BUSINESS MATHEMATICS

Chapter 1
Matrices theory and its application
 1.1 Review on Matrices Algebra: Operations with
Matrices

Matrix: A rectangular array of numbers enclosed by brackets.

Where Size of the matrix is: m×n

Examples

1 2 1 2 3  1 
      (2 1)
 3 4   4 5 6   2 

Square matrix: m = n

Equal matrices: two matrices are equal if they have the same
size (m × n) and entries corresponding to the same position are
equal
For A  [aij ]m n and B  [bij ]mn ,
A  B if and only if aij  bij for 1  i  m, 1  j  n


Ex: Equality of matrices
1 2 a b 
A  B 
3 4   c d 

If A  B, then a  1, b  2, c  3, and d  4
 Column vector: any matrix with only one column.
The number of rows in a column vector is the 1
dimension of the column vector. An example of a  
2x1 matrix or a two-dimensional column vector is 2
shown to the right.

Row vector: any matrix with only one row. The

dimension of a row vector is the number of columns. (1 2 3)

2.5

Matrix addition:
If A  [aij ]m n , B  [bij ]m n ,

then A  B  [aij ]mn  [bij ]mn  [aij  bij ]mn  [cij ]mn  C


Ex: Matrix addition

 1 2  1 3  1  1 2  3  0 5
 0 1   1 2   0  1 1  2   1 3
       

 1 1  1  1   0 
3  3    3  3    0 
       
2
      2  2   0 
 2

Scalar multiplication:
If A  [aij ]m n and c is a constant scalar,
then cA  [caij ]m n

Matrix subtraction:
A  B  A  (1) B


Ex 3: Scalar multiplication and matrix subtraction
 1 2 4  2 0 0
A3 0 1 B 1 4 3
   

 2 1 2 1 3 2
 

Find (a) 3A, (b) –B, (c) 3A – B

Solution:
(a)
 1 2 4  31 3 2  3 4   3 6 12
3A  3 3 0  1  3  3 3 0  3  1    9 0  3
     
 2 1 2  3 2 31 3 2   6 3 6
(b) 0 0   2 0 0
 2
 B    1  1  4 3    1 4  3

 
 1 3 2  1  3  2
(c)
 3 6 12  2 0 0  1 6 12
3 A  B   9 0  3   1  4 3   10 4  6
     
 6 3 6  1 3 2  7 0 4
Scalar product: is the result of multiplying two vectors where
one vector is a column vector and the other is a row vector. For
the scalar product to be defined, the dimensions of both vectors
must be the same.
Example 1:u
2
v 1
(1 2 3 )
 
2
u v ( 1  2)  ( 2  1)  ( 3  2) 10
Example 2:

2.9
Matrix multiplication:
If A  [aij ]m n and B  [bij ]n p ,
then AB  [aij ]m n [bij ]n p  [cij ]m p  C ,
If equal, A and B are multipliable
size of C=AB is m × p
n
where cij   aik bkj  ai1b1 j  ai 2b2 j    ain bnj
k 1

 a11 a12  a1n   c11 c12  c1 j  c1n 

     11
b  b1j  b1n    
  
 b21  b2 j  b2n     
 ai1 ai 2  ain     c ci 2  cij  cin 
      i1
 
           
 b  b  b 
 an1 an 2  ann   n1 nj nn  c c
 n1 n 2  cnj  cnn 


※ The entry cij is obtained by calculating the sum of the entry-by-entry

product between the i-th row of A and the j-th column of B

Ex 4: Find AB
 1 3
   3 2 
A   4 2  B 
 4 1  2 2
 5 0  3 2
Sol:
 (1)(3)  (3)(4) (1)(2)  (3)(1) 
AB  (4)(3)  (2)(4) (4)(2)  ( 2)(1) 
 (5)(3)  (0)(4) (5)(2)  (0)(1)  3 2
 9 1 
  4 6 
 15 10  3 2

