macrohard), their average ratings across consumers on three attributes that are relevant to consumers buying decisions for cellphones, the average importance weights for the three attributes across consumers, and the overall evaluation for each brand. Clearly list and justify all assumptions. Does this decision appear to follow a compensatory or non-compensatory model? Based on your conclusion about a compensatory or non-compensatory model, which brand is the average consumer likely to choose and why?

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