Aaron Nathan and Alexis Roberts are thinking about launching a new e-commerce business.

Aaron Nathan and Alexis Roberts are thinking about launching a new e-commerce

business. They firmly believe that 30% of the people who try their product at the full price will

buy two additional units at their planned 25% discount for follow-up purchases. It is unlikely

anyone will buy one additional unit(as they’d have to pay full price) orthree additional units (as

most people need at most three totalunits).

Suppose theirfixedcosts are $390,000, sellingprice is $40 perunit, andvariable costs

are $20 per unit.

a. How many customers do they need to break even?

b. What profit do they make if 20,000 people try their product?

c. Howsensitive isyourprofitprojectionin(b)tothe assumptionthat 30%willbuytwo

additional units?

d. Suppose a 50% discount for follow-on purchases causes a dramatic increase inthe

percentage ofpeople who buy two additionalunits. How dramatic would ithave to be for

this to be a good idea

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