Nathalie Aissi's Blog Post #3

Part 1

The Pastel is a new company that produces high-top sneakers in any and every color, as well as any size. The one special thing about the new company and why it is doing very well in its sales, is that The Pastel sneakers are all made of animal fur, including inside of the shoe and outside of the shoe, making the sneaker very popular when it comes to its physical look, as well as the extreme comfort level of the sneaker. The company was founded in 2000 and established in Boston, Massachusetts. Since Boston is a place that is known for being quite chilly, The Pastel Company wanted to make a sneaker that people would not only wear because of its style and comfort, but also wanted to make a sneaker that can keep many Bostonians warm in their feet for long periods of time. But these sneakers will and have expanded its selling all over in the United States. So when each state begins to get cold, consumers would turn to these sneakers for warmth, comfort and style.

Part 2

Total fixed Costs:

·      Insurance: $5,000

·      Rent: $6,000

·      Property Tax: $2,000

·      Utilities: $3,000

·      Interest expense: $1,000

Total Fixed Costs: $30,000

Total Variable Costs per unit:

·      Supplies: $60

·      Direct materials: $70 for 1 square meter of animal fur

·      Labor: $30 for 3 hours 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:

1.    200q=30,000+160q

2.    40q=30,000

3.    q=750

4.    Answer: 750 pairs of sneakers

Cost and Revenue Function Graph

·      The break-even point on the graph (which is labeled above on the graph), is the point where the revenue and the cost are equal to one another and on the graph, this occurs when 750 pairs of sneakers are produced.  When more pairs are produced after 750 pairs, 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 more than the cost.

Profit Function Graph

·      The break-even point on this graph is the little black dot on the horizontal axis and that dot is the value of when no profit is made (zero profits). This means that any quantity below 750 pairs of sneakers will result in a loss of money and any quantity above 750 pairs of sneakers will result in a profit. For example, when the quantity is 750 pairs of sneakers and more, the graph is positive and will be above the horizontal axis. But if the quantity is below 750, the graph is negative and below the horizontal axis. This means that the profit function shows the value at where a specific production quantity will begin making a profit.

Q=60 (Units produced daily)

·      Marginal Cost of producing the nth unit: 160 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=60, Marginal revenue is greater than marginal cost because marginal revenue at q=60 is $12,000 and marginal cost at q=60 is $160, which means that the revenue is exceeding the cost, meaning that the company is making positive profits.

2.    The number of units sold daily is 60 pairs of sneakers, which is before the break-even point of 750, which means the company will start operating at a loss but eventually, will make a profit when the break-even point is reached.

3.    Yes because for every extra quantity produced per day, the marginal revenue is $12,000 and the marginal cost is $160. So for every extra unit produced, the company will continue to make more money.

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.

1.&2. From all the calculations I have made, my company will be successful over the next five years. When it comes to advertising the product, it may be a struggle and the costs of marketing the product may be a struggle as well because this is a new company and it is competing with other very popular sneaker company’s like Nike. But as soon as the company’s name is more out there as time goes by and the consumers are introduced with the new sneaker company, the demand for this sneaker will increase continuously. Also, as a new company, we will have time to come up with more unique ideas for the shoe that will attract consumer’s attention and this will increase profits that the company will earn. So since the average costs will decrease, which will increase revenue and help the company earn a higher profit. The marginal revenue should continue to flourish unless the product’s price does end up changing over time. Since the company’s product are sneakers, they will always be wanted during the spring, summer, winter or fall. But with it’s unique fur inside and out of the sneaker, it would be demanded more during fall and winter for the fact that it will be cold and these shoes will keep consumer’s feet very warm during that period of time. All in all, this company has great potential of growing.

Blog 3

Part 1: I will be making up my own business with one product.

Part2:

The company I have started is called: The Sabella Khnouf Deli.  The company is based in Washington DC and we are one of the most popular Deli’s in DC although we only recently opened.  We have one deli in the DC area and we are expected to open 2 more stores in coming 3 years.  We offer many types of Middle Eastern meals and dishes but our most popular and best selling is our falafel sandwich. Our target market is mostly working men and women looking for a quick bite to eat in their lunch breaks since the food we make is mostly healthy and does not need a lot of time to make.

The Below figures are Per/Month

Total Fixed Costs:

Rent: $300

Wages: $500

Supplies for making food: $500

Heating, AC, Water: $300

Variable Costs: $5

Price for One Falafel Sandwich: 5$

Cost Function: C(q)=1600+5q

Revenue Function: R(q)= 7q

Profit function:  P(q)= 7q-(1600+5q)

Break Even Point:

Total Revenue = Total Costs

7q= 1600+5q

q= 800

Break Even Graph:

In order for the company to cover all its costs for producing the goods, 800 hundred units must be sold.  Anything sold afterwards will be considered profit for the company. 

