Business_Proposal_for_Mr._Bury

Business Proposal ECO 561 June 13, 2011 University of Phoenix Business Proposal for Mr. Bury Staying competitive can be challenging in this current economic state and increasing business profits are critical to maintain a healthy business. In this paper the subject to discuss is Mr. Will Bury’s business proposal and his developed proprietary technology, which will allow him to convert printed text into a digital format for reading, or audio for listening. Also discussed are basic recommendations on how Mr. Bury can increase his revenues adjust fixed and variable cost in the effort to maximize profits, achieve ideal production levels, and reduce costs. Mr. Bury currently holds the patent on this digital and audio converting technology; therefore, his business by definition this business is considered a monopoly. His monopoly will create a barrier of entry to competitors, which will give Mr. Bury an advantage. Mr. Bury has been in business for a few years, but his business has not been very profitable nor does he understand how to market this new technology he has developed. As a result, he cannot leave his full-time job. Mr. Bury is operating as s monopoly, so his demand curve is downward sloping; the quantity demand increased as the price decreased. Mr. Bury needs to determine the price elasticity of demand for this product. For example, when the price elasticity of demand of Mr. Bury developed proprietary technology is inelastic (|E d | < 1), the percentage change in quantity demanded is smaller than that in price. Hence, when the price is raised, the total revenue of producers rises, and vice versa. When the price elasticity of demand for Mr. Bury developed proprietary technology elastic (|E d | > 1), the percentage change in quantity demanded is greater than that in price. Hence, when the price is raised, the total revenue of producers falls, and vice versa (www.dictionary. reference.com). Once he does this, he will be able to maximize the profit by producing up to the output where marginal revenue equals marginal cost. To do this, Mr. Bury will have to include the opportunity cost of his $200,000 yearly salary plus benefits when calculating his total cost. Marginal cost is the change in total cost that arises when the quantity produced changes by one unit. Mathematically, the marginal cost (MC) function is expressed as the derivative of the total cost (TC) function with respect to quantity (Q). Note that the marginal cost may change with volume, and so at each level of production, the marginal cost is the cost of the next unit produced MC=frac{dTC}{dQ} (www.dictionary. reference.com). In general terms, marginal cost at each level of production includes any additional costs required to produce the next unit. If producing additional developed proprietary technology requires, for example, include the opportunity cost of Mr. Bury’s $200,000 yearly salary, the marginal cost of those extra developed proprietary technology includes Mr. Bury’s $200,000 yearly salary. In practice, the analysis is segregated into short and long-run cases, and over the longest run, all costs are marginal. At each level of production and time period being considered, marginal costs include all costs which vary with the level of production, and other costs are considered fixed costs (www.dictionary. reference.com). Opportunity cost is the cost of an alternative that must be forgone in pursue of a certain action and in this case it is Mr. Bury’s business of marketing his new technology. Budget for advertising will be necessary for Mr. Bury to promote his new product to consumers because the expiration for his patent is nearing. To maintain his market and profit share he has to distinguish the different of his product from competitors as more companies enter the market – this will become very necessary. Another option is for Mr. Bury to partner with a major retailer to sell his product who will expand his business, this would give potential customer the opportunity to see and test the product before purchasing, and this would increase consumer confidence in his product. Presently, Mr. Bury has fixed costs that include a portion of his mortgage and utilities because he currently operates his business out of the garage of his home. His variable costs are royalty fees for copyrighted book titles, labor, and the materials used to convert the text and place them in a digital and audio format. In order for Mr. Bury to continual to improve his new technology, he will need to hire additional labor to run the conversion process and assist him in researching and securing copyrighted material appropriate for conversion. This will allow Mr. Bury to increase his production and revenue; however, his variable costs will also increase. This will increase his total costs and will factor into the price he sets for his product. To determine the cost per unit, he will have to add up all his variable costs and divide by the number of units sold. As the business grow, investing in other technology that reduces the conversion time for each book and increase opportunity for mass production. Initially the costs of these new investments increases his total costs, eventually they will lead to lower costs of production. The Economies of Scale concept could help in operating a more efficient business, and this will produce more profit for Mr. Bury. In addition, he could hire unskilled laborers at minimum wage to conduct the conversion process. As growth of the business continues along with his workforce, he will have time to advertising and product development costs over a larger number of products. Also investing in a website would promote and advertise products, it will also increase sales because consumers can purchase online. This will reduce labor costs and streamline the ordering process. The recommendations made in this proposal are based on sound economic concepts and realizing that Mr. Bury’s company is a pure monopoly because he is the only seller of this product and has no substitutes. He is also the holder on the patent of the technology – this blocks entry of competitors into the market; therefore, the long-standing economic concepts for monopolies were applied here. Attaining the business resources and developing strong business sense needed to move this company forward, Mr. Bury could be highly successful. Currently, he is lacking a business plan and business knowledge that could hinder his success that was assumed in the beginning when he developed this unique product. In conclusion, the recommendations to improve this business by increasing revenue, improving production levels, adjusting fixed and variable costs to achieve maximum profit, and reduce cost have been discussed. Mr. Bury has developed a unique and potentially profitable product and if marketed properly it could transform how the public reads literature. If Mr. Bury subscribe to these recommendations, it is believed that his company and the corresponding profits would grow. References Dictionary. (2011, June). Dictionary. Retrieved from http://www.dictionary.reference.com Econsutancy. (10/6/10). Econsutancy. Retrieved from http://econsutancy.com McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, Problems, Policies (18th ed.). New York, NY: McGraw-Hill Company. Oppapers. (9/16/10). Oppapers. Retrieved from http://www.oppapers.com