A company has the following data.

Annual fee = 50/customer

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Avg spending per customer = 500/month

1% commission earned on customer spending

Annual maintenance cost = 250M/year

variable cost = $5/year/customer

total users = 2Million

a) what is the company’s current profit?

b) Suppose that the company wants to differentiate between heavy users and regular users. Here are the new data for heavy users, the regulars users have the same data as part a. Assuming that total users is till 2 millions. How many heavy users and how many regular users ensure a break-even profit? (use the data below)

annual fee = $65

avg spending = $625/month

2% commission

variable cost = $15/year

additional admin cost = 1.25/month

c) Suppose that there is an issue with the database. All heavy users must register in the database to be considered for 2% commission, or else it would be 1% commission. However, failing to register will eliminate the 1.25 admin cost/month. The database has been shut off since January to March, all heavy users that are registered but did not cancel their account have not been removed, and no new users are registered. If every month there are 400 users canceled, 2000 new user every month, what is the total cost/benefit generated from this database shutoff incident?


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