Mathematics Internal Assessment

Mathematics AI HL

(Draft 1)

TOPIC:

CALCULUS: OPTIMIZING THE PROFIT OF MY DAD’S ELECTRICAL BOARD

MANUFACTURING UNIT.
Introduction

I have always wanted to help in one way or the other in my family’s business. So during this

lockdown, as I had a lot of leisure time to endure something new, and this was the time when we

were taught CALCULUS, in our pre-ib course, and the concept of optimization seemed to be a

pretty fascinating concept to apply in real-life situations, to add to it, the profit and loss chart of

my dad’s electrical board manufacturing unit seemed to be fluctuating, so I thought I would

optimize the profit of the manufacturing unit during the lockdown period. So planned to do this

for my interest and learning, but then schools got reopened.

Because my primary focus is schooling, I did not invest in or meddle with the day-to-day

operations of the firm, and I just updated the financial data after each business quarter. A quarter

is a three-month period that serves as the foundation for quarterly financial reporting, and it is

usually denoted by the letters Q(number) (year) (Adam Hayes, 2020). A quarterly report, for

example, will refer to the first quarter of 2020 as Q1 2020. A business year is divided into four

regular calendar quarters:

Q1- January to March Q3- July to September

Q2- April to June Q4- October to December

Because I am busy with school and sometimes find myself unable to prepare monthly financial

reports, I decided to adopt the quarter method to keep track of my father's sales.
However, during the third business quarter of 2020 (July to September), I saw a sharp decline in

earnings - it fell to one-third of what I had made the previous quarter. After some examination, I

discovered that this was due to output exceeding my market's purchasing capacity, resulting in

stocks that raised production costs and decreased income. I decided to research how much stock I

needed to generate at the start of each quarter to ensure that I made the most profit feasible given

my target market's restricted purchasing capability.

Rationale

I chose optimization since it is a topic in calculus that I have encountered in my Math class and

would like to learn more about. Furthermore, this concept is ideal for my field of research, which

is profit maximization.

Aim

The ultimate goal of this investigation is to determine the number of goods that should be created

at the start of each business quarter to maximize profit, given that my target market's purchasing

capacity is limited and overproduction is a risk.

To accomplish my goal, I'll need to build a revenue equation in terms of units generated quarterly

and a total cost equation (also in terms of units produced quarterly), then utilize the formula

P(x) = R(x) – C(x)

to determine the profit equation. After establishing a profit equation, I will use mathematics,

especially differentiation, to determine the number of units I should create in each quarter.
Exploration

Table 1 displays the quarterly revenue and total cost of the manufacturing unit in INR from 2019

to 2021. The table also included the number of electrical boards manufactured and sold in each

quarter.

2019 2020

2021

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

UNITS 106 110 114 116 113 119 123 130

PRODUCED

UNITS SOLD 106 110 114 116 113 119 123 125

REVENUE 3,100,000 4,500,000 5,900,000 6,600,000 5,550,000 7,650,000 9,050,000 9,750,000

(INR)

TOTAL 4,703,304 3,838,390 4,893,746 5,541,424 4,689,907 6,392,941 7,528,297 9,447,850

COST

(INR)

Table 1

Before calculating profit optimization, I will need to have a revenue and a total cost equation. As

a result, I'll start by simulating the revenue equation.

Because I am modeling monetary values, rounding figures too close to the nearest whole number

may distort the result; however, the currencies I work within my IA are rounded to two decimal

places in the real world, so all of the values in my IA will be rounded to five significant figures

to ensure that they are practical while being as accurate as possible.

I plotted the quarterly revenue against the quarterly number of units generated to derive a

revenue equation in terms of units produced. Because I was unable to sell all of the stocks I

manufactured in the third quarter of 2020, the data points are not in a linear connection, and so

utilizing the formula R(x) = price x quantity to generate a revenue equation is not feasible (as

illustrated in Graph 1). I wanted to model an equation as accurate as possible, therefore I used

polynomial regression analysis on my Casio fx CG50 graphing calculator in STAT mode.

