Reference no: EM132991335

Question - You are currently in position 2 of a paid search term, the click-through rate (clicks per impression) is 1% and the cost per click is $1.50.You can get into position 1, where the click-through rate is 1.8%, by paying $2.50 per click. In position 3 you would pay $0.75 per click, and have a click-though rate of 0.6%.Conversion rate (orders per click) once someone clicks is 10% in all 3 positions. Our total profit per order (before search advertising costs) is $30. There are 50,000 searches per day that our ad will display on. It will display in the same position each time; you cannot pick a mix of positions. Our goal is to maximize the total profit after search advertising costs.

A) What is the cost per order in each position?

B) Which of the three positions do we want to be in?

C) What is the cost per order of just the orders you gain by moving up from position 3 to position 2?

D) What is the minimum acceptable click-through rate for for us to prefer position 1 for our ads? Put another way, what is the rate where we are indifferent between position one and the next best position?

E) Imagine, in addition to the information above, we now also have a daily budget of just $600. Which position do we want to be in now?