$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 of $0.25/item, so he is planning on also increasing his prices by $0.5/item. The remaining costs stay the same

Here is the full question.

Jonathan is considering opening a shop for an online baseball memorabilia .He has two options. He can build the website himself and 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 of $0.25/item, so he is planning on also 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?

a) $ 2,180

b) $4.5

c) $3

d) The first option

e) The second option

Explanation:

The parameters we are equipped with from the question include:

cost of building website himself and paying for hosting = $2,000/year

average item = $4

average cost = $3

monthly cost = $15/ month

sales = $ 0.25 / item

Prices increase = $0.5/item

a) The annual fixed cost for the e-commerce site option = cost +(monthly cost × 12 months)

= $2000 ($15 × 12)

= $2000 + $180

= $ 2180

b) The unit price for the e-commerce option = (average item + price increase)

= $4 + $0.5

= $ 4.5

c) Variable Cost for the first option

= average cost

= $ 3

d) If Jonathan sells 200 items

For the first option; we have:

= number of items × (average item - average cost) - cost

= $200($4 -$3) - $2000

= $200($1) -$2000

= $200 - $2000

= - $1,800

For the second option; we have;

= number of items × ( unit price- average cost) - site option

= $200 × ($4.5-$3) - $2180

= $200 × ($1.5) - $2180

= $300 - $2180

= -$1880

∴ Here, when we sells 200 items, he will prefer the first option because lesser price is associated with it.

e)

If Jonathan sells  700 items.

For the first option; we have:

= number of items × (average item - average cost) - cost

= $700($4 -$3) - $2000

= $700($1) -$2000

= $700 - $2000

= - $1,300

For the second option; we have;

= number of items × ( unit price- average cost) - site option

= $700 × ($4.5-$3) - $2180

= $700 × ($1.5) - $2180

= $1050 - $2180

= -$1130

∴ Here, when he sells 700 items, He will prefer the second option because lesser price is associated with it.

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