Polynomial regression is a sort of statistical regression analysis that uses a curved connection to

connect two variables (x and y) (Will Kenton, 2020).

Graph 1

I enter my data points into the calculator's STAT list, then select CALC and REG. Because cubic

and quartic regression models often have higher r-squared values than quadratic regression
models, I chose to look at the regression established by these two models first. R-squared, also

known as the coefficient of determination, is a statistical metric used to determine how closely

the regression model matches the data. An r-squared value of 100% indicates that the regression

model perfectly explains the data (Adam Hayes, 2020).

I opted to study the cubic regression model first and observed that the equation's constant was

given in x10 notation (d = 7.7966 x 108), which I believed was owing to the graphing

calculator's restricted quantity of displayable character (Figure 1). By shifting the decimal point

8 places to the right, this constant may be represented as 779660000. The calculator has rounded

this amount to 5 s.f., as we can see. I wanted to avoid rounding data too early in the research, so I

looked at the quartic regression model first. Unfortunately, this model's constant was also given

in x10 notation (e = -6.989 x 109), which implies it was rounded to 4 s.f (Figure 2).

Figure 1 Figure 2

I'm curious whether there's a method to prevent having automatically rounded numbers in my

equation, so I converted all of my data in Table 1 from INR to USD. Because the USD is more

valued than the INR, I will be able to achieve lower amounts and so avoid the automatic

rounding problem entirely.

I opted to utilize a currency converter to convert my INR to USD values. This is the only area

where I will round figures to two decimal places, as this is how USD is shown, and I want my

exploration to be both accurate and practical.

Table 2 shows the quarterly revenue and total cost of the manufacturing unit in USD, as well as

the number of units produced and sold, from 2019 to 2021.

2019 2020

2021

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

UNITS 106 110 114 116 113 119 123 130

PRODUCED

UNITS SOLD 106 110 114 116 113 119 123 125

REVENUE 41349.32 60023.21 78697.09 88034.03 74028.62 102039.45 120713.33 130050.28

(USD)

TOTAL 62734.97 51198.33 65275.18 73914.23 62556.28 85272.18 100416.11 126020.05

COST

(USD)

Table 2

I next entered the figures from Table 2 into my graphing calculator, charting quarterly unit

production on the x-axis and revenue (in USD) on the y axis. For the regression models, I used

CALC, then REG, and looked at the cubic and quartic regression models first. As predicted,

when the numbers are translated to USD, they are substantially less than when they were in INR
(as seen by comparing the figures in Figures 1 and 2 to Table 3). After obtaining the appropriate

equation, I compare the r squared values of the cubic and quartic regression models (Table 3).

Type Of Model R2 (%) Equation

Cubic 99.989 0.000098462x3-0.03449537x2+4672.4916x-453664.793965

Quartic 99.999 0.000050881x4-0.0228153+3.827279x2.+4383.787628x-445585.85

Table 3

I decided to go with the quartic model since its r-squared value is larger than that of the cubic

model. Graph 2 shows the relationship between the Manufacturing unit’s revenue coordinates

and the quartic regression model.

Graph 2
As seen in Graph 2, the regression model closely approaches the connection between my data

points, which is the expected outcome. Converting INR data to USD made graphing simpler

because the values were not as large. Initially, I considered modelling the revenue equation with

piecewise functions for more accuracy; however, this strategy does not applicable to my

investigation since I require a continuous function to demonstrate the link between my variables.

Furthermore, utilizing piecewise functions will provide various x values when it is divided into

different pieces, which is perplexing given the context of my investigation.

After getting the revenue equation, I use the same procedure to model the total cost equation.

