Question

A manufacturer is planning to sell a new product at the price of 210 dollars per unit and estimates that if x thousand dollars is spent on development and y thousand dollars is spent on promotion, consumers will buy approximately 160y/(y+4)+170x/(x+7) units of the product.
If manufacturing costs for the product are 130 dollars per unit, how much should the manufacturer spend on development and how much on promotion to generate the largest possible profit?

Round your answer to the nearest dollar.
Development costs: $ ?
Promotion costs: $ ?

Answer 1

Answer:

Development costs: $2757

Promotion costs: $3155

Step-by-step explanation:

This might seem like a two-variable problem, but in actuality it's not - because the demand function is a sum of two components, each being independent and using only one variable, we can solve for the two separately.

Moreover, the price per unit and cost per unit is constant, so each product yields exactly $80 ($210 - $130).

Let's solve separately.

We need to maximize:

$80 * 160y/(y+4) - 1000y = $12800 * y/(y+4) - $1000*y

$80 * 170x/(x+7) - 1000x = $13600 * x/(x+7) - $1000*x

Let's go:

$12800 * y/(y+4) - $1000*y = $12800 * (1 - 4/(y+4)) - $1000y = $12800 - $51200/(y+4) - $1000*y

we analyze the derivative. $12800 is a constant, so we can skip it. Derivative of 1/(y+4) is -(y+4)^-2, derivative of $1000y is $1000.

deriv = $51200/(y+4)/(y+4) - $1000

We find the changepoints by analyzing $51200/(y+4)/(y+4) - $1000 = $0. We don't need to worry about y+4 = 0 because we cannot spend negative money on development/advertisement.

(y+4)^2 = $51.2

y+4 ~= 7.155417528 (or -y-4 = 7.1554... but it doesn't make sense because negative budget so we don't analyze).

y ~= 3.155417528

lastly, we should check that it's actually a maximum there - but it is, the original function goes to negative infinity.

rounding $1000y to the nearest dollar gives us $3155

Let's do the same for x:

$13600 * x/(x+7) - $1000*x = $13600 * (1 - 7/(x+7)) - $1000x = $13600 - $95200/(x+7) - $1000*x

deriv = $95200/(x+7)/(x+7) - $1000

$95200/(x+7)/(x+7) - $1000 = $0

(x+7)^2 = 95.2

(x+7) ~= 9.75704873412

x ~= 2.75704...

rounding $1000x to the nearest dollar yields $2757