University of Phoenix
February 29, 2011
Will Bury, an enterprising inventor, is convinced that soon everyone will be reading or listening to everything digitally, including books that have been mostly available in hard copy. He knows 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 can transform the printed word into audio, but the sound is somewhat inhuman. Will plans on speeding up the transformation with a proprietary technology he has developed and patented. This technology takes ...view middle of the document...
Bury can create a revenue curve graph as additional sales at various prices create additional data. Bury must determine the optimal price using the formula “MC = MR” (marginal cost equals marginal revenue). The profit maximizing quantity is the total revenue – total cost method. This relies that profit equals revenue minus cost. Producing more digitized books will produce more revenue. A larger option of different titled books for customers raises the total revenue.
Marginal Cost and Marginal Revenue
“Marginal revenue is the increase in revenue from selling one more unit of a product” (Pietersz, 2012 p.89). “The marginal cost of an additional unit of output is the cost of the additional inputs needed to produce that output” (Econ Model, 2012). The marginal cost of each unit is the difference in ATC per unit. As an easy example: If the first 100 units cost $1000 and the 101st unit cost an additional $15, the marginal cost of the 101st unit is $15. An increase in output will always raise profit as long as marginal revenue is greater than marginal cost. This concept can somewhat be applied to this business because to achieve maximize profit different books need to be produced, so there will always be one more unit of the good. However, that one more unit will keep on growing because there will be a constant need to digitize different books. This gives the customers more options to choose from, especially when new books are released.
Pricing and Non-pricing Strategies
Will Bury must find the price for his product that will prevent a substitution effect. Bury’s research has determined that a 500-page book on CD costs roughly $20. Bury’s initial price will certainly will not be above this $20 level. His decision to price “newer” books, those that include a royalty fee, at $15 may be the proper initial price. Bury’s price for old books is currently too low. Increasing the “lapsed copyright” books to $15 will increase profit (further data can help determine if the “older” books’ price should change to another price point). Because the current business cycle is still in the “trough” total income level of U.S. workers is relatively low resulting in a lower volume of spending on products and services. Bury must be ready to adjust prices as the business cycles changes, or possibly decease prices if the trough continues. Non-pricing strategy for Bury is marketing. Bury can create and maintain a web-site at minimal cost. From his website he can sell the product and perhaps offer a discount for first-time buyers (the web-site will, via search engines, introduce his product to consumers interested in digital content).
Barriers to Entry
“A patent is the exclusive right of an inventor to use, or to allow another to use, her or his invention” (McConnell, Brue, & Flynn, 2009, p. 203) Patent laws protect the inventor from competitors who could use the technology without contributing to the expense of development. Bury has...