BUSINESS

MATHEMATICS
A FIRST YEAR BOOK IN BUSINESS
MATHEMATICS
𝐶𝑜𝑚𝑝𝑖𝑙𝑒𝑑 𝐵𝑦: 𝑆𝑖𝑛𝑦𝑎𝑛𝑔𝑤𝑒. 𝑊. 𝑇. 𝐵𝑆. 𝑐 𝐼𝑛 𝑀𝑎𝑡ℎ𝑒𝑚𝑎𝑡𝑖𝑐𝑠

𝑳𝑬𝑪𝑻𝑼𝑹𝑬𝑹: 𝑴𝑹. 𝑱. 𝑴𝑾𝑬𝑵𝒀𝑨

0
DEFINITION 1: A set is a collection of well-defined objects e.g. set of students doing BEC/BF 140, a set
of pencils etc. A set can either be stated or listed.

We use capital letters to denote sets. We also use brace brackets to enclose the elements or objects.
E.g.

: ℎ

: ℎ




Example;

ℎ ℎ .

DEFINITION 2: A set is said to be a subset of a set if every element in is an element of . This is

denoted by means is contained in , alternatively means is a subset of .

The symbols




DEFINITION 3: The set containing the total of elements for any particular discussion or situation is
called a universal set.

DEFINITION 3:

A set which contains no elements is said to be an empty set of a null set. This is denoted by or .

1
ℎ . . . . ℎ
 .

DEFINITIONS

1) The union of two sets and is the set which contains all the elements which are in
or or both.
2) The intersection of sets and is the set which contains all the elements
common in both sets and .
3) Two sets and are said to be disjoint if and
ℎ ℎ . Sets are said to be disjoint or in other words disjoint
sets if they contain no elements in common.

4) : For a given universal set and a subset of the compliment of denoted

by is the set of elements of the universal set that are not elements of A. This
can also be shown using form of set notation as |
5) are used to help visualize sets and the relation between sets

i. ( )
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.

Suppose that the number of elements in a set is 7 and the number of elements in set is 5. Is it
possible to make any statement about the exact number of elements in Or in The answer
is no.

2
ℎ . . . . ℎ
 The number of elements in plus the number of elements in minus the number of elements
in intersection

The number of subsets in a set is found by the formula , where is the number of elements.

EXAMPLES
1. Suppose that out of first year students at CBU, are taking business maths,
engineering maths and are taking both business and engineering math. How many first year
students are taking business maths or engineering maths?

= .

SYMBOLS NAME DESCRIPTION EXAMPLES

Natural number Counting numbers

Integers Natural numbers with

negatives and zero

Rational Numbers that can be expressed . .

Numbers in the form of , where and
are integers and .
Decimal repeating or
terminating.

OR Irrational Numbers that can be √ , √ , and

numbers represented as non-terminating
and non-repeating decimal
numbers.

3
ℎ . . . . ℎ
 Real numbers Rational and Irrational numbers . √ , √ etc.

Let be real numbers

1) Transitive property, if and , then

2) The closure properties of addition and multiplication for all real numbers and , there are
unique real numbers and .
3) The commutative properties of addition and multiplication that is and
4) The associative properties of addition and multiplication that is and

5) The identity properties, for any real number , there are exists unique real numbers denoted by
under addition and under multiplication such that and . .
6) Inverse properties; for any real number , there exists unique real numbers under addition
such that and under multiplication such that .
.
7) The distributive properties.

For all real numbers

I. , if and only if
II.
III.

. . and . . . In the expression , is called the exponent and is called

the base. The expression √ is called the radical. Here is called the index, is called the
radical and √ is called the radical symbol.

LAWS OF EXPONENTS AND RADICALS

1) .
2)
3)
4)
5)

4
ℎ . . . . ℎ
6)
7) ( )

8) √
9)
√

10) √ . √ √ .
√
11) √
√

12) √ √ √
13) √

Rationalizing the denominator of a fraction is a procedure in which a fraction having a radical in

its denominator is expressed as an equal fraction without a radical in its denominator.

EXAMPLE;
1. Rationalize the following
√ √ √
I. or
√ √ √ √

( ) .( )
II.
√

. √
III.
√

2. Simplify, expressing all answers in terms of positive exponents. Rationalize the denominator
where necessary to avoid fractional exponents in the denominator.
I. √ .√
.

II.
√ .√

5
ℎ . . . . ℎ
 EXAMPLES
1) A piece of metal meters long is cut from a piece which is meters long. If meters
is lost in waste. Find the remaining piece
2) A man bought shares of oil stoke for and sold it months later for . Find
the increase in value per share of stoke.

INTEREST ; is a payment for the use of money borrowed. The money borrowed is called
the principal, . The amount equal the principal plus interest.

 Gross profit equals selling price minus cost price.

 Net profit equals gross profit minus deductions.

