TalkaLot Corp. 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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BlackTom AI · Accepted Answer

Here's what's being asked: TalkaLot Corp. has a production cost of 350 per unit, the market price is 600, and customers perceive the phone’s value at about 800. We need to determine the economic value created per unit.
Option 1: $200. This would imply economic value created equals 800 (perceived value) minus 600 (price) or some other calculation, but neither aligns with the given cost. It misinterprets either value or price as the basis for economic value, which is not the standard approach here.
Option 2: $350. This matches the production cost. Some might think economic value equals cost, but economic value created should reflect the surplus customers gain over the cost, i.e., value minus cost, not just cost itself. Thus this is incorrect.
Option 3: $450. This is the difference between the perceived value ($800) and the production cost ($350): 800 − 350 = 450. It represents the extra value created for customers beyond the cost to produce the product.
Option 4: $800. This is the full perceived value to customers, not the net value created after accounting for cost. It ignores the production cost, so it overstates economic value created from the producer’s perspective.
In summary, economic value created per unit is computed as perceived value minus cost, which yields 800 − 350 = 450, making Option 3 the correct interpretation among the choices.

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