Question

For this discussion, come up with a business idea focusing on a single product. Briefly describe your business scenario. In your business, discuss the following (make sure the numbers are realistic based on a real-life scenario (i.e. use 4.99 instead of 5) and not overly simple (i.e. all of the numbers end in '0' or '5', etc.) or overly complicated).

1. What is fixed cost (make sure to outline what's included in the fixed cost)? What is the marginal cost? What is Cost function C(x)?
For example, the fixed cost for the business is about $5,287 per month total (including rent, utilities, worker salaries, and shipping costs), and the marginal cost is approximately $6.85 per unit.

2. What is the selling price for your product (for example, $14.99 per item)? What is Revenue function R(x)?

3. What is the break-even point? What is Profit function P(x)? Make sure to show the steps how to find both. Do you think your business can be profitable in a given month?

Answer 1

*answer:

1• Let us start an ice cream selling business

Fixed costs : $ 1200 per month for rent, $ 1600 per month for salaries, $ 2000 for utilities per month

So, total fixed costs= $1200 +$1600 +$2000 = $4800

Let the cost for manufacturing one item is $10

Variable cost = 10x (if we manufacture x icecreams per month)

Total cost C(x)= Variable cost + Fixed costs

C(x)= 10x+4800

Marginal Cost = Derivative of cost function = C'(x)= 10

Therefore, marginal cost= $10

2)After thinking for a while, we fixed selling price as $ 15 per ice cream

Revenue function R(x)= Selling price * no of units

R(x)= 15x

3)Break even point is the point when costs= Revenue

C(x)= R(x)

10x+4800= 15x

10x-15x= -4800

-5x= -4800

x= 4800/5 =960

Therefore, we need to sell 960 icecreams to get a break even (i.e zero profit, zero loss)

P(x)= Profit function= R(x)- C(x)

P(x)= 15x-10x-4800

P(x)= 5x-4800

Therefore, to get profit we need to sell more than 960 ice creams per month

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