STRAIGHT LINES

1 AND LINEAR
FUNCTIONS

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1.4 Intersection of Straight Lines

Copyright © Cengage Learning. All rights reserved.

Finding the Point of Intersection

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Finding the Point of Intersection
The solution of certain practical problems involves finding
the point of intersection of two straight lines. To see how
such a problem may be solved algebraically, suppose we
are given two straight lines L1 and L2 with equations

y = m1x + b1 and y = m2x + b2

(where m1, b1, m2, and b2 are

constants) that intersect at the
point P(x0, y0) (Figure 35).

L1 and L2 intersect at the point P(x0, y0).

Figure 35
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Finding the Point of Intersection
The point P(x0, y0) lies on the line L1, so it satisfies the
equation y = m1x + b1. It also lies on the line L2, so it
satisfies the equation y = m2x + b2.

Therefore, to find the point of intersection P(x0, y0) of the

lines L1 and L2, we solve the system composed of the two
equations

y = m1x + b1 and y = m2x + b2

for x and y.

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Example 1
Find the point of intersection of the straight lines that have
equations y = x + 1 and y = –2x + 4.

Solution:
We solve the given simultaneous equations. Substituting
the value y as given in the first equation into the second,
we obtain

x + 1 = –2x + 4

3x = 3

x=1
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Example 1 – Solution cont’d

Substituting this value of x into either one of the given

equations yields y = 2. Therefore, the required point of
intersection is (1, 2) (Figure 36).

The point of intersection of L1 and L2 is (1, 2).

Figure 36

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Break-Even Analysis

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Break-Even Analysis
Consider a firm with (linear) cost function C (x), revenue
function R (x), and profit function P (x) given by

C (x) = cx + F

R (x) = sx

P (x) = R (x) – C (x) = (s – c)x – F

where c denotes the unit cost of production, s the selling

price per unit, F the fixed cost incurred by the firm, and
x the level of production and sales.

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Break-Even Analysis
The level of production at which the firm neither makes a
profit nor sustains a loss is called the break-even level of
operation and may be determined by solving the equations
y = C (x) and y = R (x) simultaneously.

At the level of production x0, the profit is zero, so

P(x0) = R(x0) – C(x0) = 0

R(x0) = C(x0)

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Break-Even Analysis
The point P0(x0, y0), the solution of the simultaneous
equations y = R (x) and y = C (x), is referred to as the
break-even point; the number x0 and the number y0 are
called the break-even quantity and the break-even
revenue, respectively.

Geometrically, the break-even point P0(x0, y0) is just the

point of intersection of the straight lines representing the
cost and revenue functions, respectively.

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Break-Even Analysis
This follows because P0(x0, y0), being the solution of the
simultaneous equations y = R (x) and y = C (x), must lie on
both these lines simultaneously (Figure 37).

P0 is the break-even point.

Figure 37
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Break-Even Analysis
Note that if x < x0, then R (x) < C (x), so

P (x) = R (x) – C (x) < 0;

thus, the firm sustains a loss at this level of production.

On the other hand, if x > x0, then P (x) > 0, and the firm
operates at a profitable level.

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Applied Example – Decision Analysis
The management of Robertson Controls must decide
between two manufacturing processes for its model C
electronic thermostat.

The monthly cost of the first process is given by

C1(x) = 20x + 10,000 dollars, where x is the number of
thermostats produced; the monthly cost of the second
process is given by C2(x) = 10x + 30,000 dollars.

If the projected monthly sales are 800 thermostats at a unit

price of $40, which process should management choose in
order to maximize the company’s profit?
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Applied Example – Solution
The break-even level of operation using the first process is
obtained by solving the equation

40x = 20x + 10,000

20x = 10,000

x = 500

giving an output of 500 units.

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Applied Example – Solution cont’d

Next, we solve the equation

40x = 10x + 30,000

30x = 30,000
x = 1000

giving an output of 1000 units for a break-even operation

using the second process. Since the projected sales are
800 units, we conclude that management should choose
the first process, which will give the firm a profit.

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Market Equilibrium

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Market Equilibrium
Under pure competition, the price of a commodity
eventually settles at a level dictated by the condition that
the supply of the commodity be equal to the demand for it.

If the price is too high, consumers will be more reluctant to

buy, and if the price is too low, the supplier will be more
reluctant to make the product available in the marketplace.

Market equilibrium is said to prevail when the quantity

produced is equal to the quantity demanded.

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Market Equilibrium
The quantity produced at market equilibrium is called the
equilibrium quantity, and the corresponding price is called
the equilibrium price.

From a geometric point of view, market equilibrium

corresponds to the point at which the demand curve and
the supply curve intersect.

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Market Equilibrium
In Figure 39, x0 represents the equilibrium quantity and
p0 the equilibrium price.

Market equilibrium is represented by the point (x0, p0).

Figure 39
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Market Equilibrium
The point (x0, p0) lies on the supply curve and therefore
satisfies the supply equation. At the same time, it also lies
on the demand curve and therefore satisfies the demand
equation.

Thus, to find the point (x0, p0), and hence the equilibrium
quantity and price, we solve the demand and supply
equations simultaneously for x and p.

For meaningful solutions, x and p must both be positive.

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Applied Example – Market Equilibrium
The management of ThermoMaster, which manufactures
an indoor–outdoor thermometer at its Mexico subsidiary,
has determined that the demand equation for its product is

5x + 3p – 30 = 0

where p is the price of a thermometer in dollars and x is the

quantity demanded in units of a thousand.

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Applied Example – Market Equilibrium
The supply equation for these thermometers is

52x – 30p + 45 = 0

where x (measured in thousands) is the quantity that

ThermoMaster will make available in the market at p dollars
each. Find the equilibrium quantity and price.

Solution:
We need to solve the system of equations
5x + 3p – 30 = 0
52x – 30p + 45 = 0
for x and p. 23
Applied Example – Solution cont’d

Let us use the method of substitution to solve it. As the

name suggests, this method calls for choosing one of the
equations in the system, solving for one variable in terms of
the other, and then substituting the resulting expression
into the other equation. This gives an equation in one
variable that can then be solved in the usual manner.

Let’s solve the first equation for p in terms of x. Thus,

3p = –5x + 30

p = – x + 10

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Applied Example – Solution cont’d

Next, we substitute this value of p into the second equation,

obtaining

52x + 50x – 300 + 45 = 0

102x – 255 = 0

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Applied Example – Solution cont’d

The corresponding value of p is found by substituting this

value of x into the equation for p obtained earlier. Thus,

We conclude that the equilibrium quantity is 2500 units

(remember that x is measured in units of a thousand) and
the equilibrium price is $5.83 per thermometer.

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