Essential Mathematics for Economics and Business, 4th Edition

NON-LINEAR FUNCTION & APPLICATION

(CHAPTER 4)

www.wiley.com/college/Bradley ©© John
John Wiley
Wiley and
and Sons
Sons 2013
2013
Learning Objectives
Students should be able to:
• Manipulate nonlinear function algebraically, particularly
in economic equation
• Use exponentials and logs in a range of applications,
such as production and consumption.
Lecture Outline
Quadratic Equation

Quadratic Equations in Economics

Qubic Function

Polynomials

Exponential and Logarithmic Function

Hyperbolic Function
Lecture Outline
Quadratic Equation

Quadratic Equations in Economics

Equilibrium in Labor Market

Non-Linear Supply Total Revenue for
Price
andControls
Demand a Revenue
Function Maximizing
Tax, Subsidies, and Their Distribution

Breakeven Analysis Breakeven

Point
 Why We Need Non-Linear Function
(Quadratic Equation)?
A good and easy introductory
Linear Function models for demand, supply,
cost, etc.

BUT, it provides limited

representations of real life
situations

For example:
• Total Revenue (TR) in monopolistic
• Total Cost : after the initial outlay, the cost of producing
an extra unit will eventually decrease
Solving Quadratic Equation

ax2 + bx + c = 0

• ax2 = 0 à a = a, b = 0, c = 0
• ax2 + bx = 0 à a = a, b = b, c = 0
• ax2 + c = 0 à a = a, b = 0, c = c
Exercise 1
Solve each of the following equations and make a graph!
a. x2 + 6x + 5 = 0
b. x2 + 6x + 9 = 0
c. x2 + 6x + 10 = 0 The points of intersection with x-axis
(perpotongan dengan sumbu x) are the
roots of the quadratic equation f(x) = 0
Answer:
a. root 1 or x1= -1 and root 2 or x2 = -5
b. root 1 or x1= -3 and root 2 or x2 = -3
c.
- 6 ± 36 - 4(1)(10) - 6 ± - 4 - 6 ± 2 - 1 - 6 ± 2i
x= = = = = -3 ± i
2(1) 2 2 2
Graph: Quadratic Equation (a)
y = x2 + 6x + 5 DIFFERENT REAL ROOTS
y
root 1 or x1= -1 and root 2 or x2 = -5 14
12
10
x y 8
-7 12 6
4
-6 5 2
0 x
-5 0 -8 -7 -6 -5 -4 -3 -2 -1-2 0 1 2
-4
-4 -3 -6

-3 -4
(b) 2 - 4(a)(c) > 0, then there will be 2 different solutions
-2 -3 (2 roots)
-1 0 When a > 0 then,
0 5 x when y min = (root1+root2)/2 = (-5-1)/2= -3
1 12 y min = (-3)2 + 6(-3)+5= -4
Graph: Quadratic Equation (b)
y = x2 + 6x + 9
root 1 or x1= -3 and root 2 or x2 = -3
REPEATED REAL ROOTS
y
18
x y 16
-­‐7 16 14
12
-­‐6 9 10
-­‐5 4 8
6
-­‐4 1 4
-­‐3 0 2
x
-­‐2 1 -8 -7 -6 -5 -4 -3 -2 -1
0
0 1 2
-­‐1 4
0 9 (b) 2 - 4(a)(c) = 0, then there will be 2 identical solutions

1 16
Graph: Quadratic Equation (c)
y = x2 + 6x + 10
Roots = 3 ± i
IMAGINARY ROOTS
y
x y 18
16
-7 17 14

-6 10 12
10
-5 5 8

-4 2 6
4
-3 1 2

-2 2 -8 -7 -6 -5 -4 -3 -2 -1
0
0 1 2
x
-1 5
0 10 (b) 2 - 4(a)(c) < 0, then there will be 2 imaginary roots

