Capital Budgeting Decision
June 1, 2021
Annotated Bibliography
June 1, 2021

Economics

Economics

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.

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?

Is the business worth pursuing so far?

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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