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| − | |'''Find the Maximum:''' The equation for marginal revenue is | + | |'''Find the Maximum:''' The equation for profit at a given production level is |
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| − | ::<math>P'(x)\,=\,100-10x\,=\,8(15-x).</math> | + | ::<math>P'(x)\,=\,100-10x\,=\,10(10-x).</math> |
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| − | |The only root of this occurs at <math style="vertical-align: -5%">x=10</math>, and this is our production level to achieve maximum profit. | + | |The only root of this occurs at <math style="vertical-align: -3%">x=10</math>, and this is our production level to achieve maximum profit. |
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Latest revision as of 17:32, 17 May 2015
Find the quantity that produces maximum profit, given demand function 
and cost function Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle C = 120 - 30x + 2x^2.}
| Foundations:
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| Recall that the demand function, Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle p(x)}
, relates the price per unit Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle p}
to the number of units sold, Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle x}
.
Moreover, we have several important important functions:
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- Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle C(x)}
, the total cost to produce Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle x}
units;
- Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle R(x)}
, the total revenue (or gross receipts) from producing Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle x}
units;
- Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle P(x)}
, the total profit from producing Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle x}
units.
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| In particular, we have the relations
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- Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle P(x)=R(x)-C(x),}
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| and
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- Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle R(x)=x\cdot p(x).}
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| Using these equations, we can find the maximizing production level by determining when the first derivative of profit is zero.
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Solution:
| Step 1:
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| Find the Profit Function: We have
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- Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle R(x)\,=\,x\cdot p(x)\,=\,x\cdot (70-3x)\,=\,70x-3x^2.}
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| From this,
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- Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle P(x)\,=\,R(x)-C(x)\,=\,70x-3x^2- \left(120 - 30x + 2x^2 \right)\,=\,-120 + 100 x - 5 x^2 .}
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| Step 2:
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| Find the Maximum: The equation for profit at a given production level is
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- Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle P(x)\,=\,-120 + 100 x - 5 x^2 .}
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| Applying our power rule to each term, we find
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- Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle P'(x)\,=\,100-10x\,=\,10(10-x).}
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| The only root of this occurs at Failed to parse (MathML with SVG or PNG fallback (recommended for modern browsers and accessibility tools): Invalid response ("Math extension cannot connect to Restbase.") from server "https://wikimedia.org/api/rest_v1/":): {\displaystyle x=10}
, and this is our production level to achieve maximum profit.
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| Final Answer:
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| Maximum profit occurs when we produce 10 items.
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