A company makes two products, A and B. A sells for $100 and B sells for $90. The variable production costs are $30 per unit for A and $25 for B. The company's objective could be written as: MAX 60x1 65x2. (x1 is the number of units of product A; x2 is the number of units of product B) A. True

B. False

Question

Business

Jabari Bird

10 April, 03:24

A company makes two products, A and B. A sells for $100 and B sells for $90. The variable production costs are $30 per unit for A and $25 for B. The company's objective could be written as: MAX 60x1 65x2. (x1 is the number of units of product A; x2 is the number of units of product B) A. True

B. False

+1

Answers (1)

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Abigayle Booth · Answer 1

True

Explanation:

Profit function would be maximised.

Profit = Revenue - Cost

Let units of both goods be = A, B

Revenue per unit good A = 100

Revenue per unit good B = 90

Variable Cost per unit good A = 30

Variable Cost per unit good B = 25

Profit Function = (100 - 30) A + (90 - 35) B

= 60A + 65B

{The function is right without including 'average fixed cost' part of 'total cost' in the function because : average fixed cost is a constant & constant figure doesn't effect optimisation (via differentiation, ∵ d (c) = 0)