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Business Calculus 2

Business Calculus 2

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LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO

BUSINESS BUSANA2 LECTURE NOTES

AND

ECONOMICS

OF

FUNCTIONS

Market Equilibrium Isagani B. Jos

Break-Even Analysis

Department of Mathematics

De La Salle University - Manila

Outline

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO

BUSINESS

AND

ECONOMICS 1 APPLICATIONS TO BUSINESS AND ECONOMICS OF

OF

FUNCTIONS FUNCTIONS

Market Equilibrium

Break-Even Analysis

Market Equilibrium

Break-Even Analysis

Outline

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO

BUSINESS

AND

ECONOMICS 1 APPLICATIONS TO BUSINESS AND ECONOMICS OF

OF

FUNCTIONS FUNCTIONS

Market Equilibrium

Break-Even Analysis

Market Equilibrium

Break-Even Analysis

Demand Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos Definition

APPLICATIONS A demand function gives a relationship between the

TO

BUSINESS quantity of the commodity demanded and the price per unit

AND

ECONOMICS of this commodity.

OF

FUNCTIONS

Market Equilibrium Let :

Break-Even Analysis

x := quantity demanded;

p := price per unit;

Demand Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO

BUSINESS Properties of a Demand Function:

AND

ECONOMICS

OF

1 Usually, a decreasing function;

FUNCTIONS

Market Equilibrium

2 The y -intercept of the demand curve, p0 , represents

Break-Even Analysis

the highest price a consumer is willing to pay for the

commodity.

Demand Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO

BUSINESS Properties of a Demand Function:

AND

ECONOMICS

OF

1 Usually, a decreasing function;

FUNCTIONS

Market Equilibrium

2 The y -intercept of the demand curve, p0 , represents

Break-Even Analysis

the highest price a consumer is willing to pay for the

commodity.

Demand Function

BUSCALC

LECTURE

NOTES 2

Example

Isagani B. Jos

For each P4 decrease in the unit price, 100 more of a

APPLICATIONS

TO certain commodity are sold. When the unit price is P30, the

BUSINESS

AND company sells 600 units. Assume that the demand function

ECONOMICS

OF

is linear.

FUNCTIONS

Market Equilibrium

1 Set up the demand function;

Break-Even Analysis

2 What is the highest price to be paid for this commodity?

3 How many units would be demanded if the commodity

were free?

4 How many units will be bought if the unit price is P40?

5 How much will be paid for each unit if 250 units are

demanded?

Demand Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

Example

The demand for a particular commodity is given by

APPLICATIONS

TO

BUSINESS

AND x 2 + 2x + 3p 23 = 0.

ECONOMICS

OF

FUNCTIONS

Market Equilibrium

Break-Even Analysis 1 Draw a sketch the demand curve.

2 Find the highest price that would be paid for the

commodity.

3 Find the demand if the commodity were free.

4 How many units will be demanded if the unit price were

P5?

Supply Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos Definition

APPLICATIONS A supply function gives a relationship between the quantity

TO

BUSINESS of the commodity supplied and the unit price per unit of the

AND

ECONOMICS commodity.

OF

FUNCTIONS

Market Equilibrium Let :

Break-Even Analysis

x := quantity supplied;

p := price per unit;

Supply Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO

BUSINESS Properties of a Supply Function:

AND

ECONOMICS

OF

1 Usually, an increasing function;

FUNCTIONS

Market Equilibrium

2 The y -intercept of the supply curve, p0 , represents the

Break-Even Analysis

lowest price a consumer is willing to pay for the

commodity.

Supply Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO

BUSINESS Properties of a Supply Function:

AND

ECONOMICS

OF

1 Usually, an increasing function;

FUNCTIONS

Market Equilibrium

2 The y -intercept of the supply curve, p0 , represents the

Break-Even Analysis

lowest price a consumer is willing to pay for the

commodity.

