Fixed Costs:
-Website $40.00
Variable Costs:
$8.00
Price:
R(q)=16q
Cost:
C(q)=40+8q
Profit Function:
P(q)=R(q)-C(q)
Here we see the Cost and Revenue functions graphed in terms of quantity and dollars. We can see that the revenue line is steeper than the cost. The two intersect at (5,80). This is known as the break even point. Meaning, R=C at (5,80). Therefore, we can determine that after the 5th sunblock, the revenues will be greater than cost. When R > C, profit is being made.
The company, having just kicked off last week, has been selling about two sun sticks a day. Below we can see the points of C and R where Q=2.
R'(q)=MR=16
C'(q)=MC=8
In this situation, where MR is greater than MC we know that for any value of q, it is worthwhile for the company to continue producing any number of q.
To better understand this we can use the formulas R(q+1)-R(q) or C(q+1)-C(q)
Decreasing Avg. Cost will be most useful because consumers are purchasing the product at $16.00.
Over the next five years, I think that the company will generate profit. They have been able to create a product for very low cost and sell it for double the price. With these kinds of profits, I think the company will generate income and be able to create more products, expand, etc.
I think these kinds of company can take advantage of producing the product cheaply and selling it for a great profit, they will clearly thrive in five years.
ReplyDeleteI think this is great because you have such a low fixed cost that if you were able to successfully sell all your product, you can make a quick profit by hitting the break-even point a lot earlier than other companies with high fixed costs.
ReplyDeleteYour works was nice and clearly written and explained. Also, I would have to agree with everyone else that the low fix cost really helps them break even and have a higher chance of making a profit. The company sounds cool in what they are producing as well!
ReplyDeleteThis is so great! well written and clearly explained.
ReplyDeleteI agree with Sara, the work is nice and organized. Also, low costs improve the results.
ReplyDeleteGreat, clean cut blog. The product sounds really interesting as well. Everything was clearly explained and your calculations were easy to follow.
ReplyDeletetaylor,
ReplyDeletereally great post! i love the idea of an organic all natural sunscreen! you did a really nice job of organizing your data in your graphs and your functions. your explanations were very detailed yet easy to interpret.
the only things that i saw that were missing were the actual profit function and the calculations for the break-even point and the graph comparing average cost's slope with marginal cost's slope. other that that, great job!
professor little