Blog 3 - Adam Sussman

Part One: 

Sussman automobiles has developed the first solar power car. After many years of research, testing and production, the SolarZip1 is finally ready to hit the market. The fixed costs of the company are the rent of the factory facility and showroom of $265,000 a month, utilities of $5,000 a month, and employee wages of $30,000 a month. At the present time there is one model of the car, which costs $15,000 to produce and sells for $75,000. 

Part Two: 

Fixed Costs of the company:  265,000+5,000+30,000 = $300,000

Variable Costs : $15,000/car

Selling Price : $75,000/car

Cost function : C(q) = 15,000*q + 300,000

Revenue function : R(q) = 75,000*q

Profit function : P(q) = R(q) - C(q) = (75,000*q) - (15,000*q + 300,000)

Break Even Point : It would be where R(q)=C(q). That point is q=6 and $450,000.  

The break even point is where R(q) = C (q); also, where revenue equals cost. At this point no money had been made, but no money has been lost. This point is found on the graph where the two functions intercept. The slope of the revenue function is related to the selling price of each unit, being $75,000. Similarly, the slope of the cost function is relative to the $15,000 required to produce every next input. Furthermore, the cost function starts at $300,000 due to that amount being the fixed costs; while the revenue function starts at the origin because the revenue is $0 until a sale is made. 

On this graph, the break even point is located at the x - intercept. At this point, the company has covered all of its expenses, and each additional unit will lead to a profit. The reason the graph starts at - 300,000 is because that is the value of the initial fixed costs. The graph is concave up until the company begins to generate revenue. Eventually, the graph will be concave down when it becomes profitable. 

Part Three:

Ice Creams produced every day: q=0.5

MC = C'(q)

MC = $15,000/ additional unit

C(0.5) = 15,000*(0.5) + 300,000

C(0.5) = 307,500

A(0.5) = 307,500/0.5= $153,750

MC = 15,000

MR = 75,000

1) At q=0.5 MR>MC, but the company is still operating at a loss because the value is below the break even point.

2) It is before the break even point, which means that the company should keep producing more units in order to meet it and begin earning profits.

3)Yes, the company would still make profits since R(0.5+1)= $112,500 and C(0.5+1)-C(0.5)= 322,500 - 307,500 = $15,000. 

4) Since MC<AC then an increase in production would decrease the AC. 

5) A decrease in the AC would be better for the company because it will require them to pay less. This would be the case up to the point where MC=AC, because after an increase in production will result an increase in the company's costs.

Part Four:

I can confidently project that the company will be extremely profitable at the conclusion of the five year period. The company only has to sell 6 units to break even, so as popularity grows for this solar powered car, this company will quickly cover the fixed costs, and soar into profitability.