Francine is a photographer. For years, her business has consisted of joining guided backcountry hiking and skiing tours and providing photographs for the tour clients. However, this business has dried up completely in 2020 due to COVID. Wanting to make use of her backcountry and photography skills, she starts thinking about going out by herself to take nature photographs to sell to stock agencies. An alternate approach would be to take photos and sell large prints of the photos as art. For the stock photo option, she does not need to purchase any additional equipment. She will, however, need to pay for the costs of her trips, as they are no longer provided by the guides. She expects to do 2 trip(s) per week, including time for editing and processing. She knows the costs of going on a trip well from her experience with the guides. Including gas, food, park permits, and other supplies, it will cost $875 per trip. To estimate how many she photos she will submit to the agencies, she looks at her first year of guided tour photography. On her first trip, she would get about 6 keeper images per trip. By the end of her first year, she was getting 17. She expects to follow the same trend for the photos she submits to the stock agencies. Once on the stock agency, based on similar landscape photographers she knows, she expects each photo to sell five times per week, with a commission to her (net of all agency fees) of $0.50 per photo. For the art photo option, Francine will need some additional equipment and supplies. A printer for $2,200 Initial supplies for $500 Shipping and packaging: $30 per photo sold Expected printing costs per sold print: $25 per photo sold For the fine art photography plan, she intends to create one photograph from each trip, and sell it as a limited edition print. She hopes to sell 1 photo(s) from each trip per month. (e.g. if Francine goes on four trips in July, she creates four photos to sell. She would sell 1 of each that month, for four times 1 of sales. In August, she goes on four more trips, creating four new prints to sell. The August prints each sell 1 copy/copies, and so do the July prints, for a total of eight times 1 sales in August). For sake of simplicity, you can assume all months are only four weeks if you want. Based on similar artists, she thinks she can sell her photos for $323 each. Francine expects the guiding business to resume in 2021, one year from now, at which point she will return to that line of work. 

 Required

What are the fixed cost

 variable cost

 total costs for both options? 

Identify two potential trade-offs between the two options? 

When will Francine break even and what is the payback period for each option? 

Draw a cost/revenue chart (figure of profit and loss) for the two options and identify key points or areas on the chart. 

Estimate Francine’s profit and/or loss for the year for both options. 

How does marginal cost of producing one more photo in the two options change over time? 

What is the marginal cost of producing one more photo in the two options at end of year 1?

 Create a cashflow diagram for the two businesses for year 1, with separately colored printing and shipping, fixed, and trip costs and revenues.

derives generalized equations for cost and revenue curves for these two options. 

Answer rating: 100% (QA)

To answer your questions lets analyze the fixed costs variable costs total costs tradeoffs breakeven points profitloss marginal costs and cash flow for both options stock photo and fine art photo 1 Fi... View the full answer