Rehan Ali Mardhani

Mathematic Analysis and Approaches HL

Optimizing the profits for my business - Amigo

Number of Pages: 13

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Rehan Ali Mardhani

Introduction

During the 2021 summer holidays, I started my own business and called it Amigo. I started

selling artificial plants on Jumia, an e-commerce platform, as well as through sales agents, whom

I pay 10 % commission of the total sales they make. For the first few months, I bought these

artificial plants from my supplier, only when I got an order. I update my financial reports at the

end of every month, and after a few months, I realised that buying them together in the first week

of each month would save me transport costs, and would increase my profits. Thus, I decided to

buy a fixed quantity of artificial plants each month. However, I soon realized not all of the plants

I bought were sold, leading to higher costs and reduced profits. Therefore, I decided to

investigate how many artificial plants I need to buy each month, such that all the products are

sold and the profits are maximized. During my maths classes, I was introduced to optimization,

in calculus, and I will be using this method for this investigation.

Aim

The aim of this investigation is to find out the units of artificial plants I should buy for my

business (Amigo) in order to optimize profits.

Method

To achieve my aim, I will need a Profit equation in terms of units bought, P ( x ) , where x

represents the units bought. And to get a profit equation, I will have to subtract the cost equation

from the revenue equation. Therefore, P ( x ) =R ( x ) −C ( x ) Whereby, P(x ) is the profit equation,

R(x ) is the revenue equation, C ( x) is the cost equation, and x is the units bought. I will be using

polynomial regression to model the revenue and cost equations. Then subtract the revenue

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Rehan Ali Mardhani

equation from the cost equation to get the profit equation. Then, I will use first and second

differentiation to find out the maximum and minimum points. The maximum point will represent

the number of artificial plants I should buy for my business (Amigo) to optimize profits. I will

then substitute this value into the profit equation P( x ), to determine the profit my business will

earn each month after selling the products.

Exploration

Table 1 shows a summary of the units bought, sold, total revenue, costs and profits of Amigo for

the months June 2021 to May 2022.

Table 1

A total revenue and a total cost equation will be required in order to get the total profit equation.

Therefore, I will start by modelling an equation for the total revenue.

1. Modelling the Revenue Equation

Since I was not able to sell all the products I bought in many months, using the equation

R ( x )= price× quantity sold is not plausible. When I graphed the revenue and the Units bought

values, I realized that the plots are spread out, and using polynomial regression will be more

appropriate that using linear regression. Therefore, I decided to use polynomial regression to

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Rehan Ali Mardhani

model the revenue equation. Polynomial regression is a form of regression analysis in which data

is fit to a model and then expressed as a mathematical function. Polynomial regression relates the

two variables
350,000
(x and y) in a
300,000
curved
250,000
Total Revenue (UGX)

200,000

150,000

100,000

50,000

-
2 3 4 5 6 7 8 9 10 11
Units Bought
relationship. (KENTON, 2022)

Graph 1

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Rehan Ali Mardhani

After plotting the points on the graph, I assumed that the R-squared value I will obtain will be

low, and the co-efficient values will be inaccurate. Therefore, I decided to concatenate and make

the data for each quarter of my business’s financial year (June 2021 – May 2021). Therefore,

 June-2021, July-2021 and August-2021 (Q1)

 September-2021, October-2021 and November-2021 (Q2)

 December-2021, January-2022 and February-2022(Q3)

 800,000 March-2022,
700,000
April-2022
600,000
Total Revenue (UGX)

and May-
500,000

400,000 2022(Q4)
300,000

200,000
Table 2 100,000
shows the

data for -
12 14 16 18 20 22 24 26 28
each quarter.

Graph 2, Units Bought shows the

points plotted.

Table 2

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Rehan Ali Mardhani

Graph 2

Since Graph 2 looks more appropriate, and will give me a higher R-squared value, I will be using

data from Table 2 for modelling the cost equation.

Then I performed Quadratic and cubic regression using my Ti-84 Plus CE calculator, by pressing

STAT, chose Edit, and I entered the units bought in L1, and revenue in L2, where L is short for

List. Then I again pressed STAT, chose CALC, QuadReg, and entered L1 for Xlist, and L2 in

Ylist. I repeated these steps for CubicReg as well. I performed these steps for both the monthly,

and quarterly values. As I expected, the monthly values gave me a lower R-squared value, while

quarterly values gave me a higher R-squared value. R-squared (R2) is a statistical measure that

represents the proportion of the variance for a dependent variable that's explained by an

independent variable or variables in a regression model (Fernando, 2021). Figure 1 and 2 show

the results for monthly values. Figure 3 and 4 show the results for Quarterly values.

Figure 1 Figure 2

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Rehan Ali Mardhani

Revenue
800,000
700,000
600,000
Total Revenue (UGX)

500,000
400,000
300,000
200,000
100,000
-
12 14 16 18 20 22 24 26 28
Units Bought

Figure 3 Figure 4

Cubic regression of the quarterly values gives R-squared value to exactly 1. Which means that

the values are 100% accurate. Hence, I will be using Cubic regression of quarterly values (figure

4). Therefore, my Revenue equation is

R ( x )=−2242.424242 x 3 +136212.1212 x 2−2661848.485 x +17141515.15

Graph 3 shows the graph of the above revenue equation. And the dots represent the values of

units bought, and revenue from table 2.

