Carlos Cruz Price Elasticity Scenario

Essay by mitchelonUniversity, Master'sA+, December 2011

download word file, 3 pages 0.0


Scenario Concept


Scenario Concept

Carlos Cruz is an inventor and entrepreneur who developed and patented a proprietary technology that takes the printed word for text materials and creates a file with the option of reading it digitally or listening to it with a realistic synthetic voice (UoP, 2011). Carlos business is focused on selling these digital books online and is convinced on the potential success of his business. However, he is facing a dilemma concerning how to appropriately price his product. This paper briefly covers certain economic principles and evaluates Carlos' dilemma and compares it to this principles.

Scarce Resources

The concept or reality of scarce resources is fundamental to economics. Resources include land, labor, capital and entrepreneurial ability. In simple words, because "we can't have it all" due to our resources being limited, we must decide what we will have and what we must do without.

Similarly, the scenario presents various resource options Carlos can use to digitize books. Carlos must decide between continuing to do the work himself or outsourcing it in Puerto Rico at approximately $10 an hour or overseas at $2 an hour. Carlos realizes that his own capacity to continue to digitize books is limited or scarce and a poor use of his time.

Carlos' decision must also include a marginal analysis. Will the marginal benefit of outsourcing exceed its marginal cost? Clearly, the benefit lies in freeing up Carlos' time to engage in other areas of his business. On the other hand, outsourcing could increase the front up cost of digitizing books potentially affecting the selling price or Carlos' profit. However, digitizing books is a one-time task and its cost will be diluted as sales of any particular...