Note: (1) BA is not multipliable
(2) Even BA is multipliable, it could be that AB ≠ BA
 
Ex 5: Show that AB and BA are not equal for the following
matrices
 1 3 2  1
A  and B 
 2  1  0 2 
Sol:
 1 3 2  1 2 5
AB       
 2  1 0 2   4  4 

2  1  1 3 0 7
BA       
 0 2  2  1  4  2 

AB  BA (non-commutativity of matrix multiplication)

2.12
 Properties of Matrix Operations

Three basic matrix operators are introduced in Section 1.1:

(1) matrix addition

(2) scalar multiplication
(3) matrix multiplication 0 0  0
0 0  0 

Zero matrix: 0mn 
   
 
0 0  0  mn
1 0  0
0 1  0 

Identity matrix of order n: In  
   
 
0 0  1  n n

Properties of matrix addition and scalar multiplication:
If A, B, C  M m n , and c, d are scalars,
then (1) A+B = B+A (Commutative property of matrix addition)

(2) A+(B+C) = (A+B)+C (Associative property of matrix addition)

(3) (cd) A = c (dA) (Associative property of scalar multiplication)

(Multiplicative identity property)

(4) 1A = A
(5) c(A+B) = cA + cB (Distributive property of scalar
multiplication over matrix addition)
(6) (c+d) A = cA + dA (Distributive property of scalar
multiplication over real-number addition)

Notes:
All above properties are very similar to the counterpart
properties for real numbers

Properties of zero matrices:
If A  M mn , and c is a scalar,
then (1) A  0mn  A
※ So, 0m×n is also called the additive identity for the set of all m×n matrices

(2) A  ( A)  0mn
※ Thus , –A is called the additive inverse of A

(3) cA  0mn  c  0 or A  0mn


Notes:
All above properties are very similar to the counterpart
properties for the real number 0

Properties of matrix multiplication:
(1) A(BC) = (AB)C (Associative property of matrix multiplication)
(Distributive property of LHS matrix multiplication
(2) A(B+C) = AB + AC over matrix addition)
(3) (A+B)C = AC + BC (Distributive property of RHS matrix multiplication
over matrix addition)
(4) c(AB) = (cA)B = A(cB) (Associative property of scalar and matrix
multiplication)


Properties of the identity matrix:

If A  M mn , then (1) AI n  A

(2) I m A  A

※ The role of the real number 1 is similar to the identity matrix. However, 1 is unique
in real numbers and there could be many identity matrices with different sizes

Example: Matrix Multiplication is Associative
Calculate (AB)C and A(BC) for
 1 0 
1 2  1 0 2 
A  , B  , and C  3 1  .
 2 1 3 2 1   2 4 
Solution:
 1 0
 1 2  1 0 2   
( AB)C        3 1 
 2 1 3 2 1  
 2 4 
 1 0 
 5 4 0   17 4
  3 1  
 1 2 3 
 13 14 
 2 4 
   1 0  
1 2   1 0 2  
A( BC )   3 1
2 1  3 2 1   
  2 4  
1 2   3 8  17 4 
 
2 1  7 2  13 14 


2.18
Examples: Application; matrix representation
1.Annual productions of two branches selling three types of items may be
represented as follows:

2. Number of staff in an office can be represented as follows:

2.19
3. The unit cost of transportation of an item from each of the three factories
to each of the four warehouses can be represented as follows:

2.20
4. The Acrosonic Company manufactures four different loudspeaker systems
at three separate locations. The company’s output for the month of May is as
follows:

Model A Model B Model C Model D

Location I 320 280 460 280
Location II 480 360 580 0
Location 540 420 200 880
III
Acrosonic’s May output is expressed as a matrix is given below:

