For Option 1, the monthly online magazine, we are given the following data: the variable costs are $0, the fixed costs are $500, the expected clicks are 1,550, and they believe that 7% of all clicks on the site will be converted to sales.

Recall that Hula’s management believes that each customer generates $3.50 in short-run profit and $25 in lifetime profit. Calculate the advertising cost per conversion for Internet advertising Options 1 (Monthly Online Magazine) and 2 (Affiliated Retail Store). Calculate the total expected profit from each option (short-run and lifetime) and the ratio of total profit to advertising cost (short-run and lifetime). To determine the benefits of an advertising campaign, should Hula Island use the profit on the first sale or the expected lifetime profits.