08 Applications of Functions

Applications of Functions in Business & Economics
Raymond Lapus
Mathematics Department De La Salle University, Manila
10 February 2012
R. Lapus
Preliminaries
Market
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Preliminaries
Market a group of buyers and sellers of a particular product or service
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Preliminaries
Market a group of buyers and sellers of a particular product or service Competitive market
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Preliminaries
Market a group of buyers and sellers of a particular product or service Competitive market markets with many groups of buyers and sellers so that each has relatively small inuence on price
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Preliminaries
Market a group of buyers and sellers of a particular product or service Competitive market markets with many groups of buyers and sellers so that each has relatively small inuence on price supply and demand:
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Preliminaries
Market a group of buyers and sellers of a particular product or service Competitive market markets with many groups of buyers and sellers so that each has relatively small inuence on price supply and demand: most useful model for competitive market
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Demand function
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Demand function
Demand refers to how much (quantity) a product/service is desired by buyers.
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Demand function
Demand refers to how much (quantity) a product/service is desired by buyers. The quantity demanded is the amount of a product so that people are willing to buy it at a certain price.
R. Lapus
Demand function
Demand refers to how much (quantity) a product/service is desired by buyers. The quantity demanded is the amount of a product so that people are willing to buy it at a certain price. Demand function The function that illustrates the relationship between price p and quantity demanded x is referred as the demand function. Notation: p = f (x )
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Demand function
Demand refers to how much (quantity) a product/service is desired by buyers. The quantity demanded is the amount of a product so that people are willing to buy it at a certain price. Demand function The function that illustrates the relationship between price p and quantity demanded x is referred as the demand function. Notation: p = f (x ) The demand curve is the graph of a given demand function on the rst quadrant of the Cartesian plane.
R. Lapus Applications of Functions in Business & Economics
Law of Demand
Denition If all other factors remain equal, the higher the price of a good or service, the lower the consumer demand for the good or service, and vice versa.
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Law of Demand
Denition If all other factors remain equal, the higher the price of a good or service, the lower the consumer demand for the good or service, and vice versa. Consequence. The demand curve p = f (x ) is monotone decreasing. That is for any positive real numbers x1 and x2 : If x1 x2 , then f (x1 ) f (x2 ).
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Some common demand curves: Lines
The following curves can be a considered as demand function. Type D1: Lines represented by p = f (x ) = mx + b whose slope m 0 and p -intercept b > 0. Moreover, its (restricted) domain and range are: Dom(f ) = [0, b /m] Rng(f ) = [0, b ].
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Some common demand curves: Lines
Example: The graph of p = f (x ) = 0.5x + 20
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Some common demand curves: Semi-parabolae

The following curves can be a considered as demand function. Type D2A: Semi-parabolae opening to the left and whose vertex lies at V (h, 0) with h > 0. Its form is p= a(x h),
where a < 0 and h > 0. Moreover, its (restricted) domain and range are: Dom(f ) = [0, h] Rng(f ) = [0, ah].
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Some common demand curves: Semi-parabolae
Example: The graph of p = f (x ) =
8(x 50)
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Common demand curves: semi-parabolae

The following curves can be a considered as demand function. Type D2B: Semi-parabolae opening downwards and whose vertex lies at V (h, k ). Its form is p = a(x h)2 + k , such that a < 0, k > 0 and k /a < h 0. Moreover, its (restricted) domain and range are: Dom(f ) = [0, h +
2
Rng(f ) = [0, ah + k ].
k /a]
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Example: The graph of p = f (x ) = 0.01(x + 20)2 + 25
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Example: The graph of p = f (x ) = 0.01(x + 20)2 + 25
Example: The graph of p = f (x ) = 0.008x 2 + 20
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Common demand curves: Semi-ellipses and semi-circles
The following curves can be a considered as demand function. Type D3: The right half of a semi-ellipse centered at C (0, 0) of the form: b p= a2 x 2 , a where a > 0 and b > 0. If a = b , the resulting curve is a semi-circle. Moreover, its (restricted) domain and range are: Dom(f ) = [0, a] Rng(f ) = [0, b ].
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Common demand curves: Semi-ellipses and semi-circles
Examples The graph of the following demand functions: 2 1 p = f (x ) = 25 20 400 x (left) 2 p = f (x ) = 625 x 2 (middle) and 2 3 p = f (x ) = 25 30 900 x (right)
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Common demand curves: Semi-hyperbolae

