Home » Assume that you have decided to start your own Internet business to sell cookbooks online (justcookbooks. You estimate that the annual cost of this…

Assume that you have decided to start your own Internet business to sell cookbooks online (justcookbooks. You estimate that the annual cost of this…

Assume that you have decided to start your own Internet business to sell cookbooks online (justcookbooks.com). You estimate that the annual cost of this business in the first year will be as follows:

Fixed explicit costs (annually):

  • Technology (Web design and maintenance)  $5,000
  • Postage and handling                                  $1,000
  • Miscellaneous                                             $5,000
  • Equipment                                                  $4,000
  • Overhead                                                   $1,000

TOTAL Explicit Fixed Costs (annual)                      $16,000

Fixed implicit costs (annually):

  • Lost wages from job given up (annual)          $50,000

Variable cost = $20 per book.

Part 1:

Assume that the equation for demand is Q = 40,000 – 500P, where

  • Q = the number of cookbooks sold per year
  • P = the retail price of books

Using the information above, fill in the attached chart (note that quantity is just the solution of the demand curve above; the first two lines of the table have been completed for you – you need to complete other lines in the table):

Indicate the maximum profit price and quantity by highlighting those particular values with red font

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