Question

A commodity has a demand function modeled by p = 103 − 0.5x and a total cost function modeled by C = 30x + 31.75, where x is the number of units.

(a) What price yields a maximum profit?

(b) When the profit is maximized, what is the average cost per unit? (Round your answer to two decimal places.)

Answer 1

p(x) = 103−0.5x; p is the demand function and x is the number of units c(x) = 30x+31.75; c is the cost function Revenue is given by R(x)=price*number of units sold =p*x=(103−0.5x)(x)=103x-0.5x2 Profit is q(x)=revenue−cost= (103x-0.5x2)-(30x+31.75)=-0.5x2+73x-31.75 for maximum profit, q'(x)=0 and q''(x)<0 q(x)=-0.5x2+73x-31.75 q'(x)=-0.5(2x)+73-0 q'(x)=-x+73 q''(x)=-1<0 i.e. When q'(x)=0, the profit is maximum q'(x)=0 or, -x+73=0 or, x=73 Price=p(73)=103-0.5(73)=66.5 Price of 66.5 yields maximum profit.

Average Cost = Total Cost / x or, Average cost=30x+31.75/x or, Average cost=(30*73+31.75)/73 or,Average cost= 30.43