The following curves can be a considered as demand function. Type D4A: The upper part of the left branch of a semi-hyperbolae centered at C (h, 0). Its form is given by p= b a (x h)2 a2 ,
where h > a, a > 0 and b > 0. Moreover, its (restricted) domain and range are: Dom(f ) = [0, h a] b h2 a2 ]. Rng(f ) = [0, a
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Example: The graph of p = f (x ) =
1 3
(x 70)2 100
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The following curves can be a considered as demand function. Type D4B: The left part of the lower branch of a semi-hyperbolae centered at C (0, k ). Its form is given by p=k a b b2 + x 2 ,
where k > a, a > 0 and b > 0. Moreover, its (restricted) domain and range are: Dom(f ) = [0, b a2 k 2 ] a Rng(f ) = [0, k a].
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25 + x 2
Example: The graph of p = f (x ) = 22
2 5
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Demand curve
Given a demand curve represented by p = f (x ): Intercepts
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Demand curve
Given a demand curve represented by p = f (x ): Intercepts x -intercept of f (x ) peak of the quantity demanded if the commodity is free.
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Demand curve
Given a demand curve represented by p = f (x ): Intercepts x -intercept of f (x ) peak of the quantity demanded if the commodity is free. p -intercept of f (x ) maximum price.
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Illustration
5 Consider the demand function of an apple x : f (x ) = x + 10, 3 where x is in dozens of boxes and p = f (x ) is expressed in PhP 1,000s.
p 10 9 8 7 6 5 4 3 2 1 0 0 1 2 3 4 5 6 x 5 p = x + 10 3
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Illustration
5 Consider the demand function of an apple x : f (x ) = x + 10, 3 where x is in dozens of boxes and p = f (x ) is expressed in PhP 1,000s. The x -intercept of f (x ) is at (6, 0). Interpretation: If the price of an apple is free, the maximum quantity demanded is six dozens boxes of apples.
p 10 9 8 7 6 5 4 3 2 1 0 0 1 2 3 4 5 6 x 5 p = x + 10 3
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Illustration
5 Consider the demand function of an apple x : f (x ) = x + 10, 3 where x is in dozens of boxes and p = f (x ) is expressed in PhP 1,000s. The x -intercept of f (x ) is at (6, 0). Interpretation: If the price of an apple is free, the maximum quantity demanded is six dozens boxes of apples. The p -intercept of f (x ) is at (0, 10). Interpretation: The maximum price of a dozen box of apples is PhP 10,000.
p 10 9 8 7 6 5 4 3 2 1 0 0 1 2 3 4 5 6 x 5 p = x + 10 3
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Supply function
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Supply function
Supply represents how much of a product the market can oer.
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Supply function
Supply represents how much of a product the market can oer. The quantity supplied is the amount of a certain good the producers (e.g. sellers) are willing to supply at a certain price.
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Supply function
Supply represents how much of a product the market can oer. The quantity supplied is the amount of a certain good the producers (e.g. sellers) are willing to supply at a certain price. Supply function The function that illustrates the relationship between price p and how much of supplied good/service x to the market is referred as the supply function. Notation: p = g (x ).
R. Lapus
Supply function
Supply represents how much of a product the market can oer. The quantity supplied is the amount of a certain good the producers (e.g. sellers) are willing to supply at a certain price. Supply function The function that illustrates the relationship between price p and how much of supplied good/service x to the market is referred as the supply function. Notation: p = g (x ). The supply curve is the graph of a given supply function on the rst quadrant of the Cartesian plane.
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Law of Supply
Denition If all other factors being equal, the higher the price of a good or service, the higher the quantity of goods or services oered by suppliers, and vice versa.
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Law of Supply
Denition If all other factors being equal, the higher the price of a good or service, the higher the quantity of goods or services oered by suppliers, and vice versa. Consequence: The supply curve is monotone increasing. That is for any positive real numbers x1 and x2 : If x1 x2 , then g (x1 ) g (x2 ).
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Some common supply curves: Lines
The following curves can be a considered as supply function. Type S1: Lines represented by p = g (x ) = mx + b with slope m 0 and p -intercept b R.
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Domain and range of a linear supply function b>0 b<0
Dom(g ) = [0, +) Rng(g ) = [b , +)
Dom(g ) = [b /m, +) Rng(g ) = [0, +)
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Example: Graph of p = g (x ) = 3 4x + 9
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Example: Graph of p = g (x ) = 3 4x + 9
Example: Graph of p = g (x ) = 3 4x 6
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Some common supply curves: Semi-parabolae
The following curves can be a considered as supply function. Type S2A: Semi-parabolae opening upwards whose vertex located at V (0, k ) and k 0. Its form is p = ax 2 + k , where a > 0. Moreover, its (restricted) domain and range are: Dom(g ) = [0, +)
Rng(g ) = [k , +).
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Example: Graph of p = g (x ) = 0.008x 2 + 10
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The following curves can be a considered as demand function. Type S2B: Semi-parabolae opening to the right whose vertex located at V (h, 0) and k 0. Its form is p = a x h, where a > 0. Moreover, its (restricted) domain and range are: Dom(g ) = [h, +)
Rng(g ) = [0, +).
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Example: Graph of p = g (x ) = 3 x 5
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Some common supply curves: Semi-hyperbolae