EXAMPLES

1) The manager of hardware of department in a supermarket mark all items so that the gross profit
is of the selling price. Find the selling price for a food mixer that cost
2) Mr Sinyangwe wishes to buy a lot of men’s suits to sell at , at a gross profit of the selling
price. How much can he pay for the suits?
3) Ten years ago a student paid . for a book. Today he must pay of that price for the
same book. Find the cost today.
4) A furniture store sold a dining room set for . The cost was . What percentage of the
selling price was the gross profit.

1) , where

2)

6
ℎ . . . . ℎ
 3) . .

4)

Therefore, .

If numbers, represented by symbols, are combined by any or all of the operations of addition,
subtraction, multiplication, division exponents and extraction of roots then the resulting expression is
called algebraic expression.

EXAMPLES

a. √

b. √

c.
d.

A polynomial in is an algebraic expression of the form , where is

a non-negative integer and .. are constants with . We call the degree of the
polynomial. Thus is a polynomial in of degree and is a polynomial in of
degree

EXAMPLES

1)
2)

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ℎ . . . . ℎ
 3) [ ]

a.
b.
c.
d.
e.
f.
g.

EXAMPLES

Solve the following multiplication of algebraic expressions

1)
2)
3) √ √
4)
5)
6)

; To divide a polynomial, we use so called long division when the degree of divisor is less
than or equal to the degree of the dividend.

EXAMPLE

Solve

2x 2  6x  4
x  3 2 x  0 x 2  14 x  5
3

8
ℎ . . . . ℎ
 7

Therefore,

Rules of factoring

1)
2)
3)
4)
5)
6)
7)
8)

Factorize the following completely

a.
b.
c.
d.
e.
f.
g.
h.

SIMPLIFYING FRACTIONS
Simplify

9
ℎ . . . . ℎ
EXAMPLES
a.

b.

Sometimes the denominator of a fraction has terms and involve square roots, such as √ or
√ √ . The denominator may be rationalized by multiplying by an expression that make the
denominator a difference of two squares.

EXAMPLES
a.
√
√ √
b.
√ √

√ √ √
a.
√ (√ ) √

√ √ √ √ √ √ √ √
b.
√ √ √ √ √ √

10
ℎ . . . . ℎ
EXAMPLE

Simplify

Simplify the following;

1)

2)

EQUATIONS

An equation is a statement of the form, example

a. called linear equation

b. called quadratic equation

LINEAR EQUATION
A linear equation in the variable is an equation that is equivalent to one that can re-
written in the form where are constants and .

SOLVING LINEAR EQUATIONS

a. b. c.

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ℎ . . . . ℎ
A radical equation is one in which an unknown occurs in the radicand

SOLVING RADICAL EQUATIONS

1. √

(√ )

2. √ √

(√ ) (√ )

√ Therefore, there is no value of that can satisfy the equation.

DEFINITION; A quadratic equation in the variable is the equation that can be written in the
form where and are constant and

SOLVING QUADRATIC EQUATIONS BY FACTORING

EXAMPLES

i.
ii.

12
ℎ . . . . ℎ
 iii.
iv.
v.

i.

ii.

iii.

iv.

13
ℎ . . . . ℎ
 [ ]

The roots of a quadratic equation , where and are constants and

are given by

 If (discriminant) is greater or equal to zero, we have two real roots.

 If we have one equal root.
 If we have no real root.

EXAMPLES

Use the quadratic formula to solve the following equations

1.

2. √

14
ℎ . . . . ℎ
 √

√ √ √

√ √

√ √

Sometimes an expression that is not quadratic can be transformed into quadratic

equation by an appropriate substitution. In this case the given equation is said to have a
quadratic form.

EXAMPLES

Solve the following equations

1.

Let , then

Thus

15
ℎ . . . . ℎ
 √

Then we have,

But , therefore, solving for ,

When , we have

When , we have

3.

Let , then

, solving for , when , we have

When , we have

In most cases, to solve practical problems you must translate the relationship stated in the
problem into mathematical symbols. This is called modeling.

16
ℎ . . . . ℎ
EXAMPLE

1) A chemist must prepare of a chemical solution made up by two parts alcohol

and three parts of acid. How much of each should be used?

Acid
Alcohol Acid
2) The company produces a product for which the variable costs per unit is and
fixed cost is . Each unit has a selling price of . Determine the number of
units that must be sold for the company to earn a profit of

. ,

3) A total of was invested in the two business ventures, and yielded

returns of and . respectively, on the original investment. How was the
original amount allocated? If the total amount earned was .

Let be the amount invested in . Then was invested in

. . .
. . .
. .

Hence, invested and invested

DEFINITION; An inequality is a statement that one quantity is less than or greater

than or less or equal to, or greater than or equal to.

RULES OF INEQUALITIES
Let and be real numbers
a. If then and
b. If and then and

17
ℎ . . . . ℎ
 c. If and then and
d. and , then
e. If or , then
f. If or , then . Further for any positive integer ,
we have if then √ √

DEFINITION: A linear inequality in the variable is an inequality that can be written in the
form where and are constants and . To solve an inequality involving a
variable is to find all values of the variable for which the inequality is true.

EXAMPLES

i.
ii.
iii.
iv.

