Discussion Question Response

Victoria Bauman - After completing the simulation, I understood that each day that I decided to drive it incurred a fixed cost and that if I decided not to drive, I would not make a profit at all. The more drivers I had, the lower revenue I would have because of the fixed costs. If I were to own my own business how I would determine if it were a suitable time to enter or exit into a market by determining when it is the best time to enter or exit for the most profit. For example, if I owned a small clothing store in town and the town just opened a Target, I couple store fronts down, I would mostly exit the market. With the competition, people can go to Target to buy other clothes, I would have to see if it is more profitable to stay in business or exit the market. I would have to see how my total revenue, total cost, variable cost, and fixed cost have changed. Now say if my clothing store, received an offer from Target to sell my line of clothes in their store, this is where I might consider entering the market. My incentive would be that Target is profitable and it would expand my business and increase the amount of clothes I was going to sell.

Marginal cost is when an increase in total cost arises from an additional unit of product or service. As a business owner of selling clothes, I would look at the increase production of dresses. To calculate my marginal cost, I would divide the change in production cost by the change in quantity of dresses. By analyzing the marginal cost, it determines how to optimize my sales where it reaches my marginal revenue. I would want to make sure I am not over producing dresses or that will have a negative impact on my profit.

Fixed costs are costs that does not change with an increase/decrease in the amount of goods/services produced. Fix cost in a business can be direct or indirect expenses. For example, a fixed cost could be the rent I would be paying monthly on my clothing store or a salary of my manager. It does not matter if my sales are up or down those cost will stay the same. However, in the long run, after a year of my lease agreement, the labor amount, sales, and production costs can be altered to suit my business's needs.

Bonnie Penzin - I feel like if I had my own business, I would do anything and everything to keep it afloat. With it is not always the easiest thing to do. I think within the life span that I have lived I have only seen one big company that I shopped at regular go downhill. Kmart was one of my favorite places to go before they closed their doors for good. Which I feel like one of the big reason Kmart closed is because they became “outdated”. In our world today see trends and fads happen daily so it not always easy to stay on trend. With the marginal cost this gives me a good base line to go off. I know I need to at least do this much to keep me in the safe but that does not mean I am making anything to help further my business that is just the base line to not go under. Lastly, Fixed costs is something I enjoyed with this week’s work. Since it is something that is going to be a normal thing that comes out every month, annual, or even yearly you know you have it coming out of your business. Fixed costs are great to know since that is what you need to break even that month however you should not just break even in a business you should want to flourish.

In your responses, comment on at least two posts from your peers. Research and provide examples from the news of firms in perfectly competitive markets. Discuss with your peers how costs impact these firms’ profitability.