Graph 3

2. Modelling the Cost Equation

I will using polynomial regression to get a cost equation as well. By following the steps, I used to

model the revenue equation, I got the following results. Figure 5 and 6 show the results for

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Rehan Ali Mardhani

monthly quadratic and cubic regression. Figure 7 and

8 show the results for quarterly quadratic and cubic

regression.

Figure 5 Figure 6

Figure 7 Figure 8

Cubic regression of the quarterly values gives R-

squared value to exactly 1. Which means that the

values are 100% accurate. Hence, I will be using

Cubic regression of quarterly values (figure 8).

Therefore, my Cost equation is

C ( x )=112.1212121 x3 −5143.939394 x2 +78092.42425 x−133742.4243

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Rehan Ali Mardhani

Graph 4 shows the graph of the above revenue equation. And the dots represent the values of

units bought, and revenue from table 2.

Graph 4

3. Modelling the Profit Equation

To get the Cost

Profit 450,000
400,000
equation, I 350,000 will
Total Revenue (UGX)

300,000
subtract 250,000 the
200,000
cost
150,000

equation 100,000
50,000
C ( x ) from - the
12 14 16 18 20 22 24 26 28

revenue Units Bought

equation R( x )

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Rehan Ali Mardhani

P ( x ) =R ( x ) −C ( x )

P ( x ) =(−2242.424242 x 3 +136212.1212 x 2−2661848.485 x +17141515.15 )−(112.1212121 x 3−5143.939394 x 2 +7

P ( x ) =−2242.424242 x 3 +136212.1212 x 2−2661848.485 x+ 17141515.15−112.1212121 x 3 +5143.939394 x 2−780

3 2
P ( x ) =−2354.54 5454 x +141356.0606 x −2739940.909 x +17275257.57

Now that I have the profit equation, I will proceed by using calculus to find the units Amigo

should buy to maximize its profits.

4. Profit Optimization

Now, I will get the first differention of P( x ) and then equate it to 0.

3 2
P ( x ) =−2354.54 5454 x +141356.0606 x −2739940.909 x +17275257.57

P ' ( x )=3 ¿

P ' ( x )=3 ¿

P' ( x )=−7063.636362 x 2+ 282712.1212 x−2739940..909

2
−7063.636362 x +282712.1212 x−2739940..909=0

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Rehan Ali Mardhani

Now I will solve this equation, and get the values of x . To do this, I pressed apps on my TI-84

Plus CE calculator, chose PlySmlt12, Polynomial Root Finder, Order: 2. Then I entered the

values from the above equation into the appropriate field, and chose Solve. Figure 9 shows the

results.

Figure 9

Therefore, the two x values we got are:

x 1=16.46532926

x 2=23.55837577

Now I will proceed with second differention.

Then I will substitute the x values we got into the

''
P ( x ) to determine which one is maximum and minimum.

' 2
P ( x )=−7063.636362 x + 282712.1212 x−2739940..909

2−1 1−1
P ' '(x )=−2 ( 7063.636362 ) x +1 ( 282712.1212 ) x

''
P ( x )=−14127.27272 x +282712.1212

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Rehan Ali Mardhani

''
P ( x 1 )=−14127.27272 x1 +282712.1212

P' ' ( 16.46532936 )=−14127.27272(16.46532926)+282712.1212

¿ 50103.47832

As the above value is greater than 0 (>0), this is the minimum point.

''
P ( x 2 )=−14127.27272 x 2+282712.1212

P' ' ( 23.55837577 )=−14127.27272(23.55837577)+282712.1212

¿−50103.47814

As this value is less than 0 (<0), this is the maximum point. Therefore, 23.55837577 is maximum

units Amigo should buy each quarter. As 0.55837577 unit cannot be bought, I will replace the x

value in the original profit equation P( x ) with 23 and 24. The value obtained will be the profits I

will earn after selling x units. The greater value will therefore mean that it’s the highest profit I

can make. The value (23 or 24) that gives a higher profit, will be number of units I should buy

each quarter for my business to earn the maximum profit.

P ( x ) =−2354.54 5454 x 3 +141356.0606 x 2−2739940.909 x +17275257.57

3 2
P ( 23 )=−2354.54 5454 ( 23 ) + 141356.0606 ( 23 ) −2739940.909(23)+ 17275257.57

¿ 386218.1816

¿ 386218

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Rehan Ali Mardhani

3 2
P ( 24 ) =−2354.54 5454 ( 24 ) +141356.0606 ( 24 ) −2739940.909(24)+17275257.57

¿ 388530.3035

¿ 388530

Since buying 24 units gives a higher profit than 23 units, I should buy 24 units of artificial flower

each quarter to maximize its profit. However, my aim was to identify how many units Amigo

should buy each month. Therefore:

24
=8
3

388530
=129510
3

I should buy 8 artificial flower each month, which will give me a profit of approximately

129,500 UGX.

Bibliography
Fernando, J. (2021, 09 12). investopedia. Retrieved from investopedia:
https://www.investopedia.com/terms/r/r-squared.asp

KENTON, W. (2022, 05 29). investopedia. Retrieved from investopedia:

https://www.investopedia.com/terms/n/nonlinear-regression.asp#citation-1

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