James Ku has just graduated with a general business degree from SUSS. Based on currentmarket 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 astrong demand for sports-related waist pouches. He managed to source for fairly attractive andfunctional pouches at just $4.00 each. He believes he can sell some 800 pouches online at $10each. His fixed monthly business expenses work out to be $3,000.
(a) Develop a model to help James analyse this waist pouch business. Use your model toadvise whether he should undertake this business. State the reasons.
(b) James did some research and estimated that he could potentially sell 1,600 pouches ata price of $9.
A friend told him that he could make more money by selling at an evenlower price. Comment on whether this advice makes sense if James were to sell thepouches at just $7each. Justify the answer quantitatively.(Hint: Consider using the Price Elasticity of Demand concept to analyse the question.)