Blog 3 Marek Niesiobedzki

A-Option c

My company will produce paper clips for 10 cents per unit. This market will be targeted towards both households and businesses because paper clips are needed to use for everyone . The history of the company is that they have recently been convicted of finding lead traces within the metal used for manufacturing the paper-clips

        Fixed

           B           Building- 500,000

Equipment- 250,000

Maintenance per year – 32,000

Heating/cooling and utilities- 70,000

Taxes-                        10,000

Total- 862,000

Variable

Labor 5 Employees 20 k a year each  = 100,000 k a year

Raw materials per year =98,000 k

      Marginal

       Cost of producing one additional item will cost the same

    Selling Price per unit =  1 dollar

  Cost Function

C(q)= $,862,000+ $0.10(q)

Revenue Function

R(q)= $1(q)

Profit Function

P(q)= 1(q) – (862,000 + 0.10(q))

                           P(q)= -1109020

Break Even Point

Break Even: $1(q) = $862,,000 + $0.10(q)

                                                     $.9(q) = $862,000

                                                     (q) = 116,598

Graph

                                          MC

 

Were Making profits

Part C

-Number of units produced daily – 150

- Refer to diagram

- C(q)= $1,111,000 + $0.10(q) => C’(q)= $0.10

                           Used derivative to find that the marginal cost of production is $0.10 because that is how much it costs to produce each additional item (slope of line)

.10x150/150=.10   so it will cost 10 cents to produce the 150^th unit

                                                   MR

                                                              MC

 

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

The marginal revenue is greater than the marginal cost because the line is steeper due to the cost of production only being 10 cents  while the selling price is 1 dollar . Which is going up by 10X

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

The number of units sold is long before the break-even point. This results in there not being clips produced for a while.

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)

Yes, the company will continue to have higher marginal revenue than marginal cost.

This is because 1 dollar (100 + 1) – 10 cents (200)= 210 – 200 = 1. AND $0.10(200 + 1) – $0.10(200) = 20.1 – 20 = $0.10

At q = n, does an increase of production increase or decrease the average cost for the company?

Since we have shown that the marginal cost will always be $0.10, no matter what the amount produced is, an increase in production will not affect the average cost for the company.

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

always be better for a company to decrease average costs.

(Part four)

Provide an analysis of how you think the company will do over the next five years based on all of the information you have gathered from your experiment.  In other words, explain whether or not you think the company will thrive, struggle, or tank within the next five years.  Give mathematical and economic/social reasoning for your explanations.

Break-even is at quantity 116,598. So, with the company being able to produce 54,000 (150x365) units a year, the company will begin to produce profits. in the 3^rd year. However, the startup costs will not be covered for another year since the revenue will be 73,000/year with 863,000 in startup costs to cover. Since this is a company that produces paper clips, and the demand for them is high. I think that over time the company will succeed