Solution

i. ii. iii.

iv.

ℎ ℎ ℎ

18
ℎ . . . . ℎ
EXAMPLES

i. For a company that manufactures chairs, the combined cost for labor and material is
per chair. Fixed cost are . If the selling price of a chair is , how many
must be sold/produced for a company to earn a profit?

Let be the quantity of chairs.

.

ii. A builder decides whether to rent or buy an executing machine. If he were to rent
the machine, the rental fee would be per month and daily cost would be
for each day the machine is used. If he were to buy it, his annual fixed cost
would be and daily operating and maintenance cost would be for
each day the machine is used. What is the least number of days each year that the
builder would have to use to justify renting it rather than buying it?

Cost of rent should be less than cost of buying

iii. A publishing company find that the cost of publishing each copy of a certain
magazine . the revenue from dealers is . per copy. The advertising
revenue is of the revenue received from dealers from all copies sold beyond
. What is the least number of copies that must be sold to have a profit for a
company?

Number of quantity produced

. . . .

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ℎ . . . . ℎ
 DEFINITION; The absolute value of a real number written | | is defined by

| | {
Applying the above definition we have
| | | | | | | | | | .
Also note that | | is not necessarily and thus | | is not

EXAMPLES
Solving absolute value equations
a) | |
b) | |
c) | |

a) | | is either or

Or –

b) | |
or
or
or

a) | | implies that
b) | | implies that
c) | | implies that or
d) | | implies that or

EXAMPLES
Solving absolute inequality equations

20
ℎ . . . . ℎ
 a) | |
b) | |
c) | |
d) | |

a) | | b) | | c) | |

d) | |

a) | | | || |
| |
b) | | | |
c) | | | |
d) | | | |
e) | | | | | |

DEFINITION: A function is a rule that produces a correspondence between a set of elements

called domain and a second set of elements called the range, such that the element in the

domain corresponds to only one element in the range.

21
ℎ . . . . ℎ
The table set and are functions, since to each domain there corresponds exactly one range value.
The set table is not a function since to at least one domain value corresponds to more than one range.

DEFINITION; A function is a set of ordered pairs with the property that no two ordered pairs have the
same element and different second element.

EXAMPLES

1. The set
DEFINITION; A function, since no ordered pairs have the same first component and different
second element.
2. The set is not a function since ordered pairs with the same
first components and different second component.

In an equation in two variables, if there corresponds exactly on value of the dependent variable (output)
to each value. Value of the independent variable (input), then the equation specifies a function variable
to which there corresponds more than one value of dependent variable, then the equation doesn’t
specify a function.

EXAMPLE: Determine which of the following specify functions with independent variable of

a) for
b) for

a) b)
√
ℎ
ℎ ℎ .

We use different letters to denote names for numbers, in essentially the same way, we will now
use different letters to denoted names for functions. For example, if and ℎ may be used to
name the function specified by the equations and

22
ℎ . . . . ℎ
 ℎ:

The symbols such as for any element in the domain of the function , represents
the elements in the range of . If is an input value, then is the corresponding out put
value.

EXAMPLE; If ℎ and √ . Find

I. ii. iii. ℎ
, √ ℎ
√ ℎ
√

1. : A function of the form , where is a constant is called a constant

function. Example
A constant function belongs to a broader class of functions called polynomial functions: A
function of the form where a non-negative integer
is and are constants with is called a polynomial function. The integer
is called the degree of the polynomial function and is the leading coefficient.
This,
is a polynomial function of the degree 2 with leading coefficient 3.

2. : A function that is quotient of polynomial function is called a rational

function.

EXAMPLES
a)

b)

Let,

This is called a case defined function, because the rule for specifying it is given by rule for each
of several disjoint case.

3. :

23
ℎ . . . . ℎ
 | | {
4. : functions of the form
√
Where the polynomial is the radicand

There are several ways of combining two or more functions to create a new function. For any
functions , we define the sum the difference , the product and the
quotient as follows;

( *

For any real number and any function , we define

EXAMPLE; If and find

i.
ii.
iii.
iv. ( )
v.

i.

ii.

iii.

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ℎ . . . . ℎ
 iv. ( )

v.

DEFINITION: For : and : , the composition of with is the function : . Defined

by ( )

EXAMPLE; Let √ and find

a. ( ) √
b. ( ) (√ ) √

Note that composition is not commutative meaning in general . However special

case when and are inverse of each other holds.

Composition is associative meaning that for any three functions ℎ we have

ℎ ℎ

EXAMPLE: Let and ℎ | | find:

a. ( )
b. ( (ℎ )) ( | | ) | | | | | |

The function read as ‘ inverse’ and called the inverse of . A function has an inverse if it is one
to one function.

DEFINITION: A function that satisfies for and , if , then is called a one to one
function.

Given find the inverse of and also compute and .