1 17
Lecture Outline
Quadratic Equation

Quadratic Equations in Economics

Qubic Function

Polynomials

Exponential and Logarithmic Function

Hyperbolic Function
Quadratic Equation

Quadratic Equations in Economics

Equilibrium in Labor Market

Non-Linear Total Revenue for
Price Controls
Demand and a Revenue
Supply Function Maximizing
Tax, Subsidies, and Their Distribution

Breakeven Analysis Breakeven

Point
1. Non-linear Demand and Supply Functions
Given: Equlibrium:
Ps = Q2 + 6Q + 9 • Ps = Pd
Pd = Q2 - 10Q + 25 Q2 + 6Q + 9 = Q2 - 10Q + 25
16Q = 16
Calculate Pe & Qe
Q=1 P = 1 + 6 + 9 = 16
Sketch the graph with Q=0 to Q=5
à Pe = 16 and Qe = 1

Q Ps Pd (Pe, Qe)
0 9 25 70

1 16 16 60

50
2 25 9
40
3 36 4 Price
30 Supply
4 49 1 20
Demand

5 64 0 10

0
0 1 2 3 4 5 6
Quantity
2. Total Revenue for a Revenue - Maximizing
Given a demand function:
P = 50 - 2Q

a) Write the equation of total revenue function

b) Graph the total revenue function for 0≤Q ≤30
c) Estimate the value Q at which TR is maximum and
estimate TR max
 Answer (Worked Example 4.8 – page 160)
a) Write the equation of
total revenue function
TR = P x Q
= (50 - 2Q) x Q
= 50Q – 2Q2

b) Graph the total revenue

function for 0≤Q ≤30
See page 161
c) Estimate the value Q at which TR is maximum and
estimate TR max

Find the roots first! TR max when Q is in the middle

between roots (see graph)
TR = 50Q – 2Q2
0 = 50Q – 2Q2
0 = Q (50-2Q)
Q1 = 0, Q2 = 25
Or use: TR max = 50Q – 2Q2
= 50 (12.5) – 2(12.5)2
= 312.5
3. Breakeven Analysis
Breakeven Point:
Total Revenue = Total Cost

Example:
The demand function for a good is given as Q = 65 – 5P.
Fixed cost are £30 and each unit produced costs an
additional £2.
a) Write down the equation for a total revenue and total
costs in terms of Q
b) Find the breakeven point(s) algebraically
c) Make the Q, TR, and TC table, then draw the graph
Answer:
The equation for a total Find the breakeven
revenue and total costs in point(s) algebraically
terms of Q
TR = P.Q TR = TC
13Q – 0.2Q2 = 30 + 2Q
= (13 - 0.2Q) Q
0.2Q2 -11Q + 30 = 0
= 13Q – 0.2Q2
Use:
TC = FC + VC
= 30 + 2Q

The answer will be:

Q1 = 2.8779
Q2 = 52.1221
Make the Q, TR, and TC table, then draw the graph

See the Answer in Page 163

Lecture Outline
Quadratic Equation

Quadratic Equations in Economics

Qubic Function

Polynomials

Exponential and Logarithmic Function

Hyperbolic Function
 Break Time
We’ll continue at 14.50
Cubic Functions
120 y  =  0.5x 3  -­  5x 2  +  8.5x  +  27
— General form : Two turning
80 points
ax3 + bx2
+ cx + d = 0 40

— Cubic equation will have : 0

y
ü No turning points or two
-­12 -­10 -­8 -­6 -­4 -­2 0 2 4 6 8 10 12
-­40

turning points -­80 1 roots

ü Either 1 root or 3 roots -­120

30

No turning points
20
y  =  x 3 3 roots 120
100
80 3 2
60 y  =  -­0.5x  -­  5x  +  8.5x  +  27
40
10
20
y 0
0
-­12 -­10 -­8 -­6 -­4 -­2-­20 0 2 4 6 8 10 12
y

