Blog 3 MSV

Part 1

(Company of my own creation)

MSV (My Smart Vac) is a startup company producing and selling robotic vacuum cleaners that not only continues to clean your hard surface floors, but will also automatically switch its settings to vacuum carpets. This nifty little robot detects dirt and other materials (like hair, dander, and dust) and goes to work. MSV has been very successful and in operation for the last 2 years.  

Part 2

(A)

Fixed Costs per month:

Rent = $15,000

Manufacturing Overhead= $5000

Utilities =$5000

Total= $25000

(B)

Variable Costs:

Raw Materials/cost of production = $70 for each unit

Total: $70 per unit

(C) 

Cost Function:

Selling Price = $150

C(q) = 25000 +  70(q)

Revenue Function:

R(q) = 150(q)

Profit Function:

P(q) = 150(q) - (25000 + 70(q)) = 80(q) - 25000

Break Even:

R(q) = (c)(q)

150(q) = 25000 +70(q)

80(q) = 25000

q = 312.5

R(q)=

80q = 80  x  312.5= $25000

In the graph, breakeven point is the point where revenue and cost are equal and the profit is equal to zero. In the graph, revenue is steeper which means the marginal cost is less than marginal revenue.

The profit function graph shows that at the beginning, MAV needs to produce a minimum of 313 units per cycle to make a profit.

Part 3

If q =25

Cost per day = $2583.34

Revenue = $3750

Marginal cost = $70

Average cost = Total Cost/ Number of Units

Average cost = 2583.34/25=

$103.34

1). Marginal cost has a slope of 70 which is how much it costs to make an additional unit. So since marginal cost is less than average cost, producing more units per day will decrease average costs and increase profits.

2). This number is before the break-even point because that number was figured for a whole month not a single day, so that being said at 25 units per day, they would be producing about 750 units per month, which is past the break-even point and would bring in a lot of revenue.

3). Yes, they would because the net profit would increase by a substantial amount.

4). An increase in production decrease average cost.

5). Decreasing average cost would be better because then more revenue is being made and the company continues to thrive.

Part 4

1). At the rate that they are making and selling the MSV’s they will do very well over the next 5 years. As they continue to produce and sell large quantities of MSV’s the marginal cost is less than the average cost and therefor they are3 making profit

2). With the marginal revenue high the company will thrive as long as people in our society continue to do well economically and prefer to not have to worry about the state of their household flooring.