 320 280 460 280

P   480 360 580 0
 540 420 200 880

2.21
a. Find a24 (the entry in row 2 and column 4 of the matrix P) and give
an interpretation of this number.
b. Find the sum of the entries that make up row 1 of P and interpret
the result.
c. Find the sum of the entries that make up column 4 of P and
interpret the result.
Solutions:
a. The required entry lies in row 2 and column 4, and is the number
0. This means that no model D loudspeaker system was
manufactured at location II in May.
b. The required sum is given by: 320 + 280 + 460 + 280 = 1340
which gives the total number of loudspeaker systems
manufactured at location I in May is 1340 units.
c. The required sum is given by: 280 + 0 + 880 = 1160
giving the output of Model D loudspeaker systems at all locations
in May is 1160 units.
2.22
Examples: Applications of Matrix Addition and Subtraction
The applications of addition and subtraction of matrices can be illustrated
through the following examples:
1. The quarterly sales of Jute, Cotton and Yarn for the year 2002 and 2003
are given below:

2.23
Find the total quarterly sales of Jute, Cotton and Yarn for the two years.
Solution: The total sales of Jute, Cotton and Yarn will be obtained as
follows:

2.24
2. A company has the following sales position of its products A and B at its
two centers P and Q at the end of the year:

If the sales for the first three months is given as:

Find the sales position for the last nine months.

2.25
Solution:
Given are the sales positions for the whole year (Y) and for the first
three months (Q).Hence, sales position for the remaining nine months
is:

2.26
Examples: Applications of Matrix Multiplication
Ex 1: A car dealer sells four model types: A,B,C,D. On a given week, this
dealer sold 10 cars of model A, 5 of model B, 8 of model C and 3 of
model D. The selling prices of each automobile are respectively
$12,500, $11,800, $15,900 and $25,300. Represent the data using
matrices and use matrix multiplication to find the total revenue.

Solution: We represent the number of each model sold using a row

matrix (4x1) and we use a 1x4 column matrix to represent the sales
price of each model. When a 4x1 matrix is multiplied by a 1x4
matrix, the result is a 1x1 matrix of a single number.

12,500
11,800 
 10 5 8 3     10(12,500)  5(11,800)  8(15,900)  3(25,300)   387,100
15,900
 
25,300 

2.27
Ex 2: Suppose you are a business owner and sell clothing. The following
represents the number of items sold and the cost for each item: Use
matrix operations to determine the total revenue over the two days:

Monday: 3 T-shirts at $10 each, 4 hats at $15 each, and 1 pair of shorts
at $20.
Tuesday: 4 T-shirts at $10 each, 2 hats at $15 each, and 3 pairs of
shorts at $20.

Represent the information using two matrices: The product of the two
matrices give the total revenue:
Qty sold of
each item on
Unit price of Monday
each item:
3 4
 10 15 20 4 2  Qty sold of each item
on Tuesday
1 3 

Then your total revenue for the two days is =[110   130]
2.28
Exercise 1: Rahel, Samson and Mohammed purchased biscuits of different
brands P, Q and R. Rahel purchased 10 packets of P, 7 packets of Q and 3
packets of R. Samson purchased 4 packets of P, 8 packets of Q and 10 packets
of R. Mohammed purchased 4 packets of P, 7 packets of Q and 8 packets of R.
If brand P costs $4, Q costs $5 and R costs $6 each, then using matrix
operation, find the amount of money spent by these persons individually.
Answer:

2.29
Exercise 2: A firm produces three products A, B and C requiring the mix of
three materials P, Q and R. The requirement (per unit) of each product for
each material is as follows.

Using matrix notations, find

(i) The total requirement of each material if the firm produces 100 units
of each product.
(ii) The per unit cost of production of each product if the per unit cost of
materials P, Q and R is $5, $10 and $5 respectively.
(iii) The total cost of production if the firm produces 200 units of each product.

2.30
Answers:
(i)

(ii)

(iii) $34,000

2.31
 Gauss-Jordan method of Solving Systems of Linear Equations
Matrices can simplify and compactly represent a system of linear equations.
Consider a system of linear equations
shown to the right. The variables a11 x1  a12 x2  ....  a1n xn b1
(unknowns) are referred to as x1, x2,
…, xn while the aij’s and bij’s are a21 x1  a22 x2  ....  a2n xn b1
constants. A set of such equations is .... .... .... ....
called a linear system of m equations
in n variables. am1 x1  am2 x2  ....  amn xn bm

NB: A solution to a linear set of m equations in n unknowns is a set of values for

the unknowns that satisfies each of the system’s m equations.

