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Maximizing Value and Profit Simultaneously

  1. Mar 28, 2010 #1
    1. The problem statement, all variables and given/known data
    This isn't a specific math problem but rather a business problem I would like to try and solve using calculus. Basically, a car company wants to maximize value AND profit (per car).


    2. Relevant equations

    [tex] Value = \frac{Benefit}{Price}[/tex] (see: http://en.wikipedia.org/wiki/Value_(marketing))

    [tex] Profit Per Car = Price - Cost Per Car [/tex]

    Assume that Cost Per Car is $9,000 and the Benefits Per Car are $11,000.

    So for example, if the car company charged $9,500 per car, the value would be 1.158 and the profit per car would be $1,500.


    3. The attempt at a solution

    I know how to do optimization problems when it is things like area maximization or cost minimization because there is a direct relationship between the two variables, but in this instance the relationship between profit and value is less direct.

    If you change the equation for value to be: [tex] Value = \frac{Benefit - Price}{Price}[/tex]
    and then multiply it by the profit equation, you can find a price ($9,950) such that "Value-Profit" is maximized*. If you assume that the company cares about value and profit per car equally, is this a mathematically valid way of solving the problem?

    *Changing the value equation is necessary so that there ends up being a maximum value for "Value-Profit."

    How would you solve this problem if value is twice as important as profit per car? If value is half as important as profit per car? Etc.
     
  2. jcsd
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