Market Structure And Firm Strategy
Assume that you have decided to start your own Internet business to sell cookbooks online (justcookbooks.com). You estimate that the annual cost of this business in the first year will be as follows:
Fixed explicit costs (annually):
TOTAL Explicit Fixed Costs (annual) $16,000
Fixed implicit costs (annually):
Variable cost = $20 per book.
Part 1:
Assume that the equation for demand is Q = 40,000 – 500P, where
Using the information above, fill in the following chart (note that quantity is just the solution of the demand curve above; the first two lines of the table have been completed for you – you need to complete all other lines in the table):
Price
QuantityElasticityTotal RevenueTotal CostEconomic Profit
$10
35,000
—
$350,000
$766,000
-$416,000
$15
32,500
0.1852
$487,500
$716,000
-$228,500
$20
$25
$30
$35
$40
$45
$50
$55
$60
$65
$70
Indicate the maximum profit price and quantity by highlighting those particular values with red font.
Part 2:
After you complete the chart (either fill in the empty boxes in the table above or create an Excel file), copy and paste the table into a Word file. This table should be at the top of your assignment. Then answer the following questions (based on the chart and your understanding of this material) in 600-800 words:
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