The marginal cost for the production of an extra unit is $5

The marginal revenue to produce an extra unit is $7

Profit Function:

The slope for the profit function is an increasing slope.  This means that the company will have a positive profit return on the goods they produce and sell after the 800^th unit.  The profit function shows the rate at which the company will make money out of their sales.

Part 3:

Units produced per day: 100 Sandwiches. 

Marginal costs from producing the nth unit: 5$

Average cost of producing the nth unit:

Average costs= C(q)/q

= C(100)/100

= 2100/100

= 21 $

1-the marginal revenue (7) is greater than the marginal cost (5).  This means that the production of an extra unit will benefit the business since the marginal revenue is greater than the marginal cost to produce an extra unit. 

2- before. This means that the company will need extra 7 days in order to break even and thus cover their costs.  For the first 7 days we will be operating a loss but after the 8^th day we will start generating profit and for the remainder bigger portion of the month we will be operating in profit

  

3- yes. Because for every extra unit produced the marginal revenue is 7 dollars whereas the marginal cost is 5 dollars.  Therefore, for every extra unit produced the business will be making money.

4- Marginal cost = 5, Average Cost= 21

The average cost is greater than the marginal cost.  Therefore an increase in production will lead to a decrease in average costs.

5- Decreasing. Because increasing average costs means that for every extra unit that is going to be produced the overall costs are going to increase on a company.  However, a decreasing average cost is good for a company because that means that for every extra unit they produce overall costs will decrease.  This will provide an opportunity for a business to increase production and therefore increase their number of sales and thus greater profit will be made.     

(Part 4):

I believe that over the next 5 years the company will strive due to various economic and social factors.  From an economic standpoint, according to the mathematical calculations I did throughout this experiment it is evident that the company will strive.  The marginal revenue is greater than the marginal costs this means that for every extra unit produced the business will make an extra 2 dollars.  Other than that, since the average costs are greater than the marginal costs for the company therefore over time as the company expands and production increases this will lead to a decrease in average costs.  Other than that, since the business can break even after only 8 days to cover their costs for the entire month this is an indication that the business is efficient and productive.  From a social standpoint, DC is a very diverse area with different people from all around the world. It is very well known for having the most diversity in terms of restaurants and cuisines.  Therefore, people are becoming more familiar with the Middle Eastern cuisine and it is getting more popular so there is a growing market for it, which can be an opportunity for the deli to continue to grow.      

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.

Blog 3 Jeff Greenberg

All in One Manufacturing Business Analysis (Blog 3)

All in One Manufacturing was started by my father in 1987 in San Diego, California. All in One started out fairly small. Originally the business consisted of a few employees cold calling end users explaining the benefits of having promotional products from All in One. At the time the main product line consisted of pens. The service that All in One provided was to imprint or engrave the pens with either company logos or personal information. Over the years, while the service provided has changed very little, the product line has expanded incredibly. All in One now sells large amounts of technology like USB drives, tech accessories like cell phone covers and portable laptops, a series of about forty different high quality bags, and an incredibly large line of high quality writing instruments. Considering that All in One now exists within the promotional products industry, their target demographic is a large group of distributors. In this particular industry, it is not acceptable to sell directly to the end consumer, and considering that All in One is second on the supply chain, as a manufacturer, they sell to the next step (distributors).

            In 1987 the start up costs, or total fixed costs, for All in One manufacturing were about $20,000. This included renting a building, buying all of the appropriate production equipment, setting up a landline, paying employees, etc.

            The average high-end pen costs about 2 dollars to bring into inventory. The cost of engraving the pen was about 4 dollars if you factor in the small amount of labor required for a single pen as well as the energy required for the machine and other factors. All in all, the variable cost is about 6 dollars. The sale price of the pen is about 11 dollars.

The Cost function – fixed costs (a) + (variable costs (b) * quantity (q))

C (q) = a + bq

For All in One the cost function then becomes

C (q) = 20,000 + 6q

Revenue function – total revenue from selling a quantity of some good

price (p) * quantity (q)

R (q) = pq

All in One’s revenue function is

R (q) = 11q

Profit function – revenue – cost

P (q) = R(q) - C(q)

All in One’s profit function then becomes

P (q) = 11q – [20,000 + 6q] 

Break-even point, where revenue = cost

11q = 20,000 + 6q

-6q                   -6q

5q = 20,000

/5            /5

The break-even quantity is q = 4,000 pens

Cost and Revenue Function Graph

Point “b” on the graph symbolizes the break-even point

The break-even point represents the point where costs equal revenue and All in One can start making positive profits from participating in business.

Here the break-even point is where All in One sells 4,000 pens.

Marginal Cost is the incremental difference in cost between the quantity, a, and the quantity, a + 1.

Marginal Revenue is the incremental difference between revenue between the quantity, b, and the quantity, b + 1.

