Problem 1 — Maximizing profit
A company's profit (in thousands of dollars) is modeled by:
\[ P(x) = 5000 + 1000x - 5x^2 \]where \( x \) is the advertising spend in thousands of dollars.
- What advertising spend maximizes profit?
- What is the maximum profit?
Show solution
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The profit function is a downward parabola (\( a = -5 < 0 \)), so the maximum is at the vertex.
\[ x = -\frac{b}{2a} = -\frac{1000}{2(-5)} = 100 \]So the company should spend \( x = 100 \) thousand dollars, i.e. $100,000, on advertising.
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\[ P(100) = 5000 + 1000(100) - 5(100)^2 = 5000 + 100{,}000 - 50{,}000 = 55{,}000 \]
The result \( 55{,}000 \) is in thousands of dollars, so the maximum profit is $55,000,000 (55 million dollars).