Question

For a certain company, the cost function for producing x

items is C(x)=30x+200
and the revenue function for selling x
items is R(x)=−0.5(x−80)2+3,200
. The maximum capacity of the company is 130
items.



The profit function P(x)
is the revenue function R(x)
(how much it takes in) minus the cost function C(x)
(how much it spends). In economic models, one typically assumes that a company wants to maximize its profit, or at least make a profit!



Answers to some of the questions are given below so that you can check your work.



Assuming that the company sells all that it produces, what is the profit function?
P(x)=

Preview Change entry mode .

Hint: Profit = Revenue - Cost as we examined in Discussion 3.

What is the domain of P(x)
?
Hint: Does calculating P(x)
make sense when x=−10
or x=1,000
?

The company can choose to produce either 50
or 60
items. What is their profit for each case, and which level of production should they choose?
Profit when producing 50
items =
Number


Profit when producing 60
items =
Number


Can you explain, from our model, why the company makes less profit when producing 10 more units?

Answer 1

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Answer 2

Answer: The profit function P(x) can be found by subtracting the cost function C(x) from the revenue function R(x), so:

P(x) = R(x) - C(x) = (-0.5(x-80)^2 + 3,200) - (30x + 200)

The domain of P(x) is the set of all possible values of x for which the profit calculation makes sense. In this case, the company has a maximum capacity of 130 items, so the domain of P(x) is 0 <= x <= 130.

To calculate the profit when producing 50 items and 60 items, we simply plug in these values for x in the profit function:

Profit when producing 50 items = P(50) = (-0.5(50-80)^2 + 3,200) - (30 * 50 + 200) = $2350

Profit when producing 60 items = P(60) = (-0.5(60-80)^2 + 3,200) - (30 * 60 + 200) = $2280

Since the profit is higher for producing 50 items, the company should choose to produce 50 items.

From our model, we can see that as the production increases, the cost also increases linearly with a slope of 30, while the revenue increases parabolically but with a negative slope, meaning that after reaching a certain point, the increase in revenue becomes slower compared to the increase in cost. This is why the profit decreases as the production increases, and therefore the company makes less profit when producing 10 more units.

Explanation: