Market Structure and Firm Strategy

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 = 40,000 – 500P, where

Q = the number of cookbooks sold per month

P = the retail price of books.

Show what the demand curve would look like for price between $25 and $35.Part II

Address the following questions in 600-800 words:

• Suppose that you expect to sell about 22,000 cookbooks per month online, and assume your overhead, technology, and equipment costs are fixed. What are your total costs?
• Is the business worth pursuing so far?
• What market structure have you entered, and why?
• What can you do to guarantee success in this market?
• What pricing strategy might you use?