Reference no: EM133342920

Case: According to a study, only 19% of the Christmas trees Americans display each year are real. 81% displayed are artificial. Modern artificial trees came to the market in the 1930s. It was first sold by the UK-based Addis Brush Co. - a maker of toilet scrubbing brushes - who saw an opportunity to market convenience during a time when real Christmas trees were hard to get ahold of. While a real tree takes 8-10 years to get to market, a fake tree can be produced in a few minutes. At full steam, a factory can pump out 1.5k trees in a 2-day cycle. In 2019, roughly the same number of real (26 million) and fake (25 million) trees were sold in the US.

Suppose you are managing a big retail chain in the US. In previous years, you were selling only real Christmas trees. The retail price of a 6 feet real tree is $75 per tree. The wholesale price (the price you paid to the farm) is $35 per tree.

This year, you are considering selling artificial Christmas trees as well. You found an artificial tree supplier which produces high-quality artificial Christmas tree (see picture below).

The wholesale price of the artificial 6 feet tree is $15 per tree. You are thinking about the retail price you should charge for the tree. You vaguely remember that in your MBA class, you learned that you first need to figure out consumer's willingness to pay (also called total economic value) - the maximum price you can charge.

Consider the real Christmas tree as the next best alternative. What is the willingness to pay for one artificial tree? Please provide your estimation ($), and justify your estimation.

(Hint: you need to think what the differences in customer value are between real and fake trees from the customers' point of view. Try to make assumptions and convert the differences into monetary value.)