The market for digital cameras is relatively new. Ajax produces what is regards

Question

The market for digital cameras is relatively new. Ajax produces what is regards as a high-quality digital camera. Knockoff produces what it regards as a low-quality camera. However, because the market is so new, reputations for quality have not yet developed, and consumers cannot tell the quality difference between an Ajax and Knockoff just by looking at them. If consumers knew the difference, theyd be willing to pay $200 for a high quality camera, and theyd be willing to pay $100 for a low quality camera. It costs Ajax $85 to produce a high quality camera, and it cost Knockoff $55 to produce a low quality camera. A recent MBA hire at Ajax suggests that Ajax could differentiate its camera from Knockoffs by offering a full coverage warranty (which would fully cover any defect in the camera at no cost to the customer). The MBA estimates that it would cost Ajax $20 per year to offer such a warranty. The MBA also estimates that it would cost Knockoff $40 per year should Knockoff attempt to copy Ajax

Explanation / Answer

95$

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