Atrium, a manufacturer of upscale designer tee-shirts, is considering launching an Internet operation to sell its product direct to consumers in addition to distributing through traditional bricks-and-mortar retail stores. Management believes an Internet presence should augment its retail operation. Atrium tee-shirts, made of 100% refined woven cotton, feature batik prints. The cost of producing an Atrium designer tee-shirt is $6.50 per shirt.

Internet: In selling tee-shirts on the Web, the company must hire a Web page architect to design the page and maintain it over the course of a year. The salary for a Web page architect is $60,000, including expenses and benefits. Shipping on Internet orders, which is to be included in the retail price of the tee-shirts, is estimated to be $4.20 per shirt.

Retail Store distribution: Atrium could also sell it's tee-shirts in it's own retail store. Additional in-store promotion and a local print advertising campaign for a year will cost Atrium $80,000.

a. If Atrium tee-shirts sell for $32 at the retail stores, how many tee-shirts must Atrium sell to break even?

b. If the retailer can sell 5,000 tee-shirts at $40 a piece, how much profit can Atrium make?

c. The retailer can sell 5,000 tee-shirts at $40 a piece. If the retailer lowers the price to $35 a piece, he can sell an additional 1,500 tee-shirts. What is the demand elasticity?