Initially, we assume that the variable costs are directly proportional to the number of
units produced — this should simplify our model The company earn a certain amount
of money by selling its products and wants to ensure that it is maximum For convenience,
we assume that all units produced are sold immediately The mathematical model
Let
x = number of units produced and sold
C = total cost of production (in rupees)
I = income from sales (in rupees)
P = profit (in rupees)
Our assumptions above state that C consists of two parts:
(i)
fixed cost = a (in rupees),
(ii)
Thenvariable cost = b (rupees/unit produced)