May 1, 2011
With the current economic condition, staying competitive and increasing profit is critical to maintaining a healthy business. Mr. Will Bury has developed proprietary technology that will allow him to convert printed text into a digital format for reading, or audio for listening. Because Mr. Bury holds the patent on his digital and audio converting technology, his business is considered a monopoly. This creates a barrier of entry to competitors and gives Mr. Bury an advantage. However, while he has had his business for a few years, he has not been able to make it profitable enough to allow him to quit his full time job. In addition, he is not clear on how to market or price his product, (University of Phoenix, 2003). This paper will attempt to provide basic recommendations for increasing revenue, achieving ideal production levels, adjusting fixed and variable costs to maximize profit, and identifying methods to reduce costs. Discussion
Increasing Revenue and Achieving Ideal Production Levels
Because Mr. Bury is operating in a monopolistic structure, his demand curve is downward sloping; the quantity demanded increases as the price decreases. Mr. Bury will need to determine the price elasticity of demand for his product. He will be able to maximize his profit by producing up to the output where marginal revenue equals marginal cost, (MR = MC), (McConnell, Brue, Flynn, 2009). He will however, have to include the opportunity cost of his $200,000/year salary plus benefits when calculating his total cost. Opportunity cost is “the value of the next-highest-valued alternative use of that resource,” according to The Henderson (2010) website.
Mr. Bury will also need to budget for advertising costs to promote his product to consumers. This will be even more critical as the expiration for his patent nears. Differentiating his product from his competitors as more companies enter the market will be...