A firm makes two products, Y and Z. Each unit of Y costs $10 and sells for $40. Each unit of Z costs $5 and sells for $25. If the firm's goal were to maximize profit, what would be the appropriate objective function?
A) Maximize profit = $40Y = $25Z
B) Maximize profit = $40Y + $25Z
C) Maximize profit = $30Y + $20Z
D) Maximize profit = 0.25Y + 0.20Z
E) Maximize profit = $50(Y + Z)

Question

Quizplus · Accepted Answer

The correct objective function to maximize profit is to calculate the profit per unit for each product and then sum these profits. For product Y, the profit per unit is $40 (selling price) - $10 (cost) = $30. For product Z, the profit per unit is $25 (selling price) - $5 (cost) = $20. Therefore, the objective function is to maximize $30Y + $20Z.

A Firm Makes Two Products, Y and Z