Blog 3

Stacey Schwartz
Blog 3

Par A: hypothetical company

Part two: MacSpudz is a restaurant that allows customers to build their own baked potato or bowl of macaroni and cheese. Customers choose which item they want and then go down a long line of toppings to finish their order. It caters to everyone and all tastes.


Fixed Costs:

Rent: $2,000/month ($50/day)

Utilities: $1,000/month ($25/day)

Supplies: $1,700/month ($45/day)

Variable cost: $10

Price that a company sells one unit or good: $12

Cost function: Fixed costs + variable costs( * quantity)

c(q)=120+10(q)

Revenue function: r(q) = 12q

Profit function: r(q) - c(q)

p(q) = 12(q) - (120 + 10q)


Break even point:
120+10q = 12q
q = 60

The break even point, which is labeled on the graph, shows where the cost is equal to revenue. The break even point is at 60 units meaning that at 60 units no money is made or loss.

The graph above shows the profit function. The break even point is shown at 60 units meaning no profit was made. Below the 60 the line is negative showing zero profit and above 60 units is positive, meaning a profit will be made.

Part 3:

75 units a day, q=75

Number of units produced a day (75) is shown on the graph above.

Marginal cost of producing nth unit is the derivative of the cost function:

c'(q) = 120

Average cost = c(q)/ q

Average cost = 120 + 10 (75) / 75

Average cost = 11.6

1. MC is larger than AC so increasing production increases average costs.

2. The amount of units produced daily is more than the break even point meaning that there should be a profit made every day.

3. With each product made the company is losing money, referencing the equations r(q+1) -r(q) and c(q+1) - c(q) costs is greater than revenue. 

4. Increase average cost. 

5. Decreasing average cost 

I think the company may struggle in the future because MC is larger than AC meaning an increase in production would increase average costs.