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24 views4 pages

Cost Revenue Function

Uploaded by

d.ogetii2024
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MATH 124–Section 005 Lecture Notes - For Lab Friday 1/13

1 Applications of Functions to Economics


* The Cost Function

The cost function, C (q), gives the total cost of producing a quantity q of some good.

The total costs = Fixed Costs + Variable Costs,


where Fixed Costs are incurred even if nothing is produced and Variable Costs depend
on how many units are produced.
If C (q) is a linear cost function,
Fixed costs are represented by the vertical intercept.
Marginal cost is represented by the slope.

Example 1 A company produces and sells shirts. The fixed costs are $7000 and the variable costs are $5
per shirt. Find a formula for the cost function C (q) as a function of the quantity of shirts, q. And graph
the cost function.

C(cost)

q(quantity)

* The Revenue Function

The revenue function, R(q), gives the total revenue received from a firm from selling a
quantity, q, of some good. If the good sells for a price of p per unit, then

Revenue = Price ∗ Quantity,

which is exactly the same as


R = pq.
If the price does not depend on the quantity sold, so p is a constant, the graph of revenue
as a function of q is a line through the origin, with slope equal to the price p.
The marginal revenue is also represented by the slope.

Page 1 of 4
MATH 124–Section 005 Lecture Notes - For Lab Friday 1/13

Example 2 In Example 1, if the shirts are sold for $12 each, find a formula for the revenue function R(q)
as a function of the quantity of shirts, q. And graph the revenue function.

R(revenue)

q(quantity)

* The Profit Function

Profit = Revenue − Cost.


Let π denote the profit, then
π = R − C.
The break-even point is the point where the profit is zero, or equivalently, revenue equals
cost.
If the profit function is a linear function, then the marginal profit is represented by the
slope.

Example 3 In Example 1 and Example 2, find a formula for the profit function π (q) as a function of the
quantity of shirts, q. Graph it and mark the break-even point.

π(profit)

q(quantity)

Page 2 of 4
MATH 124–Section 005 Lecture Notes - For Lab Friday 1/13

Example 4 The following figure shows cost and revenue for a company.
(a) Find the fixed costs and the marginal cost for the cost function C (q).

(b) Find a formula for C (q).

(c) What is the marginal revenue?

(d) Find a formula for R(q).

(e) Approximately what quantity does this company have to produce to make a profit?

(f) Estimate the profit generated by 500 units.

$ R(q)
5000

C (q)
3000

1000

q
200 400 600 800 1000

Page 3 of 4
MATH 124–Section 005 Lecture Notes - For Lab Friday 1/13

Example 5 The following table shows a company’s estimates of cost and revenue for a product.

q 0 10 20 30 40
C (q) 500 600 700 800 900
R(q) 0 250 500 750 1000

(a) What are the fixed costs and the marginal cost?

(b) What price does the company charge for its products?

(c) Find a formula for C (q) and R(q).

(d) Find the break-even quantity.

Example 6 A company that makes Adirondack chairs has fixed costs of $5000 and variable costs of $30
per chair. The company sells the chairs for $50 each.
(a) Find a formula for the cost function.

(b) Find a formula for the revenue function.

(c) Find the break-even point.

Page 4 of 4

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