You are starting your own Internet business. You decide to form a company that will sell cookbooks online. Justcookbooks.com is scheduled to launch 6 months from today. You estimate that the annual 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.
Delegate your assignment to our experts and they will do the rest.
The average retail price of the cookbooks will be $30, and their average cost will be $20.
Assume that the equation for demand is Q = 40,000 – 500P, where
Q = the number of cookbooks sold per month
P = the retail price of books.
Show what the demand curve would look like for price between $25 and $35.
Q = 40,000 -500 P
When P is the retail price of cookbooks = $25.00
The equation is
Q = 40,000 – 500 (25) = 27,500 (Q of cookbooks sold per month @ $25) When P = $30.00
The equation is
Q = 40,000 – 500 (30) = 25,000 (Q of cookbooks sold per month @ $30) When P = $35.00
The equation is Q = 40,000 – 500 (35) = 22,500 (Q of cookbooks in a month @ $35
When the cookbooks pricing change, the elasticity of demand shows how many
cookbooks are sold per month, and the respons shows the changing prices.
At the time the cookbooks sell at $35 each, few books are sold, but the profits is higher.
At the time cookbooks sell at $25, consumer buys more books, but the realized profit is lower
Making the overhead cost higher due increased units of production being accomplished.
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?
Total Costs = Technology $5,000 + Equipment $4,000 + Inventory of Cookbooks $2,000 + Postage and Handling $1,000 +Miscellaneous $3,000 + Equipment $4,000 + Overhead $1,000 + (opportunity cost of job forgone $12,500) =$28500?
Is the business worth pursuing so far?
A. Profit = (AR * Q) – (AC * Q) = (AR – AC) *Q
Average Price will be at $30 and Average Cost Will be at $20
Justcookbooks.com is a viable opportunity to pursue. The introduction
price of $30 will se off the business in the best pace. Consequently, the price increasing to $35 will be advantageous to business development and higher profitability.
What market structure have you entered, and why?
Our business is monopoly. There is limited interference from outside players. We set our prices based on the profit and cost margins and not because of the outside players (Kotler, 1996). Additionally, there are no players in the handling similar product with the same business structure we employ ( Husting & Saperstings, 2010). The close competitors have differentiated products and they employ unique market strategies.
Currently the business controls its entire supply, customers, and marketing approaches.
What can you do to guarantee success in this market?
In order for Justcookbooks.com to remains successful, we need our competitive edge, especially in pricing and product quality (Husting & Saperstings, 2010). We need to improve on design and product branding to attract more consumers. Finally, we need to engage in product campaigns and involve in aggressive product promotions.
What pricing strategy might you use?
Price strategy is not only important for competitive advantage, but also for business growth and profitability. The pricing strategy will be based on the market segment potential, the demand, and cost of production ( Kotler, 1996). Our profit margin and consumer’s response will remain an essential pricing factor.
References
Husting, H., & Saperstings, H., 2010. Improve Your Marketing to Grow Your Business: Insights and Innovations that Drive Business and Brand Growth . New Jersey: FT Press.
Kotler, P., 1996. Outlines & Highlights of Marketing by Kotler . Ventura: Academic Internet Publishers.
