Market for Labor/phase 5 Ip 1

Market for Labor/Phase 5 IP 1

Name withheld

ECON202-1202B-01 Professor Paul Napolitano

Colorado Technical University Online

June 25, 2012

Part I

When starting any business one must know the competition. Currently there are quite a few well known web based and/or internet book stores available. There are also several dedicated solely to cookbooks. These types of businesses would be known as an oligopoly, which is best defined as a market controlled by a small number of mutually independent competing companies. Moreover most of these companies will have an item that sets them apart from the other.

The company that we are commencing into within a six month time frame is an internet business selling cookbooks; and doing business as "Justcookbooks.com". One cost or opportunity of cost to consider is that in order to start this business a yearly salary of $50,000.00. However, you work part-time for half a year, therefore your salary is approximately $12,500, and hence the opportunity of cost for starting the online bookstore is the $12,500 given up by not staying at the current job. Moreover the other considerations are the upfront starting costs involved; Web design and maintenance/technology $5,000.00; postage and handling $1,000.00; miscellaneous $3,000.00; inventory of cook books $2,000.00; equipment $4,000.00, and overhead $1,000.00; which totals $16,000. In total; including the technically lost salary is $28,500 (Hubbard, 2010; Napolitano, 2012).

The equation for demand is Q=10,000 cookbooks sold per month, and P = 9,000.00 for the retail price of books. The average retail price for the cookbook will be $30.00 and the average cost is $20.00. Therefore this calculation is:

Fixed costs will technically be $10,000.00 for selling nothing.

Each book cost $20.00 therefore: 9,000*20=180,000 plus our fixed cost of 10,000.00 will give us upfront costs of $190,000.00. If we can sell the books at $30, this will give us a total in sales of $260,000.00. This will then produce a profit of $70,000; if only the costs of books (180,000) and sale price of books (260,000) are calculated. If all costs and previous salary are measured, we are ahead of the game by $51,500.00 (Salary $12,500+ overhead initial costs of $16,000 + cost of books 180,000= Total costs of $208,500. Sales $260,000 less 208,500 gives us a profit of $51,500).

If we can sell the books at $25, this will give us a total in sales of $215,000.00. This will then produce a profit of $35,000; if only the costs of books (180,000) and sale price of books (215,000) are calculated. If all costs and previous salary are measured, we still have a slight profit of $6,500.00 (Salary $12,500+ overhead initial costs of $10,000 + cost of books 180,000= Total costs of $208,500. Sales $215,000 less 208,500 gives us a profit of $6,500.00). This is still significantly more made in one month, than the salary that would be earned.

If we can sell the books at $35, this will give us the greatest return, a total in sales of $315,000.00. This will then produce a profit of $135,000; if only the costs of books (180,000) and sale price of books (315,000) are calculated. If all costs and previous salary are measured, we are ahead of the game by $106,500.00 (Salary $12,500+ overhead initial costs of $10,000 + cost of books 180,000= Total costs of $208,500. Sales $315,000 less 202,500 gives us a profit of $106,500.00 (Hubbard, 2010; Napolitano, 2012)).

Part II

1) The elasticity of demand for cookbooks purchased on line is dependent upon competition, new entrants into the market, percentage changes, and the substitutions available. Since online bookstores prices will be competitive with one another, and there are substitutions available for the same and or different cookbooks. In general it seems that the online book and/or cookbook business may be in either elastic; where the percentage change in quantity demanded is less than the percentage change in price meaning that the price of the cookbooks may be lowered; however it does not mean that more units will be sold. Or one may look upon it as unit-elastic demand as well; since in there will probably not be a great percentage change in quantity demanded; thus the percentage change in prices will be equal (Hubbard, 2010; Napolitano, 2012).

2) The business definitely looks to worth pursuing even with the threat of competition. Naturally selling the books at a higher price would be most profitable, and lucrative. However if the original price of $30.00 per book were the sale price for 9,000 books; then generating the income in one month; that would take half a year to generate if working full time; would be worth pursuing. Moreover, when owning your own business you dictate the time and energy you wish to put in. The only person you must answer to is yourself; this may also work in an opposite direction if one becomes complacent and lazy (Hubbard, 2010; Napolitano, 2012).

4) When the sale number changes from 9,000.00 to 22,000.00 and simply considering fixed monthly and costs totaling $10,000.00; for overhead at $1,000.00, technology at $5,000.00, and equipment at $4,000; and naturally including the price of the books at $20.00 a book totaling 440,000; for a grand total of $444,000; then profitability will even be greater. Let us assume then that the books are selling for $30.00 each and we sell 22,000 books, then our sales will be $660,000.00; less fixed overhead costs of $10,000.00 and cost of books at $440,000; then our profit margin for one month would be $220,000.00. However being somewhat realistic there are still the variable cost of postage and handling to consider; not mentioning increased inventory; and the possibility of hiring an employee or two. However with all things considered, having a base salary of $220,000 for a month is not a bad deal (Hubbard, 2010; Napolitano, 2012).

5) Marginal costs will be reflected in the change in total costs divided by the change in quantity. If we consider then sales and costs for 22,000 books, then our costs have increased by 260,000.00 (from 180,000.00 to 440,000). Yet in the same token our quantity of books has also increase by 13,000. So our equation will be marginal costs equals the total change in cost $260,000 divided by total change in quantity 13,000 = 20 for our marginal cost (Hubbard, 2010; Napolitano, 2012).

6) With regard to implications of operating in the short run, currently we do not have employees thus there is no variable cost incurred, overhead is still minimal, a there