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11th Edition

Ronald J. Harshbarger + 1 other

Publisher: Cengage Learning

ISBN: 9781305108042

Chapter 11, Problem 4EAGP1

Textbook Problem

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**I. Inflation**

Hollingsworth Pharmaceuticals specializes in manufacturing generic medicines. Recently it developed an antibiotic with outstanding profit potential. The new antibiotic’s total costs, sales, and sales growth, as well as projected inflation, are described as follows.

Total monthly costs, in dollars, to produce *x* units (1 unit is 100 capsules):

**Sales:** 10,000 units per month and growing at 1.25% per month, compounded continuously

**Selling price:** $34 per unit Inflation: Approximately 0.25% per month, compounded continuously, affecting both total costs and selling price

Company owners are pleased with the sales growth but are concerned about the projected increase in variable costs when production levels exceed 11,000 units per month. The consensus is that improvements eventually can be made that will reduce costs at higher production levels, thus altering the current cost function model. To plan properly for these changes, Hollingsworth Pharmaceuticals would like you to determine when the company’s profits will begin to decrease. To help you determine this, answer the following.

Form the profit function that would be used when monthly sales exceed 11,000 units by using the total revenue function from Question 1(c) and the total cost function from Question 3. This profit function should be a function of time *t*.

This textbook solution is under construction.