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3-Application of Linear and Quadratic Functions

The document discusses the application of linear and quadratic functions in business mathematics, focusing on concepts such as demand and supply functions, market equilibrium, cost and revenue functions, and break-even point analysis. It provides examples and exercises to illustrate how to determine demand and supply equations, calculate profit, and analyze maximum and minimum values of functions. Additionally, it emphasizes the importance of understanding these mathematical concepts for effective decision-making in business contexts.

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Afif Hakim
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© © All Rights Reserved
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30 views19 pages

3-Application of Linear and Quadratic Functions

The document discusses the application of linear and quadratic functions in business mathematics, focusing on concepts such as demand and supply functions, market equilibrium, cost and revenue functions, and break-even point analysis. It provides examples and exercises to illustrate how to determine demand and supply equations, calculate profit, and analyze maximum and minimum values of functions. Additionally, it emphasizes the importance of understanding these mathematical concepts for effective decision-making in business contexts.

Uploaded by

Afif Hakim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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TOPIC 3

Application of Linear and


Quadratic Functions

EAB10703
Mathematics for Business
Universiti Kuala Lumpur
Applications of Linear
Functions
The Demand and Supply Function
Demand Supply
𝑝 𝑝

Demand Function

Supply Function

Price ↑ Demand ↓ 𝑞 Price ↑ Supply ↑ 𝑞

Price ↓ Demand ↑ Price ↓ Supply ↓


The Market Equilibrium Point

Market Equilibrium : The intersection of a supply function and the demand function is
the point when the quantity of a commodity demanded is equal
to the quantity supplied
1. The price at that intersection point is the equilibrium price
2. The quantity at that intersection point is the equilibrium quantity
Example: Determine which of the following equations are the demand
and supply equations.
(i)
(ii)
Then, obtain the market equilibrium point
Solution:
Step 1: Determine the slope
(i) (ii)

→ The slope is (negative) → The slope is 3 (positive)


the equation is a demand equation the equation is a supply equation
Example: Determine which of the following equations are the demand
and supply equations.
(i)
(ii)
Then, obtain the market equilibrium point
Solution:
Step 2: find the market equilibrium point
Solve equation (i) and (ii) simultaneously
(i) → (i) :
(ii) ⇢
3(i) – (ii) :
the market equilibrium point is
Cost and Revenue Functions
• Fixed costs are costs that are independent of the production level (rent, utilities, etc.)
• This costs remain constant regardless of the number of units produced (including no
production.

• Revenue is amount receives from sales

• Profit is the difference between total revenue and total cost


Example : A factory produces certain type of product worth RM200. The costs of its raw
material and labour are RM30 and RM15 per unit. Fixed costs are RM100,000.
(a) Obtain the function for profit.
(b) Find the profit if 10,000 units are sold.

Solution:
(a) Suppose is the quantity of products sold (b) Substitute into

units result in a profit of RM 1,455,000


Example : Assuming the cost of producing 10 units of a given product is RM40 while
that of 20 units is RM70. If the cost, , is linearly related to production
quantity, , find:
(a) the linear equation that link to .
(b) The costs required to produce 35 units of the product.
Solution:
(a) Find the linear equation: (b) Substitute into

the costs required to produce 35 units is RM 1


Solve Equation 1 and 2 simultaneously
Break-Even Point Analysis
• Break-even point of a product is the level of production at which there is no
profit made or loss incurred.
• Is it the point where total revenue (TR) equals to total cost (TC).

Profit
Region

Loss
Region
Example : A company is selling a product at the price of RM45 per unit. Variable costs
per unit RM33 while fixed costs is RM450,000. How many units have to be
sold to break-even.
Solution:
Break-even point : Total Revenue = Total Cost

Break-even point :

units have to be sold to reach the break-even point


Exercise:

1. Identify each of the following equations as a demand or supply equation. Then,


find their corresponding price and quantity at which at market-equilibrium
point:
(i)
(ii)

2. A company is producing a type of product with a selling price of RM50 per unit.
To produce one unit of the product, the company has to use a raw material, at a
cost RM40. Fixed costs are RM5,000. If represents the volume of products sold,
determine:
(i) Revenue function
(ii) Cost function
(iii) Profit function
(iv) Quantity to be sold to obtain break-even point
Applications of Quadratic
Functions
Maximum and Minimum
• The maximum (minimum) of a quadratic function → find the vertex
Recall :
Maximum point Max/min when is ?

Minimum point

• Vertex of a parabola:
• Revenue function → the vertex is the maximum/minimum revenue
• Profit function → the vertex is the maximum/minimum profit
• Cost function → the vertex is the maximum/minimum cost
Example : Given a cost function .
(a) Determine the quantity for which the cost is minimized.
(b) What is the minimum value of the cost.
Solution:
(a) The quantity for which the cost is minimized (b) The minimum value of the cost
Substitute into the cost function C

the minimum cost is


the cost is minimized when the quantity is
Example : A company learnt that the demand function for its product is , where
represents the unit price and is the quantity for the product.
(a) Derive the revenue function.
(b) Determine the quantity for which the revenue is maximized.
(c) What is the maximum value of the generated revenue?

Solution:
(a) The revenue function
(c) The maximum value of the generated
revenue
Substitute into the revenue function
the revenue function is
(b) The quantity for which the revenue is maximized

the maximum revenue is

the revenue is maximized when the quantity is


The Market Equilibrium and Break-
Even Points
Example : Given a demand function, ,

(a) Determine the price at market equilibrium point if the price domain is

(b) Find the quantity for such price.

Solution:
(a) Solve the equation for (b) The quantity when
Substitute into the

, using quadratic formula

the quantity is units


or
Since is not the solution.
the price at the market equilibrium point is
Exercise:

1. If in a monopoly market, the demand for a product is and the revenue function
is where is the number of units sold, what price will maximize revenue?
2. If the company has total costs and total revenues given by , find the break-even
points.
3. The supply function for a product is , while the demand function for the same
product is . Find the market equilibrium point.

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