Appendix C Solutions

Retail companies need to keep close track of their operations in order to maintain profitability.
Often, the sales data of each individual product is analyzed separately, and this information
can be used to help set pricing and other sales strategies. In this problem, we will analyze the
profit found for sales of decorative tiles.

1. A demand equation (sometimes called a demand curve) shows how much money
people would pay for a product depending on how much of that product is available on
the open market. Often, the demand equation is found empirically (through experiment,
or market research).

a. Suppose that a market research company finds that at a price of p = $20, they
would sell x = 42 tiles each month. If they lower the price to p = $10, then more
people would purchase the tile, and they can expect to sell x = 52 tiles in a
month’s time. Find the equation of the line for the demand equation. Write your
answer in the form p = mx + b.

Let x = the number of tiles sold per month. The following t-table shows points for
the line:

x = quantity p = price sold

42 20
52 10

To get the equation for the line, use (p-p0) = m(x-x0)

20 −10 10
m= 42 −52
=
−10
= −1

Using (x,p) = (42, 20), line equation is

(p-20) = -1(x-42)
p = 20 – x + 42
p = -x + 62

A company’s revenue is the amount of money that comes in from sales before business
costs are subtracted. For a single product, you can find the revenue by multiplying the
quantity of the product sold, x, by the demand equation, p.

b. Substitute the result you found from part a into the equation R = xp to find the
revenue equation. Provide your answer in simplified form.

Revenue is R = xp
R = x(-x + 62)  substituting from part a
R = -x2 + 62x  distributing x through.

The costs of doing business for a company can be found by adding fixed costs, such as
rent, insurance, wages, and variable costs, which are the costs to purchase the product
you are selling. The portion of the company’s fixed costs allotted to this product is $300,
and the supplier’s price for a set of tile is $6. Let x represent the number of tile sets.

c. If b represents a fixed cost, what value would represent b?

$300
 d. Find the cost equation for the tile. Write your answer in the form C = mx + b.

Let x = number of tile sets sold (quantity)

Fixed costs: 300
Variable costs: 6x
Total costs: C = 6x + 300

The profit made from the sale of tile sets is found by subtracting the costs from the
revenue.

e. Find the Profit Equation.

P = R-C
P = -x2 + 62x – (6x + 300)
P = -x2 + 62x – 6x -300
P = -x2 + 56x – 300

f. What is the profit made from selling 20 tile sets per month?

Substitute 20 into P for x:

P = -202 + 56*20 -300
P = -400 + 1120 – 300
P = 420
The profit from selling 20 tile sets is $420.00.

g. What is the profit made from selling 25 tile sets each month?

Substitute 25 into P for x:

P = -252 + 56*25 – 300
P = -625 + 1400 – 300
P = 475
The profit from selling 25 tiles is $475.00.

h. What is the profit made from selling no tile sets each month? Interpret your
answer.

Substitute 0 into P for x:

P = -02 +62*0 – 300
P = -300

There is a $300 loss if no tiles are sold. This is the amount of fixed costs that
must be paid whether tiles are sold or not.

i. Use trial and error to find the quantity of tile sets per month that yields the highest
profit.

Students will substitute various values for x into P and should arrive at the
following answer:
The number of tiles that will yield the highest profit is 28.

j. How much profit would you earn from the number you found in part i?

Substitute x = 28 into P:
P = -282 + 56*28 – 300
P = -784 + 1568 – 300
 P = 484
The most profit that could be made is $484.00.

k. What price would you sell the tile sets at to realize this profit (hint, use the
demand equation from part a)?

Substitute x = 28 into demand equation, p = -x + 62

p = -28 + 62
p = 34
You should sell the tile sets for $34.00 each.

2. The break even values for a profit model are the values for which you earn $0 in profit.
Use the equation you created in question one to solve P = 0, and find your break even
values.

Set P = 0
-x2 + 56x – 300 = 0
x2 -56x + 300 = 0  multiplying by -1 to make LHS easier to factor
(x – 50) (x – 6) = 0  factoring LHS
x – 50 = 0 or x – 6 = 0
x = 50 or x = 6

The break even values are when you sell 6 sets of tiles or 50 sets of tiles.

3. In 2002, Home Depot’s sales amounted to $58,200,000,000. In 2006, its sales were
$90,800,000,000.

a. Write Home Depot’s 2002 sales and 2006 sales in scientific notation.

2002 sales: 5.82 × 1010

2006 sales: 9.08 × 1010
You can find the percent of growth in Home Depot’s sales from 2002 to 2006 by following
these steps:
• Find the increase in sales from 2002 to 2006.
• Find what percent that increase is of the 2002 sales.

b. What was the percent growth in Home Depot’s sales from 2002 to 2006? Do all
your work by using scientific notation.

sales in 2006 - sales in 2002

Percent growth = sales in 2002
×100 %

9.08 ×10 10 − 5.82 ×10 10

Percent growth = ×100 %
5.82 ×10 10
3.26 ×10 10
= ×100 %
5.82 ×10 10
3.26
= ×100 %
5.82
= 56 .01 %

(Source: Home Depot Annual Report for FY 2006:

http://www6.homedepot.com/annualreport/index.html)
4. A customer wants to make a teepee in his backyard for his children. He plans to use
lengths of PVC plumbing pipe for the supports on the teepee and he wants the teepee to
be 12 feet across and 8 feet tall (see figure). How long should the pieces of PVC
plumbing pipe be?

How long is the PVC pipe?

8 feet

12 feet

Use the Pythagorean Theorem. One leg is ½ of the 12 foot base, and the other leg is
8 feet.

c2 = 62 + 82
c2 = 36 + 64 = 100
c = 10 feet