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Applications of Functions in Business & Economics

This document provides definitions and examples related to applications of functions in business and economics, including: 1) Profit, revenue, cost, marginal profit, marginal cost, and marginal revenue functions. 2) Break-even analysis and how to find the break-even point by setting the revenue and cost functions equal. 3) Supply and demand relationships and how to find the market equilibrium point by solving the supply and demand function equations simultaneously. 4) How a tax is modeled by adding it to the right-hand side of the supply function and solving the new supply and demand functions.

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331 views

Applications of Functions in Business & Economics

This document provides definitions and examples related to applications of functions in business and economics, including: 1) Profit, revenue, cost, marginal profit, marginal cost, and marginal revenue functions. 2) Break-even analysis and how to find the break-even point by setting the revenue and cost functions equal. 3) Supply and demand relationships and how to find the market equilibrium point by solving the supply and demand function equations simultaneously. 4) How a tax is modeled by adding it to the right-hand side of the supply function and solving the new supply and demand functions.

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deborahkong9900
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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MATH 1090 Sec.

Section 1.6: Applications of Functions in Business & Economics

Definitions

* Profit (P) = Revene - Cost


* Revenue (R): The amount a company receives from sales.
Revenue = (Price per unit)×(# of units)

fixed cost (FC) - stays constant regardless of the # of units produced. Ex. rent, utilities.
* Cost (C)
variable cost (VC) - changes depending on the # of units produced.
Cost = FC+VC
* Marginal profit (M P ): the slope of the profit function = rate of change in profit with respect to the
# of units produced and sold.
* Marginal cost (M C): the slope of the cost function.
* Marginal revenue (M R): the slope of the revenue function.

Ex.1 (p.119) Suppose that a firm manufactures MP3 players and sells them for $50 each. The costs
incurred in the production and sale of the MP3 players are $200,000 plus $10 for each player
produced and sold. Write the profit function for the production and sale of x player.

1
Break-Even Analysis
Definition: Break-even point is the point where cost and revenue are equal. Can find it by solving the
system of equations of C(x) and R(x).

Ex.2 On Example 1, how many units must the manufacture produce to break even.

R(x) =
C(x) =

Supply, Demand and Market Equilibrium

* Law of demand: As price ↓, quantity demanded ↑.


As price ↑, quantity demanded ↓.
* Law of supply: As price ↑, quantity supplied ↑.
As price ↓, quantity supplied ↓.
* To find the market equilibrium point is to solve
the system of demand and supply functions.

2
Ex.3 (#50) A shoe store owner will buy 10 pairs of a certain shoe if the price is $75 per pair and 30
pairs if the price is $25. The supplier of the shoes is willing to provide 35 pairs if the price is $80
per pair but only $5 pairs if the price is $20. Assuming the supply and demand functions for the
shoes are linear, find the market equilibrium point.

Supply and Demand with Taxation

Tax is added to the right-hand side of the supply function given in the form p = · · · .
If the supply function is not given in the form p = · · · , you need to change the function to this form
before adding the tax.

3
Ex.4 (#56) Suppose that a certain product has the following demand and supply functions.

Demand: 2p + 5q = 200
Supply: 2p − 5q = 10

If a $10 tax per item is levied on the supplier, who passes it on to the consumer as a price increase,
find the market equilibrium point after the tax.

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