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16 February, 13:32

Osion Electronics Inc. incurs a cost of $350 to produce one unit of a cell phone. The company's management has priced the product at $600 in the market. Considering the technological advancement of the cell phone, customers perceive its value to be around $800. What is the economic value created in this scenario

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  1. 16 February, 13:51
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    The economic value establish in this case is $450

    Explanation:

    Economic value is the term which is defined as the computation of the profits an asset has either manufactured or might produce in the future. It is that measure of the product or service benefit provide the economic agent.

    For computing the economic value as:

    EV (Economic value) = (Actual rate of return - Cost of Capital) * Net Investment

    where

    Actual rate of return is $800

    Cost of capital is $350

    Net Investment is nil

    Putting the values above:

    EV = $800 - $350

    EV = $450
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