Supposeis the unit price a business charges when selling
items.
If the business sellsitems the total revenue would be
If the cost of producing theitems is
the profit is given by
The aim of the business is to maximise profit. Profit will be maximised when or
This means that profit is maximised when marginal revenue equals marginal cost. To ensure that profit is maximised – and not minimised – we should use the second derivative test. If
then profit is maxised.
If the cost functionand price function
the profit is
so
and setting this equal to zero gives x=11.94.
so profit is maximised.