DPB 2033

BUSINESS
MATHEMATICS

Chapter 1 : Equations
Subtopic 1.2-1.4
APPLICATIONS OF
EQUATIONS FROM
BUSINESS
Learning Outcomes
1. Identify the concepts and formulation of
specific equations to solve business
mathematics problems.
2. Discuss the relationship between total
cost, revenue and profit as well as the
concept of fixed cost and variable cost.
3. Determine the variable cost, sales price
and profit using equations.
Cost Function

The total cost of manufacturing an item consists of two types of

costs.
FIXED COST or OVERHEAD VARIABLE COST
COST

Variable cost is a cost per item,

Fixed cost is constant and does includes costs such as material,
not change with the number of labor, and shipping.
items produced.

The variable cost depends on the

It includes costs such as product number of items being produced.
design, rent, insurance, taxes
Aand utilities.
typical total cost equation might be

Total Cost = Variable Cost + Fixed Cost

in which total cost, C, equals variable cost times the quantity of items
produced, x, plus the fixed cost.
Revenue Function

The total revenue is the income the company makes.

It is calculated as the product of the selling price of the item and the
number of items sold.

A typical revenue equation might be

Revenue = (unit selling price) (number of units sold)

and total revenue equals an items selling price times the number
sold.
Profit Function

The total revenue is the income the company makes.

It is calculated as the product of the selling price of the item and the
number of items sold.

A typical profit equation might be

Profit = Total revenue - Total cost

Problem #1

A firm producing DVDs finds that its fixed cost is

$5000 per month and that its variable cost is $3.50
per DVD. The firm can sell the units at $7.50 each.
Find the profit function.
Answer #1 (1250 DVDs)
Answer #1

The cost of producing x DVDs is then given by

C = 3.50x + 5000

The firm can sell the units at $7.50 each, so the revenue
from selling x units is
R = 7.50x

Because the profit which the revenue minus the cost, from
our given equations we have

P(x) = R (x) C (x)

= 7.50x (3.50x + 5000)
= 4.00 x 5000
x = 1250

The firm will have profit by producing and selling exactly 1250
DVDs each month.
Problem #2

A firm producing lawn chairs has fixed costs of $525

per week. The variable cost is $8.50 per chair, and
the revenue per chair is $15.50. Find the profit
function.
Answer #2 (75 chairs)
Answer #2

The cost equation is

C = 8.50x + 525

The revenue equation is

R = 15.50x

Because the profit which the revenue minus the cost, from
our given equations we have

P(x) = R (x) C (x)

P(x) = 15.50x (8.50x + 525)
7x = 525
x = 75

The firm will have profit by producing and selling exactly 75

chairs each month.
Problem #3

Suppose a manufacturer of tables can produce 60

tables at a cost of RM60, while fixed cost RM5000.
The manufacturer sells a table for RM110.
Determine the Profit Function.
Answer #3 (100 tables)
Answer #3

Revenue = 110x

Total cost
60x + 5000

Profit
P(x) = R(x) C(x)
= 110x (60x + 5000)
= (110x - 60x) 5000
50x = 5000
x = 100

The firm will have profit by producing and selling exactly 100
tables each month.