Blog Post #3 Jean Marcel

Part 1:

 Macello’s Restaurant, is a buffet restaurant that focuses on Italian food. They charge $120 for a plate and you can eat as much as you want of the finest Italian food by the canals of Venice. Many celebrities have eaten there, from Brad Pitt and Angelina Jolie to Award winning Leonardo DiCaprio. They have reconstructed their restaurant building to be stronger than most of the Venice building so celebrities can land on top of the building in their helicopters. It was reviewed five stars by George Clooney during his weekend wedding back on September, 2014. 

Part 2:

·         Total fixed costs: $940,000

·         Building cost rent (annually): $700,000

·         Equipment(annually): $90,000

·         Supplies(annually): $100,000

·         Utilities (annually)(water, heat, electricity): $50,000

·         Variable cost: cost of producing one more plate is $30.

·         R(q)= 120q

·         Cost function: C(q)= 940,000 + 30q

·         Profit function: P(q) = (120q) – (940,000 + 30q)

·         Break-even: q=10,444.44

      

      ·         To make a profit in Macello’s restaurant, they need to sell more than 10,444.44 plates to start making positive profits.

         

           

              ·         Before (10444.44, 1253333.3) Macello’s Restaurant is making negative profits and after that point it starts making profits.

            Part 3:    

•             Macello’s Restaurant produces an average of 70 plates daily, q=70.     

              

·         Marginal Cost= C’(q)

C(q)= 940,000 + 30q

C’(q)= 30 

·         Average cost: A(q)= C(q)/q

A(q)= 940,000 + 30(70) / 70

       = 942100 / 70

     A(q)  = 13458.57 dollars

Questions:

·         Is the marginal revenue less than or greater than the marginal cost at q = n? Explain.

The marginal revenue is greater than marginal cost because at q= 70 plates the restaurant is positive.

·         Is the number of units sold daily (q =n) after or before the break-even point? What does this mean?

After the break-even point meaning that if the restaurant sells 70 plates daily, it will have positive profits.

·         If production is increased by one extra quantity per day (i.e. if q = n + 1)) will the company continue to make money? Explain. (be sure to reference the formulas R(q + 1) – R(q) and C(q + 1) – C(q) in your explanation)

By doing the formula I figured out that my marginal revenue is $120 and my marginal cost is $30. This means that my profit will be $90 dollars.

·         At q = n, does an increase of production increase or decrease the average cost for the company? An increase of production decreases my average cost from $13458.57 to $13269.213

·         Explain whether increasing or decreasing average costs would be better for the company.

Decreasing average cost would be better for the company because the owner can make more profit. 

Part 4

1.       My company will do even better during the next five years because more celebrities will come and tourist will want to dine at Macello's restaurant to know what the buzz is about. This will cause more plates to be produced every day, making the average cost lower. 

 2.  Macello's will thrive within the next five years because its popularity is going to make the average cost go down with time, making more profit for the restaurant and eventually adding more stuff to the menu and expanding by buying the next door building. After it gains a little more recognition I plan to expand the menu and raise the price to $200 per plate, it's going to be risky, but real entrepreneur risk to expand.