Matrices can simplify and compactly represent a system of linear equations. The
matrix representation of the above system of linear equations is given as
follows:

2.32
  a 11 a12 .... a 1n   x1  b1 
     
A  a 21 a 22 .... a 2n  x  x2 
 b2 
 .... .... .... ....   ....  b
 .... 
   
 a m1 a m2 .... a mn   xn   
b m
Where A is the coefficient matrix, X is the variable matrix and b is the constant
matrix/vector
NB: Ax = b can sometimes be abbreviated as A|b. For example, given:

1 2   x1  5
A   x   b  
 2 1   x2  0

1 2 5
A|b is written:
 
 2 1 0 
2.33
Concepts:
1. Write an Augmented Matrix
2. Use Elementary Row Operations
3. Use Gauss-Jordan Method of Solving Systems
of Linear Equations

2.34
Write an Augmented Matrix

A matrix can be used to represent a system of linear equations written in standard

form. To do so, we extract the coefficients of each term in the equation to form an
augmented matrix. A bar within the augmented matrix separates the coefficients of
the variable terms in the equations from the constant terms.
Example 1:
Write an augmented matrix for the following system of linear equation

3 x  y  10
5 y  12

2.35
Example 2:
Write an augmented matrix for the following system of linear equation

2x  3 x  y   1
14  6  x  y 

2.36
Example 3:
Write an augmented matrix for the following system of linear equation

x  z  1
y  2x  5
zy3

2.37
 Example 4:
Write a system of linear equations represented by the augmented matrix:

1 0 0 3 
 0 1 0 0.05
 
 0 0 1 12 

2.38
 Example 5:
Write a system of linear equations represented by the augmented matrix:

 8 7 113
 1 
2 0 
 3 

2.39
Concepts:
1. Write an Augmented Matrix
2. Use Elementary Row Operations
3. Use Gauss-Jordan Method of Solving Systems
of Linear Equations

2.40
Use Elementary Row Operations
Ri Rj
kRi Ri

Ri + kRj Ri
1.Interchange two rows
3 2 5  R1  R2
1 2 10 
  interchange
rows 1 and row 2

2.Multiply a row by a nonzero constant

3 2 5  3R1  R1
1 2 10 
  multiply row 1 by
3 and then replace
row 1 by the result
2.41
3.Add a multiple of one row to another row

2R1 + R2  R2
3 2 5 
1 2 10  multiply row 1 by 2,
 
add it to row 2, and
then replace row 2 by
the result

2.42
Example 1:

Perform the following elementary row operations.

  
2 4 10 
1 
5 3 


R 1 + R2 R2

2.43
Example 2:

Perform the following elementary row operations.

12 0 6 3 
 2 8 4 18 –R3 + R2 R2
 
 2 1 7 0 

  

2.44
Concepts:
1. Write an Augmented Matrix
2. Use Elementary Row Operations
3. Use Gauss-Jordan Method of Solving Systems
of Linear Equations

2.45
Use Gauss-Jordan Method of Solving Systems of Linear
Equations

If we perform repeated row operations, we can form an augmented matrix

that represents a system of linear equations that is easier to solve than the
original system.

2.46
There are 3 possible solutions:

A SYSTEM WITH
UNIQUE
SOLUTION

A SYSTEM WITH
3 TYPES OF
INFINITELY SOLUTIONS A SYSTEM WITH
MANY NO SOLUTION
SOLUTIONS

2.47
Case 1: Number of equations is equal to number of Unknowns (variables)
In this case the coefficient matrix A is a square matrix. By applying ERO’s
repeatedly, the augmented matrix A|B must be converted into an identity
matrix to get the solution.

