Question

QUESTION 3 [10 MARKS] A bakery finds that the price they can sell cakes is given by the function p = 580 − 10x where x is the number of cakes sold per day, and p is price. The total cost function of the company is given by c = (30+5x) 2 where x is previously defined, and c is total cost. A. Find the revenue and marginal revenue functions [Hint: revenue is price multiplied by quantity i.E. Revenue = price × quantity] (3 marks) B. Find the fixed cost and marginal cost function [Hint: fixed cost does not change with quantity produced] (3 marks) C. Find the profit function [Hint: profit is revenue minus total cost] (2 marks) D. Find the quantity that maximizes profit (2 marks)

Answer 1

(a)Revenue=580x-10x²,

Marginal Revenue=580-20x

(b)Fixed Cost, =900

Marginal Cost,=300+50x

(c)Profit Function=280x-900-35x²

(d)x=4

Explanation:

The price, p = 580 − 10x where x is the number of cakes sold per day.

Total cost function,c = (30+5x)²

(a) Revenue Function

R(x)=x*p(x)=x(580 − 10x)

R(x)=580x-10x²

Marginal Revenue Function

This is the derivative of the revenue function.

If R(x)=580x-10x²,

R'(x)=580-20x

(b)Total cost function,c = (30+5x)²

c=(30+5x)(30+5x)

=900+300x+25x²

Therefore, Fixed Cost, =900

Marginal Cost Function

This is the derivative of the cost function.

If c(x)=900+300x+25x²

Marginal Cost, c'(x)=300+50x

(c)Profit Function

Profit, P(x)=R(x)-C(x)

=(580x-10x²)-(900+300x+25x²)

=580x-10x²-900-300x-25x²

P(x)=280x-900-35x²

(d)To maximize profit, we take the derivative of P(x) in (c) above and solve for its critical point.

Since P(x)=280x-900-35x²

P'(x)=280-70x

Equate the derivative to zero

280-70x=0

280=70x

x=4

The number of cakes that maximizes profit is 4.