Blog 3

*MY GRAPHS WON’T SHOW UP*

Part 1

(Company of my own creation)

LapVac is a startup that sells an electric and device friendly vacuum keyboard cleaner for laptops/personal computers. Users simply place the LapVac on the keyboard, and LapVac will brush over and suck up all dirt and debris until the device is clean. LapVac also works on desktop computers, tablets and phones and features a polishing component. LapVac Co started business 3 years ago in Boston and has had great success due to unconventional and unexpected use.

Part 2

(A)

Fixed Costs:

Rent/Lease = $15,000

Manufacturing Overhead= $5,200

Utilities =$7,000

Total= $34,000

(B)

Variable Costs:

Personnel (Security & Workers) = $20 for each unit

Raw Materials = $10 for each unit

Total: $30 per unit

(C) 

Cost Function:

Price = $45

C(q) = 34,000 +  30(q)

Revenue Function:

R(q) = 45(q)

Profit Function:

P(q) = 45(q) - (34,000 + 30(q)) = 15(q) - 34,000

Break Even:

R(q) = (c)(q)

45(q) = 34,000 +30(q)

15(q) = 34,000

q = 2,267

R(q)=

45q = 45 x 2,267 = $102,015

c(q) =

34,000 + 30(q) = 34,000 + 30(2,267) = $102,015

In the graph, breakeven point is the point where revenue and cost are equal and the profit is equal to zero. In the graph, revenue is steeper which means the marginal cost is less than marginal revenue.

The profit function graph shows that at the beginning, LapVac is pre revenue, and then as they are able to produce more, they move out of negative territory and hit the breakeven point. After this point, production leads to profit.

Part 3

If q =10

Cost = $34,300

Revenue = $450

Variable Cost = $300

Marginal cost = $30

Average cost = Total Cost/ Number of Units

Average cost = 34,300/10=

$3,430

1). Marginal cost has a slope of 30 which is how much it costs to make an additional unit and average cost has a negative slope because when production increases, average cost decreases.

2). It’s before the breakeven point, which just means that LapVac needs to make more than 10 units to reach the breakeven point.

3). Yes, they would because the net profit would increase by a substantial amount.

4). An increase in production decrease average cost.

5). Decreasing average cost would be better because if they can lower costs, they can increase their profit.

Part 4

1). I think the company will do well over the next 5 years, especially if they increase production. If they can find a way to lower average cost, they can reach breakeven much faster.

2). Because the marginal revenue is high, I think the company could thrive if they produce more units. considering what I said earlier about lowering average costs, LapVac could make a significant amount of profit.