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, the appropriate objective function would be
A) maximize $40Y = $25Z.
B) maximize $40Y + $25Z.
C) maximize $30Y + $20Z.
D) maximize 0.25Y + 0.20Z.
E) maximize $20Y + $50Z.

Question

Quizplus · Accepted Answer

The objective function to maximize profit should consider the profit per unit for each product, which is the selling price minus the cost price. For product Y, the profit per unit is $40 - $10 = $30. For product Z, the profit per unit is $25 - $5 = $20. Therefore, the objective function is to maximize $30Y + $20Z.

A Firm Makes Two Products, Y and Z