A producer finds that demand for his commodity obeys a linear demand equation p+0.85x=8.5 where p is in thousands of dollars and x is in thousands of units. If the producer's cost are given by C(x)=1+4x, what should his level of production be to maximize profits?

The level of production is= ( ) in thousands of units

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Solve for p first on the demand function to know the representation of the price.

Subtract both sides by 0.85x on both sides.

`p = 8.5 - 0.85x`

We know the revenue = price * quantity.

So, we will have:

`r = (8.5 - 0.85x)*x = 8.5x - 0.85x^2`

We can now write the profit function by taking note that:

Profit = Revenue - Cost

`P = 8.5x - 0.85x^2 - (1 + 4x) = 8.5x - 0.85x^2 - 1 - 4x`

Combinbe like terms.

`P = -0.85x^2 + 4x - 1`

Take the derivative an equate to zero.

`-1.7x + 4 = 0`

Subtract both sides by 4.

`-1.7x = -4`

Divide both sides by -1.7.

`x = 2.35 or 3` (round up).

Hence, **the level of production that will maximize the profit is 3000.**

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