The following curves can be a considered as demand function. Type S3A: The upper section of the left branch of a semi-hyperbolae centered at C (0, 0) and whose vertex is at V (a, 0). This is dened by p= b a x 2 a2 ,
where a > 0, b > 0. Moreover, its (restricted) domain and range are: Dom(g ) = [a, +)
Rng(g ) = [0, +).
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x 2 225
Example: Graph of p = g (x ) =
11 15
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The following curves can be a considered as demand function. Type S3B: The left section of the upper branch of a semi-hyperbolae centered at C (0, 0) and whose vertex is at V (0, a). This is dened by p= a b b2 + x 2 ,
where a > 0 and b > 0. Moreover, its (restricted) domain and range are: Dom(g ) = [0, +)
Rng(g ) = [a, +).
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x 2 + 289
Example: Graph of p = g (x ) =
10 17
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Supply Curve
Given a supply curve represented by p = g (x ): Intercepts
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Supply Curve
Given a supply curve represented by p = g (x ): Intercepts p -intercept of g (x ) the lowest price at which the commodity would be supplied
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Supply Curve
Given a supply curve represented by p = g (x ): Intercepts p -intercept of g (x ) the lowest price at which the commodity would be supplied x -intercept of g (x ) either the supplier produces the product for free or is unwilling to produce anything. The latter case is the point (0, 0).
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Supply curve: Illustration
The supply function of an apple is dened by g (x ) = x + 2, where x is in dozens of boxes and p = g (x ) is in PhP 10,000s.
p 8 7 6 5 4 3 2 1 0 0 1 2 3 4 5 6 x p= x+2
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Supply curve: Illustration
The supply function of an apple is dened by g (x ) = x + 2, where x is in dozens of boxes and p = g (x ) is in PhP 10,000s.
p 8 7 6 5 4 3 2 1 0 0 1 2 3 4 5 6 x p= x+2
The p -intercept of g (x ) is at (0, 2). Interpretation: PhP 20,000 is the lowest price at which a dozen box of apples will be supplied.
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Exercise
In this context, let x be the quantity demanded/supplied and p be the price in hundred pesos. Perform the following tasks to the given equations. Determine whether the following equations dene the demand or supply for particular commodities by expressing p in terms of x . Compute and interpret the intercepts and sketch its graph (Quadrant I only). (If you want see the graph via Graphmatica, kindly replace use the variable y instead of p .)
1
3 4
p 2 x 2 = 25 x2 p2 + =1 121 225 p + 11 5 x 22 = 0 p = 0.1(x + 5)2 + 17.5

