Determine elasticity of the demand

Assignment Help Microeconomics

Reference no: EM1374606

Suppose you are starting your own Internet business. You make a decision to form a company that will sell cookbooks online. You estimate that the yearly cost of this business will be as follows:

Technology (Web design and maintenance) $5,000
Postage and handling $1,000
Miscellaneous $3,000
Inventory of cookbooks $2,000
Equipment $4,000
Overhead $1,000

Part I

Deliverable Length: 1 graph plus calculations

You must give up your full-time job, which paid $50,000 per year, and you worked part-time for half of the year.
The average retail price of the cookbooks will be $30, and their average cost will be $20.

Suppose that the equation for demand is Q = 10,000 - 9,000P, where

Q = the number of cookbooks sold per month
P = the retail price of books.

Demonstrate what the demand curve would look like if you sold the books between $25 and $35.

Part II

Deliverable Length: 1,000-1,500 words

Address the following questions:

1. What is the elasticity of the demand for cookbooks bought this way?
2. Is the business worth pursuing so far?
3. Why or why not?
4. Suppose that you expect to sell about 22,000 cookbooks per month online, and assume your overhead, technology, and equipment costs are fixed. What are your total costs?
5. What are your marginal costs?
6. What are the implications of operating in the short run and the long run?
7. As your business grows, how must you consider the issues regarding diminishing marginal returns and economies of scale?
8. What market structure have you entered, and why?
9. What can you do to guarantee success in this market?
10. Can you use price discrimination in this business?
11. What pricing strategy might you use?

Reference no: EM1374606

Questions Cloud

Illustrate what you are seeking to accomplish proposal : illustrate what you are seeking to accomplish should come across in proposal narrative in such a way that funder can see your vision. Illustrate what are some ways you can convey such passion.

Computing the expected dividends : New Light Corporation has just created a solar panel capable of generating 200 percent more electricity than any solar panel currently on the market. As a result, New Light is expected to experience a 15% yearly growth rate for the next 5 years.

Illustrate what capacity requirement should be planned : If demand is expected to increase to 84 customers for this flight segment in 3 years, illustrate what capacity requirement should be planned.

How large order for special plastic-lined military uniforms : Contract price is $200 per uniform. Because of urgent need, BBBC is authorized to use around--clock production, 6 days per week. When each of 2 shifts works 72 hours per week, production increases to 4,000 uniforms per week but at a cost of $144 ..

Determine elasticity of the demand : Suppose you are starting your own Internet business. You make a decision to form a company that will sell cookbooks online. You estimate that the yearly cost of this business will be given as follows:

Find out optimum no of equipments to be placed per day : Find out Optimum No. of Equipments to be placed per day to be Loaded at minimum cost.

What would happen if next month they offered a trip : Illustrate what would happen if next month they offered a trip to Paris for waitress who sold most chicken wings?

For production combination which resource is slack : For production combination of 800 boxes of Deluxe and 600 boxes of Classic which resource is slack (not fully used).

Illustrate what percentage of change are you hoping to see : Illustrate what percentage of change are you hoping to see as a result of se objectives being implemented.

User Account

All Pages