25
ℎ . . . . ℎ
Let , then making interms of we have,

, thus is the inverse of

Solving

( ) ( * ( *

And solving

( )

It may happen that a function whose domain is the natural one consisting of all elements for which
the defining rule make sense, is not one-to-one and yet a one-to-one function can be obtained by
restricting the domain of . For example, we can show that is not one-to-one, but the
function with the domain explicitly given as [ is one-to-one.

A rectangular co-ordinate system allows us to specifying and locating points in a plane. It also provides a
geometric way to graph equations in two variables, in particular those arising from function.

An of the graph of an equation in and is a point where the graph intersects the
.A is a point where the graph intersects the .

EXAMPLE: Find the and intercepts of the graphs

1.

And sketch the graph

26
ℎ . . . . ℎ
1.

2. √
ℎ

3. √
ℎ

4. | | ,
ℎ

GRAPH OF A CASE-DEFINED FUNCTION

EXERCISE: Sketch the graph of

Which describes the inventory of of a company at time

27
ℎ . . . . ℎ
 A straight line is one of the simplest mathematical functions. A straight line may be defined by two
properties.
 The slope, usually represented by a symbol .
 The vertical intercept. The point at which the line crosses the .
The slope or gradient of the straight line is simply the slant of the line.

DEFINITION: Let and be two different points on a non-vertical line. The slope of
the line is given by

EXAMPLE

The figure above shows the relationship between the price of a toy (in known) and quantity of toys
(in thousands) the consumers will buy at that price. Find and interpret the slope as we
increase the quantity of toys by one unit on the market then the prices will decrease by .

1. :
is a point form of an equation of the line through with slope .

EXAMPLE: Find an equation of the line that has slope 2 and passes through

28
ℎ . . . . ℎ
2. ℎ :
EXAMPLE: Find an equation of the line passing through and

3. :
is the point intercept form of an equation of the line with slope and intercept .

EXAMPLE:
a) Find an equation of the line with slope 3 and -4
is the required equation

b) Find the slope and of the line with equation

1. : two lines are parallel if and only if they have the same slope/gradient.
2. : two lines with slope and are perpendicular to each other if and only
if
or

EXAMPLE: Two lines pass through one is parallel to the line and the other is
perpendicular to it. Find the equations of these lines.

1) Parallel

29
ℎ . . . . ℎ
 2) Perpendicular

FINDING THE DOMAIN EQUATION

EXAMPLES;
1. Suppose the domain per week for a production is when the price is per unit and
at each. Determine the domain equation, assuming that it is linear.

2. In testing the experiment diet for hens, it was determined that the average weight in grams of hen
was statistically a linear function of the number of days after the diet began .
Suppose the average weight of a hen beginning the diet was grams and 25 days later it was 675
grams.
a. as a linear function of
b. Find the average weight of hen when

30
ℎ . . . . ℎ
 .

.
1. : The demand function, there are several variable that influence the demand for a good
. These may be expressed by the general

Where the quantity demand for good

is the price of good
is the income of the consume.
is the price of substitute good
is the price of complementary goods
is the taste of fusion of the consumer
is the level of advertising.
A substitute good is one that can be used instead of another. A complementary good is one that is
consumed in conjunction with another.
The demand function can be modeled by a simple equation where
and are constants.

2. : Supply function; There are several variables that influence the supply of good . These
may be expressed by the general supply function.

Where, is the quantity

is the price of goods
is the cost of production
is the price of other goods
is the technology available.
is the number of producer on the market.
is the other factor, example taxes , subsides etc

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ℎ . . . . ℎ
 The simplest model for a supply function is written as , that is quantity supply depend
on price only, so long as the other variables upon which supply depend remain constant. The
equation of the supply function can be modeled by the simple linear function , where
and are constants.

EXAMPLES;
1. The demand function is given by the equation .
a. State and give a verbal description of the slope and intercept
b. What is the quantity demanded when
c. Plot the demand function . for
d. Find an expression for the domain function in the form and graph it.

.
a. For every unit increase in the quantity supplied, the price reduction by .
Intercept
Slope .

b.
.
.
.

c. ℎ
d. ℎ

2. The supply function is given by .

a. State the verbally describe the slope and intercept.
b. Plot the supply function for

.
a. For every one unit increase in quantity supplied price in increase by .
b. ℎ

Price elasticity of demand measure the responsiveness (sensitivity) of quantity demanded to the change
in the goods own price.

ℎ
ℎ

32
ℎ . . . . ℎ
 .
.

A negative sign indicates that an increase in one variable is accompanied by a decrease in the other and
vice-versa.

A positive sign indicates that an increase (decrease) in one is accompanied by an increase (decrease) in
the other.

Given the linear demand function , then the formula for point elasticity of domain at any
is

( *

( *

An elasticity of demand measures the elasticity of demand over an interval on the demand function
instead of using the price and quantity at a point as in point elasticity. Elasticity uses the average of the
price and quantity at the beginning and end of the stated interval.

* +

* +

( *

1. ELASTIC:
Demand is strongly responsible to change in price that is the percentage change in demand is
greater than the percentage in price.

33
ℎ . . . . ℎ
 2. UNITARY ELASTIC:
The percentage change in demand is equal to the percentage change in price.

