Week 2 Profit Maximization Concept Application
In order to maximize profit for University of Phoenix it would be advisable for the school to enroll 28 students. This would give the university a profit of $19,390 per class and be the most profit it can make with the resources given. In order to achieve maximum profit the university must use the formula MC (maximum Cost)=MR (maximum revenue) to find the correct number of students to allow per class. Looking at table 1 below we can see the MR for 28 students is $1,250 and is more than the MC of $1,192, if one more student was added then the MR would be less than the MC and the school would be loosing money.
If the school were to allow for 29 students then the maximum revenue would be greater than the maximum cost and therefore would loose profit for this extra student being added. By changing the cost variable in table one by 15% we see that the maximum students per class would change to 17 students. This new number would give a profit of $9,392 for each class and would be the best use of resources for the school. This table could be adjusted again if the school found a way to lower it’s incidental costs as we can see the amount of profit go up when the variable costs were lower in table 1.
It would be recommended that the Admissions Director keep the class size to 28 students if the costs are aligned with table 1 and keep a class size of 17 students if the costs are aligned with table 2. I there are any changes to the variable costs it would be advisable to also keep in mind the effect they will have on the maximizing of costs to the class and that the table be adjusted to the costs change so a correct number of students can be assigned to the class in order to achieve the maximum profit for the