Blog Post Three

Blog Post 3

Marley Kraft

Applied Calculus

March 30^th 2015

Option C;

Standard Micro

Standard Micro, a company founded in 2014, is a producer of microprocessors built for rockets and long-range ballistic missiles. Standard Micro sells primarily to governments and private space programs such as Space X. The two Killow Brothers, who had previously worked in the microprocessor division of Boeing before breaking off to start Standard Micro, founded the company. Standard Micro is incorporated in Delaware, but holds primary and factory operations in Alexandria, VA.

Fixed Costs ($);

            Property Plant and Equipment; 350,000

            Administrative Costs; 273,000

            Overhead; 100,000

Variable Costs ($);

            Raw Materials Per Unit; 2000

            Labor Per Unit; 1000

            Shipping Per Unit; 50

Cost Function;

            C(q)  = 723,000 + 3050q

Price per Unit; 9000

            R(q) = 9000q

Profit Function;

            P(q) = R(q) – C(q)

            P(q) = 9000q – (723,000 + 3050q)

            P(q) = 5950q – 723,000

Breakeven Point;

            R(q) = C(q)

            9000q = 723,000 + 3050q

            9000q - 3050q = 723,000

            q = 723,000/5950

            q = 121.512605 units to break even

Graph Interpretation;

            The Cost/Rev graph intersects at the break even point and from that point continue and further separate showing where profit is made. The Cost function slope is a constant meaning the marginal cost is similarly constant, and it that starts at the fixed costs of 723,000. The Revenue function starts at the original and takes off rapidly, with a constant marginal revenue/slope of 9000.

           

The Profit Function Graph;

            The Profit function graph begins at the origin point in this graph, though I have made the origin equal to the breakeven point this is too show that there is no profit below this quantity.

Marginal Cost;

            Daily Units = 50

            C(q) = 723000 + 3050q

            C’(q) = 3050

            Marginal Cost is constant, to produce the 50^th unit costs 3050

Average Cost

            A(q) = C(q) / q

            A(q) = 723000 + 3050*50 / 50 = 17510

           

Marginal Revenue  = 9000

            

Marginal Revenue is higher at q = n because both marginal revenue and marginal cost are constant.

Daily Units; The number of units sold daily is below the break even point but that only really matters if you look at it narrowly focused on a day by day basis. In reality fixed costs are, yearly, which means the cost function and the break-even point derived from it, are stated on a yearly basis. In three days time the company will produce/sell nearly 30 more units total than its break even point(150 – 121  = 29), so in reality the fact that we produce less than our breakeven point in a day is pointless, by the third day of the year we have surpassed our breakeven point and producing a net profit.

Increased By One Unit;

            

Regardless of the math I can tell you with certainty in the long run the company will continue to make money.

            R(51) = 9000*51

            R(51) = 459,000

            C(51) = 723,000 + 3050(51) = 878,550

Again in the short run it appears we’ve lost money and are only continuing to lose money, but because we only pay our fixed costs once per year, in three days time we will be making profit.

Increase in Production at q = n;

When marginal cost is less than Average cost increasing production decreases average cost, thus because that is the case here, increasing production will decrease average cost.

            

Decreasing average cost is always a good thing, the less we pay per unit the easier it is to produce more units, and thus the cheaper it is to produce those units and so on and so forth.

Future Analysis;

In the next five years, fixed costs will only amount to approximately 3 million dollars, while revenues will be over 820 million and with variable costs of around 278 million that’s nearly 539 million dollars in profit. This is of course all assuming that the business continues to sell and produce 50 units a day, even at average for the year. Large spikes in business or losses in business could throw a company with such high costs into turmoil, but with a solid profit margin if the company is able to survive more than a few years it will have profit to reinvest or hold incase of any damages.