Reference no: EM13453907

Maxim Motronics A.G. have been marketing a new product in Europe that has achieved notable market success and it now plans to introduce this product into the United States market. The product is an electronic device that is mounted in the rear window of passenger cars and allows the driver of one vehicle to have a spoken message converted to text and scrolled across the display panel to be read by occupants of a following vehicle. This new product can utilize the hands-free telephone microphone already installed in many new vehicles, or provides this as free accessory. Maxim expects that demand will be slow at first but will pick up quickly as automobile accessory stores begin to stock the product and as word-of-mouth promotion spreads awareness. Maxim also plans to produce a humorous video for posting to YouTube and to utilize social-media marketing to spread awareness and enthusiasm for the new product. Market demand estimates provided by Maxim are that the firm expects to sell about 125,000 units into the U.S. market within 24 months, and that sales per month will start slowly and increase monthly in the expected diffusion pattern until they stabilize at about 10,000 per month after month 24. The diffusion curve parameters that fit these assumptions are shown in the equation + 46.11T2 - 1.352T3, where Q is sales per month and T is the number of months after the launch into the US market. Maxim's average variable cost (AVC) is constant at $62 per unit and he expects to set the profit-maximizing price by applying a 167% mark-up to arrive at his regular price of $165, since he estimates the demand curve to be - 0.02Q.

a. What introductory price do you recommend Maxim sets for the launch of the product into the US market, and why? (State any assumptions you need to make).

b. How might he further adjust the price before raising it to the regular level he envisions? (Again, state any assumptions you need to make.)

c. What is your advice for Maxim concerning the confirmation of his prior projections of demand and the shape of the diffusion curve, and the profit-maximizing price, after this new product gains some months of experience in the U.S. market?