News.com is a Web site that offers users access to current national and international news stories. News.com does not charge users a fee for accessing the site, but rather charges advertisers $0.05 per hit to the Web site. A “hit” is a user that logs on the Web site.
News.com is considering two alternate ISPs that will link News.com’s computer system to the World Wide Web—NetCom and Globalink. These firms are identical in access speeds and the number of users able to connect to the site per minute. Both ISPs are equally reliable. NetCom proposes to charge $3,000 per month plus $0.01 per hit to News.com. Globalink proposes to charge $2,000 per month plus $0.02 per hit. Assume that the only costs News.com incurs are the access fees charged by the ISP.
Required:
a. Calculate the number of hits to its Web site needed to break even if News.com uses NetCom.
b. Calculate the number of hits to its Web site needed to break even if News.com uses Globalink.
c. Which ISP do you recommend that News.com use? Explain why.
d. Monthly demand (in number of hits) for News.com is expected to be either 50,000 if the economy is slumping or 150,000 if the economy is booming, each equally probable. Which ISP should News.com choose and why?
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