Matt Kwong Blog 3

Part 1

Burger Burger Burger is a fast food shop that only sells burger; it has the best burger in the world. This fast food shop was created in 2010. They come up with different kind of burger, chicken, beef, fish, bacon, fish, etc.

Part 2

Fixed costs:

l   Rent of the store: 3,000/month

l   Supplies: 2,000/month

l   Salaries: 1,000/month

l   Insurance: 1,000/month

Total Fixed Cost: 7,000/month

Variable cost: $5/meal

Price: $10/meal

Cost function:

C(q)= 7,000+5(q)

Revenue Function:

R(q)=10(q)

Profit Function:

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

=10q-7000-5q

=5q-7,000

Break Even Point Value

5q=7,000

q=1,400

Break-even point is the point at which the gains equal losses. In this graph, it is the revenue=cost, when 1,400 burgers are produced. As more than 1,400 burgers are produced, the marginal revenue is greater than the marginal cost. Therefore an extra burger produces; the company will make a gain. The marginal revenue has a steeper slope, so it will grow faster than the marginal cost.

Profit Function

From the graph, when the quantity passes 1,400 the company will start to make profit. When the quantity is below 1,400, the company will have a loss.

Part 3

Burgers produced daily: q=1,000

The Marginal cost= C'(q) =5

Average cost= (5*1,000+7,000)/1,000

=12

1. Marginal revenue is greater than the marginal cost. Because Marginal revenue is R'(q) =10 and marginal cost=C'(q) =5.

2. The number q=1,000 is before the break-even point, which means that the company is not making a profit.

3. R(1,001)-R(1,000)= $10

  C(1,001)-C(1,000)= $5

The company is making a profit of $5 when increasing q by 1.

4. An increase of production will decrease the average cost for the company because the average cost $12 is greater than the marginal cost $5.

5. Decreasing the average cost would be better for the company because it can make more profit.

Part 4

1. I think that the company will make profit because based on the calculation; the company can make profit for the following years.

2. I think the company will do a great job because fast food is popular, also from the graph we can see that the company will make profit.