Dancing with the Stars Academy
Glenda E. Ortega
October 26, 2015
Prof. Seyed Baladi
Dancing with the Stars Academy
The author is a business consultant that provides expert advice to entrepreneurs. One of those entrepreneurs is an experienced dancer and performer, Jennifer Camacho. Jennifer has been a successful performer for many years, winning international awards and recognition. She believes this is the time for her to expand her horizons and become a business owner. Her idea is to open Dancing with the Stars Academy, where she will be teaching dance to adolescents and young adults. This paper describes the economic considerations related to Jennifer’s dance academy.
The ...view middle of the document...
For instance, in a monopoly there is only one supplier, the barriers to entry are very high, and there is limited price elasticity of demand. A typical example of a monopoly is the local electric power industry (McConnell, Brue, & Flynn, 2009).
A monopolistic competition is characterized for having many competitors sell products that are similar but not identical. Because of the product differentiation each firm faces a downward slopping demand curve. These industries generally have low barriers of entry. Examples are restaurants, furniture, computer software, and so on (Collander, 2010).
As seen, Jennifer’s company is entering a market in the monopolistic competition stage. She will have many competitors with relatively little differentiation in the services they offer, and with low barriers to entry.
Pricing and Elasticity of Demand
Consumers and companies adjust their demand and supply of goods or services guided by the principle of maximum utility. The Law of Demand says that when the price of a good falls, there is an increase in demand; conversely, when the price increases, there is a drop in demand. In a monopolistic market structure the price elasticity of demand is such that if a competitor raises prices, consumers will look for suitable substitute products at lower prices from the other suppliers (McConnell, Brue, & Flynn, 2009).
Research shows a wide range of prices for dance classes in the Miami area. Hourly prices can be as low as $15 for large groups, all the way up to $100 for individualized lessons. Some studios charge initial registration fees too (Salsa Art, 2015).
The price of classes affects the number of students willing to enroll in Jennifer’s academy. To this end, the author calculated the elasticity of demand looking at the different prices for each studio and the number of students enrolled at each price.
Price | Quantity | % Δ P | % Δ Q | Elasticity of Demand |
75 | 65 | | | |
60 | 75 | -25% | 15.4 | .62 |
58 | 78 | -3.3% | 4% | 1.2 |
55 | 80 | -5.2% | 2.7% | .52 |
45 | 90 | -18.2% | 12.5% | .69 |
Based on the above information Jennifer should initially set her price at $75 per individual hourly class, per student. Since initially she will be the only instructor, she does not have to focus on attracting many students, just the right ones. In addition because she will be renting space from one or more studios, she will have to work around the classes that each individual studio offers. The cost of renting space at each of the studios runs at $25 per hour. This will be the only fixed cost Jennifer will incur as she starts her business.
Costs and Revenue Projections
Jennifer’s initial marketing and advertisement efforts will consist in contacting local schools and offering to do a free performance at an assembly in exchange for being allowed to distribute fliers to the audience. The cost of the fliers is $100 per event. In her first month of promotion she schedules ten performances...