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) C = a + bx (1)
Also, income I depends on selling price s (rupees/unit)
Thus
I = sx