Blog #3

Part One: I chose to research Baked and Wired. A local company here in Georgetown, Washington DC.

Part Two: Baked and Wired is a family owned bakery in Georgetown. It opened in 2001 and it serves cupcakes, other baked goods, and coffee drinks. The company targets people of all ages. I think they specifically cater to college students and young people in the area to offer a cool hip bakery/café in Washington DC. I will focus on cupcake productions.

·      Total Fixed Costs: $24600

o   Heating: $1000

o   Rent: $6000

o   Supplies: $7500

o   Internet/Phone/Fax: $600

o   Ingredients for baked goods: $3500

o   Ingredients for drinks: $3500

o   Other miscellaneous costs: $2500

·      Variable Costs: $4

·      Price one unit sold at: $7

·      Cost Function (q shows quantity): C(q)= 4q + 24600

·      Revenue Function: R(q)= 7q

·      Profit Function: P(q)= 7(q) – [4(q) + 24600]

·      Break-Even Point Value:

o   Break-Even Point =Fixed Costs/ (Price Per Unit – Variable Cost)

o   Break-Even Point = (24600)/ (7-4) = 24600/3 = 8200 units

·      The break-even point is (8200 units, $57400). I got this because of the revenue function R(8200)= 5(8200)= 57400. When Baked and Wired produces 8200 units of baked goods the break-even point is where the company is neither making a profit or a loss. (Look below at the graph). The linear slopes for the revenue and cost function show how much Baked and Wired would make for an additional cupcake to be baked/produced (marginal revenue) and the cost function shows how much it would cost for an additional cost to produce a cupcake (marginal cost).

·      Baked and Wired makes 8200 cupcakes it will not make any profit or loss because that is the break-even point. The profit will be at $0. This shows the profit function.

Part Three:

·      Number of cupcakes produced a day: n= 1200, q= 1200 units

·      Marginal cost (MC)= C’(q) = 4q + 24600 = C’(q)= MC= 4. This means that it costs an additional $4 to bake/produce one more cupcake.

·      Average Cost= C(q)/ q = (4(1200) + 24600)/ 1200= $24.50. So, the average cost to produce 1200 cupcakes would be $24.50

·      The marginal revenue is greater than marginal cost. 7 > 4. This means that Baked and Wired is making a profit.

·      The cupcakes sold are before the breakeven point. The breakeven point is 8200 and the cupcakes sold are 1200. This means that Baked and Wired needs to make 7000 more.

·      Increased by one more. This shows that it would be in the best interest for Baked and Wired to produce one more cupcake.

o   Revenue: R(q+1)-R(q) = R(1200+1) – R(1200)= 7

o   Cost: C(q+1) – C(q) = C(1200+1)- C(1200)= 4

·      Average cost is greater than marginal cost. This shows that an increase in production would need to be done if average cost is decreased. Decreasing the cost would allow Baked and Wired to spend more money on the bakery and/or other products.

Part Four: Baked and Wired will do fine in the next five years if the revenues remain greater than the costs of production. I think it will expensive to also rent property in Georgetown. So to keep the profits positive it will be necessary to make changes to the price of the cupcakes. But I think the overall demand for cupcakes and the quality of Baked of Wired will allow the company to stay afloat.