Seract Inc. 

Part One

For this experiment, I chose option C. I will create my own textile company called Seract.  

Seract Inc. is a fashion company based in Buenos Aires, Argentina that manufactures different fabric materials to make shirts, pants, swimsuits, shorts, and other summer clothes. It sells the fabric to various well known brands in Latin America such as Velez, Mario Hernandez, Studio F, Color Wear, and others. Seract was founded in 2012 in Buenos Aires but it has expanded to several counties throughout Latinoamerica. Their aim is to create the most comfortable and good quality fabric for those who live in the coast, and then sell the fabric to other companies. Seract’s success is thanks to its innovative ideas.The start-up cost for importing the raw materials and the overall preparation for the manufacture to produce the fabric is $160,000 and the cost of producing one meter of fabric is $45 (Below specified). Besides, Seract sells each meter (of fabric) to all store for the same price at $70 meter.

Part Two

Financial Data

Total Fixed Costs

·       Depreciation: 15,000

·       Amortization: 18,000

·       Rent: 40,0000

·       Salaries: 60,000

·       Utilities: 27,000

          TOTAL FIXED COST: $160,000

Total Variable Costs

·       Direct Materials: 15

·       Credit card fees: 5

·       Production Supplies: 8

·       Commissions: 2

·       Piece Rate Labor: 15 dollars per hour.

         TOTAL VARIABLE COSTS: $45 per meter

The company should sell each meter of fabric for 70 dollars if it sells 6,400 meters of fabric daily.

Cost Function: C(q)= 160,000+45q

Revenue Function: R(q)= 70q

Profit Function: P(q)=  R(q)-C(q)

                                    = 70(q)-(160,000+45q)

Break Even Point

70q=160,000+45q

25q=160,000

q= 6,400

The break even point is the point where the revenue function and the cost function equal . As we can see in the graph, Seract’s Inc. break even point is 6,300 where the C(q) and R(q) intersect. In this case, at 6,300 meters of fabric produced, the sales exactly cover its expenses. If Seract sells one meter more of fabric it will make profit, but if it sells one meter less it will have a loss.  This means that when 6,300 meters of fabric are produced, the marginal revenue will be equal the marginal cost. Since the line of the revenue function gets steeper, the company will make profit if the quantity sold surpass 6400 m.      

Profit Function 

The slope for the profit function in Seract’s company is increasing, so this shows that it will gain money after selling the 6400^th item. The profit function in this graph shows the rate  Seract will make profit out of the sales of fabric.

Part Three

Meters of fabric produced per day N=Q= 6,500 meters

C(q)= 160,000+45q

C’(q)= $45 per meter

Average Cost when q = 6500

A(q) = C(q)/(q)

A(9051)= ((45*6500)+160,000)/6500 = (452500/6500) $69.62 per meter of fabric.

1.    The Marginal revenue (70) is greater than the marginal cost (45). This means that if Seract produces and sells an extra meter it will benefit and gain money because the marginal revenue is greater than the marginal cost to produce an extra meter.

2.    It is after because at that point it will have surpass the quantity by a hundred the break even point, so you will have profit.

3.    Yes it will, because at the quantity of 6500 it already had surpassed the profit, and  if we add one more meter, it will generate more and more profit (make money).    

R(6501)-R(6500)= 70$ per meter

455070-455000

C(6501)-C(6500)=$45 per meter

452545-452500

4.    At q=n, an increase in production decreases average cost.  

5.    Decreasing average costs would benefit the company because it would become cheaper to produce a meter, so increase the profit.

Part 4

 Over the next five years, the Seract continue will continue to grow as long as the marginal revenue is greater than marginal cost. Moreover, although the fixed cost is high, which is expected when you open a textile company, but since the marginal cost is low when it produces an additional meter, it will eventually make profit. Seract is also well known and the quality of the product is excellent, so the company should look at a high profit.