Brian Hanus Blog Post 3

Brian Hanus
11/6/14
Blog Post 3

Part One/Two:
Larry's Lacrosse Sticks is a (made up) company that produces both men's and women's lacrosse sticks.  The company has been around for about twenty years and has established itself one of the top producers of high quality lacrosse sticks.  They offer both metal and wooden shafts with a pre-strung heads.  The target demographic is 10 to 22 year old men and women.  This covers the youth, high school, and college level athletes.  The area targeted is mostly on the upper/middle east coast but all of america's lacrosse players are targeted.

Fixed Costs:
Manufacturing/Office Building: $500,000
Utilities/Cleaning/Security: $350,000
Supplies:  $200,000
Product Research/Development: $100,000
Marketing and Website: $600,000
Sponsorships: $150,000
Salaries: $400,000
Philanthropy: $100,000

Variable Cost:
It costs 80 dollars to produce a full stick with a metal or wooden shaft.

Price Sold:
Each full stick is sold for $140

Cost Function:
C(q)= 80q+2,400,000

Revenue Function:
R(q)=140q

Profit Function:
P(q)=140q-80q+2,400,000
       =60q-2,400,000
Break-Even Point Value:
0=60q-2,400,000
2,400,000=60q
2,400,000/60=60q/60
40,000=q
After selling 40,000 sticks the company will begin to make a profit

Graph:  Cost and Revenue

The Blue Line is Revenue and the Red Line is Cost, the break even point is at 40,000 units

The break even point is the point in which the profit "catches up to" the cost.  This means the amount that the company has profited is equal to the total cost of what they are producing.  Any number of products produced under this number would cause the company to be in the red and any number of products produced over this number puts the company in the black.  The marginal cost is 80, because every n'th stick costs 80 dollars to be produced.  The marginal revenue is 140 dollars because every stick that is sold, is sold for 140 dollars.

Graph: Profit

The graph of the profit shows how much money the company has for how many units are sold.  The company is in the red before 40,000 but after selling 40,000 sticks, the company is netting 60 dollars for every stick that is sold.

Part Three:
On a daily basis 500 sticks are produced.  q=500
The marginal cost per unit is 80 dollars.  The 500th stick produced will cost 80 dollars.
Average cost of 500th unit:  ((80)(500)+2,400,000)/500=4880 dollars per unit
Graph of Marginal Cost and Average cost

The Red Line is Average Cost and The Blue Line is Marginal Cost.  Marginal Cost stays at 80 dollars
Questions:
1.  The marginal revenue is greater than the marginal cost when 500 units are produced.  The marginal revenue must be greater than the marginal cost for there to be a profit.
2.  The number of units sold daily is before the break-even point, and this means that it will take many days to create a profit for the company.
3.  Yes the company will continue to make a profit.
 R(q+1)-R(q)= 140     C(q+1)-C(q)= 80      140>80 so a profit will still be made
4.  An increase in production would make the average cost decrease.  at 501 units produced the average cost would be 4870.42 dollars per unit.
5.  Decreasing the average cost would be good because you want the average cost of all units to be the lowest possible.  A lower average cost would mean that every unit being produced is in theory cheaper.

Part Four:
With the information that was gathered with this experiment, Larry's Lacrosse Sticks is going to be a very successful stick company in 5 years.  Assuming that every stick that is produced is able to sell, the company will be in the black after 80 days.  After these 80 days every stick the company produces will be earning a profit for the the company.  The company will be able to expand which will increase the costs, but with an expansion more sales can be assumed so there should be even more profit.  Lacrosse is currently a fast growing sport and the equipment industry is going to see some more sales from that fact.  So mathematically, the company will be earning a profit after 80 days as long as the sticks that are being produced are being sold, and socially, lacrosse is a growing sport with many new members needing sticks every day.  Also lacrosse sticks break easily so even old players will be looking for new ones.  Larry's Lacrosse Sticks should have no problem being a very successful company.