1.

Snappy Box (SB)

SB is owned by Ralph who is a sole trader. The business prints photographs. Ralph has one shop on the main street of city D. Customers bring their saved digital photographs into the shop and these are printed on high-quality paper.

SB uses a large printing machine that can print on almost any size of paper to produce different sized photograph prints. The process is very capital-intensive and most customers request a batch of photographs to be printed.

SB is the only shop in city D that prints photographs. However, recently a number of online competitors have started to offer low-priced photograph prints to customers. Ralph has noticed that his sales have decreased significantly because of this competition. Ralph estimates the demand for his photograph prints has a price elasticity of demand of –4.

SB already has a low profit margin and Ralph is struggling to compete with the online retailers. However, Ralph has an idea to introduce job production into his shop. He could stop printing photographs and instead focus on framing individual photographs for customers. These frames will be made for any sized photograph or picture and can be made from a variety of materials chosen by the customer.

Ralph will need specialised equipment to allow him to make the frames. The equipment would cost $10000. He has identified two possible sources of finance for this equipment.

The first possible source of finance is for Ralph to lease the equipment from the company that produces it. The lease would be for five years at a fixed cost of $400 per month.

The second possible source of finance is for Ralph to sell the photograph printing machine for at least $10000, to purchase the equipment to make frames.