Reference no: EM133343999

Question: Red Medical Devices (RMD) is a health-care technology startup founded by Illinois Tech faculty. Its primary product is the Red Early Warning System (REWS). This device takes the input from the numerous sensors attached to a patient and integrates the disparate sources of information to detect the likelihood of an imminent cardiac event and alerts caregivers. RMD sells REWS to hospitals, doctors and home health care providers; it has numerous patents which insulate it from competition. A REWS unit costs $100 to manufacture. A student team estimated the demand for REWS to roughly approximate the function P = $500 - 1 500 Q , and recommended that REWS be priced at $300 per unit. (i) Check the work of the student team. Is REWS priced correctly? Explain. (ii) Part of the $100 cost of production for RMD is a $20 per unit royalty that is paid to the Illinois Tech Computer Science faculty member who wrote the algorithm within the REWS unit, which processes the data and provides the alert. RMD has just met with the faculty for a renewal of her annual contract, and the faculty has offered to accept an annual royalty of $2 million instead of $20 per unit. Should RMD choose the fixed $2 million for its contract with the faculty member? If it does so, should it change its price? Explain.