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5 6 7
p 2.5x 1.5 = 0 p = (x + 2)2 (p + 3)2 8x = 0 (p 1)2 x 2 =1 25 36
Market equilibrium
Market equilibrium point (MEP) The market equilibrium point exists in a market such that the quantity demanded by the consumers is equal to the quantity supplied by the producers.
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Market equilibrium
Remark MEP exists at point (xE , pE ) whenever f (x ) = g (x ), and conversely.
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Market equilibrium
Remark MEP exists at point (xE , pE ) whenever f (x ) = g (x ), and conversely. xE is called market equilibrium quantity.
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Market equilibrium
Remark MEP exists at point (xE , pE ) whenever f (x ) = g (x ), and conversely. xE is called market equilibrium quantity. pE is called market equilibrium price.
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Illustration 1
Consider the demand function p = f (x ) = 20 4x and the supply function p = g (x ) = 0.25x 2 , where p is price in PhP 100s and x is in units.
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Illustration 1
Consider the demand function p = f (x ) = 20 4x and the supply function p = g (x ) = 0.25x 2 , where p is price in PhP 100s and x is in units. Graph.
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Illustration 1
Consider the demand function p = f (x ) = 20 4x and the supply function p = g (x ) = 0.25x 2 , where p is price in PhP 100s and x is in units. Graph.
The MEP is obtained by nding xE in the equation f (x ) = g (x ) and then looking for pE by evaluating either f or g at xE .
Illustration 1 (contd)
Solution. f (x ) = g (x ) 20 4x = 0.25x 2 = x = 4 0 = 0.25x 2 + 4x 20
= xE = 4.
4 36 x= 0.5 x = 20 (rejected)
42 4(0.25)(20) 2(0.25)
or x = 4 (accepted).
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= xE = 4. To get pE , we have
4 36 x= 0.5 x = 20 (rejected)
42 4(0.25)(20) 2(0.25)
pE = g (xE ) = g (4) = 0.25(4)2 = 0.25(16) = 4.
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= xE = 4. To get pE , we have
4 36 x= 0.5 x = 20 (rejected)
42 4(0.25)(20) 2(0.25)
pE = g (xE ) = g (4) = 0.25(4)2 = 0.25(16) = 4. Hence, the market equilibrium quantity is 4 units and the market equilibrium price is PhP 400.
Illustration 2
The supply function of a commodity is p = g (x ) = 0.4x + 8 and its corresponding demand function is p = f (x ) = 17 0.2x . Here, x is in units and p is in USD 1,000s. The MEP can be obtained by setting f (x ) = g (x ) and then solving the resulting equation. That is, f (x ) = g (x ) 0.4x + 0.2x = 17 8 0.6x = 9 = xE = 15. 0.4x + 8 = 17 0.2x
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Illustration 2
The supply function of a commodity is p = g (x ) = 0.4x + 8 and its corresponding demand function is p = f (x ) = 17 0.2x . Here, x is in units and p is in USD 1,000s. The MEP can be obtained by setting f (x ) = g (x ) and then solving the resulting equation. That is, f (x ) = g (x ) 0.4x + 0.2x = 17 8 0.6x = 9 = xE = 15. Solving pE , we obtain, pE = f (15) = 0.4(15) + 8 = 6 + 8 = 14. Hence, the MEP is 15 units of commodity and price amounting to USD 14,000.
0.4x + 8 = 17 0.2x
Exercise
We make the following assumptions about supply and demand. The supplier will produce 1,000 units when the selling price is PhP 20 per unit and will produce 1,500 units if the price is PhP 25 per unit. Consumers will demand 1,500 units when the selling price is PhP 20 per unit but that the demand will decrease by 10% if the price increases by 5%. Both supply and demand functions are assumed to be linear. Calculate the MEP. Graph the supply and demand curves together with the MEP.
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Surplus and scarcity
Denition Let f (x ) be the demand function, g (x ) be the supply function and (xE , pE ) be the MEP.
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Denition Let f (x ) be the demand function, g (x ) be the supply function and (xE , pE ) be the MEP. The surplus of a commodity occurs when g (x ) > f (x ) for p pE .
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Denition Let f (x ) be the demand function, g (x ) be the supply function and (xE , pE ) be the MEP. The surplus of a commodity occurs when g (x ) > f (x ) for p pE . The amount of surplus is obtained as: S+ = g (x ) f (x ).
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Denition Let f (x ) be the demand function, g (x ) be the supply function and (xE , pE ) be the MEP. The surplus of a commodity occurs when g (x ) > f (x ) for p pE . The amount of surplus is obtained as: S+ = g (x ) f (x ). The shortage or scarcity of a commodity occurs when f (x ) > g (x ) for 0 p pE .
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Denition Let f (x ) be the demand function, g (x ) be the supply function and (xE , pE ) be the MEP. The surplus of a commodity occurs when g (x ) > f (x ) for p pE . The amount of surplus is obtained as: S+ = g (x ) f (x ). The shortage or scarcity of a commodity occurs when f (x ) > g (x ) for 0 p pE . The amount of shortage is obtained as: S = f (x ) g (x ).
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Illustration 4
Consider the demand function p = f (x ) = 20 4x and the supply function p = g (x ) = 0.25x 2 , where p is price in PhP 100s and x is in units.
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Illustration 4
Consider the demand function p = f (x ) = 20 4x and the supply function p = g (x ) = 0.25x 2 , where p is price in PhP 100s and x is in units. From Illustration 1, the MEP is (4, 4). There is a surplus when p = 4.5 since f (4.5) = 2 is smaller than g (4.5) = 5.0625. Hence S+ = g (4.5) f (4.5) = 3.0625. Translating this value back to the problem, we get PhP 306.25 as the amount of surplus.
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Illustration 4
Consider the demand function p = f (x ) = 20 4x and the supply function p = g (x ) = 0.25x 2 , where p is price in PhP 100s and x is in units. From Illustration 1, the MEP is (4, 4). There is a surplus when p = 4.5 since f (4.5) = 2 is smaller than g (4.5) = 5.0625. Hence S+ = g (4.5) f (4.5) = 3.0625. Translating this value back to the problem, we get PhP 306.25 as the amount of surplus. When p = 3.5, we get f (3.5) = 6 and g (3.5) = 3.0625. Hence, there is a shortage of S = g (3.5) f (3.5) = 2.9375. This amounts to PhP 293.75.
Exercise
1
The market equilibrium point of a certain product occurs when 2,300 units are produced and sold at PhP 250 per unit. The lowest price at which the producer is willing to supply the product is PhP 100 while the highest price at which the consumer will buy it is PhP 400. Find the demand and supply equations assuming they are both linear. Given the equations 30x + 4p + p 2 = 1796 and 4p + p 2 30x 4 = 0, where x represents quantity in hundreds of units and p represents the unit price in tens of pesos.
(a) Identify which equation represents the demand curve and which one represents the supply curve. (b) Interpret the intercepts of the given equations. (c) Determine the market equilibrium price and the market equilibrium quantity. (d) Sketch the curves on the same coordinate axes and indicate the market equilibrium point.

