Diploma in Management Studies

Business Mathematics BUS003

Lecture 4 Functions and Their Graphs (II)

Topics to be discussed:
Linear Functions
Quadratic Functions
Functions and Mathematical Models
Ref: Tan, Chapter 2

Learning Outcomes
After this lecture, students should be able to:
Solve for the Intersection of lines
Understand cost, profit and revenue functions,
linear depreciation, break even and decision
analysis
Understand properties of quadratic functions
and their graphs with applications to demand
and supply curves and to compute market
equilibrium
Manipulate polynomial, rational and power
functions
Sketch the graph of power functions.
2

Linear Function
The function f defined by f(x) = mx + b, where m
and b are constants, is called a linear function.
Linear functions play an important role in the
quantitative analysis of business problems.
Many real life business problems are linear in
nature or assumed to be linear as linear functions
are easy to work with. Often these assumptions
are justified.
In computing income tax, business firms are
allowed to depreciate certain assets over a
period of time. Linear depreciation or the straight
line method is often use for this purpose.
3

Example of Linear Depreciation

V($)
A printing machine has an
original value of $100,000 and 100,000
is to be depreciated
p
linearly
y
over 5 years with a $30,000
scrap value.
Find an expression giving the
book value at the end of year t. 30,000
What will be the book value of
the machines at the end of the
0
second year?
What is the rate of depreciation
of the printing machine?

(5,30,000)

Answers to the Example

Let V denote the printing machines book value at the
end of the tth year With linear depreciation, V is a
linear function of t.
V = 100,000 when t = 0 and V = 30,000 when t = 5
100,000 30,000
70,000

14,000
The slope of the line is m
05
5
Using the pointslope form of line equation, V-100,000 =
-14000(t 0) V = -14,000t + 100,000
At the end of 2nd year, the required book value is V = 14 000(2) + 100
14,000(2)
100,000
000 = $72
$72,000.
000
The rate of depreciation is given by the negative of the
slope of the depreciation line = -m = $14,000 per year

Linear Cost, revenue and Profit

Functions
Let x denote the number of units of a product
manufactured or sold. Then the
Total cost function is C(x) = Total cost of
manufacturing x units of the product. C(x) = cx + F,
where F is a fixed cost and cx is a variable cost of
producing x units of the product.
Revenue function is R(x) = Total revenue realized
from the sales of x units of the product. R(x) = sx
(s
( is
i th
the unit
it selling
lli price
i off the
th product)
d t)
Profit function is P(x) = Total profit realized from
manufacturing and selling x units of the product. P(x)
= R(x) C(x) = (s c)x - F
6

Example of Profit Function

A manufacturer has a monthly fixed cost of
,
, a production
p
cost of $20 per
p unit,,
$20,000,
and a selling price of $30 per unit. Find the
cost function, the revenue function, and the
profit function.
Let x denote the number of units produced
and sold. Then,
C(x) = 20x + 20,000
R(x) = 30x
P(x) = R(x) C(x) = 30x (20x + 20,000)

= 10x 20,000
7

Intersection of Straight Lines

The solution of certain practical
problems involves finding the
point of intersection of two
p
straight lines.
Two straight lines L1 and L2
with equations y = m1x + b1 and
y = m2x + b2
The point P(x0, y0) where the
two lines L1 and L2 intersect lies
on both lines and hence satisfy
both equations.

y
L1

P(x0, y0)
x

L2

Examples of Intersection of Straight

Lines
Find the point of intersection of the straight
lines that have equations y = x + 1 and
y = -2x + 4
Solve the given simultaneous equations
x + 1 = -2x + 4 3x = 3 x = 1
Substitute this value of x into either one of
the given equations, y = 2.
The required intersection point is (1, 2)
9

Break Even Analysis

Consider a firm with linear cost
function C(x), revenue function
R(x), and profit function P(x)
given by
g
y P(x)
( ) = R(x)
( ) C(x)
( )
The level of production at which
the firm neither makes a profit nor
sustains a loss is called the
break-even level of operation.
At this level of production, x0, the
profit is zero
P(x0) = R(x0) C(x0) = 0 R(x0)
= C(x0).
)
The point P0(x0, p0) is known as
the break even point.
If x < x0 Loss. If x > x0 Profit

p
R(x)
Profit
P0

P0(x0,P0)

