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Lec3.2LinearFunctionApplications

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Lec3.2LinearFunctionApplications

Uploaded by

Rana Ekramy
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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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University of Modern Sciences & Arts (MSA) Linear Functions Applications

Prof. Adel Hamdy ECO-113 Lecture Notes 3.2

Examples

1. Linear Cost Function:

A cost function specifies the cost C as a function of the number of items


produced of a certain product x.

The manager of the Frozen Air Refrigerator factory notices that on Monday
it cost the company a total of $25,000 to build 30 refrigerators and on
Tuesday it cost $30,000 to build 40 refrigerators.

a) Find a linear cost function based on this information.


b) Estimate the total cost needed to build 50 refrigerators.
c) Interpret the meaning of the slope. What is the economic term used
to describe the slope?
d) What is the daily cost when no refrigerators are produced?
e) Determine the domain of the function.
f) Find the number of refrigerators produced at a cost of 13200$
Solution:

Page 1 of 5
University of Modern Sciences & Arts (MSA) Linear Functions Applications
Prof. Adel Hamdy ECO-113 Lecture Notes 3.2

2- Linear Demand and Supply Functions: (Ex.8 in text, page21)

At a price of $9 per box of oranges, the supply is 320 boxes and the
demand is 200 boxes. At a price of $8.50, the supply is 270 boxes
and the demand is 300 boxes.

a. Find a price-supply equation of the form , where p is the price


in dollars and x is the corresponding supply in boxes.
b. Interpret the meaning of the slope.
c. Find a price-demand equation of the form , where p is the
price in dollars and x is the corresponding demand in boxes.
d. Interpret the meaning of the slope.
e. Find the equilibrium price and quantity algebraically. What happens if
you charge more than the equilibrium price? What happens if you
charge less?

A useful tool which can be used for graphing:


http://www.quickmath.com/
Solution:

3- Linear Demand and Supply Functions:

Page 2 of 5
University of Modern Sciences & Arts (MSA) Linear Functions Applications
Prof. Adel Hamdy ECO-113 Lecture Notes 3.2

You run a small super market, and must determine how much to
charge for Hot’n’Spicy brand baked beans. The following chart shows
weekly sales figures (the demand) for Hot’n’Spicy at two different
prices, as well as the number of cans per week that you are prepared
to place on sale (the supply) at these prices.

Price/Can $0.5 $0.75


Demand (cans sold/week) 400 350
Supply (cans placed on sale/week) 300 500

a. Model these data with linear demand and supply functions of the form

b. Interpret the slope of the demand equation and that of the supply
equation.
c. Sketch the demand and supply functions on the same graph.
d. Interpret the meaning of the q intercept and the p intercept of the
demand equation.
e. Interpret the meaning of the q intercept and the p intercept of the
supply equation.
f. Find the equilibrium price and quantity. What happens if you charge
more than the equilibrium price? What happens if you charge less?

Solution:

4- Linear Depreciation:

Page 3 of 5
University of Modern Sciences & Arts (MSA) Linear Functions Applications
Prof. Adel Hamdy ECO-113 Lecture Notes 3.2

An Office equipment was purchased for $20,000 in the beginning of year


2002 and will have a scrap value of $2,000 after 10 years. If its value is
depreciated linearly,

a) Find the linear equation that relates value (V) in dollars to time (t) in
years since purchase (since 2002).
b) Interpret the meaning of the slope.
c) What is the depreciated value of the equipment after 5 years?
d) In what year will the depreciated value fall to $5,000?

Solution:

5- Break-Even Analysis: (Ex8, p9 in textbook)

Page 4 of 5
University of Modern Sciences & Arts (MSA) Linear Functions Applications
Prof. Adel Hamdy ECO-113 Lecture Notes 3.2

A multimedia company produces DVDs. Fixed costs for a particular DVD


is $48,000, which includes costs such as filming, editing and promotion.
Variable costs amount to $12.40 per DVD and include manufacturing,
packaging, and distribution costs for each DVD actually sold to a retailer.
The DVDs are sold to retail outlets at $17.40 each. How many DVDs
must be manufactured and sold in order for the company to break even?

Solution:

Page 5 of 5

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