Alright, Mister Cupcake

So the cost per cupcake is a dollar, one dollar cost per cupcake.

King, that cupcake problem was easy.

So I have a million cupcakes times what's my cost per cupcake? times 1 cost per cupcake.

The price charged per cupcake is 2.

So the cost per cupcake is less.

I'm going to charge 1.70 per cupcake.

He has a 400,000 cupcake per year capacity.

Set up paper cups in the cupcake baking tray.

We said it was a dollar per cupcake, right?

There's actually no cupcake producers in this town right now.

So let's say I wanted to start a cupcake factory.

Then you're just handing checks out to your cupcake eaters.

So I'm also going to get into the cupcake factory business.

Let's say I think that I can charge 2 per cupcake.

Let's say I actually am able to charge 2 per cupcake.

And let's say I'm still selling it for 2 a cupcake.

DlD I SAY YOU CAN SPEAK, CUPCAKE!! I DON T THlNK SO!!

If I charge 1.60 per cupcake and I only sell 400,000 cupcakes,

And at 3 per cupcake, I'm able to sell you 750,000 cupcakes.

And then Imran came in and he started his own cupcake factory.

A couple of days ago, I made these videos on cupcake economics, where I talked about what happens when the cupcake factories have high utilization or low utilization.

And he decides to undercut his father, so he charges 2.90 per cupcake.

If you want to have a cupcake factory, it will cost you 500,000.

This is interesting because this tells me, if I'm charging 2 per cupcake,

Let's say the economics of the cupcakes themselves The cost per cupcake is 1.

So if I charge 1.50 per cupcake and I'm only able to sell 500,000 cupcakes,

And let's say I figured out the optimal point is me charging 3 per cupcake.

It would be silly to ever sell a cupcake for less than a dollar, right?

If I sell my cupcakes for a 1.50 per cupcake, then I only have 1.5 million.

So if I'm at 2.80 per cupcake and I only sell 300,000, I'm at break even.

And in those cupcake economics videos, I showed that if the demand is pushing up against capacity.

In the last video we talked a little bit about, at least potentially, starting a cupcake factory.

The cost per cupcake is let's say, I don't know, input costs went up for whatever reason.

If I sell 1.60 per cupcake and if I sell 900,000, then I'm also at break even.

But in the process you might learn a little bit about accounting and starting a cupcake factory.

So let's say I want to start a cupcake factory. It costs a million dollars to build.

Even though I'm selling fewer cupcakes, because I'm charging so much more per cupcake, and I'm making a 37 return.

At 1.70 per cupcake, all of a sudden, there's a whole new market for people who want to eat cupcakes.

So I am able to charge 2 per cupcake, so my revenue is equal to 2 million per year. Right?

I do lose a couple of these people because they are willing to walk a little bit further for a cupcake.

So, let's say, I took some business, so he's only selling 400,000 cupcakes and now, the aggregate cupcake and actually not.

Because if you're not using your capacity, then that's a cupcake that's not being made that otherwise could have been made.

A lot of you guys know about the cupcake love on the page on Facebook with people who just made TEDx cupcakes.

So this is a break even scenario, where I sell 500,000 cupcakes at 2 per cupcake, with this being the cost of goods.