maximizing revenue

hephatsut1

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May 7, 2008
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A company handles an apartment building with 50 units. Experience has shown that if the rent for each of the units is $360 per month, all units will be filled, but 1 unit will become vacant for each $10 increase in the monthly rate. What rent should be charged to maximize the total revenue from the building if the upper limit on the rent is $450 per month?
 

tkhunny

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Apr 12, 2005
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Isn't this a counting problem?

50*360 =
49*370 =
48*380 =
...

What do you get?
 

soroban

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Jan 28, 2005
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Hello, hephatsut1!

A company handles an apartment building with 50 units.
Experience has shown that if the rent for each of the units is $360 per month, all units will be filled,
but 1 unit will become vacant for each $10 increase in the monthly rate.
What rent should be charged to maximize the total revenue from the building?

Let \(\displaystyle x\) = number of $10 increases in monthly rent.

The month rent will be: .\(\displaystyle 360 + 10x\) dollars per unit.

Then \(\displaystyle x\) units will be vacant: .\(\displaystyle 50-x\) units are rented.

The revenue is: .\(\displaystyle R \;=\;(360 + 10x)(50-x)\) dollars.

We have:. \(\displaystyle R \;=\;18,000 + 140x - 10x^2\quad\hdots\) which we want to maximize.


Using Calculus, set \(\displaystyle R'\) equal to 0: .\(\displaystyle 140 - 20x \:=\:0\quad\Rightarrow\quad x \:=\:7\)


Hence, the rent should be raised seven times.

. . \(\displaystyle \text{The rent will be: }\;\$360 + 7(10) \;=\;\$430\text{ per month.}\)

 
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