C(x)

Loss

x0

10

Example of Break Even Analysis

A firm manufactures its products at a cost of $4

per unit and sells them for $10 per unit. If the
firms fixed cost is $12,000 per month, determine
the firms break-even point.
Cost function C(x)=4x + 12,000
Revenue function R(x)=10x
Setting R(x) = C(x), 10x = 4x + 12,000 6x =
12,000 x = 2000. Substitute this value of x
into R(x),
R(x) R(2000)=(10)(2000)=20,000.
R(2000)=(10)(2000)=20 000
The firm should manufacture 2000 units, resulting
in a break even revenue of $20,000 per month.
11

Example of Break Even Analysis

(a) What is the loss sustained by the firm if only 1500
units are produced and sold each month?
profit if 3000 units are p
produced and
((b)) What is the p
sold each month?
(c) How many units should the firm produce in order to
realize a minimum monthly profit of $9000?
Profit function P(x) = R(x) C(x) = 10x (4x + 12000) =
6x 12000.
(a) If x = 1500
1500, P(1500)=6(1500)
P(1500)=6(1500)-12000
12000 = -3000
3000
(b) If x = 3000, P(3000)=6(3000)-12000 = 6000
(c) Substitute 9000 for P(x), 9000 = 6x 12000
6x = 21000 x = 3500
12

Example of Decision Analysis

The management of a firm must decide between two

manufacturing process. The monthly cost of the first
process is C1(x)=20x + 10000 and that of the second
process is C2(x) = 10x + 30000,
30000 where x is the number of
output produced. If the projected monthly sales are 800
at a unit price of $40, which process should the
management choose in order to maximize profit?
The break even level of the first process is
40x = 20x + 10000 20x = 10000 x = 500
The
Th b
break
k even llevell off th
the second
d process iis
40x = 10x + 30000 30x = 30000 x = 1000
Given the projected sales of 800, the management should
choose the first process in order to make a profit.
13

Exercise 4.1(a)
Find the point of intersection of each pair
of straight lines

(a) y 3x 4
(b) y

1
x5
4

y 2 x 19
2x

3
y 1
2

14

Answers to Exercise 4.1(a)

15

Exercise 4.1(b)
Profit Function
The management of TMI finds that the
monthly
thl fifixed
d costs
t attributable
tt ib t bl tto th
the
companys blank tape division amount to
$12,100.00. If the cost for producing each
reel of tape is $0.60 and each reel of tape
sells for $1.15, find the companys cost
function, revenue function, and profit
function.
16

Answers to Exercise 4.1(b)

17

Quadratic Functions
A quadratic function is one
of the form f(x) = ax2 + bx +
c, where a, b and c are
constants
t t and
d a 0.
0
The graph of a quadratic
function is a parabola that
opens upward or downward.
The parabola is symmetric
with respect to a vertical line
called the axis of symmetry.
symmetry
The point of intersection of
the parabola with its axis of
symmetry is called the
vertex of the parabola.

Axis of symmetry

vertex
y

vertex

Axis of symmtery

18

Properties of the Quadratic Function

f(x) = ax2 + bx + c (a0)
1. The domain of f is the set of all real
numbers.
numbers
2. If a > 0, the parabola opens upward, and if a
< 0, it opens downward.
b
b
3. The vertex of the parabola is 2a , f 2a .
b
4. The axis of symmetry of the parabola is .
2a
5. The x-intercepts (if any) are found by solving
f(x) = 0. The y-intercept is f(0) = c.

19

Example of Quadratic Function:

f(x)=-2x2 + 5x - 2
Compare with general form, a = -2, b = 5, c = -2
The x-coordinate of the vertex of the parabola is

b
5
5

2a
2(2) 4

The y-coordinate of the vertex of the parabola is

2

25 25
9
5
5
5
f 2 5 2 2
8
4
8
4
4
4

p of the p
parabola are:
The x intercepts
2 x 2 5x 2 0 x

5 25 4(2)(2) 5 9 5 3 1

2(2)
4
4
2

or

The y intercept of the curve is f(0)=-2

20

10

Demand Curve
In a free market economy, consumers demand
for a product depends on its price.
A demand equation expresses the relationship
between the unit price and the quantity
demanded. The graph of a demand equation is
called a demand curve.
In general, the quantity demanded of a product
decreases as the price increases.
A demand function, defined by p = f(x) where p
measures the unit price and x measures the
number of units, is a decreasing function of x.
Both x and p assumes only nonnegative values,
the demand curve is that part of the graph of
f(x) that lies in the first quadrant.
21

