Business Proposal-Small Business Information Technology Support The goal of this proposal is to demonstrate the probability of success for a business that provides information technology (IT) support to small local businesses. The proposal will show the economic analysis of the business and market structure of the company. It will also demonstrate the elasticity of the service in the market and provide data to regarding costs and revenue. Identify the Market Structure for Small Business IT support and Two Reasons Why it would be that Structure Small IT business support in Colorado Springs would be a monopolistic competition market structure. Some of the characteristics of monopolistic competition are the firms produce similar products or services, firms are able to freely enter the industry, firms are profit maximizers, and all the firms have some market power, which means none are price takers (Investopedia, 2013). Colorado Springs has thousands of small businesses and most of them utilize computers in some aspect of their business. Many small businesses utilize computers for tracking inventory, sales, managing distributors and customers, and accounting practices to name a few. This makes it a very lucrative business venture for competitors who can provide this type of support. Many of the services an IT support company would provide are the similar which is one reason this market would be classified as monopolistic completion. The companies would provide support in some of the following areas: general computer support, computer backup solutions, and software support. Other areas they could provide support would be pulling cable for drops, network communications, and telecommunication support. In a monopolistic competition market structure, any business can start up and take a part of the market share. Anyone can create a business that provides IT support to small businesses. The startup costs could be minimal to extremely high depending on how the proprietor wants to setup the business and what type of support they want to provide. Colorado Springs is the fourteenth fastest growing city in the United States and there are thousands of small businesses in El Paso County (Economic Profile, 2013). Providing support to those businesses is an opportunity for a new IT support company to enter the market. Identify elasticity of the service and provide two reasons WHY you characterized the elasticity that way “The responsiveness (or sensitivity) of consumers to a price change is measured by a product’s price elasticity of demand” (McConnell, Brue, & Flynn, 2009, p. 114). Elasticity of a product is how consumers react to a price change. A small IT support service would be elastic. It would be elastic because as the cost for the service increased, small businesses would purchase only basic services and skip the additional support. Also, as the price went down, more businesses would be willing to pay for additional services. It is also elastic because of the number of vendors and the demand for the support. Small businesses can go to a competitor if the price increases too much for the same services. The demand for services could also increase if the number of small business goes up or other IT support companies leave the market. How will pricing relate to elasticity of your product?
Pricing of the service will have to be consistent with the local industry standard. Pricing the service too high could eliminate the business before it even got started. Pricing it too low could decrease revenue to a point it would not be beneficial to be in the market. Adjusting the price of the service down could result in more companies buying additional services and increasing profits for the company. Determining the amount to raise or lower prices is extremely important to the success of the business. If dropping a price by ten percent only increases sales by only two percent, the amount of overall revenue would...
References: Economic Profile. (2013). Retrieved from Colorado Springs Regional Business Alliance: http://www.coloradospringsbusinessalliance.com/economic-development/business-climate/economic-profile-20130417133602
Investopedia. (2013). Retrieved from http://www.investopedia.com/
McConnell, C. R., Brue, S. L., & Flynn, S. M. (2009). Economics: Principles, Problems, and Policies. New York: McGraw-Hill Irwin.
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