Blog3Alharbi

Leather-links Co.

Leather-links is a shoe company that manufactures leather shoes, suitcases, and bags. Two brothers founded the company in 1982. The company is located in Boston. The main objectives the company is to manufacture high-quality leather to meet customer expectation. In order to meet the demand for the products, the company produces its product in large quantity. It has large customer base. The company sells it product in North America, Europe, and Asia. Due to high demand for the company’s products the is seeking to increase its capacity. Through this, the company will be in a position to meet all of it customer needs.

(Part two)

·         Total fixed costs -- Startup costs

Land –   $1, 245

Machines -$10,000

Building maintenances- $1,276

Vehicles-$5,000

Internet-$1,000

Salaries – $18,000

·         Total variable the costs — cost of producing one unit/quantity of good

Cost of producing a single item $23

·         The price for which the company sells a unit/quantity of good

$67.50

·         The cost function

Price (p)*quantity (q)

Cost function is fixed cost (a) + {variable cost (b) * quantity (q)}

$36,521+23q

·         The profit function

67.50q

·         The revenue function

67.50q-($36, 521+23q)

67.50q-23q-$36, 521

44.50q-$36, 521

·         The break-even point value

Breakeven point is the point at which total revenue is equal to the total cost. Therefore, in this case, the breakeven point is

$36, 521+23q=67.50q

36,521=67.50q-23q

Q=820.7 or 821

·         The cost function and the revenue function graph – on the same grid

The revenue at the breakeven point is total revenue= fixed cost (a) + {variable cost (b) * quantity (q)}

Total revenue= $36,521+ {23*821}

$55,404

·         The meaning of the break-even point on the graph

The breakeven point is at the point where the company realizes the total revenue, which is equal to the total cost. Therefore, in our graph the point at which the curve of the cost function and the revenue function intersect. Thus, the breakeven point in our graph is where the company produces 821 products and the total revenue, and total cost is 55,404.

Marginal cost; this is an additional cost, which is cost, which is incurred by the company while producing one extra item after achieving breakeven point.

Marginal cost; this is the extra revenue, which is realized by the company from selling one extra item, which means that the company has to produce and sell 821 units+ one item?

·         The profit function on its own grid graph 

·         The meaning of the graph of the profit function

When the company is selling 821 items, it will be making zero profit. When the company is not producing any item, it means that it incurs a loss because it will still incur a loss. The company has to sell more than 821 products so that it can make a profit.

(Part three)

For an actual company or start up, find out how many units are sold on a daily basis (for a hypothetical company, choose a number of units you would like to produce on a daily basis)

·         Daily units of the product produced

1000 products.

·         The point of the number of units produced daily graph

·         The marginal cost of producing the NTH unit

The incurred cost while producing 821 items is (821*23) +36 521= $55,404

This is the revenue when the company reaches break-even point

Therefore, for the company to produce 1000 items have to incur a cost of 36, 521+ (1000*23) =59, 521

The cost of producing (1000-821) items is $59,521-$55,404=$4117

Therefore, the marginal cost is 4117/179=$23

The average cost of producing the NTH unit

The average cost is 59,521/1000=59.52

The cost incurred by the company while producing 1000 units is $59,521

·         The slope of the marginal cost graph

·         Is the marginal revenue less than or greater than the marginal cost at q = n? Explain.

Since the company has fixed cost of production the marginal revenue is greater than the marginal cost, this is because an increase in capacity of production does not increase the fixed cost.

·         Is the number of units sold daily (q =n) after or before the break-even point? What does this mean?

The number sold daily after breakeven point assists the company to make revenue greater than that of the cost of production. The company realizes a profit from the units sold after breakeven point.

·         If the production is increased by one extra quantity per day (i.e. if q = n + 1)) will the company continue to make money? Explain. (be sure to reference the formulas R(q + 1) – R(q) and C(q + 1) – C(q) in your explanation)

Leather-links when producing 1000 items incurs a cost of $59 521

The cost of producing 1001 items is $23

The difference is $23

The revenue from selling 1000 items is 67.50*100=$67, 500

The revenue from selling 1001 items is 67.50*1001=$67, 567.50

The extra revenue is $67.50

Hence, the profit realized is $67.50-23=$44.50

Therefore, the company will continue making profit with additional of an extra item.

·         At q = n, does an increase of production increase or decrease the average cost for the company?

The average cost of producing 1001 items is $ 67 567.5=67.5

The average cost of producing 1000 is 59.52

·         Explain whether increasing or decreasing average costs would be better for the company.

A decrease in the average cost would increase the profit margins of the company. Therefore, this would improve the revenue of the company.

(Part four)

1.    Provide an analysis of how you think the company will do over the next five years based on all of the information you have gathered from your experiment.

With continuous the increase in the production, the company revenue will continue to grow. This is because the company will reduce the average cos of production as the product produced continues to increase.

2.    In other words, explain whether or not you think the company will thrive, struggle or tank within the next five years.  Give mathematical and economic/social reasoning for your explanations.

The company would progressively thrive because of the one extra item produced by the company help it increase the revenue. 67 567.5-67, 500, with each increase in number of items the company will generate greater profit.