The following is a cost function for clinic visits in a small inner city clinic:
ID: 1191198 • Letter: T
Question
The following is a cost function for clinic visits in a small inner city clinic:
Quantity of Visits: 0, 1, 2, 3, 4, 5, 6
Total Cost Per Week: $10, 15, 25, 45, 75, 115, 165
b. If the price per visit is given to be $25, at what level of visits will the maximum profit position be? What are the profits at this level? What is the quantity supplied?
When answering, please explain how you computed the solution and what I should think about or look for when solving this type of problem.
I am not sure if I totally understand the concept of maximizing profits. Please clarify. Thank you!
Explanation / Answer
Profit = Revenue - Costs
Revenue = Price (P) x Quantity (Q)
If price = $25, we calculate the following table.
So
Profit is maximum (= 30) when Q (number of visits) is 3.
P Q R = P x Q C Profit = R - C 25 0 0 10 -10 25 1 25 15 10 25 2 50 25 25 25 3 75 45 30 25 4 100 75 25 25 5 125 115 10 25 6 150 165 -15Related Questions
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