Students can take a walk to Starbucks to buy coffee

Student entrepreneurs start a delivery service on campus, considering three price levels

A) $1

B) $2

C) $3

Assume download the app. is for free

Cost:

Fixed cost: R&D cost $100

Variable cost: round-trip gas $0.2

Variable cost: driver per-trip $0.2

Q1: What would be the break-even point demand (quantity) at each of the above price level?

Alternatively, we may first conduct a preliminary research to obtain an estimate of the potential demand, i.e., how many students on average would use this service?

Q2: Say 150 students, then the break-even price would be ?

Q3: For each of the following scenario, calculate total profit and unit contribution

Scenario A: 100 students will take the service for $3

Scenario B: 150 students will take the service for $2

Scenario C: 200 students will take the service for $1

Q4: Assume the R&D of the app is not for free, there will be some investment upfront. The investment level determines how convenient the app is for students (features, platform friendly, etc.) Calculate ROI for each scenario.

Scenario A: 100 students will take the service for $3, investment=$200

Scenario B: 150 students will take the service for $2, investment=$150

Scenario C: 200 students will take the service for $1, investment=$100