2.48
Example 1:
Solve the following system using Gauss-Jordan Method

2x  3y  7
3  x  1  5 y  4

Write the equations in standard form:

Write the augmented matrix:

2.49
Perform the row operations:

2.50
Example 2:
Solve the following system using Gauss-Jordan Method

x  6 y  8z  7
2 x  3 y  z  1
5 x  9 y  17 z  4

2.51
2.52
Example 3:
x y z 1
3x  y  z  4
x  5 y  5z  1

Solution:

1 1 1 1 1 1 1 1
  R2  3R1  
3 1 1 4
R3  R1 0 4 4 1
 1 5 5 1 0 0 0 1
R3  R2

We conclude that the given system of linear equations has no solution

2.53
Example 4: x  2 y  3z  2
3x  y  2 z  1
2 x  3 y  5z  3
Solution:

 1 2 3 2   1 2 3 2 
  R2  3R1  
 3 1 2 1
R3  2 R1 0 7 7 7  1 R
7 2
 2 3 5 3 0 1 1 1

 1 2 3 2   1 0 1 0
   
0 1 1 1 R3  R2 0 1 1 1
0 1 1 1 0 0 0 0
2.54
 Exercises: Solve the following system of linear equations using Gauss-
Jordan method.

1. 2. 2 x  4 y  6 z  22 3.

3x  8 y  5z  27
 x  y  2z  2

x y z 1 x  2 y  3z  2 Answers:
5.
4. 1.x=9, y=5
3x  y  z  4 3x  y  2 z  1
2. x=3,y=1,z=2
x  5 y  5z  1 2 x  3 y  5z  3
3. x=2,y=1, z=3
6. 3x – 4y + 4z = 7
4. No solution ({})
x – y – 2z = 2
2x – 3y + 6z = 5 5. x=z and y=z-1
(infinitely many
solutions)
Case 2: Number of equations is not equal to number of
Unknowns(variables)
 In this case the coefficient matrix can’t be square matrix.
 If we obtain a row that contains all zero’s except the constant vector at
any point in the process of applying ERO’s, we can stop since the system
has no solution.
Example 1: Solve the following system

x+y=1
3x-y=4
x+5y=-1

2.56
Example 2: Solve the following system

x+2y=-2
3x-y=1
2x+3y=-3

2.57
 Application Example: Purchasing

A company that rents small moving trucks wants to purchase 25 trucks with a
combined capacity of 28,000 cubic feet. Three different types of trucks are
available: a 10-foot truck with a capacity of 350 cubic feet, a 14-foot truck
with a capacity of 700 cubic feet, and a 24-foot truck with a capacity of 1,400
cubic feet. How many of each type of truck should the company purchase?

Solution: The question in this example indicates that the relevant variables are the
number of each type of truck.
x = number of 10-foot trucks
y = number of 14-foot trucks
z = number of 24-foot trucks
We form the mathematical model:
x + y + z = 25 (Total number of trucks)
350x + 700y + 1,400z = 28,000 (Total capacity)
2.58
 Now we form the augmented coefficient matrix of the system and solve by
using Gauss-Jordan elimination method:

 1 1 1 25 
350 700 1, 400 28, 000  (1/350)R2 R2
 

1 1 1 25
1 2 4 80  –R1 + R2 R2
 
1 1 1 25
0 1 3 55  –R2 + R1 R1
 

Matrix is in reduced form.

1 0 2 30  x – 2z = –30 or x = 2z – 30,
0 1 3 55 
  y + 3z = 55 or y = –3z + 55.

2.59
Let z = t. Then for t any real number
x = 2t – 30
y = –3t + 55
z=t
is a solution to the system.

NB:
1.If the number of equations is greater than or equal to the number of variables in
a linear system, then one of the following is true:
a.The system has no solution.
b.The system has exactly one solution.
c.The system has infinitely many solutions.
2.If there are fewer equations than variables in a linear system, then the system
either has no solution or it has infinitely many solutions.