3. IN ELASTIC:
Demand is weakly responsive to change in price that is the percentage change in demand is less
than the percentage in price.

Income elasticity of demand measure the responsiveness of quantity demanded to change in income.
ARC-Price elasticity formula for the income elasticity of demand measure the percentage change in
quantity demanded divided by the percentage in income.

ℎ
ℎ

( *

Where Interval level of income

New level of income

Initial level of demand

New level of demand

COEFFICIENT OF INCOME ELASTICITY TYPE OF GOODS

Luxury(Normal)
Normal
Normal necessity
Inferior

EXAMPLES

1. Given the demand function for computers as .

a. Determine the coefficient of point elasticity of demand when and given a
verbal description of the results.

34
ℎ . . . . ℎ
 b. If the price of computers increases by . Calculate the percentage change in quantity
demanded at .

.
a. .
.
.
.

( )
.
.

. indicates that at the price a increase (decrease) in price cause

a decrease(increase) in the quantity of demand of computers.

b. .
.
.
.

.
( )
.

.
.

2. The demand for a good is given by . , where is the price of good

, is the price of good and is the income. Calculate the coefficient of the income elasticity
demand when income increases from to assuming the prices are fixed at

.
.
.

35
ℎ . . . . ℎ
 .
.
.

( *

. ( *

. ( *

A budget constraint (or budget line) relates the amount of goods that a consumer can afford to
purchase to his or her income and prices. Consider a consumer who spends all his income on
two goods. Referred to as and priced at and per unit respectively. The consumer can
choose to spend his or her income on

1. The combination of and

2. All of and NO
3. All of and NO

The general equation for budget constraint is given by

A cost constraint, also known as an isolate line relates the amount of input that a firm can afford
to purchase given its total.
Allowable expenditure (budget) and the cost per unit of the input, assume that the input are
labour and capital , the cost per unit of labour is the wage rate , the cost per unit of capital is
rent , while the company allowable expenditure is .
The equation of the isolate line is

EXAMPLE;

36
ℎ . . . . ℎ
 A consumer has an income of to spend on good whose price is . and good
where
a. Write down the equation of the budget constraint, hence state the value of slope and
intercept.
b. Write down the equation of the budget constraint which result when each of the
following changes are introduced.
i. . while and
ii. . while . and
iii. . while and

a.
.
.

b. (i)
.
.

(ii)
. .

(iii)
.
.

TWO EQUATIONS IN TWO UNKNOWNS

A standard method for solving two linear equations in two unknowns is illustrated in the example below.

EXAMPLE: Given the simultaneous equations

a.

37
ℎ . . . . ℎ
 b. .

Solve for and

i. Algebraically
ii. Graphically

a.
Adding the two equations we get;

Solving for , by substituting for in any one of the given equations we get

b. .

.
}

.
.

Solving for

Substituting . we get
.

A set of simultaneous equations may have

1. Unique solutions
2. No solutions

38
ℎ . . . . ℎ
 3. Infinitely solutions

. : Have just been illustrated in the above equation

. : Occurs when a set of equations have no set of values which satisfy all equations

EXAMPLE; Given the simultaneous equation

. : A set of equation has infinitely many solutions when there is an

infinite number of a set of values which satisfy all equations.

EXAMPLE; Given a simultaneous equation

Substituting in the second equation, we have

The set of solution has infinite solution set of all real numbers.

The method used to solve two equations in two unknowns may be extended to three equations with
three unknowns, four equations in four unknowns, etc. The strategy is to eliminate one of the variables
first by adding multiples of equations to other equations. Hence reducing the problem to two equations
in two unknowns

EXAMPLE: Solve the equation

39
ℎ . . . . ℎ
 ..

Adding and we get

Adding and we get

..

Solving equations and simultaneously we have

Solving for

Using equation to solve for we have

Substituting the value of and we get

40
ℎ . . . . ℎ
Hence the solutions are;

Goods market equilibrium occurs when the quantity demanded by consumer and the quantity
supplied by producers of a good or service are equal. Equivalence market equilibrium occurs when
the price that a producer is willing to accept is equal to the price that producer is willing to accept
the equilibrium condition.

And

EXAMPLE: The demand and supply functions for a good are given as

Calculate the equilibrium price and quantity algebraically and graphically.

. .

. .

Graphically

41
ℎ . . . . ℎ
Labour market equilibrium: occurs when the labour demanded firms is equal to the labour supplied
by workers or equivalently when the wage that a firm is willing to offer is equal to the wage
that workers are willing to accept labour market equilibrium is expressed as

and

EXAMPLE: The labour demand and supply function are given as

Calculate the equilibrium wage and equilibrium number of workers algebraically and graphically.

. .

. .

: Are used by government in cases where they believe that the equilibrium price is too
high for the consumer. Thus, price ceilings operate below market equilibrium and are aimed at
protecting consumers.

EXAMPLE: The demand and supply function for a good are given by

i. Analyze the effect of the introduction of price ceiling of

ii. Calculate the profit made by black marketer if the black marketer operates in this market.

