Part 1

Wrestling Inc. is a new company that produces top of the line wrestling shoes. This is a top of the line product in both ascetics and in quality of make.  The company was founded in 2015 and established in Loveland, Ohio. It attracts the best of the best to wear it products. To promote it, Wrestling Inc. has hired some of wrestling’s biggest names such as Bubba Jenkins, David Taylor, and Logan Steiner to wear its products.

Part 2

Total fixed Costs:

·      Advertisingz: $4,000

·      Rent: $5,000

·      Property Tax: $2,000

·      Utilities: $4,000

·      Interest expense: $2,000

Total Fixed Costs: $30,000

Total Variable Costs per unit:

·      Supplies: $60

·      Direct materials: $80

·      Labor: $20 for  hour of labor per sneaker

Total Variable Costs: $160

Price for which the company sells a unit: $200 for 1 unit

Cost Function: 30,000+160q

Revenue Function: R(q)=200q

Profit Function: P(q)= 200q-(30,000+160q)

Break Even Point Value:

    200q=30,000+160q

    40q=30,000

     q=750

     After making 750 pairs of wrestling shoes Wrestling Inc. will start to make money.

Cost and Revenue Function Graph

       The break-even point on the graph, is the point where the revenue and the cost are equal to one. This is at 750 pairs of wrestling shoes. When more pairs are produced after 750 pairs of wrestling shoes the marginal revenue is surpassing the marginal cost. Since the marginal revenue line continues to get steeper, it gets steeper than the marginal cost line. This means that after the break-even point on the graph, the revenue is increasing at a faster rate the cost.

Profit Function Graph

·      The break even poiny occurs at 750. As you can see on the above graph, everything below 750 pair of wrestling shoes is running at a negative profit. Once you surpass 70 pairs of shoes you are making a profit.

Q=100 (Units produced daily)

·      Marginal Cost of producing the nth unit: 100 dollars

         Marginal cost=derivative of the cost function: c’(q)

·      Average cost of producing the nth unit: 660 dollars

Average cost= cost function/total quantity

  

Marginal and Average Cost graph

1.     At q=100, Marginal revenue is greater than marginal cost because marginal revenue

2.    The number of units sold daily is 100 pairs of sneakers, which is before the break-even point of 750, which means the company will start operating at a loss but after the 8^th day the company will start to make a profit on the stock they have left.

3.    Yes because for every extra quantity produced per day, the marginal revenue is $ and the marginal cost is $160. So for every extra unit produced, the company will continue to make more money. R(q+1)-R(q) is much greater than C(q=1)-C(q)

4.    The increase in production will lead to a decrease to the average cost because of the fact that average cost is greater than the marginal cost.

5.    Decreasing average costs will be better for the company because it will maximize the company’s profit. If the average cost was increasing, then the company’s profit would begin to decline. It’s an inverse relationship.

Part 4

There is no reason to assume that the company will do negatively since they are making money on every pair of shoes after the 8^h day. There is always the possibility of getting negative publicity or running into manufacturing trouble but with the current system in place and the high profit margin, there is no reason that the company will be unable to recover from such problems. With this said, I believe over the next 5 year wrestling Inc. is going to make a lot of money.