02 Jun Question Assignment: You are starting your own Internet business
Question
Assignment:
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 = 10,000 – 9,000P, where
Q = the number of cookbooks sold per month
P = the retail price of books.
Show what the demand curve would look like if you sold the books between $25 and $35.
Part II
Deliverable Length: 1,000–1,500 words
Address the following questions:
1. What is the elasticity of the demand for cookbooks bought this way?
2. Is the business worth pursuing so far?
3. Why or why not?
4. Suppose that you expect to sell about 22,000 cookbooks per month online, and assume your overhead, technology, and equipment costs are fixed.
5. What are your total costs?
6. What are your marginal costs?
7. What are the implications of operating in the short run and the long run?
8. As your business grows, how must you consider the issues regarding diminishing marginal returns and economies of scale?
9. What market structure have you entered, and why?
10. What can you do to guarantee success in this market?
11. Can you use price discrimination in this business?
12. What pricing strategy might you use?
Part III
Deliverable Length:600–800 words
The government decides to tax cookbooks because they feel that they encourage overeating and can lead to health issues, such as obesity and heart disease. Answer the following:
What type of tax is this? Explain.
What happens to the supply of cookbooks?
What happens to the equilibrium price?
Who pays the tax at the end?
Is this a good way to finance programs to improve health?
What other types of tax can the government use to increase revenues?
Part IV
Deliverable Length:600–850 words
Justcookbooks.com becomes wildly successful in the United States, and you decide to export overseas. Answer the following:
Does this reflect an absolute or a comparative advantage?
Name 4 issues that you will encounter as you become a multinational corporation.
What happens to your marginal utility as you buy your third luxury automobile? Why?
Part V
Deliverable Length:600–850 words
In the article entitled “The Economic Effects of Labor Unions Revisited,” Vedder and Galloway attempt to prove statistically, using historical data, that labor unions do not have a good effect on the economy. Read the article, and explain the following microeconomic concepts that the authors discuss and how they are related to unions:
Demand, supply, and equilibrium wage rates of labor
Unemployment
Deadweight welfare loss
Elasticity
Real GDP and economic growth
Income per capita
Population growth and aging
Marginal costs, marginal revenues, and profits
The article focuses on harmful economic effects, but also mentions some positive aspects. What are they? Does moral hazard apply to unions? Why or why not
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