2022 Year 4 Standard Mathematics Performance Task

Kimaya Devang Bhuta

Faculty of Mathematics, School of the Arts, Singapore

Year 4 B8

Ms Teo Oi Mei

July 15, 2022

Abstract

In the current competitive business environment, it is ordinary for concerns regarding cost

and selling prices to arise due to fluctuating demand and supply. This market survey aims to

examine and analyse data in order to conclude the most optimal selling prices such as to not

incur any losses and to maximise profits, while exploring possible limitations and

implications.

Part I: Analysing the selling price and cups of coffee sold per week to determine the

selling price with the highest revenue yield

It is observed that as the selling price increases, the revenue also increases, up until a certain

point (maximum point) on Figure 1.2 where the selling price is $5.811 (approximately $5.80).

For selling points $5.80 and lower, the number of customers generally decreases as the price

increases, but this decrease can be compensated for through the increasing selling price so

that the revenue will still experience a net increase. However, when the selling price increases

beyond the maximum point of $5.80, there is a decrease in revenue. A possible explanation

for this could be that customers may find the coffee less affordable, leading to a decline in

sales and thus revenue. The decrease in customers can now no longer be compensated for

through an increased selling price, hence there is a net decrease in revenue.

As a result, the selling price is not directly proportional to the revenue generated and it cannot

be modelled by a straight line as the relationship is not linear. A quadratic function would be

more suitable to model the data as the parabola will be able to track the increase and decrease

of the revenue, and the maximum point of the parabola would also portray the most optimal

selling price which will automatically have the highest revenue yield. If it was to be

modelled linearly, it would only show an overall increase and/or decrease, rather than the

increase in revenue followed by the eventual decrease in revenue.

Discerning the optimal selling price of each cup of coffee can be done through finding the

gradient of the graph by differentiating the quadratic equation to give:

2
𝑅(𝑝) = − 59. 2𝑥 + 688𝑥 − 107
1
𝑅'(𝑝) = (2)(− 59. 2)𝑥 + (1)(688) − (0)
= − 118. 4𝑥 + 688

Both the derivative and quadratic function will assist in calculating the maximum point of the

quadratic function, which would be the selling price with the highest revenue yield.

According to the graph, the aforesaid selling price would be at around $5.80. The derivative

function can be used to be prove this:

𝑤ℎ𝑒𝑛 − 118. 4𝑥 + 688 = 0

118. 4𝑥 = 688
 688
𝑥 = 118.4
=5.81 (3sf) [QED]

Thus, according to both 𝑅(𝑝) and 𝑅'(𝑝), $5.80 would be the most optimal selling price as it

has the maximum revenue yield.

Part II: Analysing cost and revenue to propose beneficial selling prices

The selling prices to operate the cafe without making a loss can be discerned by identifying

the range of values that lie between intersection points A and B. These points are used

specifically as it is at the intersection where the revenue cost is the same as the operating cost,

and it is in between these points where the revenue cost is larger than the operating cost, thus

ensuring no losses while also guaranteeing some profits. The price of a cup of coffee at the

points A and B are calculated by dividing the revenue by the number of cups of coffee sold.

𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑎 𝑐𝑢𝑝 𝑜𝑓 𝑐𝑜𝑓𝑓𝑒𝑒 𝑎𝑡 𝑃𝑜𝑖𝑛𝑡 𝐴 = 1385. 944 ÷ 166. 982 = $8. 30 (3 𝑠𝑓)

𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑎 𝑐𝑢𝑝 𝑜𝑓 𝑐𝑜𝑓𝑓𝑒𝑒 𝑎𝑡 𝑃𝑜𝑖𝑛𝑡 𝐵 = 865. 116 ÷ 568. 095 = $1. 52 (3 𝑠𝑓)

Hence, the price of each cup, p, should be priced between $1. 52 ≤ 𝑝 ≤ $8. 30 so as to not

incur any loss.

At the same time, a possible method to increase profit can be through finding the maximum

difference between the minimum point of C(x) and the maximum point of R(x), as the

maximum profit can be obtained from the selling price at the point where the difference

between the revenue generated and cost of operations is the largest. The range of selling

prices to obtain a maximum profit lies between the Extremum and C (Figure 1.3), where the

range can be calculated through dividing the revenue at those points by the number of cups of

coffee sold.

𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑎 𝑐𝑢𝑝 𝑜𝑓 𝑐𝑜𝑓𝑓𝑒𝑒 𝑎𝑡 𝑃𝑜𝑖𝑛𝑡 𝐶 = 1827. 59 ÷ 400 = $4. 57 (3 𝑠𝑓)

𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑎 𝑐𝑢𝑝 𝑜𝑓 𝑐𝑜𝑓𝑓𝑒𝑒 𝑎𝑡 𝐸𝑥𝑡𝑟𝑒𝑚𝑢𝑚 = 1911. 947 ÷ 333. 368 = $5. 74 (3 𝑠𝑓)

Hence, the price of each cup, p, should be priced between $4. 57 ≤ 𝑝 ≤ $5. 74 so as to

maximise profit.

Consolidation and Implications

While these suggestions are not exhaustive and have been calculated mathematically, a few

limitations to consider can be competitor prices and the possibility of fluctuating demand.

Hence, it is suggested that each cup of coffee be priced closer to the $5.74 margin as even

though higher prices may seem less attractive to customers, it would be more beneficial for

the business as the business will be more profitable, inclusive of spending on production,

operations and other fiscal responsibilities such as paying employees. Consumer habits tend

to fluctuate with the changing economic environment, and thus it is essential to remain

prudent while consistently monitoring data so that prices can be altered to meet the

corresponding demand and supply. When analysing data in the future, other aspects such as

location, consumer demographics and competitors should also be considered for the most

optimal outcome.