A study of administrative intensity (the number of managers divided by the number of workers) found that
Question:
A study of administrative intensity (the number of managers divided by the number of workers) found that the profit P of a company depended on the administrative intensity i according to the formula P(i) = (p - r)ASaitkbX1-c - W0 X - W1Xi - C, where p is the selling price of a product; r is the nonwage cost of the product; A is a productivity scale factor; S is the number of occupational specialties; a, b, and t are positive numbers whose sum is less than 1 representing the marginal relative productivity of specialization, capital, and labor, respectively; k is the capital intensity per worker; X is the number of workers; c = 1 - a - b - t; W0 is the average wage per worker; W1 is the average salary per manager; and C is the fixed cost of production.
Suppose that
(a) Show that the profit function simplifies to P(i) = 150√i - 300i - 10.
(b) Find the administrative intensity that maximizes profit.
Step by Step Answer: