University of Phoenix

Economics 561
8/17/2010
Revenue, Cost Concepts, and Market Structure Proposal
Will 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.
Revenue
In 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 Cost

The 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 Recommendations

There 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.
Conclusion
Throughout 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.
References
McConnell, 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