Supply Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

Example

APPLICATIONS

TO For each P100 increase in the unit price, 200 more

BUSINESS

AND

calculators will be supplied. When the price per calculator is

ECONOMICS

OF

P400, 500 calculators are supplied. Assume that the supply

FUNCTIONS

Market Equilibrium

function is linear.

Break-Even Analysis

1 Set up the supply function.;

2 Find the lowest price at which the calculator will be

supplied.;

3 How many units will be supplied if the unit price is

P200?

Supply Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

Example

APPLICATIONS

TO

The supply for a particular commodity is given by the

BUSINESS equation

AND

ECONOMICS 4x 2 9p2 + 16x + 52 = 0.

OF

FUNCTIONS

Market Equilibrium

Break-Even Analysis

1 Draw a sketch of the supply curve.

2 Find the lowest price at which the commodity would be

supplied.

3 How many units will be supplied if the unit price were

P6?

Market Equilibrium

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO Definition

BUSINESS

AND The point of intersection of the demand and the supply

ECONOMICS

OF curves is called the market equilibrium point.

FUNCTIONS

Market Equilibrium

Break-Even Analysis

Example

Find the market equilibrium point of the demand curve:

p = 10 2x and the supply curve: p = 32 x + 1.

Market Equilibrium

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO Definition

BUSINESS

AND The point of intersection of the demand and the supply

ECONOMICS

OF curves is called the market equilibrium point.

FUNCTIONS

Market Equilibrium

Break-Even Analysis

Example

Find the market equilibrium point of the demand curve:

p = 10 2x and the supply curve: p = 32 x + 1.

Market Equilibrium

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS Example

TO

BUSINESS For each pair of demand and supply curves below. Do the

AND

ECONOMICS following: (i.) Determine which represents the demand

OF

FUNCTIONS curve and which represents the supply curve; (ii.)

Market Equilibrium

Break-Even Analysis Determine the market equilibrium point.

1 3x 2 + p 10 = 0 and x 2 + 2x p + 4 = 0;

2 2x p + 2 = 0 and x 2 + p2 + 2x 24 = 0

3 p2 + 3p x 54 = 0 and 426 x p = 0

Outline

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO

BUSINESS

AND

ECONOMICS 1 APPLICATIONS TO BUSINESS AND ECONOMICS OF

OF

FUNCTIONS FUNCTIONS

Market Equilibrium

Break-Even Analysis

Market Equilibrium

Break-Even Analysis

Break-Even Analysis

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO Restrictions:

BUSINESS

AND

ECONOMICS

1 Only one product is involved;

OF

FUNCTIONS

2 Manufacturer incurs only two types of costs - fixed and

Market Equilibrium

Break-Even Analysis

variable;

3 Selling price is constant;

4 Output produced equals sales.

Break-Even Analysis

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO Restrictions:

BUSINESS

AND

ECONOMICS

1 Only one product is involved;

OF

FUNCTIONS

2 Manufacturer incurs only two types of costs - fixed and

Market Equilibrium

Break-Even Analysis

variable;

3 Selling price is constant;

4 Output produced equals sales.

Break-Even Analysis

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO Restrictions:

BUSINESS

AND

ECONOMICS

1 Only one product is involved;

OF

FUNCTIONS

2 Manufacturer incurs only two types of costs - fixed and

Market Equilibrium

Break-Even Analysis

variable;

3 Selling price is constant;

4 Output produced equals sales.

Break-Even Analysis

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

TO Restrictions:

BUSINESS

AND

ECONOMICS

1 Only one product is involved;

OF

FUNCTIONS

2 Manufacturer incurs only two types of costs - fixed and

Market Equilibrium

Break-Even Analysis

variable;

3 Selling price is constant;

4 Output produced equals sales.

Break-Even Analysis

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO

BUSINESS

Total Cost involves:

AND

ECONOMICS

1 Fixed Cost (Overhead Expenses) are fixed in value and

OF

FUNCTIONS may include rent, depreciation, interest on loans

Market Equilibrium

Break-Even Analysis

2 Variable Cost is dependent on the number of units

manufactured and may include raw materials,

advertising expenses, labor.

