Seaval BeachStyle Company Blog 3-Griffin Harris

I chose the company Seaval BeachStyle

·       Find total fixed costs--Start up costs (if you can, try to get/make a list of start up costs and dollar amounts. For instance, heating a building, rent, supplies, internet, etc.)

·       Rent = 5,000/month = $60,000/year

Heating = 3,000/month = $36,000/year

Supplies 10,000/month = $120,000/year

Internet = $30/month = $360/year

Paymennt of staff = $40,000/year x 10 employees = $400,000/year

·       Find variable costs—cost for producing one additional unit/quantity of good.  The cost per unit went up to much exponentially to find out

·       Determine the price for which the company sells a unit/quantity of good (this will be needed to determine the revenue function. If the company sells one unit for $250, then the revenue function will be R(q) = 250q).  R(q) =180(q)

·       Find the cost function: C(x) = Fixed cost + variable cost; Average Cost = Total Cost/Quantity Produced

Quantity	Fixed Cost	Variable Cost	Total	Average
0	100	0	100
1	100	4	104	104
2	100	16	116	58
3	100	64	164	54.36
4	100	254	354	88.5
5	100	1016	1116	203.2

·       Find the revenue function:  R(x) = 180(x) R(1) = 180(1), etc.

·       Find the profit function:  P(x) = R(x) – C(x) or 180-100 = 80

·       Determine the break-even point value:  The breakeven point is when total revenue = total cost… breakeven = fixed costs/(c/p) = 4.01 glasses.  This number is so close to four because the variable cost goes up by 4x each unit that is produced so the difference between the fourth unit and the 5^th is extremely large

·       Graph the cost function and the revenue function on the same grid and mark the break-even point and its value on the graph

Quantity	Fixed Cost	Variable Cost	Total	Average
0	100	0	100
1	100	4	104	104
2	100	16	116	58
3	100	64	164	54.36
4	100	254	354	88.5
5	100	1016	1116	203.2

·       Interpret the meaning of the break-even point on the graph and interpret the graphs themselves in terms of slope (i.e. marginal cost and marginal revenue).  The meaning of the break-even point is where revenue equals cost.

·       Graph the profit function on its own grid and mark and interpret the break-even point and its value on the graph

·       Interpret the meaning of the graph of the profit function:  As the costs become exponentially greater, the revenue does not match the costs, therefore driving profit into negative dollars and forcing the company to become bankrupt. 

(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)

·       Determine how many units of the product are produced on a daily basis (so q = n, where n is the number of units produced daily.  For instance, maybe n is 150, so q = 150 units)… Produces 2 units daily.

·       Plot the point of the number of units produced daily on the cost and revenue graphs….

·       Determine the marginal cost for producing the nth unit (where q = n is the number of units produced on a daily basis. so, if n from above is 150 units, find the marginal cost for producing q = 150 units)

Produced     Daily	Cost
200	100
208	104
264	132
384	192
2032	1016
10160	5080

 

·       Find the average cost of producing the nth unit (where q = n is the number of units produced on a daily basis. so, if n from above is 150 units, find the average cost for producing q = 150 units)

= 88.5

·       Graph the slope of the marginal cost of q = n and the slope of the average cost of q = n on the same grid

Then answer the following questions:

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

Marginal revenue is less then the marginal cost. The company Is loosing money, because it continues to produce more daily then it makes in profit.

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

The units sold daily is after the break even point, meaning that the company is experiencing losses.

3)     If 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)

No, the company will lose more money. It needs to stop producing as many units daily.

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

An increase of production would increase the average cost at q = n.

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

Decreasing average costs would be better for the company. But this has to be compared to the profit of the company – for example, if the price of the product you are selling is very popular, and it is going up at a greater rate then the average cost is going up, then this is fine because you will be making a greater profit. This is not the case in this company though.

(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. 

The company is going to tank because the costs outweigh the revenues and the company will not be able to recover from the losses they have sustained

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 is going to tank within the next five years.  The reason for this is because it is producing its overall variable costs are way to high, and they are not making enough revenue for them to continue making their products.