Modeling the Total Cost equation

From 2019 to 2021, graph 3 depicts the relationship between the quarterly total cost and the

quarterly number of units produced of the manufacturing unit in USD. Similarly, the relationship

between my data points is nonlinear, since there was a dramatic decline in overall cost between

Q4 2019 and Q1 2020, thus I opted to do polynomial regression analysis and compare the

r-squared values to choose a regression model that best reflects my data.Tomaximize

 Graph 3

I followed the steps previously described in the revenue section and obtained the results

presented in Table 4 below.

Type Of Model R2 (%) Equation

Cubic -4.76767980x3+1900.8995135x2-244673.63441x+10316088.1859

Quartic 5.24168x4-2426.508653+420997.5395x2.-324415555.34x+936798
966.595345

Table 4

I chose the quartic regression model because it produced a higher r-squared value, indicating that

it better matches my data points than the cubic regression model. The link between the total cost

coordinates and the quartic regression model is seen in graph 4.

Calculating The Profit Equation

The profit equation can be found using the formula below

P(x) = R(x) - C(x)

Using the revenue and total cost equation obtained earlier, the profit equation would be

P(x) = (0.000050881x4-0.0228153+3.827279x2.+4383.787628x-445585.85) -

(5.24168x4-2426.508653+420997.5395x2.-324415555.34x+936798966.595345)

P(x)=0.000051x4−0.022815x3+3.827279x2+4383.787628x−445585.85+

−1(5.24168x4−2426.50865x3+420997.5395x2−324415555.34x+936798966.595345)
=0.000051x4−0.022815x3+3.827279x2+4383.787628x−445585.85+ −1(5.24168x4)+

(−1)(−2426.50865x3)+ (−1)(420997.5395x2)+ (−1)(−324415555.34x)+ (−1)(936798966.595345)

=0.000051x4−0.022815x3+3.827279x2+4383.787628x−445585.85−5.24168x4+2426.50865x3−420

997.5395x2+324415555.34x−936798966.595345

P(x)=0.000051x4−0.022815x3+3.827279x2+4383.787628x−445585.85−5.24168x4+2426.50865x3

−420997.5395x2+324415555.34x−936798966.595345

=(0.000051x4−5.24168x4)+(−0.022815x3+2426.50865x3)+(3.827279x2-420997.5395x2)+(4383.78

7628x+324415555.34x)+(−445585.85−936798966.595345)

=−5.241629x+42426.485835x3−420993.712221x2+324419939.127628x−937244552.445345

P(x) =−5.241629x+42426.485835x3−420993.712221x2+324419939.127628x−937244552.445345

After obtaining my profit equation, I will proceed by using calculus to find the number of units

should produce in each quarter in order to maximize my profit.

Profit optimization

To improve any profit function Analytically, I must determine the function's crucial points and

determine if they are maximum or minimum points. In order to maximise my profit in each

business quarter, I must locate the greatest point of the profit function.

Finding the derivative of my profit function and putting it to 0 will assist me in locating the key

areas. As a result, I'll start by differentiating my profit function and solving for

P'(x) = 0.
P(x)=−5.241629x+42426.485835x3−420993.712221x2+324419939.127628x−937244552.445345

P`(x)=-20.966516x3+127279.45750x2- 841987.424442x+324419939.127628

At this point, I did not round the derivative of my profit function to 5 .s.f. to ensure that when I

solve for P'(x) = 0, my x value is as precise as feasible.

I then graph the derived function in my graphing calculator and use G-Solv followed by ROOT

to solve the problem above. 6064.404685 is the value of x. This figure must be a whole number

since it indicates the number of units I should manufacture in a business quarter to optimize my

profit (I cannot make .404685 of an electrical board ).

I achieved my final result by rounding this value to the nearest full number, which is 6064 units.

P`(x)=-20.966516x3+127279.45750x2- 841987.424442x+324419939.127628

P``(x) = -62.899548x2+254558.915x-841987.424442

P``(6064) = -62.899548(6064)2+254558.915(6064)-841987.424442

P``(6064)= -770144944.3

As -770144944.3 < 0, 6064 is the maximum value, which means it is the correct answer.