-­4 -­3 -­2 -­1 0 1 2 3 4 -­40

-­60
-­10 -­80
-­100
-­120
y  =  -­x 3
-­20
1 roots Two turning
x
points
-­30
x
 Cubic Functions
Example:
A firm’s total cost function is given by the equation, TC = Q3
The demand function for the good is P = 90 – Q.
a) Write down the equations for total revenue. Calculate the
breakeven points.
b) Graph the total revenue and total cost functions on the
same diagram, showing breakeven points
Answer Breakeven points
The equations for total TR = TC
revenue 90Q – Q2 = Q3
TR = P.Q Q3 + Q2 - 90Q = 0

= (90 - Q)Q
To find solution, make the cubic
= 90Q – Q2 function to quadratic function!
Q3 + Q2 - 90Q = 0
Q (Q2 + Q – 90) = 0

Therefore, Q = 0 and solving Q2 +

Q – 90 using

can be found Q = 9 and Q = -10

Polynomials
— General form
f(x) = anxn + an-1xn-1 + an-2xn-2 +…+ a1x + a0
a0, a1 , … an are constants

— Degree 2 polynomial à Quadratic

— Degree 3 polynomial à Cubic

Lecture Outline
Quadratic Equation

Quadratic Equations in Economics

Qubic Function

Polynomials

Exponential and Logarithmic Function

Hyperbolic Function
Exponential Function
Index or power
General form : y = ax
base
Rules for using exponential functions

• e = euler’s number = 2.71828182

Exponential Function
Exponential functions to base e describe growth

There are three main laws of growth

• Unlimited Growth
• Limited Growth
• Logistic Growth
Unlimited growth: Population Growth
• Worked Example 4.15 pg. 180-181
• P = 753e0.03t
• t =year-2010, P=the number of persons in the population at time

Estimate population in 2020 and 2030!

Year 2020, t = 2020-2010 =10 so P = 753e0.03(10) = 1016.44 @ 1016
Year 2030, t = 2030-2010 =20 so P = 753e0.03(20) = 1372.05 @ 1372

Draw the equation for t = 0 (in 2010) to t = 30 (in 2040)!

First, make the table!
Draw Graph! See book! 0.03t
—P = 753e
Year t
2010 0 753
2015 5 874,9
2020 10 1016,4
2025 15 1180,9
2030 20 1372,1
2035 25 1594,1
2040 30 1852,1
Limited Growth: Consumption and changes
in income
• Worked Example 4.16 pg. 182
C = 500(1 - e-0.3Y)
Graph the graphic function over interval 0 < Y <20!
Using Calculator calculate C for several values of Y
between 0 and 20. And then draw the graph!
Logistic Growth
• Progress exercise 4.8 question 3 pg. 184
• N= 800
1 + 790e -0.1t
• How many chickens infected at t = 0?
• Calculate the number of chicken infected after 0,
20,40, 60, 80 and 100 days!
 Logarithmic Functions
• log10 10=1; log 100=2; log 1000=3; log2 2=?
• ln e = Loge e= 1; ln 12=?
• Log10 10x = x
• Given 31=10x calculate x
• Given P=753e0.03t find t when P is 1750.
 Logarithmic Functions
Solve the following equations:
• Rules for logs: a) 20+(2.4)2x=32.5 b) log(x+2)=2.5
• logb(M) + logb(N) = logb(MN)
• logb(M) - logb(N) = logb(M/N)
• logb(Mz) = zlogb(M)
• logb(M) = logx(M)/logx(b)
Hyperbolic Functions
• General form: y=a/(bx+c)
• Study worked example 4.24 pg. 200
• Demand Function: Q+1=200/P
• Supply Function: P=5+0.5Q
• Find Pe and Qe
• Sketch the graph for 0≤ Q ≤ 20
Quiz 4
• Material: Week 3
• Duration: 30 minutes
• The quiz will be closed at 17.00
• The quiz is in sequential mode. You cannot go back to the
previous questions.

Remember!
Pre-Mid-Exam: Sunday 27th September 2020
(20.00 – 22.00)
THANK YOU