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Oven Supplies is considering introducing a new heavy-duty oven called the SMEG model in the market. Currently, the market leader is the model called VECTOR, which is sold by a competitor. VECTOR currently sells for $5,000. The new features, or improved functionality, that SMEG has over the VECTOR model include increased fan speed, and more safety features and larger capacity. Market research indicates that the improved functionality is valued at $800 by customers. Customers will need to incur $500 in installation costs for the SMEG model compared to $300 for the VECTOR model. Engineering estimates have determined that VECTOR will entail maintenance costs of $400 per year and will have a useful life of 8 years with a zero disposal value. The SMEG model's yearly maintenance costs are $350, with a useful life of 9 years and zero disposal value.
-Determine the maximum price for the SMEG based on the economic value to the customer of the SMEG model.
-Should the Oven supplier fix the initial price equivalent to the economic value to customers? Why or why not? Justify your answer.
-Calculate the cost to own and operate SMEG. Should a customer buy SMEG based on the cost to own and operate the product that you have calculated. Justify your answer.
-Explain the difference between value-based pricing and economic-value pricing.
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