.
i.

42
ℎ . . . . ℎ
 . Demand (quantity demanded)

.
. (Quantity supplied) at the price of

. If the quantity supplied is then people are willing to pay for each
quantity demanded.

ii. Cost
Selling

: Are used by government in cases where they believe that the equilibrium price is too
low for producers to receive. Thus price floors operate above market equilibrium and are aimed at
protecting producers.

EXAMPLE: Given the labour demand and supply functions as

Analyse the effect on the labour market if the government introduces a minimum wage of per hour.

43
ℎ . . . . ℎ
 .

Labour demanded at the wage of

Labour supplied at the wage of

Since labour supplied is greater than labour demanded, there is excess of labour. Thus, there is
improvement in the labour market.

and substitute goods

and are complimentary goods

EXAMPLE: Find the equilibrium price and quantity for two substitute goods and given their
respective demand and supply equation as

Equilibrium point

and

Equations are;

44
ℎ . . . . ℎ
 .

..

Then solve and simultaneously

Taxes and subsides are another examples of government intervention in the market. A tax on a good is
known as an indirect tax. Indirect taxes may be either

i. A fixed amount per unit of output (exercise tax)

ii. A percentage of the price of the good, for example value added tax {VAT}

Given a tax imposed on a good, two issues of concern arise.

1. How does the imposition of the tax affect the equilibrium price and the quantity demand of the
good?
2. What is the distribution (incidence) of the tax that is what percentage of tax is paid by the
consumer and producers respectively?

In these calculations, the consumer always pays the equilibrium price and the producer receives the
equilibrium price minus the tax.

EXAMPLE: The demand and supply function for a good are given as

a.
i. Calculate the equilibrium price and quantity

45
ℎ . . . . ℎ
 ii. Assume that the government imposes a fixed tax of per unit sold
iii. Write the equation of the supply function adjusted for tax

b.
i. Find the new equilibrium price and quantity algebraically and graphically
ii. Outline the distribution of the tax, that is calculate the tax paid by the consumer and the
producer.

.
a.

b.
i. .
.
.

ii. .
.
. .

.
.

The tax paid by the consumer is which is of the tax imposed.

.
The break-even point for a good occurs when total revenues are equal to the total cost.

EXAMPLE: The total revenues and total costs function are given and follows

i. Calculate the equilibrium quantity at the break-even point.

ii. Calculate the value of the total revenue and total cost at break-even point.

46
ℎ . . . . ℎ
Note for subsides you add to the supply function because it benefits the producer. Given the subside
then the supply function is

; Is the difference between the expenditure a consumer is willing to make on

successive unit of a good from to and the actual amount spent on unit of the good at
the market price of per units.

; Is the difference between the revenue the producer receives for units of
good market price per unit and the revenue that the producer was willing to accept for successive
units of the good from to

is the total income generated within an economy from all productive activity over a
given period of time, usually one year. Equilibrium national income occurs when aggregate national
income , is equal to aggregate planned expenditure , that is

,is the sum of house hold consumption firms investment , government

expenditure, , foreign expenditure on domestic exports, , minus domestic expenditure on imports,
, that is is equal to household consumption, , firm investment, , government expenditure and
foreign expenditure exports , minus domestic expenditure on imports, , that is

47
ℎ . . . . ℎ
Initially the model will assume the existence of only two economies agents, household’s consumption
expenditure, , modeled by the equation , where , is autonomics consumption that is
consumption which does not depend on income is called marginal propensity to
consumer, that is measures the change in consumption per unit change in income. The
firm’s investment expenditure is autonomics , .

The equilibrium level of national income is a multiple of . That is

where . The represents the expenditure multiplier

EXAMPLE; In a two sector economy, autonomous consumption expenditure, , autonomous

investment expenditure, and .

a. Determine
i. The equilibrium level of national income, .
ii. The level of equilibrium of consumption, algebraically
b. Plot the consumption function . The expenditure function and the
equilibrium condition on the same diagram.
Given that determine the equilibrium level of sailing.

.
a.
i.

.
.

ii.
.

b. .
.

48
ℎ . . . . ℎ
 ℎ

EXAMPLE: Given a closed two sector-economy in which . and

a. (i) Derive an expression for the equilibrium level of national income in terms of and
(ii) Calculate the increase in the equilibrium level of national income when investment
expenditure increases to . Verbally describe the effect on the increase in investment
expenditure on

b. (i) Calculate the value of the expenditure multiplier given .

(ii) Calculate the value of the expenditure multiplier when decreases to . . Describe the
effect of decrease in the from . to . on the equilibrium level of national income.

.
a.
i.
.
.

.
.
.

ii. .

The national output will increase by

b.
i. Multiplier

.
.
Effect on . The equilibrium level decreases by

49
ℎ . . . . ℎ
The government influences the level of national income in an economy in two ways.

