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irm W sells widgets in a reasonably stable market. It plans to launch a new, more advanced model and considers two targeting options: it can go either after a high end market with the price of $100 per widget or after a lowend market with $60 per widget. We need to advise them which option promises better profitability. 1. Variable cost per new widget is expected to be either $75 for a high end model or $48 for the lowend model. Ws fixed costs directly related to manufacturing (excluding marketing) are $2.5 million per year. Calculate the quantity of widgets that W need to sell to break even for $100 option and $60 option (6 points). 2. Current model is sold at $85 per widget. At this price annual sales are estimated at 260,000 units. Observing consumers behavior during sales events when price was dropped to $50, Ws managers estimated that at that price annual sales would be 460,000 units. Calculate expected sales at $100 and $60 per widget. (10 points) 3. Which estimate of expected sales is more trustworthy, for $100 or for $60? Why? (2 points) 4. Will W break even selling at $100? At $60? (1 point) 5. Calculate expected annual contribution before marketing for $100 option and $60 option (6 points). 6. With fewer potential customers, marketing to the highend is expected to cost W about $250,000 a year, compared to $350,000 for a lowend option. Calculate expected contribution after marketing for $100 option and $60 option (2 points). 7. Bottom line: which targeting choice has better profit potential? Why?(1 point)

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