Business Proposal

Topics: Economics, Monopolistic competition, Variable cost Pages: 6 (1102 words) Published: November 30, 2014


Business Proposal
Aracheal Ventress
Economics 561
April 7, 2014
Maria Hamideh Ramjerdi
Business Proposal
The digital world has created a market for producing products that are user-friendly, serves multi-purposes, has 24 hour accessibility, and lightweight to carry. Society is plugged in and a common desire is to have applications available at the click of a mouse. Because of this sense of urgency, Will Bury believes that, in the near future, most of the population will be reading or listening to everything digitally, including books that have been mostly available in hard copy. He has developed and patented technology that scans books into a digitizer. "This technology takes the printed word for text materials and creates a file with the option of reading it digitally or listening to it with a realistic synthetic voice" (Will Bury’s Price Elasticity Scenario, pg.1, 2014). Will has a great idea and excellent technical skills but has a learning curve with the application of key economic principles that could help with the growth of his business. This paper will discuss some recommendations Will can utilize for success. I will discuss the product’s current market, elasticity of the product, pricing decisions in terms of marginal costs and marginal revenue, non-pricing strategies, and fixed and variable costs. Market Structure

Will’s business that he has developed is in a monopolistic competition market structure. “Monopolistic competition is characterized by a relatively large number of sellers, differentiated products (often promoted by heavy advertising), and easy entry to and exit from the entry” (McConnell, C., Brue, S., & Flynn, S., 2009, pg. 223). Although there is a competitive market for audio books, his product has an advantage because it has an included feature that differentiate from the other products on the market. This is will give him an edge in a monopolistic competitive market. Elasticity

“Elasticity is a measure of how much the quantity demanded of a service or good changes in relation to its price, income or supply” (investigatinganswers.com, 2014). Based on the definition of elasticity, Will’s product is considered elastic because it is a new and is not considered to be a necessity. “The demand curve faced by monopolistically seller is highly, but not perfectly, elastic…for two reasons, first the monopolistic competitor has fewer rivals and second its products are differentiated, so they are not perfect substitutes” (McConnell, C., Brue, S., & Flynn, S., 2009, pg. 225). Because of Will’s patent, there are no other firms offering another product with the same capabilities, there is not real substitute in the market. Changes in Quantity

Will set up a website offering a small selection of books. His prices were $10 for the older books and $15 for the newer books. In first six months of operation, he sold 1,000 of the older books and 2,000 of the newer books. A change in the amount output will change the amount of revenue received. Because there is a bigger demand for newer books, he should increase the price of the newer books from $15 to $20. He should also expand the book catalog to include more recent titles. An increase in output will always elevate profit as long as the marginal revenue is greater than marginal cost. This rule could be applied to Will's business on account if different books produced, there will always one more unit of good. This concept will maximize profit. The consumers will not mind the price increase because it is a product without a substitute and his service expanded to reach a broader audience. Another strategy is advertising. Will's product is innovative and it is something that people will want to purchase. The key is placing the product in the eyes of the public that he wants to capture. According to Economics principles, problems, and policies, “The expense and effort involved in product differentiation would be wasted if...

References: Elasticity (2014). Retrieved from http://www.investigativeanswers.com
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, problems, and policies (18th ed.). Boston Ma: McGraw-Hill Irwin.
Will Bury’s Price Elasticity Scenario (2014). Retrieved from http://ecampus.phoenix.edu/portal
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