1. Through the level of government expenditure on goods and services . It is assumed that
government expenditure is autonomous (fixed) therefore, government expenditure will
increase the level of national income (for any given value of the expenditure multiplier) through
its effect on the value of autonomous component of expenditure that is

2. Through taxation which is assumed to be a fixed fraction of income, therefore, where

is the marginal propensity to tax, where is tax, may also be a
lump-tax when is imposed, consumption expenditure is a function of a disable income , where
.

The consumption function is now written as substituting with taxes,

the slope of the consumption function decreases, since . The equilibrium
condition is now given as

The expenditure multiplier with taxes is

is calculated from the equilibrium level of income, that is

; The foreign trade influences the level of national income in two ways

1. Through the level of expenditure non-domestic exports, exports are assumed to be

autonomous (fixed) and the export function is given by

50
ℎ . . . . ℎ
2. Through the level of foreign of domestic expenditure on import, . The import function is
autonomous and is the marginal propensity to import.
, the equilibrium is now given as

Solving for , the equilibrium level of national income is

.
Calculate the expenditure multiplier when,
a.
i. . and .
ii. . and .

b.
i. Determine the expenditure equation and hence find the equilibrium level of
national income given .
ii. Calculate the equilibrium level of taxation.

a.
i.

. .

. .
.

ii. . .
.

b.
i.

. .
.

ii.
.

51
ℎ . . . . ℎ
 .

EXAMPLE

a. Calculate the expenditure multiplier when . . and .

b. Calculate the value of imports into a country given , and .
c. What is the trade balance if exports are .

.
a.

. . .

.
.

b.
.

c.

: Determination of equilibrium

: The ℎ relates all possible values of (national income) and (interest

rates) for which equilibrium exists in the good markets

, where is the constant and with the interest rates. The equilibrium conditions for
the three sector economy (No foreign sector)

52
ℎ . . . . ℎ
Writing the above equation as given ℎ .

: The ℎ relates all possible combinations of and interest rates for

which the equation exists in the money market. Money market equilibrium exists when money supply is
equal to money demanded that is . Assume (constant)

Then

EXAMPLE:

1. Calculate the equilibrium level of national income and the equilibrium interest rates, given the
following information of the goods and money market

: . .

: .

Where and

2. Calculate the effect on the equilibrium level of national income and the interest rate when
money supply increases to

.
1.
.
. .
.
.
. ℎ (Goods market)

.
.
. ℎ (Money market)

.
2. , (Solve simultaneously)
. .
.

53
ℎ . . . . ℎ
 DEFINITION: A linear inequality in the variables and is an inequality that can be written in
one of the forms

Where and are constants and .

EXAMPLE: Solve the inequality

:The general equation is . In inequality form and

ℎ
The line is dotted when it and solid when its meaning the line is part of the
solution.

1. Solve the following system of inequalities

a. {

b. {

2. Find the region described by

54
ℎ . . . . ℎ
 a. {

b. {

In a linear programming problem, the function to optimized (minimize or maximize) is called the
. Its domain is defined to be the set of all solutions to the system of linear
constraints is called the set of . Typically they are infinitely many feasible
solutions but the aim of the problem is to find a point that optimizes the value of the objective
function. If both the function to be optimizes and the constraints are restricted to two variables,
the optimus value may be found graphically as well as algebraically. If the number of variables
exceed two. The graphical approach is a longer possible. The optimal value is found by more
general linear programming method such as ℎ to be covered in third year.

EXAMPLE: A company produces two types of can openers. The manual and electric, Each
requires in its manufacture the use of the machine and . Each manual can opener requires
the use of machine for two hours, machine for one hour and machine for one hour and
electric can opener requires one hour on machine , two hours on machine and one hour of
machine . Further, suppose the maximum number of hours available per month for use of
and are and respectively. The profit on a manual can opener is and on an
electric can opener is . If the company can sell all it can produce. How many of each type
should it make in order to maximize the monthly profits?

Can opener Machine A Machine B Machine C Profits

Manual 2 1 1 4
Electrical 1 2 1 6
Maximum 180 160 100
number of hours

Let and
be the number of manual openers and be the number of electric openers
Therefore,
Machine Profit
Machine Objective function
Machine
Try to maximize the profits given these conditions

Therefore, we are saying maximize

55
ℎ . . . . ℎ
{ Re-write then making the subject we have {

.
.
. . .

. .

. .
. .
.

56
ℎ . . . . ℎ
EXAMPLE: A daily diet requires a minimum of of vitamin , of vitamin and
of vitamin . The content of these vitamins (per portion) in two foods mixes and are
given in the table below

Vitamin C Vitamin D Vitamin E Cost per mg

One portion of 20 10 4 5
One portion of 30 20 1 4
Minimum daily 600 360 40
requirements
a. Express the information given on vitamins in terms of inequality constraint
b. Graph the inequality constraints and shade in the feasible region
c. Write down the equation of the cost function plot the cost function for cost
d. From the graph determine the number portions of mixes and which fulfills the
requirements at a minimum cost.

.
Vitamin C
Vitamin D
Vitamin E

The theorem states that, if an optimal solution exists. It is found at the corner points of the
feasible region.

