022 Exam 2 Sample A, Problem 7

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Find the quantity that produces maximum profit, given the demand function and cost function .

Foundations:  
Recall that the demand function, , relates the price per unit Failed to parse (Conversion error. Server ("https://wikimedia.org/api/rest_") reported: "Cannot get mml. Server problem."): {\displaystyle p} to the number of units sold, Failed to parse (Conversion error. Server ("https://wikimedia.org/api/rest_") reported: "Cannot get mml. Server problem."): {\displaystyle x} .

Moreover, we have several important important functions:

  • , the total cost to produce units;
  • , the total revenue (or gross receipts) from producing units;
  • Failed to parse (Conversion error. Server ("https://wikimedia.org/api/rest_") reported: "Cannot get mml. Server problem."): {\displaystyle P(x)} , the total profit from producing units.
In particular, we have the relations
and
Using these equations, we can find the maximizing production level by determining when the first derivative of profit is zero.

 Solution:

Step 1:  
Find the Profit Function: We have
Failed to parse (Conversion error. Server ("https://wikimedia.org/api/rest_") reported: "Cannot get mml. Server problem."): {\displaystyle R(x)\,=\,x\cdot p(x)\,=\,x\cdot (90-3x)\,=\,90x-3x^{2}.}
From this,
Failed to parse (Conversion error. Server ("https://wikimedia.org/api/rest_") reported: "Cannot get mml. Server problem."): {\displaystyle P(x)\,=\,R(x)-C(x)\,=\,90x-3x^{2}-\left(200-30x+x^{2}\right)\,=\,120x-4x^{2}-200.}
Step 2:  
Find the Maximum: The equation for marginal revenue is
Failed to parse (Conversion error. Server ("https://wikimedia.org/api/rest_") reported: "Cannot get mml. Server problem."): {\displaystyle P(x)\,=\,120x-4x^{2}-200.}
Applying our power rule to each term, we find
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)\,=\,120-8x\,=\,8(15-x).}
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=15} , and this is our production level to achieve maximum profit.
Final Answer:  
Maximum profit occurs when we produce 15 items.


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