Total Cost Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO C(x) = V (x) + F ,

BUSINESS

AND

ECONOMICS where

OF

FUNCTIONS C(x) is the total cost function;

Market Equilibrium

Break-Even Analysis

V (x) is the variable cost function which is equal to

Total Revenue Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO

BUSINESS Total revenue is the product of the selling price per unit and

AND

ECONOMICS

the number of units sold. Thus,

OF

FUNCTIONS

Market Equilibrium

Break-Even Analysis

R(x) = px,

where p is unit selling price and x is the number of units

sold.

Total Cost and Total Revenue

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO

Remark

BUSINESS

AND R(x) > C(x) a profit is realized;

ECONOMICS

OF R(x) < C(x) a loss is realized

FUNCTIONS

Market Equilibrium

Break-Even Analysis

Remark

When R(x) = C(x), then neither a profit nor a loss is

realized. The producer is said to break-even.

Total Cost and Total Revenue

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO

Remark

BUSINESS

AND R(x) > C(x) a profit is realized;

ECONOMICS

OF R(x) < C(x) a loss is realized

FUNCTIONS

Market Equilibrium

Break-Even Analysis

Remark

When R(x) = C(x), then neither a profit nor a loss is

realized. The producer is said to break-even.

Break-Even Point

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

Example

APPLICATIONS

TO A company manufactures an item for which the material

BUSINESS

AND

cost is P12 per item, the labor cost is P8 per item, and

ECONOMICS

OF

additional variable cost is P20 per item. Fixed costs are

FUNCTIONS

Market Equilibrium

P80,000. Each item sells for P80.

Break-Even Analysis

1 How many items must be sold for the company to

break-even?

2 How many will be the sales at break-even?

3 How many items must be sold to recover fixed costs

alone?

Total Profit Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO Total profit is the difference of the total revenue over total

BUSINESS

AND cost. Thus,

ECONOMICS

OF P(x) = R(x) C(x).

FUNCTIONS

Market Equilibrium

Break-Even Analysis

Remark

At break-even, P(x) = 0.

Total Profit Function

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO Total profit is the difference of the total revenue over total

BUSINESS

AND cost. Thus,

ECONOMICS

OF P(x) = R(x) C(x).

FUNCTIONS

Market Equilibrium

Break-Even Analysis

Remark

At break-even, P(x) = 0.

Break-Even Point

BUSCALC

LECTURE Example

NOTES 2

Isagani B. Jos The manufacturer of a certain type of item will require

overhead expenses of P15,000. From his experience of

APPLICATIONS

TO similar items,he feels that he can make annual sales of

BUSINESS

AND 25,000 items at a unit price of P2, and 30,000 units at a unit

ECONOMICS

OF price of P1.50. His variable costs equals 0.016x 2 + x

FUNCTIONS

Market Equilibrium

thousand pesos, where x is in thousand units.

Break-Even Analysis

1 Set up the demand function, assuming that it is linear;

2 Set up the total cost, revenue and profit functions;

3 At what level(s) of sales will the manufacturer

break-even?

4 How much profit is obtained when 20,000 units are

manufactured and sold? At 30,000 units?

5 How many units must be sold to obtain a profit of

Break-Even Point

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS Example

TO

BUSINESS A manufacturer of inexpensive local furniture sells all that he

AND

ECONOMICS produces. If the total cost function is given by

OF

FUNCTIONS C(x) = 40x + 2000 and his total revenue function is

Market Equilibrium

Break-Even Analysis R(x) = 50x, then

1 determine the level of production at the break-even;

2 determine the level of production at the break-even

point if the total cost is increased by 5%.

