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"You are currently in position 2 of a paid search term, the click-through rate is 1%, and the cost per click is $1.50. You can get into position 1 by paying $2.50 per click. In position 1, you expect a click-through rate of 1.5%. In position 3 you would pay $0.50 cost per click and have a click-through rate of 0.5%. The conversion rate once someone clicks is 10% in all 3 positions. Our total profit per order-before search costs-is $30. Our goal is to maximize absolute $ profit.
Questions
A) What is the cost per order in position 2?
B) What is the cost per order in position 1?
C) Which of the 3 positions do you want to be in?
D) At what click through rate in position 1 are you indifferent between positions 1 and 2?
E) What is the marginal cost per order of the orders you lose by moving from position 2 down to position 3?"
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