08 Applications of Functions

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08 Applications of Functions

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Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Market a group of buyers and sellers of a particular product or service

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Some common demand curves: Lines

Applications of Functions in Business & Economics

Some common demand curves: Lines

Example: The graph of p = f (x ) = 0.5x + 20

Applications of Functions in Business & Economics

Some common demand curves: Semi-parabolae

Applications of Functions in Business & Economics

Some common demand curves: Semi-parabolae

Example: The graph of p = f (x ) =

Applications of Functions in Business & Economics

Common demand curves: semi-parabolae

Applications of Functions in Business & Economics

Common demand curves: semi-parabolae

Applications of Functions in Business & Economics

Common demand curves: semi-parabolae

Example: The graph of p = f (x ) = 0.008x 2 + 20

Applications of Functions in Business & Economics

Common demand curves: Semi-ellipses and semi-circles

Applications of Functions in Business & Economics

Common demand curves: Semi-ellipses and semi-circles

Applications of Functions in Business & Economics

Common demand curves: Semi-hyperbolae

Applications of Functions in Business & Economics

Common demand curves: Semi-hyperbolae

Example: The graph of p = f (x ) =

Applications of Functions in Business & Economics

Common demand curves: Semi-hyperbolae

Applications of Functions in Business & Economics

Common demand curves: Semi-hyperbolae

Example: The graph of p = f (x ) = 22

Applications of Functions in Business & Economics

Given a demand curve represented by p = f (x ): Intercepts

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Applications of Functions in Business & Economics

Some common supply curves: Lines

Applications of Functions in Business & Economics

Some common supply curves: Lines

Domain and range of a linear supply function b>0 b<0