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A cable television firm presently serves 6,300 households and charges $14 per month. A marketing survey indicates that
each decrease of $1 in the monthly charge will result in 630 new customers. Let R(x) denote the total monthly revenue
when the monthly charge is x dollars. Find the value of x that results in maximum monthly revenue.
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Let C(x) = 14 -x be the monthly charge for one single customer as the function of the projected decrease of "x" dollars.
Let N(x) = 6300 + 630x be the number of customers as the function of the same variable: the projected decrease of "x" dollars.
Then monthly revenue R is the product R = C*N, or
R = (14-x)*(6300 + 630x), (1)
and we need to find the maximum of this function.
Write the function (1) in the general form for the quadratic function
R(x) = , or
R(x) = .
Now, let me remind you that for the general quadratic function f(x) = with the negative coefficient a < 0
the theory predicts the maximum at x = .
In our case the maximum will be at x = = 2.
It means that the maximum is predicted at the $2 dollars decreased charge of $14 - $2 = $12.
The number of customers then will be 6300 + 2*630 = 7560, and the total revenue will be $12*7560 = $90720.
You can check that this revenue is the same as calculated in accordance with the function R(x) = at x = 2:
R(2) = = 90720.
Answer. The value of monthly charge that results in maximum monthly revenue is $12 dollars.
See the plot below where the revenue R(x) is shown as the function of projected decrease of charge:
Plot y = R(x) =
On finding the maximum/minimum of a quadratic function see the lessons
- HOW TO complete the square to find the minimum/maximum of a quadratic function
- Briefly on finding the minimum/maximum of a quadratic function
- HOW TO complete the square to find the vertex of a parabola
- Briefly on finding the vertex of a parabola
Also, you have this free of charge online textbook in ALGEBRA-I in this site
- ALGEBRA-I - YOUR ONLINE TEXTBOOK.
The referred lessons are the part of this textbook under the topic "Finding minimum/maximum of quadratic functions".