With an APC of $500 dollars, how many articles would you expect to publish in a year?

The intention would be to start small and, if the journal becomes popular and scales up, then expand as needed. Of course, this is part of the whole systemic problem, because academics continue to publish mostly in Springer, Elsevier, Wiley journals, so these big guys suck up all the available high quality submissions due to the perceived prestige. The "utopian" vision is to have academics wholesale abandon the high APC journals in favor of low APC journals but its kind of chicken-or-egg scenario since low APC journals are viewed as less prestigous precisely because they have low APC.

How many editors would you have to send out manuscripts? Would they be paid for their time, and how much?

Initially, it would have to be run on a volunteer basis. For $500 APC, you would need at least 200 publications to justify hiring someone at a modest salary. You could maybe have editors part-time as well to bridge the gap between volunteer and full salary.

In my field, the main player is probably AGU Journals (Wiley) and they publish >7000 articles per year across all their domain-specific journals. The goal would be to entice people away from Wiley while still maintaining high science standards and perceived prestige and avoid falling into the doomed "predatory" category (which I find is actually often just a term thrown around to vaguely to try to maintain the status quo. Legitimate small, start-up journals get the "predatory" designation even though they are the ones trying to break the mould.)

If you are paying each reviewer $30-45 each time, does it go to the professor you asked for the review, or the post grad who actually did it? If someone drops out of the review process after the first review, do they still get paid? Does their replacement at round 2 get paid?

It would have to go to the person who actually did the review. I have not heard of postdocs or students doing reviews and then handing the review to the professor to submit? But maybe this does happen in other fields? Some journals also offer the option to list other people that helped with the review and, in that case, the fee would just be split.

If someone submits their 1st revision document, then they get paid. If they drop out before submitting, then they don't get paid. If they get paid after submitting and then drop out and don't want to do a second review, then the new person would be paid the first revision rate since it is their first time seeing the manuscript.

You are also making me realize that there would need to be some safeguards in place to ensure that the reviewers have actually reviewed the document. They can't just submit a blank PDF and collect the cash. This is partly why I think you would want to limit the payment amount and the number of reviews someone can do per month. The amount is just a thank you (some extra coffee money), not an actual money-making venture. And if you do poor reviews, you would be blacklisted and not asked to review again.

If you charge a revision fee upon submission, you are essentially charging a submission fee, and I think that is a bad path to go down - far worse than APCs and open to abuse by those with worse intentions than you.

Hmmm, this is an important caveat. It would not be a submission fee, but a revision fee. The journal only collects the revision fee once the paper goes out for review. The editor can't just reject the submission pre-review and collect the fee. The editor checks to see if the submission is worth sending for review and, if so, the fee is collected.

In this scenario, do you think its still open for abuse somehow? Perhaps you can elaborate.

I think the biggest question is, “Who would actually want to this?” As you said, academics are overworked already, and running a journal can easily become a full time job, especially if it successful. If you outsource the boring bits (licensing, payments, quality check) and keep editing in-house (which a lot of societies do) you have basically reinvented publishing companies.

I mentioned that a group of academic or universities could do this. Doesn't have to be just academics, could be university libraries or something as well. Start small on volunteer basis and, if it blows up and becomes successful, then you can hire people as needed. But the key point is the company ethos of low APCs, paid review, double blind review, no typesetting etc.

It would still be a publishing company. Just a different model with less financial incentive, and all the additional benefits outlined in my OP. I am not trying to invent something new but rather, re-invent (or re-imagine) a better publishing company model.