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Week I

The document discusses linear equations and inequalities, defining them and explaining their solution sets. It provides applications such as investment strategies and break-even analysis, illustrating these concepts with examples. Additionally, it introduces the Consumer Price Index (CPI) and its relevance in calculating purchasing power over time.

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Ma Rie
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2 views

Week I

The document discusses linear equations and inequalities, defining them and explaining their solution sets. It provides applications such as investment strategies and break-even analysis, illustrating these concepts with examples. Additionally, it introduces the Consumer Price Index (CPI) and its relevance in calculating purchasing power over time.

Uploaded by

Ma Rie
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Linear Equations and Inequalities, and Their Applications

In general, a first-degree, or linear, equation in one variable is any equation that can be written
in the form
Standard form: (1)

If the equality symbol, =, in (1) is replaced by <, >, , or , the resulting expression is called a
first-degree, or linear, inequality.

A solution of an equation (or inequality) involving a single variable is a number that when
substituted for the variable makes the equation (or inequality) true. The set of all solutions is
called the solution set.

If , then double inequality means that and ; that is, x is between a


and b.

Applications

If a sum of money P dollars is invested for 1 year at an annual rate of interest R percent,
the amount of annual interest is given by
dollars.
For example, a sum of $5000 invested at 6% per annum will produce an amount of interest each
year given by

If this interest is withdrawn each year, then both the principal P and the interest I remain the
same from year to year.

Example (Investment). Ms. Cordero has $70,000 to invest. She wants to receive an annual
income of $5000. She can invest her funds in 6% government bonds or, with a greater risk, in
8.5% mortgage bonds. How should she invest her money in order to minimize her risk and yet
earn $5000?

Solution. Let the amount invested in government bonds be x dollars. Then the amount invested
in mortgage bonds is (70,000 - x) dollars. Income received from government bonds at 6% is
dollars. Income received from mortgage bonds at 8.5% is dollars. Since
the total income received from the two types of bonds must be $5000,

Solving this equation, we obtain x=38,000. Thus Ms. Cordero should invest $38,000 in
government bonds and the remaining $32,000 in mortgage bonds. She could increase her income
by investing a bigger proportion of her capital in mortgage bonds, but this would increase her
risk.

1
The next example involves the important concept of break-even analysis. Any
manufacturing company has costs, C, and revenues, R. The company will have a loss if R < C,
will break even if R = C, and will have a profit if R > C. Cost involve fixed costs, such as
plant overhead, product design, setup, and promotion, and variable costs, which are dependent
on the number of items produced at a certain cost per item.

Example (Break-Even Analysis). A multimedia company produces DVDs. One-time fixed


costs for a particular DVD are $ 48 000, which include 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 DVD is 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. Let x = number of DVDs manufactured and sold;


C = cost of producing x DVDs;
R = revenue (return) on sales of x DVDs;
Fixed costs = $ 48 000;
Variable costs = $ 12.40x;
C = Fixed costs + variable costs = $ 48 000 + $ 12.40x;
R = $ 17.40x.
The company breaks even if R = C; that is, if
$ 17.40x = $ 48 000 + $ 12.40x,
x = 9 600.
The company must make and sell 9 600 DVDs to break even.

Example (Consumer Price Index). The Consumer Price Index (CPI) is a measure of the
average change in prices over time from a designated reference period, which equals 100. The
index is based on prices of basic consumer goods and services. Table below lists the CPI for
several years from 1960 to 2005. What net annual salary in 2005 would have the same
purchasing power as a net annual salary of $ 13 000 in 1960? Compute the answer to the nearest
dollar.
Year Index
1960 29.6
1975 53.8
1990 130.7
2005 195.3

Solution. Let x = the purchasing power of an annual salary in 2005;


Annual salary in 1960 = $ 13 000;
CPI in 1960 = 29.6;
CPI in 2005 = 195.3.
The ratio of a salary in 2005 to a salary in 1960 is the same as the ratio of the CPI in 2005 to the
CPI in 1960.
,

x = $ 85 7774.

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