Scenario Analysis

1633 words - 7 pages

University of PhoenixJuly 29, 2009Table of ContentsI.Introduction …………………………………………….II.Effect on Revenue …………………………………….III. Elasticity of Demand ………………………………….IV. ConclusionI.IntroductionWill Bury, enterprising inventor, is convinced that soon everyone will be reading or listening to everything digitally, including all the great books that, up to now, have been mostly available in hardcopy. He knows, of course, that there are books on CD, but these are relatively expensive and have been recorded using human readers. He also knows that there is technology that will transform the printed word into audio, but until now the sound is somewhat inhuman. Will plans on speeding up the transformation with a proprietary technology he has developed and patented that takes the printed word for text materials and creates a file with the option of reading it digitally or listening to it with a very realistic synthetic voice. Will knows that he has free access to books no longer under copyright protection, and he figures he can pay a $5 per title royalty fee for copyrighted books to greatly expand his catalog. So far, he has limited himself to English language books but is working on a language translation option as well (Will Bury Scenario).II.Effect On RevenueIn the initial stages of production, where output is relatively low, marginal revenue will usually exceed marginal cost. So it is profitable to produce through this range of output, which for Will is the internet. Because later stages of production, where output is relatively high, rising marginal costs and causes marginal revenue to decrease, the internet will provide a wider range of output. Obviously, a profit-maximizing firm will want to avoid output levels in that range. In the short run Will will able to maximize his profit or minimize loss by producing the output at which marginal revenue equals marginal cost. The internet has made shopping much more convenient. Customers are no longer limited to shopping at the stores in their hometown or within driving distances, now customers can order items over the internet and with express shipping have them at there front door in day or two from stores that are thousands of miles from the customers home (Benefits of the Internet for Business). Will Bury introduce his digital titles to the internet market? He set his book prices at $10.00 per title and $15.00 a title when he has to pay royalty. After disappointing sells in the first six months of operation; Will sold 1000 of the older books and 2000 of the newer books. Will contemplate on increasing his price but is worried about how customers will react (Implied Design, 2009).Unsure of his price strategy...

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