Example of Demand Function

The demand function for a product is p = d(x) = -0.01x2
0.2x + 8, where p is the wholesale unit price and x is
the quantity demanded. At what price will there be no
demand? What is the maximum quantity demanded
per week?
At x = 0, p = 8 which is the wholesale unit price above
which there will be no demand.
To obtain the maximum quantity demanded,
set p = 0 -0.01x2 0.2x + 8 = 0 x2 + 20x - 800 = 0
(x + 40) (x 20) = 0 x = -40
40 or x = 20.
20
Since x must be nonnegative, the maximum quantity
demanded per week is 20.

22

11

Supply Curve
In a competitive market, a relationship also exists
between the unit price of a product and its
availability in the market.
In
I generall an iincrease iin price
i iinduces
d
th
the
producer to increase the quantity produced.
The equation that expresses the relation between
the unit price and the quantity supplied is called a
supply equation, and its graph is called a supply
curve.
A supply function
function, defined by p =f(x)
=f(x), is an
increasing function of x.
Both x and p assumes only nonnegative values,
the supply curve is that part of the graph of
f(x) that lies in the first quadrant.
23

Example of Supply Function

The supply function for a product is p =
s(x) = 0.01x2 + 0.1x + 3, where p is the
unit wholesale price and x is the
quantity supplied. What is the lowest
price at which the supplier will supply
the product in the market?
At x = 0, p = 3, hence the supplier will
supply the product when p > $3.

24

12

Market Equilibrium
Under competition the price of a
product will settle at a level
where the supply of the product
equals
l tto the
th demand.
d
d
Market equilibrium prevails when
the quantity produced is equal to
the quantity demanded.
Market equilibrium corresponds
to the point at which the demand
curve and the supply curve
intersects.
In the diagram, x0 represents the
equilibrium quantity and p0 the
equilibrium price

p
Demand
c r e
curve

Supply
curve

p0

x0

25

Example of Market equilibrium

The demand function: p = d(x) = -0.01x2 0.2x + 8

The supply function: p =s(x) = 0.01x2 + 0.1x + 3
To
o find
d tthe
e equ
equilibrium
b u p
price
ce a
and
d qua
quantity,
t ty, equate
demand with supply
-0.01x2 0.2x + 8 = 0.01x2 + 0.1x + 3
2x2 + 30x 500 = 0 x2 + 15x 250 = 0
(x + 25) (x 10) = 0 x = -25 or x = 10.
Since x must be nonnegative, the equilibrium
quantity = 10.
10
The equilibrium price is p = 0.01(10)2 + 0.1(10) +3
=5

26

13

Exercise 4.2(a)
Find the vertex, the x-intercept (if any)
and sketch the parabola
(a) f(x) = x2 - 4x + 4
(b) f(x) = 16 - x2

27

Answers to Exercise 4.2(a)

28

14

Exercise 4.2(b)
Find the points of intersection of the
graphs of the function

((a)) f(x)
( ) = -x2 + 4;; g(x)
g( ) = x 2

(b)f(x) = -x2 + 2x + 6; g(x) = x2 - 6

29

Answers to Exercise 4.2(b)

30

15

Exercise 4.2(c)
Market Equilibrium Analysis
For each pair of supply and demand
equations where x represents the quantity
demanded in units of a thousand and p
the unit price in dollars, find the
equilibrium quantity and the equilibrium
price
(a) p = -2x
2x2 + 80 and p = 15x + 30
(b) 11p + 3x 66 = 0 and 2p2 + p x = 10

31

Answers to Exercise 4.2(c) (a)

32

16

Answers to Exercise 4.2(c) (b)

33

Mathematical Model
Regardless of the field from which the realworld problem is drawn, the problem is
analyzed
l
d using
i a process called
ll d mathematical
th
ti l
modeling.
Formulate
Real world
problem

