Linear Relationships and

constrained Optimization

Md. Aktar Kamal

Assistant Professor
Dept. of Management Studies
Faculty of Business Studies(FBS)
Bangladesh University of Professionals (BUP)
 Objectives:
Introduction

Learning Out comes

Discussion Points

Concept of Equations

Idea of Cost Functions

Application of Linear equations

 Learning Outcomes

To understand about Linear equations &Functions

To know Cost Functions

Be familiar with the Application of Linear equations

 Discussion Points

Equations and Inequalities Functions

Linear equations and non-linear equations

Cost Functions

Applications of Straight lines

 LINEAR EQUATIONS

TOPICS:
 Slope
 Equation of line
 Intercept
 Slope-intercept form
 Application of linear equation
Slope
 Y-axis
Or Slant line
Vertical Line P(x,y)


X-axis
O(0,0) x M Or
Horizontal Line

Slope, m = Perpendicular / Base = y-0/x-0 = y/x

Slope, m 
Perpendicular

Base
PM

OM
Rule: If (x1,y1) and (x2 ,y2) be two points then
Slope, m = y2 – y1 / x2 – x1

Example:
If (2, 2) and (4,6) are two points then
Slope, m = (6 – 2/ (4 – 2)
=4/2
=2

Book- Bowen
Page- 25 to26
Same Problems: 9 to22
 Example
• A line segment fitted to points whose
coordinates are in the order( disposable
income, personal consumption
expenditures) for a nation passes through
points (32,30) and (57,54),the number
being in billions of dollars. What are the
values, names, and inter-pretations of the
slope and (1-slope)of this line?
 Linear equation
Rule:
If (x1,y1) and (x2 ,y2) be two points then the
Line equation is

y  y1 x  x1
=
y1  y 2 x1  x2
 Linear equation
Example:- If (-2, -4)and (-1, 5) are two points
then, Find the equation of a line.
Solution: We know ,The equation of a line is
y  y1 x  x1
=
y1  y 2 x1  x2
 y4 x2
 
 4  5  2 1
 -9(x+ 2)= -1(y+ 4)
 - 9x – 18= - y – 4
 - 9x + y = 14
Which is our required line equation.

Book- Bowen
Page- 36
Problem: 13 to 24
 Slope-Intercept Form

Rule: Slope-Intercept Form

y=mx+b
Where,
m is the slope and
b is the y-intercept
Example:
Write 2y +3x =18 in slope-intercept form and state the
value of the slope and the y- intercept.
Solution:
Given, the equation of the line is
2y + 3x=18
 2y = -3x +18
 y = -3x/2 + 9
Which is our required form.

Therefore, slope of the line is -3/2 and y-intercept is 9 .

Book- Bowen
Page - 37
Problems: 47 to 50
 Linear Equations
Taxi fare from an airport to a nearby city is 0.5 taka per
mile driven, plus 100 take for a bridge toll. Let y
represent the fare and x the number of miles driven on
one trip, and write the equation for y in terms of x.
Find the fare if the distance from the airport to the city is
22 miles.

Bridge toll = 100 taka

Fare 0.5 taka per mile driven
 Solution
Here,
Fare = 0.5 taka per mile driven
Bridge toll = 100 taka
y= total fare
x= number of miles driven
The total fare = (0.5)(number of miles driven) + 100

y= 0.5x + 100 (Using symbols)

Which is a linear equation.

When the distance traveled is 22 miles, the fare is

y= 0.5  22 + 100 = 11+100= tk.111
 Application of linear equation
Problem (Page-30):
It cost $2500 to set up the presses and machinery needed to
print and bind a paperback book. After setup, its costs $2 per
book printed and bound. Let x represent the number of books
made and y the total cost of making this number of books.
(a) Write the equation for y in terms of x
(b) State the slope of the line, and interpret this number
(c) State the y-intercept of the line, and interpret this number
 Cost per book = $2 Setup Cost = $2500

Therefore, Cost = Cost per book + setup cost

= Variable cost + Fixed cost
=$2.1+$2500
y = 2x+2500
 Solution
Given,
Setup cost (Fixed cost) = $2500
Variable cost = $ 2per book printed
x = the number of books made
y = the total cost
(a) We know,
Total cost, y = Variable cost + Setup cost
 y = 2x + 2500
Which is linear equation in slope-intercept form.
(b) The slope is 2
The slope = 2, means that every additional book printed, starting
with the first copy, adds $2 per copy.
Which is the extra cost when an additional copy is made.
 Solution

