Eco_561

Business Proposal Overview The Will Bury Scenario, provided by University of Phoenix online discusses Will Bury as an inventor who has created and patented a new product to transform printed words as in books or text materials into a digital or audio product. However, doing some extended research, Bury has found that a few economic decisions are need to push this remarkable new product off to a successful start. The following will explain a few economic principles relating to the scenario. Market Structure and Barriers to Entry According to McConnell, Brue, & Flynn, 2009 a pure monopoly is a market structure in which one firm is the sole seller of the product. Because Bury holds, the patent for the new technology on converting printed word for text materials to a digital or audio product he will operate in a pure monopoly market. A pure monopoly gives Bury the advantage he needs and creates barriers of entry to competitors. Additionally, Bury can create unique coding for his technology to prevent competitors from sealing it. Elasticity and Total Revenue Test The price of the new digitizer is elastic. According to McConnell, Brue, & Flynn, 2009 total revenue and the price elasticity of demand are related. The total revenue test further determines the elasticity of demand. If total revenue changes in the opposite direction from price demand are elastic, which is what will happen in this case. Pricing and Nonpricing Strategy The current economic business cycle that reflects the United States economy is a trough. Additionally, the rise of inflation and interest rates will affect pricing for this product. Therefore, the price of the new product will be set affordably but not so low that buyers will mistake the device for a cheap product. Bury will need flexibility in pricing in the early stages and should be able to react quickly to changes in supply and demand. The new price of the products the digitizer will produce will be ranged from $9 to $20 (United States dollars). This was determined by comparing current eBook prices and audio book prices. Budgeting for advertising costs to promote the new product to consumers is another aspect to incorporate into the cost structure and as part of the nonpricing strategy. Advertising will help to promote product differentiation. Furthermore, an investment in a website would promote and advertise the new digitizer as well as enhance sales. As the expiration for his patent nears, it will be more critical as well as differentiating the digitizer from competitors as more business enters the market. Bury could differentiate the digitizer with a unique eye-catching design as well as added features that will make it stand out. Increasing Revenue The monopolistic market structure has a downward sloping demand curve Therefore, quantity demanded rises as price drops. Bury can max business profits up to where marginal revenue equals marginal cost. When calculating total cost Bury should factor in his opportunity cost of $200,000/year salary plus benefits. According to McConnell, Brue, & Flynn, 2009 opportunity cost is the amount of other products that must be forgone or sacrificed to produce a unit of a product. Additionally, if he collaborates with major bookseller retailers to sell the digitizer for a share of profits he could greatly expand the company. This also gives potential customers the opportunity to see and test the device before purchasing it, in that way considerably growing consumer confidence. Fixed and Variable Costs Currently, Bury’s fixed costs consist of a small portion of his mortgage and utilities because he operates out of his garage. Variable costs include labor, royalty fees for copyrighted book titles, and materials used to convert text and place them in a format for digital and audio use. To improve the time of the digitizing process Bury needs to hire some employees to run the transformation process as well as assist in researching and securing copyrighted material appropriate for conversion. Although this increases variable costs, it will allow Bury to produce more, thereby increasing profits. In addition, a larger office space will better accommodate additional workers and equipment. After the additions, Bury will re-determine his total costs and factor this into the price set for the digitizer. To determine the appropriate price, he will need to add variable costs and divide this by the number of units sold. This shows what the cost per unit is, which should remain constant, regardless of the amount sold. Cost Reduction As Bury’s company grows, an investment in technology that allows a reduction in conversion time for each book will greatly help to increase opportunities for mass production. These start-up costs will increase total costs but eventually it will lead to lower average costs of production. The Economies of Scale concept could help Bury to operate a more efficient business, which would produce more profits, (McConnell, Brue, Flynn, 2009). Additionally, Bury could hire many unskilled workers in the United States at minimum wage to operate the transformation process as well as outsource to countries where labor is cheaper. A new website will allow consumers to see and buy products online streamlining the ordering processes and reducing manual labor costs. Recommendations Using sound economic concepts the recommendations in this proposal are made. Therefore, for the company to keep up with competitors, they need the latest research on hand to make certain competitors will not offer substitutes. Implementation of the new website should be set up as soon as possible to gain interest and customers. Bury is also considering how he should handle high demand. It is not realistic that he could do the majority of production himself therefore outsourcing is a good idea because other countries do have cheaper labor. Operating Plans Bury’s operations plans include where his business operations will take place, pricing details, outsourcing labor to foreign countries and other issues. With these issues in mind, Bury will take his company and new technology global. However, there are factors that Bury needs to consider in doing so. This includes decisions on which parts of the globe to target. Countries whose cultures mirror the United States would be best. Moreover, countries with a developed infrastructure would be a wise choice to ensure stable supply chains. Underdeveloped nations are not a wise choice, as they may not have interest in this type of technology. Additionally, credit markets also leave Bury with few choices concerning raising new finance for handling business in international locations. Moreover, Bury needs to consider how he will repay debts quickly. Credit market conditions may also led to facing higher cost of credit; therefore, Bury may run into trouble accessing the capital he needs to expand. Location Based on the economy and other economic conditions such as the drop of the United States credit ratings and interest rate hikes Bury plans to enter Canada, England, and Japan markets because these countries have developed economies in which to introduce this product. International trade agreements have already been set up making this easier for Bury as well. These countries are also familiar with modern technology. Therefore, the digitizer would be appealing to consumers, and they would want to purchase it. Moreover, geographically Canada is close to the United States, which reduces shipping costs. England and Japan are further however; Japan has a high demand for technology, which makes up for the extra cost. Last, America has exported goods to these countries in the past therefore strong relations are already in place meaning established supply lines exist and acquiring licensing agreements can be simple. Pricing Details Upon entering these three markets, different prices should be set. Income and the value of currency in each country is another key factor. England’s currency is stronger and holds a stronger buying power. This allows Bury to make prices higher in England than in Canada. Outsourcing Labor Bury must consider outside factors that come with outsourcing. This includes taxes, licensing requirements, import quotas, and other issues. Along with political obstacles Bury needs to consider moral implications dealing with ethical issues like underage labor and working conditions. Oppositely, outsourcing takes away jobs from American citizens and contributes to unemployment further damaging the United States domestic economy. With careful thought, considering the economies of Mexico and Taiwan Bury will outsource labor to these countries. Mexico will produce the products for the western hemisphere and Taiwan will produce the products for the eastern hemisphere. Both countries are already known for cheap labor and trade agreements have already been set up. Reaching out to these countries will help to build up their economy by bring in new jobs and education through the use of the digital and audio transformed books because Bury offers these free to his employees and family. Bury will also donate a profit of his income to help disadvantaged children in these countries. Another comparative advantage is that these relationships strengthen the ties between the United States and these foreign countries. Conclusion Bury’s invention is unique and potentially profitable. This new product could transform how society hears and reads literature. Recommendations for improving Bury’s business through reaching ideal production levels to maximize revenue, adjusting variable and fixed costs, and methods to reduce cost have been discussed. If Bury chooses to use to these recommendations, the company will grow over time. References McConnell, C.R., Brue, S.L., & Flynn, S.M. (2009). Economics: principles, problems, and policies. Retrieved from https://ecampus.phoenix.edu/content/eBookLibrary2/content/eReader.aspx. University of Phoenix. (2002). Will Bury Scenario. Retrieved from University of Phoenix, ECO561 website.