Impressions are the number of instances that an online advertisement is displayed. Clicks are instances of someone clicking on the displayed advertisement. (Only a fraction of impressions result in clicks.) Orders are instances of someone making a purchase after clicking on the advertisement. (Only a fraction of clicks result in orders.) In paid search, for a given search term, the ads for multiple companies may be displayed. See image to the right for an example. Ads shown in higher positions on the page result in a greater number of clicks. Companies pay a certain dollar amount each time a customer clicks on their ad. A higher cost per click amount paid by a company gives the company a higher position on the page. Scenario You are currently in position 2 of a paid search term, the click-through rate (clicks per impression) is 1% and the cost per click is $1.50. You can get into position 1, where the click-through rate is 1.8%, by paying $2.50 per click. In position 3 you would pay $0.75 per click, and have a click-though rate of 0.6%. Conversion rate (orders per click) once someone clicks is 10% in all 3 positions. Our total profit per order (before search advertising costs) is $30. There are 50,000 searches per day that our ad will display on. It will display in the same position each time; you cannot pick a mix of positions. Our goal is to maximize the total profit after search advertising costs. Questions ABG DE A) B) What is the cost per order of just the orders you gain by moving up from position 3 to position 2? What is the minimum acceptable click-through rate for for us to prefer position 1 for our ads? Put another way, what is the rate where we are indifferent between position one and the next best position? Imagine, in addition to the information above, we now also have a daily budget of just $600. Which position do we want to be in now? Please show all your analysis, and specify any assumptions you make. D) What is the cost per order in each position? Which of the three positions do we want to be in? E)