IP 4 microecon - Jen Bazzell Principles of Microeconomics...

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Jen Bazzell Principles of Microeconomics ECON212-1601B-02 Dr. Brofman 03/14/2016 The Costs and Benefits of Cookbook Sales: Just Cookbooks.com Starting a small business without understanding the fundamentals of supply and demand and the price elasticity of each would be almost impossible. Starting an online based cookbook company, fixed costs, costs of inventory, and the pricing of the books are all very important factors in whether or not the business will be a success. Cost is a very important aspect to consider when starting Just Cookbooks.com. In the beginning, the costs can be quite variable, the initial investment in equipment, technology, inventory and other miscellaneous items can be quite high. But, what about the costs after operation has begun? There are some costs that are fixed (don’t vary annually) in some instances. In the case of online cookbook sales, the technology used (web design and maintenance), overhead, and equipment are all fixed costs at 5,000, 4,000, 1,000 per year respectively. That breaks down to 833 dollars per month. There are some costs that are variable as well, cookbook inventory, postage, and miscellaneous costs can fluctuate from month to month depending upon fluctuating cost of the cookbooks, increasing prices of postage and varying needs for the business (supplies, expenditures etc.) which are 2,000, 1,000, and 3,000 per year. When you add fixed and variable costs together you get a total cost of 16,000 dollars per year.
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Marginal cost is another tool that business’ use to gauge the benefit of selling a product at a certain price. Marginal cost is “…the change in a business’ total cost from producing one more unit of a good or service”(Hubbard & O’Brien,2013). Using marginal cost to help determine the prices of the cookbooks is a great way to help Just Cookbooks.com succeed. In order to determine the marginal cost for Just Cookbooks.com, we take the total cost of 16,000 and divide
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