Ariane Electronics power supply devices in their plant located in Malayasia. The

Question

Ariane Electronics power supply devices in their plant located in Malayasia. The pwoer supply supplies are used in various products such as hair dryers, elecric knives, drills, and so on. The power supplies vary primarily by the watts of output they produce. They range from 5 watts to 30 watts. Ariane's main competitor is Nikko Electrical. Nikko sells a 45 watt power supple at a price of $22. Ariane currently has only a 30-watt power supply that sells for $16 Ariane's engineers think they can produce a 40-watt power supply that can compete with Nikko. The company's market research indicates that prices are adjusted for wattage differences between power supplies. The adjustment formula is as follows:

(Competitor's wattage/our wattage)^0.79, where .79 is the customer's perceived value for wattage.

Based on this relationship, what is the target market price for Ariane's 40 watt power supply?

Explanation / Answer

Their wattage = 45 Our wattage = 40 Price = (45/40)^0.79 * 40 = $43.90

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