Profit Maximization

Part I. Practice with Second Derivative Test

A. Suppose you have determined that the first derivative of the profit function is = -2Q2 + 18Q - 16
and that the derivative is zero when Q is either 1 or 8.
i. Determine the second derivative function (Q).
ii. Calculate (1). Is (1) positive or negative? Is profit maximized or minimized when Q = 1?

iii. Calculate (8). Is (8) positive or negative? Is profit maximized or minimized when Q = 8?

B. Suppose you have determined that the first derivative of the profit function is = -Q2 + 12Q - 20
and that the derivative is zero when Q is either 2 or 10.
i. Determine the second derivative function (Q).
ii. Calculate (2). Is (2) positive or negative? Is profit maximized or minimized when Q = 2?

iii. Calculate (10). Is (10) positive or negative? Is profit maximized or minimized when Q =
10?

C. Suppose you have determined that the first derivative of the profit function is = -3Q2 + 33Q - 84
and that the derivative is zero when Q is either 4 or 7.
i. Determine the second derivative function (Q).
ii. Calculate (4). Is (4) positive or negative? Is profit maximized or minimized when Q = 4?

iii. Calculate (7). Is (7) positive or negative? Is profit maximized or minimized when Q = 7?

Part II Application to Profit Maximization

Suppose a firm sells its product for the market price of $24. The total cost function is
TC = Q3 9 Q2 + 39 Q + 15, where Q is the amount of output produced. Showing work clearly,
answer the following questions.
1. What is the total revenue function?

2. What is the profit function?

3. Use calculus to determine the output levels that will maximize or minimize the firms profit.

4. Use calculus to determine which output level maximizes profit and which output level
minimizes profit.

5. At the profit-maximizing output level, what is total revenue?

6. At the profit-maximizing output level, what is total cost?

7. At the profit-maximizing output level, what is profit?