Market Strategy

User Generated

waj1027

Business Finance

Description

Assume that you have decided to start your own Internet business to sell cookbooks online (justcookbooks.com). You estimate that the annual cost of this business in the first year will be as follows:


Fixed explicit costs (annually):

  • Technology (Web design and maintenance) $5,000
  • Postage and handling $1,000
  • Miscellaneous $5,000
  • Equipment $4,000
  • Overhead $1,000

TOTAL Explicit Fixed Costs (annual) $16,000

Fixed implicit costs (annually):

  • Lost wages from job given up (annual) $50,000

Variable cost = $20 per book.

Part 1:
Assume that the equation for demand is Q = 40,000 – 500P, where

  • Q = the number of cookbooks sold per year
  • P = the retail price of books

Using the information above, fill in the following chart (note that quantity is just the solution of the demand curve above; the first two lines of the table have been completed for you – you need to complete all other lines in the table):

Price

QuantityElasticityTotal RevenueTotal CostEconomic Profit

$10

35,000

---

$350,000

$766,000

-$416,000

$15

32,500

0.1852

$487,500

$716,000

-$228,500

$20

$25

$30

$35

$40

$45

$50

$55

$60

$65

$70


Indicate the maximum profit price and quantity by highlighting those particular values with red font.

Part 2:

After you complete the chart (either fill in the empty boxes in the table above or create an Excel file), copy and paste the table into a Word file. This table should be at the top of your assignment. Then answer the following questions (based on the chart and your understanding of this material) in 600-800 words:
  1. Why, according to an economist, should implicit costs (i.e., lost wages from job given up) be included in the total cost of your product to compute economic profit?
  2. Why does price elasticity of demand change as you move up the demand curve (more specifically, as the price of the product increases)?
  3. Explain in your own words why MR = MC produces maximum profit for a company.


You may use the following two resources to assist in this assignment as well:

Please submit your assignme

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Explanation & Answer

Hellooo. here is the work. please let me know in case you need it reviewed in any way

Market Strategy
Equation for demand is Q = 40,000 – 500P,
Price

quantity

elasticity

Total

Total Cost

Revenue

Economic
Profit

$10

35,000

-----

$350,000

$766,000

-$416,000

15

32,500

0.1852

487,500

716,000

-228,500

20

30,000

0.28000

600,000

666,000

-66,000

25

27,500

0.391304

687,500

616,000

71500

30

25,000

0.00005

750,000

566,000

184000

35

22,500

0.6842106

787,500

516,000

271500

40

20,000

0.882352

800,000

466,000

334000

45

17,500

1.133324

787,500

416,000

371500

50

15,000

1.461538

750,000

366,000

384000

55

12,500

1.90909091 687,500

316,00...


Anonymous
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