ECON 212-1501A-04 Principles of Microeconomics

Task List:
ECON212-1501A-04 : Principles of Microeconomics
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?