I then use my GDC to calculate the maximum amount of profit I will receive if I produce

6064 electrical boards each quarter:

P(6064)=−5.241629(6064)+42426.485835(6064)3−420993.712221(6064)2+324419939.127628(

6064)−937244552.445345

P(6064)= 2.359334652 x 1015

P(6064)= 2.359334652 x 1015 USD

The maximum amount of profit I will be able to receive per quarter is 2.359334652 x

1015 USD.

Evaluation

Applying calculus optimization to my company circumstance helped me figure out how much

stock I should create in each quarter to ensure that I made the most profit. This will save both

time and money (since the fabrication of electrical panel boards is time-consuming). It is also

crucial to remember that, while I know how much to manufacture, I must ensure that I can sell

all of those supplies since inventory is expensive.

After I finished my investigation, I discovered that instead of modeling a revenue equation and

then a cost equation, I could have computed the amount of profit obtained in each quarter using

the revenue and total cost information and then directly gone into modeling a profit equation

(which was considerably time-consuming). However, this does not imply that the outcome was

incorrect or that the more time-consuming option was completely ineffective.

As I had to deal with a large number of complicated numbers, I was able to hone my statistical

analysis abilities as well as strengthen my attention span. Both the arithmetic I utilized and the

practicality of my findings have certain restrictions. To begin, I completed all of the calculations

in USD, which assisted with the equation's correctness; but, the process of changing currencies

may create slight inaccuracies because I had to round the answer to two decimal places.

Furthermore, because the exchange rate varies, I'll need to keep track of the rate used in my IA

so that I may use it as a multiplying or dividing constant in the future if necessary (which is $1 =
75.40 INR). As indicated at the start of my IA, I rounded all numerical data to 5 s.f. since I feel it

will increase accuracy while also being practical; nonetheless, this may have caused tiny

inaccuracies that may have significantly impacted my result. Although the r-squared value of my

GDC's biggest regression model is extremely near to 100 percent, there is a potential that a

quintic or sextic regression model can depict the relationship between my variables more

correctly.

Furthermore, the outcome presupposes that I will not be investing or expanding the firm in the

future because doing so will increase expenses as production levels rise, diminishing short-term

profitability.

Conclusion

Overall, the outcome met the IA's goal. Not only did I meet the objective I set for my

investigation, but I also learned a lot of other essential things. I appreciated the interdisciplinary

nature of IB subjects and assessments, as well as the opportunity to apply calculus to real-world

situations and improve my data interpretation skills, which was especially enjoyable given that

the majority of calculus problems in textbooks and exams are very algebraic. Because I focused

my investigation on a topic that is both important and fascinating to me, the IA process was

enjoyable and engaging.

I also get the opportunity to reflect on my mathematics performance. I discovered that I can

differentiate equations effectively, but I need to practice statistics and modeling equations more

because I made a lot of typing errors and misinterpretations, which took time.
The arithmetic I utilized in this investigation may be applied to a variety of different real-world

contexts. Profit optimization is a good place to start when planning and budgeting for

forthcoming activities. Optimization may also be utilized to maximize product package design,

where the designer might aim to discover the optimum packaging for a product that is both

durable and has the lowest production costs.

This investigation has piqued my interest in various real-life applications of complex

mathematics and the presence of mathematics in our daily lives.

Bibliography

1. Hayes, A. (2020, August 28). R-Squared. Retrieved November 9, 2020,

from https://www.investopedia.com/terms/r/r-squared.asp

2. Kenton, W. (2020, September 12). What Is Nonlinear Regression? Retrieved November 9,

2020,

from https://www.investopedia.com/terms/n/nonlinear-regression.asp

3. Hayes, A. (2020, August 28). What Quarters (Q1, Q2, Q3, and Q4) Tell Us. Retrieved

November 9, 2020,

from https://www.investopedia.com/terms/q/quarter.asp