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AB Test Optimization Report

This report analyzes the optimal allocation of a $10,000 advertising budget between two A/B test variants to maximize expected conversions. Using derivatives, it concludes that allocating the entire budget to Variant B yields the highest expected conversions of 1.535. The findings illustrate the effectiveness of derivatives in making data-driven optimization decisions.

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Sreng Bunheng
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3 views2 pages

AB Test Optimization Report

This report analyzes the optimal allocation of a $10,000 advertising budget between two A/B test variants to maximize expected conversions. Using derivatives, it concludes that allocating the entire budget to Variant B yields the highest expected conversions of 1.535. The findings illustrate the effectiveness of derivatives in making data-driven optimization decisions.

Uploaded by

Sreng Bunheng
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Assignment 1: Optimization

Course: Math I – Calculus (Applications of Derivatives)


Topic: Optimizing A/B Test Budget Allocation

1. Introduction

This report applies optimization techniques using derivatives to determine the optimal allocation of
a $10,000 advertising budget between two A/B test variants in order to maximize expected
conversions.

2. Mathematical Model

P_A(x) = 0.02 + 0.0001x


P_B(y) = 0.015 + 0.00015y
Budget Constraint: x + y = 10,000

3. Objective Function

Substituting y = 10,000 − x into the total function:


T(x) = 1.535 − 0.00005x

4. Optimization Using Derivatives

T'(x) = −0.00005
Since the derivative is negative for all x, the function is strictly decreasing. Therefore, the maximum
occurs at the smallest value of x within the interval.

5. Endpoint Evaluation
T(0) = 1.535
T(10,000) = 1.035

6. Final Optimal Allocation

Variant Budget Allocation


A $0
B $10,000

Maximum Expected Conversions: 1.535

7. Interpretation

Variant B provides a higher marginal return per dollar compared to Variant A. Therefore, allocating
the entire budget to Variant B maximizes total expected conversions. This demonstrates how
derivatives assist in data-driven optimization decisions.

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