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 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