Caitlyn McMunn Blog Post 3

Part One

Freestyle Records is an industry that produces and sells vinyl

Part Two

Start-up Costs:  Rent: $5,000
                            Utilities: $4,000
                            Supplies: $11,000
                            Heating: $6,000
                            Internet: $4,000

Variable Cost: $5 Per Unit
Company sells one unit for $20
Cost Function: C(q) = 5(q)
Revenue Function: R(q) = 20(q)
Profit: P = 20(q) - 5(q)
Break Even Point: 30,000 / (20-5) = 2,000

The meaning of the break-even point is that after 2,000 units produces, Freestyle Records will begin to turn a profit. As far as marginal cost and marginal revenue are concerned, since the slope of the marginal revenue is greater than the marginal cost, the company will be profitable as long as it can produce and sell enough units. As specified before, that number is 2,000 units.

On the second graph, the break-even point indicated where Freestyle Records will begin to make profit instead of losing money.

The meaning of the graph of the profit function is to indicate how much money is being made by the amount of unite produced. This graph will show how many records need to be produced in order to start making a profit.

Part Three
Units produced on a daily basis: Q = 3,250
Marginal cost: 3,250 x 5 = $16,250
Average cost of producing the nth unit: $5


Questions: 

1) At q = n, the marginal revenue is greater than the marginal cost. As seen on the graph, the line labeled R(q) is higher than the line C(q). Since the point 3,250 is greater on the revenue line than the cost line, the revenue is greater than the cost.

2) The number of units sold daily is after the break-even point. The break-even point for this company is 2,000 units, and the amount sold daily is 3,250 units. 3,250 is greater than 2,000, therefore the number of units sold daily is greater than the break-even point

3) In this case, the company will continue to make money. Going by the graph, the more units produced, the more money Freestyle Records will make

4) It increases the average cost for the company

5) Increasing average costs would be better for the company. Since it costs $5 for each additional unit produced, increasing the cost of each unit sold would provide more of a profit for the company

Part Four

1) Over the next five years, I believe that the company will continue to grow, sell more units, and earn more of a profit

2) I believe that the company will thrive. My only concern for the profitability of the company is the fact that the vinyl market is not as popular as it once was with digital music being readily available. I believe, however, that with dedicated collectors and a younger generation becoming interested in vinyl once again, Freestyle Records will thrive and be able to grow over the next few years.