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Attribution Non-Commercial (BY-NC)

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Economics

Key Formulas:

1

ExamJ2k: (#12, page 202) The average ticket price for a

concert at the opera house was $50. The average attendance

was 4000. When the ticket price was raised to $52,

attendance declined to an average of 3800 persons per

performance. What should the ticket price be in order to

maximize the revenue for the opera house? (Assume a

linear demand curve.)

pnce.

Revenue == Price. Demand

R(p) ==Revenue

. M (50) == 4000

GIven:

M (52) == 3800

50-52 -2

slope form of the equation of a line, we find that:

so that

M (p) == -lOOp + 9000

2

Hence R(p) == p. M (p) == -100 p2 + 9000 p.

Critical points:

d

- R(p) == -200p + 9000

dp

- 200 p + 9000 == 0

200 p == 9000

p == 45

d2

Concavity: ~ R(p) == -200 < 0

dp

Hence: AtpJ

(:\

1.Js- f

We see that a ticket price of $45 maximizes revenue.

3

Examw: (#16, page 202) A certain toll road averages

36,000 cars per day when charging $1 per car. A survey

concludes that increasing the toll will result in 300 fewer

cars for each cent of increase. What toll should be charged

in order to maximize the revenue?

pnce:

R(p) = p .M (p)

where

p = price in cents, M (p) = demand, R(p) = revenue

slope

-300

slope = m = = -300

1

cents). Using the point-slope form of the equation of a

line, we find that:

so that

M (p) = -300p + 66,000

4

Hence R(p) = p .M(p) = -300p2 +66,000p.

Critical points:

d

- R(p) = -600 p + 66,000

dp

- 600p + 66,000 = 0

600p = 66,000

p = 110

d2

Concavity: ~R(p) = -600 < 0

dp

Hence:

.4 l? (fO

110 P

We see that a ticket price of $1.10 maximizes revenue.

5

ExamQk: (# 19, page 203) A savings and loan association

estimates that the amount of money on deposit will be

1,000,000 times the percentage rate of interest. For instance,

a 4% interest rate will generate $4,000,000 in deposits.

Suppose the savings and loan association can loan all the

money it takes in at 10% interest. What interest rate on

deposits generates the greatest profit?

Let

Then

R(r)== 106.r

'---v--'

x 0.10

"---v--I

amount money interest earned

borrowed

6 r

C(r)==10 .rX -

~ 100

deposIts ~

interest for

the customers

6

Therefore,

6 6 r

P(r) = R(r) - C(r) = (10 . r)(0.10) -10 . r(-)

100

==105 .r-10 4

.r 2 .

Critical points:

d 5 4

-P(r)=10 -2.10

dr

dr

105 - 2 . 104 r = 0

2 . 104r. 105

10 = 2r

r=5

7

--~

d2

Concavity: ~dr Per) = -2.104 <0

Hence:

fi.(r)

~7\

~ r

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