Financial Statistics Unit 2 GRASPS: Modeling a Business

The Business: Taco Truck Fixed expenses for one year: – Truck, $20,000 – Gas, $5,200 ($100/week) Variable expenses: – Ingredients, paper products, utensils, $2 per taco Expense function: E = 2q + 25,200 You should be able to interpret this!

Step 1: Modeling Expense & Revenue in terms of price Why? Demand function: q = – 13,750p + 110,000 You should be able to interpret this! Expense function: E = 2q + 25,200 E = You should be able to interpret this! Revenue function: R = pq R = You should be able to interpret this! ***You will need to graph expense & revenue in terms of price***

Step 2: Determining breakeven points Why? How? o R = E o Set equal to zero and simplify o Use the quadratic formula to find the breakeven prices You should be able to interpret the breakeven points! You should label the breakeven points on your graph of expense & revenue in terms of price.

Step 3: Determining maximum revenue

Step 4: Determining maximum profit

Step 5: Determining how much you want to charge per taco Questions to ask yourself: o What is the least you should charge? o What is the most you should charge? o How much should you charge to make the most money? o How much should you charge to make your business competitive? After thinking about these questions, decide on your price per taco!

Step 6: Determining the quantity to produce based on your chosen price Why? How? o E = 2q + 25,200 o R = pq <-- substitute your chosen selling price for p o E = R o solve for quantity q You should be able to interpret your result! How many tacos should you plan to sell in one year? How many is this per day? ***You will need to graph expense & revenue in terms of quantity (label the breakeven quantity and the quantity of tacos you aim to sell in one year)***

Step 7: Determine expenses, revenue and profit per taco and for your business for one year Why? How? o Expenses, revenue and profit per year: o Substitute your chosen selling price into the expense, revenue and profit functions from steps 1 & 4. o Expenses, revenue and profit per taco: o Divide your expense, revenue and profit for one year by the number of tacos you aim to sell in one year. You should be able to summarize this in words!

Your Final Report Remember, you need to submit a typed report with all of the information we just discussed Your report should include: – An introduction paragraph – A short body paragraph to communicate each of the following: An explanation of the expense, revenue and profit functions you came up with for your business (Steps 1 & 4) Breakeven analysis to determine the quantity of products you need to produce and the range of prices between which you should charge for your product (Steps 2 & 6) Maximum revenue and maximum profit calculations (Steps 3 & 4) An explanation of the quantity of products you will choose to produce in the first year and the price you will charge for your product. (Steps 5 & 6) The expected expenses, revenue and profit per item and for the total items you plan to produce the first year. (Step 7) – A closing paragraph which summarizes your business plan and leaves investors with a positive image of your business. – An appendix of two graphs drawn on graph paper with key components labeled (i.e. breakeven points, maximum revenue, maximum profit, profit area, loss area) Graph #1: expense & revenue functions in terms of quantity (Step 6) Graph #2: expense, revenue and profit functions in terms of price (Steps 1 – 4)