What is the elasticity of the demand for cookbooks bought this way
ey Assignment Draft
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:
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Order Paper NowTechnology (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.
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 if you sold the
books between
$25 and $35.
Address the following questions:
What is the elasticity of the demand for cookbooks bought this
way?
Is the business worth pursuing so far?
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?
What are your marginal costs?
What market structure have you entered, and why?
What can you do to guarantee success in this market?
What pricing strategy might you use?
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