Blog Post #3 Michael Dahlstrom

PART 1:

Big Mike’s Shoe Shop (Option C)

PART 2:

Big Mike’s Shoe Shop is located in Bethesda, MD. We are a small store that only sells one specific shoe, Crocs. We are targeted to make $1000 every month, which pans out to $12,000 a year. We started as a company last year but started brand new with our assets, liabilities, and equity this upcoming year.

Fixed Costs- Total Fixed Cost= $210

Rent - $100 a month ;;Wages- $50 a month ;; Electricity- $50 a month ;; Advertising- $10 a month ;;

Variable Cost- Total Variable Cost= $15x

The cost of making one pair of Crocs is $15

The sales price of one pair of Crocs in $30 (Revenue function= R(q)=250q

Cost Function = C(q)=210+ 15q

Revenue Function = R(x)=20x

Profit Function= R(x)-(Cq)

Break Even Point= Salesx-VCx-210

GRAPH COST AND REVENUE FUNCTION (SEE GRAPH BELOW)

The break-even point shows how much sales the company needs to have before it is no longer paying off its expenses and will eventually start to generate revenue. Slope shows how fast or how long it will take to reach the break-even point. Since the breakeven point = 360 and 13 sales, it means that my business would need to sell 13 pairs of Crocs in order for my company to not be in debt and start obtaining profit.

Find average cost of producting nth unit = $15

GRAPH SLOPES OF MARGINAL COST OF Q=N (SEE GRAPH BELOW)

PART 3:

a)      Q=2 units produced daily.

b)      SEE GRAPH

c)        Marginal cost is $30 (2x$15)

d)      Average cost = $15

1)      The marginal revenue is greater than the marginal cost. As for every $30 earning on a pair of shoe, we only spend $15 despite the fixed expenses.

2)      Before the breakeven point, meaning that until the 13^th day arrives our business will not produce profit.

3)      Yes, because the company will still have profit from making three units a day costing $45 and still selling two pairs ($60 value.) However, if a fourth unit is produced then the company will have excess and produce an overload of shoes.

4)      At q=n, the production stays the same because the average cost will always be $15 per shoe.

5)      Decreasing average costs will result in a cheaper variable cost thus making it faster to reach the break-even point. Overall, decreasing average cost would be much better.

PART 4:

1 & 2) The company should do extremely well over the next five years. With a small amount of shoes being sold, the demand will stay very high for the upcoming years generating a constant successful profit. With making $15 on every pair of shoes and having a small fixed expense of $210, the company will thrive in the market. Big Mike’s Shoe Shop should be successful for years to come.