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.

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. For the first part of the assignment, you will need to plug in numbers into the demand curve and come up with a value of Q. How do we do this? Suppose we have a price of $24. Now substitute into the demand curve:

Q=40,000-500*24

Q=40,000-12,000

Q=28,000

All you need is to select just two prices for the demand equation because two points determine a line.

Then you need to graph it. You can draw it by hand and scan into the paper. The demand curve would be downward sloping.
Address the following questions:

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? (Just add up all the values in the table to get total costs.)

Is the business worth pursuing so far? (Compare your costs from the last question and compare to revenues. For revenues, suppose I use the 28,000 from earlier. Take 28,000*30 (average retail price of the cookbooks). If revenues are greater than costs, you should keep doing the business.)

What market structure have you entered, and why? (Make your choice and explain your reasoning. Your explanation is what counts)

What can you do to guarantee success in this market? (Your explanation is what counts as well. As a manager what would you do to ensure that this market is successful. You can be creative here)

What pricing strategy might you use? (Your explanation is what counts as well. How would you set the prices for these cookbooks? Why would you set the pricing strategy this way?)

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.

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. For the first part of the assignment, you will need to plug in numbers into the demand curve and come up with a value of Q. How do we do this? Suppose we have a price of $24. Now substitute into the demand curve:

Q=40,000-500*24

Q=40,000-12,000

Q=28,000

All you need is to select just two prices for the demand equation because two points determine a line.

Then you need to graph it. You can draw it by hand and scan into the paper. The demand curve would be downward sloping.
Address the following questions:

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? (Just add up all the values in the table to get total costs.)

Is the business worth pursuing so far? (Compare your costs from the last question and compare to revenues. For revenues, suppose I use the 28,000 from earlier. Take 28,000*30 (average retail price of the cookbooks). If revenues are greater than costs, you should keep doing the business.)

What market structure have you entered, and why? (Make your choice and explain your reasoning. Your explanation is what counts)

What can you do to guarantee success in this market? (Your explanation is what counts as well. As a manager what would you do to ensure that this market is successful. You can be creative here)

What pricing strategy might you use? (Your explanation is what counts as well. How would you set the prices for these cookbooks? Why would you set the pricing strategy this way?)