Your company makes one brand of a “basic” electronic device used in industrial applications. The device sells for $195 and costs $105 per unit to produce. It is currently selling 1800 units per week, which is expected to remain flat over the next year unless a new product is introduced.
You have the opportunity to produce a second, “deluxe”, model. It will involve an initial investment to bring to market and it is expected to sell 200 units the first week and for demand to increase by 5% per week over the first year. However, for every two units of the deluxe model sold, there will be one fewer sale of the “basic” model. The deluxe model sells for $295 and costs $175 to produce.
Build a model to determine, based on analysis over a one-year (52-week) period, what is the maximum amount that you should be willing to invest to bring the deluxe model to market?