Jonathan is considering opening a shop for online baseball memorabilia. He has two options. He can build the web site himself and only pay for hosting. This would cost him $2,000/year. The average item for sale is $4. Average costs associated with each sale are $3. His second option is to use an existing e-commerce service. This incurs an additional monthly cost of $15/month. The site takes a cut of his sales, so he is planning on increasing his prices by $0.5/item. The remaining costs stay the same.

a. What is the annual fixed cost for the e-commerce site option?
b. What is the unit price for the e-commerce option?
C. What is the variable cost for the self-developed site option?
d. If Jonathan sells 200 items, which option does he prefer?
e. If Jonathan sells 700 items, which option does he prefer?

The annual fixed cost of e-commerce option is $2180 as shown above

The unit price for the unit price for the e-commerce option is $4.5($4 original price plus the extra $0.50 as a result of cut taken by the site owner)

The variable cost for the self-developed site is $3

If sells 200 items he would prefer self-developed option with a lower amount of loss $1800

If sell 700 items he would  prefer e-commerce option with amount of $1130 as losses

Explanation:

Options                            Self-Built site                 E-commerce

Fixed cost                         $2000                            $2180  ($2000+15*12)          

Variable cost                    $3                                     $3

Revenue                            $4                                     $4.5 ($4+$0.5)

The profit under each option when 200 items are sold are :

Self-developed option:

revenue=$4*200=$800

total cost =$2000+($3*200)

total cost =$2600

Profit/(loss) =$800-$2600

loss=-$1800

e-commerce

revenue=$4.5*200=$900

total cost=$2180+($3*200)

total cost =$2780

profit/(loss)=$900-$2780

loss=-$1880

when 700 items were sold:

self-developed option;

revenue=$4*700=$2800

total cost=$2000+($3*700)

total cost=$4100

profit/(loss)=$2880-$4100

loss=-$1220

e-commerce option

revenue =$4.5*700

revenue=$3150

total cost=$2180+(700*$3)

total cost=$4280

loss=$3150-$4280

loss=-$1130

answer decisions made by individual households and firms;