Break-Even Point

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO Example

BUSINESS

AND A manufacturer of local products sell his products at P8.75

ECONOMICS

OF per piece selling all he produces. His fixed cost is P3500

FUNCTIONS

Market Equilibrium and his variable cost is P3.75 per piece.

Break-Even Analysis

1 At what level of production will he have a profit of

P3500? a loss of P1750?

2 At what level of production will he break even?

Additional Example

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS Example

TO

BUSINESS A manufacturer of inexpensive local furniture sells all that he

AND

ECONOMICS produces. If the total cost function is given by

OF

FUNCTIONS C(x) = 40x + 2000 and his total revenue function is

Market Equilibrium

Break-Even Analysis R(x) = 50x, then

1 determine the level of production at the break-even;

2 determine the level of production at the break-even

point if the total cost is increased by 5%.

Additional Example

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

APPLICATIONS

TO Example

BUSINESS

AND A manufacturer of local products sell his products at P8.75

ECONOMICS

OF per piece selling all he produces. His fixed cost is P3500

FUNCTIONS

Market Equilibrium and his variable cost is P3.75 per piece.

Break-Even Analysis

1 At what level of production will he have a profit of

P3500? a loss of P1750?

2 At what level of production will he break even?

Additional Example

BUSCALC

LECTURE Example

NOTES 2

Isagani B. Jos Studies indicate that under perfect competition, the demand

for a particular commodity is given by the equation

APPLICATIONS

TO (x + 10)y = 500 and that the manufacturers willingness to

BUSINESS

AND supply this commodity is given by 3y = 4x. Determine the

ECONOMICS

OF market equilibrium quantity.

FUNCTIONS

Market Equilibrium

Break-Even Analysis

Example

Given 30x + 3y + y 2 = 1796 and y 2 + 4y 30x 4 = 0,

where x represents quantity in hundreds of units and y

represents the unit price in tens of pesos.

1 Identify which of the equations given is the demand

curve and which is the supply curve.

2 Determine the market equilibrium price and the market

equilibrium quantity.

Additional Example

BUSCALC

LECTURE Example

NOTES 2

Isagani B. Jos Studies indicate that under perfect competition, the demand

for a particular commodity is given by the equation

APPLICATIONS

TO (x + 10)y = 500 and that the manufacturers willingness to

BUSINESS

AND supply this commodity is given by 3y = 4x. Determine the

ECONOMICS

OF market equilibrium quantity.

FUNCTIONS

Market Equilibrium

Break-Even Analysis

Example

Given 30x + 3y + y 2 = 1796 and y 2 + 4y 30x 4 = 0,

where x represents quantity in hundreds of units and y

represents the unit price in tens of pesos.

1 Identify which of the equations given is the demand

curve and which is the supply curve.

2 Determine the market equilibrium price and the market

equilibrium quantity.

Additional Example

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

Example

APPLICATIONS

TO A manufacturers total cost function C(x) = 25x + 27500.

BUSINESS

AND The total revenue function is linear and that the total

ECONOMICS

OF revenue for 100 units is P7000, while the total revenue for

FUNCTIONS

Market Equilibrium

150 units is P10500. Find the break even point.

Break-Even Analysis

Example

The demand equation is x = 6000 30p and the total cost

function is C(x) = 3x + 5880, where p is in thousands of

pesos. Find the break even point.

Additional Example

BUSCALC

LECTURE

NOTES 2

Isagani B. Jos

Example

APPLICATIONS

TO A manufacturers total cost function C(x) = 25x + 27500.

BUSINESS

AND The total revenue function is linear and that the total

ECONOMICS

OF revenue for 100 units is P7000, while the total revenue for

FUNCTIONS

Market Equilibrium

150 units is P10500. Find the break even point.

Break-Even Analysis

Example

The demand equation is x = 6000 30p and the total cost

function is C(x) = 3x + 5880, where p is in thousands of

pesos. Find the break even point.

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