Question 2

James Ku has just graduated with a general business degree from SUSS. Based on current market conditions, he is confident of getting a job that will pay him at least $3,500 a month. On the other hand, James has always been interested in running a business. He has noticed a strong demand for sports-related waist pouches. He managed to source for fairly attractive and functional pouches at just $4.00 each. He believes he can sell some 800 pouches online at $10 each. His fixed monthly business expenses work out to be $3,000.

(a) Create a model to help James analyse this waist pouch business. Use your model to advise whether he should undertake this business. State your reasons.
(b) James did some research and estimated that he could potentially sell 1,600 pouches at a price of $9. A friend told him that he could make more money by selling at an even lower price. Comment on whether this advice makes sense if James were to sell the pouches at just $7 each. Justify your answer quantitatively.

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