On the graph above, the break-even point is relatively low because the slope of the revenue function, or the marginal revenue, is significantly greater than the slope of the cost function, or marginal cost. In order for a business, like All in One, to not accumulate too many losses, you want marginal revenue to be significantly greater than marginal cost. Hence the revenue function being 11q versus the variable costs being 6q, thus allowing for a five dollar difference, or rather five dollars of profit for every unit.

                  

                                                                    Profit Graph 

The graph of the profit function shows that profits are negative before hitting the break-even point, b. Point b = (4000, 25000), or the point at which 4000 pens have been produced and 25000 dollars in costs have accumulated. The profit curve shows that once the 4001^st pen is sold, All in One goes into a period of making positive profits.
 

The quantity of pens produced daily is q = n. The average amount of pens produced daily, n, is 28,475. So, q = 28,475.

                                                                                 

Daily Production Graph 

Point d shows the amount produced daily on the revenue function, while point e shows the amount produced daily on the cost function.

Marginal Cost = C’ (q)

C (q) = 6q + 20,000

C’ (q) = 6

Meaning that the marginal cost of producing 28,475 pens in 6 dollars.

The average cost of producing the 28,475^th pen is

A (q) = C (q) / q

[6q + 20,000] / q

[6 (28,475) + 20,000] / 28,475

A (q) = 6.70 dollars

Marginal and Average Cost Functions Graph

At q = n, or q = 28,475 the marginal revenue is greater than marginal cost because All in One is making positive profits at q = n and in order to make positive profits, marginal revenue must be greater than marginal cost.

            The number of pens sold daily by All in One is after the break even point (28,475 is far greater than 4000), meaning that All in One makes positive profits daily.

             If the number of pens increases daily by one (q = n+1) so that All in One now produces 28,476 pens per day, All in One will continue to make a profit because revenue per unit is significantly higher than cost per unit.

R(q + 1) – R(q) and C(q + 1) – C(q)

11(q+1) – 11q

and

[6(q+1) + 20000] – [6q + 20000]

So that revenue equals

11(28,476) – 11(28,475)

MR at q +1 = 11

And

Cost equals

6 (28,476) – 6 (28,475)

MC at q + 1 = 6

And Profit = R(q+1) – C(q+1)

Profit = 11-6= +5 dollars

At q = 28,475, an increase in production increases average cost. This is not optimal because if average costs were to decrease, All in One’s profit margins would increase, leading to higher profits for the company.

Considering that All in One has fairly high profit margins, it seems as though the company would do quite well over the next five years, all else equal (meaning no serious natural disasters, changes in technology, changes in the economy, etc.)

You can see above that the math regarding All in One is fairly promising. The only thing that could be better is to lower average costs, therefore increasing profit margins without imposing higher costs on the consumers. However, given my understanding of the promotional products industry and our business from more than a manufacturing and accounting standpoint, I tend to question whether All in One will last. Our business is based just as much on good sales people and management as it is on good production, and frankly the former aspects are not as well organized, efficient, or profitable as the latter.

           

            

Blog 3 Falco

Part 1

Fal-corp is a fictional company that makes electric powered mono-cycle.

Part 2

Total Fixed costs include:  cost of facilities ($300,000), equipment ($50,000), utilities ($300)

Variable cost for producing one unit is $10,200

Unit Price would be $25,000

C(q)= 10,200q+350,300

R(q)=25,000q

P(q)= (25,000q)-(10,200q+350,300)

25,000q=10,200q+350,300
14,800q=350,300
q=23.669 (this is the break even point)

Cost v Revenue 

The break even point on the graph is the point where cost and revenue equal, any point after this will represent profit in Fal-Corp, the marginal revenues aft this point will always be greater than the marginal costs. You can see this by the fact that the cost functions slope is increasing less than the revenue function

Profit Function 

The graph of the profit function shows that profits will be negative (losses) until around 24 units

Part 3

Fal-Corp is a one man company in a brand new market, signaling very little production, because of this Fal-corp will only produce 1 unit every two weeks. this means fal-corp will produce .0714 units per day

marginal cost's formula would be q= 10,200

that means producing more than one of a unit will cost 10,200 more.

Avg Cost and Marginal cost

1. Marginal revenue is greater at any number of produced units, because both MC and MR are constants the number produced does not matter.

2. the number of units sold daily is below the break even point, there fore the business must operate for a while before making a profit

3. yes the company will make more money if it produces more units per day, this is because R(q+1)-R(q) is much greater than C(q=1)-C(q)

4.  at q=n the cost of the company stays the same

5. decreasing average costs would benefit the company because it would make more and more profit of off each unit sold.

Part 4

1. Based on the information provided, if the company can stay at the rate it is going the company will be making a profit in a year and continue being profitable for as long as the market and costs stay the same.

The company will struggle the first year, but because both the companies costs and and revenues are linear that means barring an incident of market changes no matter what quantity is being produced and sold, after 24 units everything will be profit.