(c) The y-intercept = $2500

If x = 0 books are made then the total cost,
y = 2.0 + 2500 = $2500
This means if the machines were made ready and then it was
decided not to printed the book, this cost would still be
incurred.
 Application of linear equation

 Cost function
 Average cost function
 Marginal cost function
 Revenue Function
 Profit Function
 Break Even Analysis
 Cost function
If x is the quantity produced of a certain good by a
firm at total cost C,
we can write the total cost function C = C(x)
There are two part of Total cost
(i) Fixed cost which is independent of x
(ii) Variable cost which is dependent of x
Therefore, Total cost = Variable cost + Fixed cost
 TC = VC + FC
Average cost:
If total cost (c) is represented as a function of output x,
the average cost (AC) represents the cost per unit of
production.
i.e. Average cost = Total cost / Total quantity
= c /x
Marginal cost:
Marginal cost represents the change in the total cost
for each additional unit of production.
dc
i.e. Marginal cost = dx
Marginal cost = Variable cost per unit = Slope
 Application of linear equation
Problem: (Page-51):
A printer quotes a price of $7500 for printing 1,000 copies
of a book & $15000 for printing 2,500 copies. Assuming a
linear relationship and that 2,000 books are printed:

a) Find the equation relating the total cost, y, to x, the

number of books printed.
b) What is the variable cost?
c) What is the fixed cost?
d) What is the variable cost per unit?
e) What is average cost per unit?
f) What is the marginal cost of the last book printed?
Solution:
Here,
y = Total cost and
x = The number of books printed
The information given consists of two points whose
co-ordinates(x,y) are in the order (Units made , total cost )
These are (1000,7500) and (2000 , 15000)
We have,
y  7500 x  1000

7500  15000 1000  2500

y  7500 x  1000
 
 7500  1500
 y  7500
 x  1000
5

 y -7500 = 5x – 5000  y = 5x + 7500 -5000

 y = 5x + 2500 Which is required relation.

(b) The variable cost is 5x = 5.2000 = $ 10000

(c) The fixed cost is 2500
(d) The variable cost per book is $5
(e) The average cost per book is ( 5.2000 + 2500) / 2000 = 6.25
(f) The marginal cost of the last book printed is $ 5
 Home Work

Book: Mathematics with Applications in

Management and Economics

Author: Pricheet-Saber

Example: Page-30, Page-33

Exercise: Page-31, Page-34
Exercise: Page-32, 33,34
Exercise: page-51: 11,12,13,14,15
 Revenue function
Revenue is the amount of money earned from the sale
of a product and depends upon the price of the product
and the quantity of the product that is actually sold.

If q is the output that is made and sold (the demand) of

a firm at price p, then the total revenue (R) collected by
the firm is R(q)=p.q

Formula :
Revenue function,
R = Selling price per unit  Total quantity
= p.q
 Profit function

The profit is the difference between total revenue and

total cost which denoted by P(q).
Thus,
Profit function = Total Revenue - Total Cost
 P(q)= R(q) - C(q)

Example:
Suppose for a company the revenue function is
R(q)=30q and the cost function is C(q)=25q+10,000
then find the profit function ?
Example:
Suppose for a company the revenue function is
R(q)=30q and the cost function is C(q)=25q+10,000
then find the profit function ?
Solution :
Given,
Revenue function is R(q)=30q
and the cost function is C(q)=25q+10,000
We know Profit function, P(q) = R(q)-C(q)
Or, P(q) = 30q- (25q+10,000 )
Or, P(q) = 5q-10,000
 Break Even Analysis
or
Cost –Volume Profit(C-V-P)
Break even is a situation when profit is zero.
i.e. No Profit or No loss
At breakeven, p(q)=0
So Total Revenue = Total cost
To profit analysis

