Existing Good or Service Business Proposal
July 4, 2011
Existing Good or Service Business Proposal
This paper is based on Will Bury??™s new product. The product will transform the printed word into audio, ???read??? aloud by a realistic synthetic voice. The paper will speak of profit-maximizing and increasing revenue. Marginal cost, marginal revenue, credit markets, and the unemployment rate are briefly covered. Additional sections will discuss pricing and non-pricing strategy, barriers to entry, product differentiation, and minimizing cost.
Profit-Maximizing and Increasing Revenue
Profit-maximizing quantity is figured by determining if the product is considered price-elastic or in-elastic. If demand is elastic, a decrease in price will increase total revenue. Conversely, a price increase will decrease total revenue for a product that has in-elastic demand. 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).
Marginal Cost and Marginal Revenue
???Marginal revenue is the increase in revenue from selling one more unit of a product??? (Pietersz, 2011). ???The marginal cost of an additional unit of output is the cost of the additional inputs needed to produce that output??? (EconModel.com, 2011). 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).
Pricing and Non-Pricing Strategies
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 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 all 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 patented his proprietary technology and can expect protection up to 20 years according to international agreement.
Bury must be sure to market his technology as more versatile than media currently available to the market. His product offers the choice of reading, the old-fashioned way, or the ???new-fashioned??? way by listening and switching between the two styles. ???A source of competitive advantage that depends on producing some item that is regarded to have unique and valuable characteristics: Development or incorporation of attributes ??¦ that a products intended customers perceive to be different and desirable??? (Businessdictionary.com, 2011).
Bury has discovered the greatest way to minimize costs. ???Overseas??? employees can perform the work at a faction of the cost as needed to employee domestic workers. Additional ways to minimize cost are found through continued technological advancements and economies of scale: ???The reduction in long-run average and marginal costs arising from an increase in size of an operating unit (a factory or plant, for example)??? (Businessdictionary.com, 2011).
Bury must be aware of the condition of domestic and international credit markets. Fortunately, Bury does not need credit at this time. However, by following both the credit markets and unemployment rates, Bury can determine if household income will remain depressed or start to increase. Once households have more discretionary income, Bury can better determine the elasticity of domestic demand for his product. Examining international conditions can be a driver for determining the demand for translations into other languages.
Bury has a viable product and will know how to determine marginal costs, revenue, and optimal pricing. Bury must ensure product differentiation through appropriate marketing, and minimize costs while maximizing revenue. The paper has presented (a brief) business proposal for developing a profitable enterprise.
Marginal Cost (MC). (2011). Retrieved June 20, 2011 from http://www.econmodel.com/classic/terms/mc.htm
McConnell, C., Brue, S., & Flynn, S. (2009). Microeconomics of Product Markets. In Economics: Principles, Problems, and Policies (18th ed.). New York: McGraw Hill/Irwin.
Pietersz, G. (2011). Marginal Revenue. Retrieved June 20, 2011 from http://moneyterms.co.uk/marginal-revenue/
Product Differentiation. (2011). Retrieved from July 3, 2011 from http://www.businessdictionary.com/definition/product-differentiation.html
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