University of Phoenix

Economics 561

8/17/2010

Revenue, Cost Concepts, and Market Structure ProposalWill Bury has created a state of the art invention that allows a person to use technology in order to take printed text in books and create a file that allows the an individual the ability to read digitally or listen to audio. Will Bury, an enterprising inventor, created this technological advance and has dedicated much of his free time in trying to establish the product. He currently works a full time job in order to satisfy the demands of having a family, but spends much of his free time trying to fine tune an invention that he believes will transform the way we read material. His countless hours in his garage are spent scanning materials through a digitizer. He continues to develop his digital library by scanning materials. The process Is time consuming. Every 500 page book that is transformed into a digital file can take as long as an hour to complete. Because of the lengthy process, Will Bury has asked for help in regards to building his large digital library, assuming that more help will speed up the process. In this paper we will identify and provide recommendations and solutions to increase revenue, achieve production, determine costs, and pinpointing ways to reduce cost. RevenueIn an attempt to increase revenue, Will has created a website which introduces his product. On the website, he is selling copyrighted materials for $15.00 and materials where copyright has lapsed for $10.00. Within the first six months, Will has generated $10,000.00 from older books and 30,000.00 from books with copyrighted material. The older books were sold at a price of $10, the copyright material was sold at a price of $15. In order to increase revenue, Will will need to increase the selling price of his books. He can do this because the market price for lapsed books are around $15. For copyright material it is around $20. By raising the price to $12 or $13 per book for lapsed books, Will can increase revenue from $10,000 to $12 or $13,000 while continuing to stay under market value. If this extra money can be used for advertising it could increase revenue even more by generating a bigger awareness of the product and drawing people towards the website. If advertising is done effectively, Will could provide a wide gap between him and his competitors. Production CostThe cost of production is a very important factor in any business of any size. Revenue can be generated by any business, however, if the profit margin is does not exceed the production cost then the business venture will have a short life cycle. The production cost is important because it helps Will gage the amount that he should be charging for his product to achieve his desired amount of profit. Like any business, Will must try to find the cheapest solution to help keep profits high and production costs low. Will knows that he can hire someone in the United States for $10 per hour. In a 40 hour work week, this will cost Will $400 a week. However, if Will contracts overseas, he will be able to hire a worker at a drastically reduced price of $2.00 per hour. In a 40 hour work week that would only cost Will $80 instead of $400.At first glance, they may seem like an easy decision. Will would save a much larger amount of money hiring a worker overseas. However, the opportunity cost also plays a factor in this decision. With any small business there will be growing pains and mistakes that will be made. The early stages must be handled with care. Supervision in every aspect of the business is crucial. Hiring an employee overseas would not allow Will to have the hands on supervision to guide the new employee. By hiring the employee in the United States would allow Will to keep a closed eye on his business and remain involved in early production stages. It will cost a significantly larger amount of money to hire someone closer, however, the marginal cost does not outweigh the benefits of the opportunity cost of having someone close to home that you can keep a keen eye on. There are also variable and fixed cost that must also be taken into consideration, along with the labor costs of the product. When output increases variable cost, production costs will also increase. Will ahs identified the $5 fixed cost those books that are still under copyright. The cost of running the website also needs to be identified as well as how Will is going to market his product. The marketing cost will cause the variable cost to rise. This will, however, also increase the amount a revenue that is brought into the company. Reducing Cost When starting a business one should always look for the best way to reduce cost. Will is no different. He needs to focus on different ways to reduce cost and develop new ways of increasing revenue. One way that Will can do this is by allowing his newly hired employees the option of working from home. This will allow Will to reduce the cost of renting a space and it will cancel utility fees that would come along with renting. Assumptions and RecommendationsThere are plenty of assumptions and recommendations that will be made as Will takes on his business venture. The employees that Will hires are assumed to be working only 40 hours per week with no option of overtime and receiving no benefits. Another assumption is that Wills website will cost $100 to run per month and that it will cost Will around $500 to build a new digitizer. It is recommended that Will hire an employee from the United States in order to be close enough to oversee and supervise any problems that may arise during the early stages of business development. It is also recommended that revenue be increased by increasing the price of lapsed and copyrighted material by $3.00. The additional cost will help with marketing and advertising of the product which is essential. It will also help with the purchasing of the additional digitizer. With an additional digitizer, Will can increase production which will increase revenue.ConclusionThroughout this paper, Will has been given recommendations for reducing cost and increasing revenue. The ability to achieve higher production levels and determine the cost of production have also been identified. Will must monitor his market and evaluate the economys state and adjust his business accordingly to remain constant.

ReferencesMcConnell, C. R., & Brue, B. L. (2009). Economics: Principles, problems, and policies (18th ed.). New York, New York: McGraw-Hill.University of Phoenix. (2010). Will Burys Price Elasticity Scenario. ECO/561: Week 4. Retrieved March 17, 2010 from https://ecampus.phoenix.edu/classroom/ic/classroom.aspx