Mathematical
Model

Test
Solution of
Real-world
Problem

Solve
Interpret

Solution of
Mathematical
problem
34

17

Process of Mathematical Modeling

1. Formulate: Express the real-world problem
using the language of mathematics. It will
y involve functions of one or more
usually
variables or equations defining these functions.
2. Solve: Use the appropriate mathematical
techniques to obtain the solution
3. Interpret: Explain the mathematical results
in the context of the original real-world
problem.
4. Test: Mathematical models may only give
an approximate description of the real world
problem and hence need to test the accuracy
of the model in describing or predicting the
real-world problem
35

Examples of Mathematical Models:

Market for Cholesterol-Reducing Drugs
In a study, experts projected a rise in the market for
cholesterol-reducing drugs. The US market for such
g is g
given in the table:
drugs

Year

1999

2000

2001 2002 2003 2004

Market 12.07 14.07 16.21 18.28 20

21.72

A mathematical model is given by M(t) = 1.95t + 12.19,

where t is measured in years and t = 0 corresponds to
1999
1999.
(a) Sketch the graph of the function M.
(b) If the trend continues, what is the market in 2005 (t=6)
(c) What was the rate of increase of the market ?
36

18

Examples of Mathematical Models:

Market for Cholesterol-Reducing Drugs
(a) The graph is shown in
the diagram
(b) The projected market
in 2005 is M(6) = 1.95(6)
+ 12.19 = 23.89
The function M is linear,
so the rate of increase of
the market is given by
the slope of the straight
line M, which is 1.95

37

Polynomial Functions
A polynomial function of degree n is a function of the
form f(x) = anxn + an-1xn-1 + + a1x + a0 (an 0)
A polynomial function is defined everywhere so that
it has domain (-,)
A polynomial function of degree 1 ( n = 1) is called a
linear function, i.e.f(x) = a1x + a0 (a1 0)
A polynomial function of degree 2 is called a
quadratic
d ti ffunction
ti
A polynomial function of degree 3 is called a cubic
function. e.g. g(x) = 0.001x3 2x2 + 20x + 400
38

19

Rational and Power Functions

A rational function has the form R( x)

f ( x)
g ( x)

The domain of R(x) is the set of all real numbers

except the roots of the equation g(x) = 0
Functions of the form f(x) = xr where r is any real
numbers, are called power
functions. For
1
1
example,
p , f ( x) x x 2
and
g ( x)
x 2
x2

Functions may also be a combination of different

functions
1 x2
2
f ( x)

1 x2

g ( x) x 3x 4

39

Constructing Mathematical Models

1. Assign a letter to each variable mentioned in
the problem
problem. If appropriate
appropriate, draw and label a
figure.
2. Find an expression for the quantity sought,
3. Use the conditions given in the problem to
write the quantity sought as a function f of one
variable. Note any restrictions to be placed on
th d
the
domain
i off f from
f
physical
h i l consideration
id ti off
the problem.

40

20

Examples of Construction of Mathematical

Model: Charter-Flight Revenue
If exactly 200 people sign up for a charter flight, a travel
agency charges $300 per person. If more than 200 people
sign up,
up then each fare is reduced by $1 for each additional
person. Letting x denote the number of passengers above
200, find a function giving the revenue realized by the
company.
If there are x passengers above 200, then the number of
passengers signing up for the flight is 200 + x. The fare will
be (300 x)dollars.
The revenue is R = (200 + x)(300 x) = -x2 + 100x + 60000.
X must be nonnegative, and 300 x 0, or x 300.
So the required function is f(x) = -x2 + 100x + 60000 with
domain [0, 300]
41

Exercise 4.3(a): Email Usage

The number of international emailings per day
(in millions) is given by the function
f(t) = 38.57t2 24.29t + 79.14 (0 t 4)
where t is measured in years, with t = 0
corresponding to the beginning of 1998.
How many international emailings/day were
th
there
att the
th beginning
b i i off 2002?

42

21

Answers to Exercise 4.3(a)

43

Exercise 4.3(b): Sales of Digital TVs

The number of homes with digital TVs is
p
to g
grow according
g to the function
expected
2
f(t)=0.1714t + 0.6657t + 0.7143 (0 t 6)
where t is measured in years, with t = 0
corresponding to the beginning of 2000, and f(t)
is measured in millions of homes.
(a) How many homes had digital TVs at the
g
g of 2000?
beginning
(b) How many homes had digital TVs at the
beginning of 2005?

44

22

Answers to Exercise 4.3(b)

45

23