Final answer:
The objective function in an application problem should calculate profit, which is the difference between total revenue and total cost. The maximum profit is found by identifying the output level where this difference is the largest.
Step-by-step explanation:
If you are asked to find the maximum profit for an application problem, the objective function should calculate the difference between total revenue and total cost, which is profit. To determine the most profitable quantity to produce, you would find at what quantity total revenue exceeds total costs by the largest amount. This is because profit is defined as total revenue minus total cost. For instance, in a scenario where at a quantity of 60, total revenue (TR) is $240 and total cost (TC) is $165, the profit is $75, being the height of the profit curve at that output level. The maximum profit is achieved at the output level where this difference is greatest, and in the example provided, this occurs at an output between 70 and 80 with a profit of $90.