XCELL Printing has created a new cartridge for 3D printers that they claim is fa
ID: 1149626 • Letter: X
Question
XCELL Printing has created a new cartridge for 3D printers that they claim is far superior to the closest alternative cartridge sold by MM Printing. XCELL is in the process of selecting a price for the cartridge and wants to learn what the cartridge will be really worth to customers who are manufacturing firms. The MM cartridge sells for $200. While the MM cartridge breaks down with a probability of 40% after every 500 print jobs on a 3D Printer, the XCELL cartridge breaks down with a probability of 30% after every 900 print jobs. Every fix in case of a breakdown requires an hour of labor cost and also a material cost of $5. The XCELL cartridge requires a higher quality plastic compared to the MM cartridge. Suppose you are told that the cost of plastic amounts to $10 per carton for XCELL and $8 per carton for MM, and typically a customer would need to reorder a carton every 450 print jobs. Also, you are told that $20 is the hourly rate for labor hired by the typical manufacturing firm. Also, on the average, a manufacturing firm does 4500 print jobs in a year. Suppose the lifetime of a cartridge is 1 year. Calculate the total economic value of the XCELL cartridge.Explanation / Answer
MM cartridge price = $200
Xcell cartridge price = $x
probability of breakdown after 500 prints = 0.4
cost of fixing for each breakdown = labor cost + marterial cost
cost of fixing for each breakdown= 20 + 5 = $25
Total print in a year = 4500
Cost of fixing for entire year = probability of breakdown*(total print in a year/500)*cost of fixing for each breakdown
cost of fixing for entire year = 0.4*(4500/500)*25
cost of fixing for entire year = 90
cost of plastic for MM cartridge = 8 * (4500/450) = 80
Total cost for consumer in case of MM cartridge = 200 + 80 + 90 = $370
As MM cartridge is close substitute for XCELL cartridge, the total cost for consumer in case of XCELL cartridge should not exceed $370.
cost of fixing for entire year = 0.3*(4500/900)*25
cost of fixing for entire year = 37.5
cost of plastic for XCELL cartridge = 10 * (4500/450) = 100
Total extra cost for consumer in case of XCELL cartridge = 100 + 37.5 = $137.5
Maximum price XCELL cartridge can have = 370 - 137.5 = $232.5
Hence, total economic value of the XCELL cartridge can have $232.5
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