Unit 4: Market Structure And Firm Strategy

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Microeconomics ECON212 -1504B-01
Instructor: Joseph Parisi
Unit 4- Market Structure and Firm Strategy
Amanda Kranning
December 11, 2015

After much debate, I decided to give up my full time job with an annual salary of $50,000 in order to pursue my dream of an online business selling cookbooks. However, I will continue to work part time for the next 6 months prior to my business launch. I estimate the average retail value of each cookbook will be $30 with the average cost of $20.
The equation for demand is Q = 40,000-500P
Q = number of cookbooks sold per month
P = price of my cookbooks
Cookbooks sold at $25 (Purple line)
Q = 40,000 – (500 * 25) = 27,500 cookbooks
Cookbooks sold at $35 (Red line)
Q = 40,000 – (500 * 35) = 22,500 cookbooks
The red line on the demand curve depicts the price and quantity of the cookbooks if sold at $30 apiece. Q= 40,000 – (500 *30) = 25,000 cookbooks

I 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
I am expecting to sell about 22,000 cookbooks per month online. Using the equation for total cost as follows:
Total Cost
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In my case, the category I am labeled in would be books yet my niche is in cookbooks specifically. This lends me a degree of market power by distinguishing my cookbooks from other genres allowing me an upper hand in the price market. However, this still lends an uncertainty since there are many substitute products that can be chose from if my prices were to be undesired by consumers. If I were to increase my prices a shift in the demand curve to the left would represent a decrease in demand however lowering my prices could in return garner an increase in
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