Blog 3 - PaperAlpha - Wasim Ashshowwaf

Part1

PaperAlpha

(This is a hypothetical company)  PaperAlpha is a paper producing company that was founded in 1987. The company produces plain paper for multi-use. They target mostly corporations, schools, bookstores and wholesalers .

Part2

·      There total fixed cost=$50. This includes Supplies=$25 and operational costs=$25.

·      There Variable cost for producing one box of letter size paper is $10

·      They sell each box for 40$

·      The cost function is  c(q)=50+10q

·      Revenue function is r(q)=40q

·      Profit function is p(q)=r(q)-c(q) which is p(q)=(40q)-(50+10q)

·      Breakeven point is when q is around 2

·      

·      The break even point means that cost equal revenue so after that point a profit will be made and before that point loss will occur.

·      

·       

·      The above grap is the profit function which shows that around after 2 the output value becomes positive on the same interval where the break even point was on the original function. This indicate the generation of profit after around the x value of 2. So after selling two boxes of paper. 

Part3

·       n=5 so that 5 units are produced on daily biases by PaperAlpha

·      

·      The marginal cost to produce the 5^th unit is $10

·      The average cost=Total Cost/Quantity so 100/5 which is $20

·      

The above graph shows the slope of the marginal and the average cost. The r.o.c between 4 and 5 shows the slope of mc and ac when n=5

·      Answer 1: The marginal revenue is greater than the marginal cost, this is reflected by the fact the marginal revenue line is above the marginal cost line on the graph

·      Answer 2:The number of units daily sold were sold after the break even point, because the break even point was around when x= 2 and while the daily sold units were 5. Which means a profit is generated when they sell 5 unit per day

·      Answer 3: If the production increase by 1 unit PaperAlpha will still make money as the marginal cost will be less then the marginal benefit. So c(6)=50+10(6)=110 which is less than r(6)=40(6)=240 and they will make a profit of $130

·      Answer 4: At q=5 the mc cost is 20 which is more than the average cost of $10 which means an increase in production will increase the average cost

·      Answer 5: Decreasing the average cost is better for the company because it will help increase the make the marginal revenue curve above the cost curve, increasing profits.

Part 4

Based on the information of the company, PaperAlpha  looks like it’s on it its way to making profits for the next 5 years as long as there marginal cost stays below there marginal revenue. Economy is a scale, so the more they sell the more their average cost will decrease. Socially, in my opinion, they may face some challenges in the next 5 years since technology advancement may make electronic devices or the invention of the e-paper more accessible and sustainable than paper, which might put pressure on paper companies.