Question: digitalization has affected many facets of modern business life as...
Digitalization has affected many facets of modern business life. As an owner of Next Gen Gamers, a game retail business, you own a dozen retail stores which sell physical copies of games. You also rent a warehouse which holds inventory for all retail stores. Recently you decide to close all retail stores and cease renting the warehouse. With only a small fraction of the money you used to spend on renting the warehouse and operating retail stores, you could easily set up an online shop that sells digital copies of games to any buyers around world. The online shop is hosted on a server you rent for $100 per month. All costs associated with owning and operating the online shop, such as server maintenance or electricity bills, are included in the rental fee, the rate of which is directly proportional to the number of servers rent (e.g., renting two servers will cost $200 per month, three for $300, and so on). Further, the number of games can be hosted on a server is fixed and thus total number of games available also grows directly proportional to number of servers rented (e.g., if a server hosts n games, two servers can host 2n games). The new business is such that, any online shop owner simply pays 15% of revenue for each game sold to a central game distributor, which obtains licenses for downloading/distribution of any games from game publishers and studios from all over the world. Within the first week, you have sold 2700 copies of games in digital form.
1. What is your (you as the online shop owner) variable cost for selling the 2700 copies?
2. Can you identify any sources or opportunities to realize economies of scale as an online shop owner?