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Question 2 8 8 pts Dawn's Video Diversions wants to expand their DVD rental business. They are considering two options: ( 1 ) building another

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Question 28
8 pts
Dawn's Video Diversions wants to expand their DVD rental business. They are considering two options: (1) building another physical store or (2) setting up an on-line rental service. For the store option, they will need to purchase 10,000 DVDs at a total wholesale dealer price of $15,000. In addition to the initial inventory investment, the cost of building a new store is $60,000. For the on-line service option, they will need to purchase 15,000 DVDs at a total wholesale dealer price of $20,000 because of the extra rental time to cover mailing. In this (online service) case, besides the initial inventory investment, additionally, the cost of setting up the on-line service platform is $10,000. The (variable) cost of renting out each DVD from the physical store is estimated to be 65 cents, while the cost of renting out each DVD from the on-line site, including postage, is estimated to be $1.60. The rental charge for customers (i.e., revenue/sales) per DVD is expected to be $3.50 in both (physical store and on-line service) cases. Show your work--using a blank sheet and uploading the worked sheet back onto Canvas--for full credit.
a. What is the point of indifference (in terms of # of rentals) between the store and the on-line service options? (2 pts.)
b. If the rental demand is expected to be 45,000 DVDs, the better choice (between the two options) will be .
(For c and d below) You believe that there may be a postage increase that would raise the 'on-line' rental variable cost to $1.70(from $1.60).
c. In this case, what will be the new/updated point of indifference (in terms of # of rentals)?(2
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