Paris Bazerman- Blog #3

Part 1:

??? was founded in 2012 by Paris and sold throughout boutiques across California. Each candle is hand made with organic ingredients. Although these candles have become very popular, Paris still takes the time to make each candle as unique as the next one. Each comes in a glass container adorned with a special label. These are perfect for gifts or just around the house!

Part 2:

Fixed Costs:

Rent: $3,500

Internet: $150

Utilities: $800

Variable Costs:

Beeswax (per unit): $5 (ounce)

Wicks (per unit): $0.50

Containers (per unit): $0.75

Labels (per unit): $0.05

Selling Price:

Organic Candles: $12

Cost Function:

C(q)= 4,450 + 6.30q

Revenue Function:

R(q)=10q

Profit Function:

P(q)= R(q)- C(q)

P(q)= 12q- 4,450-6.30q

P(q)= 5.7q – 4,450

Break-even Point:

R(q) = C(q)

12q = 6.3q + 4,450

5.7q = 4,450

q = 708.70 units to break even

(708.70 x 12=$8,504.40)

The break-even point is where my cost of operations is equal to the units being produced. In order for all the costs to become zero, I would need to produce 708.70 candles, which would cost $8504. The two lines intersect at the break-even point.

The profit function is the revenues minus the costs. This is the point on the graph that is the starting point of making profit off of each unit that is sold.  

Part 3:

Daily Units= 100

C(q)= 4,450 + 6.30(q)

C’(q)= 6.30

Marginal Cost is constant, to produce the 100^th unit costs $6.30

Marginal Revenue= price per unit - total variable cost

12 - 6.30

= 5.70

Average Cost

A(q)= C(q)/q

A(q) = 4,450 + 6.30 (100)/ 100

= $50.8

11.    Yes, marginal revenue is less than marginal cost, which means that the profit will be less.

2

2.   The number of units sold daily is before the break-even point, so they will need to sell more units to make more of a profit.

33. Yes, if the company produces one more unit, they will continue to make a profit.

12(100)+1- 12(100)

=1201-1200

=1

I will only incur the cost of one more unit, which in the long run will make my company more profitable. 

44. At q= 100, an increase in production will decrease the average costs per unit.

55.  Decreasing average costs is better for the company for the company to gain more revenue.

Part 4:

As my company produces more units per day, they will increase their total sales and ultimately increase their total profits. But since it is a small company, with limited workers and producing small amounts per day, it will take a long time for it to really succeed compared to other companies out there. This is a good company to make candles in small quantities, but to sell mass amounts of candles, it would take a long time for the company to expand.