To take a plan for business operation

To Cost analysis

Analysis to determine the level of sales to cover the cost

 Application of linear equation
Problem: (Page-64):
A manufacturer has a fixed cost of $60,000 and a variable
cost of $2 per unit made & sold. Selling price is $5 per unit.
(a) Find the revenue, cost & profit functions using q for
number of units.
(b) Compute profit if 25,000 units made & sold?
(c) Compute profit if 10,000 units made & sold?
(d) Find the break even quantity.
(e) Find the break-even dollar volume of sales (revenue)?
(f) Construct the break-even chart. Label the cost &
revenue lines, the fixed cost line, & the break-even point.
Solution:
We denote the number (quantity) of units made and sold by q
Given , Selling price is $5 per unit
Variable cost $2 per unit
and Fixed cost (FC) = $60,000
(a)
(i) The Revenue function, R (q) = 5q
(ii) The Variable cost (VC)= 2q
Therefore, cost function or Total cost (TC) = VC + FC
= 2q + 60,000
(iii) We know, Profit function P (q) = R (q) – C (q)
= 5q – 2q – 60,000
= 3q – 60,000
(b) If q = 25000 units are made and sold then
Profit, P (25000) = 3 . 25000 – 60000 = $15000
(c) If q = 10,000 units are made and sold then,
Profit P (q) = 3 . 10000 – 60000
= - $30000
Therefore Loss of $30,000
(d) We know,
At break even, Profit will be zero.
Thus, P (q) = 0
or, 3q – 60,000= 0
or, q = 20,000 units
So the break-even quantity, q = 20,000
(e) The break-even dollar volume of sales(revenue) is
R (q) = 5q
or, R(20,000) = 5. 20,000 = $100000
(f) We have, R (q) = 5q --- --- (i)
C (q) = 2q+ 60,000 --- --- (ii)
We can construct the table as follows from equation (i)

q 0 20,000
R 0 1,00,000

We can construct the table as follows from equation (ii)

q 0 20,000
C 60,000 1,00,000
 Application of linear equation
R&C R C
Profit

(20,000,100000 ) BREAK-EVEN CHART

BEP
1,00,000
VC
VC FCL
60,000
FC FC
q
O
20,000
BOOK- BOWEN, Page- 64 to 65, Problems- 13,14,15,16,29,30,31,32.
 Mark-up and Margin
Markup: Markup is the deference between the retail
price / Selling price and the cost.
i.e. Mark up = Retail price - cost
Example: Suppose an item costs $130 is price to sell at
$200. Find Mark-up?
Solution:
We know Mark up = Retail price - cost
= $(200 - 130) = $70
70
Mark up percentage on cost  100%
130

= 54%
 Mark-up and Margin
Mark-up percentage on Selling / Retail price
70
 100%  35%
200
= Margin

Margin: Margin = Mark-up / Retail price

= 70/200 = 0.35 = 35/100 = 35%
Margin is the markup percentage on retail price.
 Application of linear equation
Problem:
A company has fixed cost Tk. 22,800. Mark up is the
38% on retail price and the variable cost for each unit
produced is Tk. 0.17.
Requirements;
(i) Determine the relationship between sales and
costs
(ii) Determine Break-even Point
(ii) Determine the net profit on sales of Tk. 75,000
before deduction tax,
(iv) Show the chart of zero profit i.e. BEP chart.
Solution:
Given , Fixed cost (FC) = Tk. 22,800
Variable cost for each unit produced is Tk.0.17
Mark-up is 38% on retail price
So remaining = (100 - 38)% on its cost
= 62% = 0.62

 Other variable cost is = 0.62 – 0.17 = 0.45

Let The total units is x
Total variable cost = 0.45x + 0.17x = 0.62x
and Revenue R(x) = x
(I) We know ,
Total cost, C(x) = Variable cost + Fixed cost
= 0.62x + 22,800
(ii) At break even point, we have Profit = 0
 p(x) = 0
 R(x) – C(x) = 0
 x – 0.62x – 22,800 = 0
 x = 60,000
So break even point at x = 60,000 units
(iii) If x = Tk.75,000 then revenue R, =Tk.75,000
Again, If x = Tk.75,000 then
Total cost, C = 0.62  75000 + 22,800 =
Tk.69,300
Net profit before tax deducting
= Tk. (75,00 0 - 69,300) = Tk. 5700

(iv) Draw the figure

We have, R (x) = x --- --- (i)
C (q) = 0.62x + 22,800 --- --- (ii)
We can construct the table as follows from equation (i)
x 0 60,000
R 0 60,000
We can construct the table as follows from equation (ii)

x 0 60,000
C 22,800 60,000
 R
R&C C

Profit

BREAK-EVEN CHART
BEP
1,00,000 ( 60,000 , 60,000 )

22,800 FCL
FC
q
O 60,000
 Home Work

Book: Mathematics with Applications in

Management and Economics

Writer: Pricheet-Saber
Example: Page-53,
Exercise: page-53, Page-55

Exercise: page-64: 14,15,29,31

THANK YOU