2.60
Exercise: Addis Ababa University has three times as many students enrolled as
Wolkite University. Hawassa University has 3,000 more than twice the
number of students as Wolkite University. If the three universities have a total
enrollment of 96,000 students, what is the enrollment at each university?

2.61
 Inverse Method of Solving Systems of linear Equations

Inverse of a matrix :
Consider A  M,nn
if there exists a matrix B  M n n such that AB  BA  I n ,
then (1) A is invertible (or nonsingular )
(2) B is the inverse of A

Note:
※ A square matrix that does not have an inverse is called noninvertible (or
singular )

※ The definition of the inverse of a matrix is similar to that of the inverse of a

scalar, i.e., c · (1/c) = 1

2.62
※ The inverse of a matrix is unique ( i.e. If B and C are both inverses
of the matrix A, then B = C).

※ The inverse of A is denoted by A1

AA1  A1 A  I

2.63

To find the inverse of a matrix by the Gauss-Jordan
elimination:
 A | I  
Gauss-Jordan elimination
  I | A1 


Ex 1: Find the inverse of the matrix A
 1 4
A 
  1  3
Solution:
AX  I
 1 4  x11 x12   1 0
 1  3  x  
   21 x22  0 1
 x11  4 x21 x12  4 x22   1 0
 x  3x   
 11 21  x12  3 x 22   0 1
2.64
 by equating corresponding entries
x11  4 x21  1 This two systems of linear
 (1)
 x11  3 x21  0 equations share the same
coefficient matrix, which
x12  4 x22  0 is exactly the matrix A
(2)
 x12  3 x22  1
 1 4  1 A1,2(1) , A2,1( 4 )  1 0  3
(1)        x11  3, x21  1
 1 3  0  0 1  1
 1 4  0  A1,2(1) , A2,1( 4)  1 0  4 
(2)        x12  4, x22  1
 1 3  1 0 1  1
Thus
Perform the Gauss-
3
4
 Jordan elimination on
XA
1 1
1
 the matrix A with the
  same row operations
2.65

Note:
Instead of solving the two systems separately, you can
solve them simultaneously by appending the identity
matrix to the right of the coefficient matrix

 1 4  1 0  Gauss-Jordan elimination  1 0  3 4 
 1 3  0   (1)
, A2( ,14 )
  
 1 A1,2
 0 1  1 1
A I I A 1

x  x 
solution for  11  solution for  12 
 x21   x22 

※ If A cannot be row reduced to I, then A is singular

2.66

Ex 2: Find the inverse of the following matrix

 1  1 0
A   1 0  1
 6 2 3
Sol:
1 
1010
0
A
I
10 1
01
0

62300
1

 1 1 0  1 0 0   1 1 0  1 0 0 
( 1)
 
(6)
A1,3 0 
  0 1 1  1 1 0     
A1,2
  1 1  1 1 0 
 6 2 3  0 0 1 0 4 3  6 0 1

 1 1 0  1 0 0   1 1 0  1 0 0 
 0 1 1  1 1 0   0 1 1  1 1 0 
(4) M 3( 1)
A2,3
 
0 0 1  2 4 1  0 0 1  2 4 1

2.67
  1 1 0  1 0 0   1 0 0  2 3 1
0 1 0  3 3 1  0 1 0  3 3 1
(1) (1)
A3,2 A2,1
  
0 0 1  2 4 1 0 0 1  1 4 1

 [ I  A1 ]

So the matrix A is invertible, and its inverse is

 2  3  1
A1    3  3  1
 2  4  1


Check it by yourselves:
AA1  A1 A  I

2.68
Systems of linear equations with a unique solution

If A is an invertible matrix, then the system of linear equations

Ax = b has a unique solution given by

x  A1b

Example 1: Use inverse method to solve the following system:

2x-y=3
3x+2y=1

2.69

Example 2:
Use an inverse matrix to solve each system
(a) (b)
2x  3y  z  1 2x  3y  z  4
3x  3y  z  1 3x  3y  z  8
2x  4y  z  2 2x  4y  z  5
(c)
2x  3y  z  0
3x  3y  z  0
2x  4y  z  0

Sol:
 2 3 1  1 1 0 
 A   3 3 1 
Gauss-Jordan elimination
 A1   1 0 1 
 2 4 1  6 2 3
2.70
(a)
 1 1 0   1  2  ※ This technique is very
x  A1b   1 0 1   1    1
convenient when you face
the problem of solving
 6 2 3  2   2 several systems with the
same coefficient matrix
(b)
※ Because once you have A-
 1 1 0   4   4  1
, you simply need to
x  A1b   1 0 1  8    1  perform the matrix
multiplication to solve the
 6 2 3  5   7  unknown variables
(c) ※ If you solve only one
system, the computational
 1 1 0   0   0 effort is less for the G. E.

x  A1b   1 0 1  0    0

plus the back substitution
or the G. J. E.
 6 2 3 0  0 
2.71
 Markov Chains

It is a stochastic model used to model randomly changing systems where

it is assumed that future states depend only on the current state, not on
any past state.

Assumptions:

Probabilities of moving from one state to all other states sum to 1.

Probabilities apply to all system participants

Probabilities are constant over time

2.72
Transition matrix (P): A square matrix that gives probabilities of
different states going from one to another.

Properties of transition matrix


It is square matrix

All entries/elements are between 0 and 1, inclusive

The sum of the entries in any row must be 1

Initial state vector (X): A vector that gives probabilities of different

states at time of observation. Example: market share of companies at time
of observation.
Steady state vector (V): A vector that gives probabilities of different
states in the long run. Example: market share of companies under study
in the long run.

2.73

Example 1: Market share of customers

Suppose company A and company B are producing the same product.

Because of promotion campaign, buyers are switching between two
companies. Assume that 10% of those who buy company A’s product buy
from company B and 40% of those who from company B buy from
company A. Suppose that currently company A has 70% and company B
has 30% of the market for the product.
i. What will be the market share of each company at the end of the first
month? End of second month? end of third month?
ii. What will be the market share of each company in the long run?

2.74

Example 2: A consumer preference model

A B None
0.70 0.15 0.15 A
P  0.20 0.80 0.15 B
 
 0.10 0.05 0.70  None

0.15 ※ X0 is the initial state

  A
X 0  0.20 matrix representing the
  B portions of the total
0.65 None population in each state

0.70 0.15 0.15 0.15 0.2325 A ※ X1 represents the

X 1  PX  0.20 0.80 0.15 0.20  0.2875 B portions of the total
     population in each
0.10 0.05 0.70 0.65 0.4800 None state after one year

2.75
 0.3028 A
X 3  PX 2  PPX 1  PPPX 0  P 3 X 0  0.3904 B After 3 year
 
0.3068 None
 0.3241 A
X 5  P 5 X 0   0.4381 B After 5 year
 
0.2378 None

0.3329 A
X 10  P10 X 0  0.4715 B After 10 year
 
0.1957 None

 0.3333   
X   P  X 0  0.4762
 
0.1905
2.76
Exercise 1:

Write the transition matrix.

Exercise 2:

Write the transition matrix.

2.77
Exercise 3: Suppose three companies: A, B and C dominate the market
for a certain product and are competing against each other for a large
share of the market. Currently company A has 2/9 of the market,
company B has 4/9 of the market and company C has 1/3 of the market.
The market survey indicates that every 6 months. Company A retains ¾
of its customer and loss 1/6 to company B and 1/12 to company C.
Company B retains ½ of its customers and loss 1/3 to company A and 1/6
to company C. Company C retains 3/8 of its customers and loss ¼ to
company A and 3/8 to company B.
i. Write the transition matrix
ii. Find the share of the market that each company will have one year later.
iii. Find the share of the market that each company will have in the long
run.

2.78