Eagleshare is popular new ridesharing app

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Reference no: EM132300136

EagleShare is a popular new ridesharing app. Usage has been increasing rapidly, and the founders have realized that they need to upgrade their data center, as their servers will soon be unable to handle the level of activity. The metric EagleShare uses to measure activity is the number of “requests.” A request occurs each time a passenger or driver searches for a ride, accepts or rejects a ride, and completes a ride. Currently, they are averaging 10,000 requests per day. The average marginal profit associated with a request (ignoring any server costs) is $0.20. Since they are not IT architecture experts, they have decided to outsource hosting and management of their servers. They are considering three possible 1-year contracts. The server usage involved with each contract has been converted into number of requests.

Contract A costs $20,000, and includes 400,000 requests.

Contract B costs $50,000, and includes 1,200,000 requests.

Contract C costs $100,000, and includes 3,000,000 requests. For the sake of simplicity, assume that when a contract’s capacity is reached, app users will temporarily switch to a competitor; EagleShare will receive no more profit for the year, but will not suffer any additional goodwill cost or loss of future revenue.

NOTE: SHOW ALL YOUR WORK. USE 4 DECIMAL PLACES IN YOUR CALCULATIONS.

c) For what of requests would the profit with Contract A and with Contract B be equal?

d) For what of requests would the profit with Contract B and with Contract C be equal?

Reference no: EM132300136

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