Blog 3 Sara Al Sharif

Part 1 and part 2: My Company is a shoes company (hypothetical). They sell shoes that are targeted to all ages children, teenagers, adults, and elderly. 

1)      Fixed costs: $500

2)      Variable costs: 10 q

3)      Price: $50

4)      Cost function: C(q) = 500 + 10 q 

5)      Revenue function R(q) = 50q 

6)      Profit function: 50q – (500 +10q)

7)      Break-even point values: 500 +10q = 50q , q = 12.5 ~ 13

8)     

Graph cost and the revenue function:

9)      The break-even point is when the costs and revenue are the same. MC= 10 , MR= 50     

10)  

Graph profit function:  

11)   The graph of the profit function shows the break-even point which is when the profit is zero and the revenue equals cost.                                                                        

Part 3:

1)      100 units produced on a daily bases

2)      C(100) = 500 + 10(100) = $1500 , R(100) = 50*100 = $5000 Graph:

3)      MC = 10

4)      Average cost: C(q)/q = C(100)/100 = 1500/100 = $15/unit

5)     

Graph of MC and AC:

 

Continued part 3:

1)      MR =$50/unit, MC = $10/unit, the marginal revenue is greater than marginal cost which means that the profit will be greater.

2)      The number of units sold daily is after the break-even point, and it means that the company has to break-even first and cover their costs in order to sell their daily units.

3)      The marginal revenue is the slope of revenue curve at q=100, and the marginal cost is the slope of C(100), R(100+1)- R(100)=  $50/unit, C(100+1)- C(100)= $10/unit, since the marginal revenue is greater than the marginal cost this means that the company will make more money.  

4)      At q=100, an increase in production will decrease the average costs.

5)      Decreasing average costs will be better for the company since the company can gain more money while spending less.

 

Part 4:

Over the next five years I think the company will thrive because based on all of the information that were presented it appears that if the company sold more than 13 units on a daily bases, they will break-even and cover their costs, and if they sold 100 units on a daily bases which is their goal, they will be able to thrive in five years.