EXAMPLE: A company produces two types of wrought iron gates. The number of man hours
required to produce each type of gate along with the maximum number of hours available are
given in the table below.

Wielding Finishing Administration Selling price Profits (k)

(K)
Types I gate 6 2 1 120 55
Type II gate 2 1 1 95 25
Maximum 840 300 250
number of
hours available

57
ℎ . . . . ℎ
 i. Write down the expression for
a. Constraints
b. Total revenue
c. Profit
ii. Plot the constraints and shade the feasible region
iii. Determine the number of gates which should be produced and sold to maximize
a. Revenue
b. Profit
iv. Calculate the number man hours which are not used when
a. Revenue is maximized
b. Profit is maximized

Let indicate type I gate

Let indicate type II gate

i.
a. wielding
Finishing
Administration

b.
c.

ii. ℎ

iii.

(To maximize of gate I and of gate II)

( of gate I and of gate II)

iv. When revenue is maximized

58
ℎ . . . . ℎ
 Wielding Finishing Administration
Type I gate
Type II gate
Total
Maximum
Not used up

When profit is maximized

Wielding Finishing Administration

Type I gate
Type II gate
Total used up hours
Maximum
Not used up

Example of a set of inequalities that does not have a feasible region

EXAMPLE: Minimize the objective function

. ; We calculate market equilibrium for linear demand and supply

function. Now, market equilibrium is calculated for non-linear demand and supply functions.

EXAMPLE; The supply and demand functions for a particular market are given by the equation
and
Sketch the graph of each function on the interval [ ]. Find the equilibrium price and quantity,
graphically and algebraically

59
ℎ . . . . ℎ
Q
0
1
2
3
4
5

EXAMPLE: The demand function for a monopolist is given by the equation

i. Write down the equation on a total revenue function
ii. Graph the total revenue function
iii. Estimate the value of at which total revenue is maximum and estimate the value of
maximum total revenue.

.
i.

ii. ℎ

iii.
. .
.

[ ( ) ( ) ]

* . +
.
Using the completing the square method

60
ℎ . . . . ℎ
 [ ]

* ( * ( * +

*( * +

*( * +

( *

The value of Q is given by – ( ) .

Maximum value is given by .

.
A cubic function is expressed by a cubic equation which has a general equation of the
form
, where and are constants. Cubic functions are
continuous curves which may have
 One root or three roots
 No turning or two turning points

Quadratic and cubic functions being to a group of functions called polynomial, of the
form

Where, are constants. The degree of the polynomial is given by the

high power of the variable in the expression. Therefore, a quadratic is a polynomial of
degree and a cubic is a polynomial of degree

EXAMPLE: A firm total cost function is given by the equation , the demand
function for the good is .
a. Write down the equations for total revenue and profit. Calculate the break even
points
b. Graph the total revenue and total cost function on the same graph for

c. Estimate the total revenue and total cost, at the break-even point
d. From the graph estimate the values of Q which moves
i. A profit
ii. A loss

61
ℎ . . . . ℎ
 .

Has two distinct roots

No real roots/solutions

One real root

a.

b.

c.
When the curve is above the curve then the firm is making a profit and when the
curve is below the curve then the firm makes a loss.

d. ℎ

62
ℎ . . . . ℎ
 The exponential function has the general form or , when is any constant
and is referred to as the base of the exponential function, is called the index or power of the
exponential function. It is the variable part of the function.

1. All curves are continuous and pass through the point and
2. When the index is positive, the curves are increasing as increases, provided . These are
called growth curves.
3. When the index is negative, the curves are decreasing as increases, provided . These are
decay curves.
4. Exponents with large bases increase more rapidly for and decrease more rapidly for
5. The graph of and are always above the , Thus, is always positive.

6. The graph of and are always below the , therefore, is always

negative.

EXAMPLES
1. Sketch the following exponential functions
i.
ii.
iii.
iv.
v. ( )

2. The population of a village was in . If the population grows according to the equation
.
, where is the number of persons in the population at time .
a. Find the population in the year
i.
ii.
b. In what year will the population reach ?

3. Graph the following functions on the same diagram

i.
ii.
iii.

1. ℎ
2. (a)
.
i.
.

63
ℎ . . . . ℎ
 .
ii.
.

.
(b)
.

. ( )

.
( ) . .
.

: Is modeled by the equation , where and are

positive constants. Example includes, consumption function, amount of random information
which can be memorized, sales with advertising, electrical and mechanical systems.

EXAMPLE
.
A consumption function is modeled by the equation . Graph the
consumption function over the interval , use the graph to describe how
consumption changes as income increases.

ℎ
Cannot exceed as much as you increase

: Is modeled by the equation , where and are

positive constants.

EXAMPLE: Includes; consumption functions, constrained population, growth of epidemic, sales.

64
ℎ . . . . ℎ
 What is the of the number? If a number is written as a base to a power such as
. , the of the number is found as follows;
, then

EXAMPLE
Write in a logarithmic form and .

. .
EXERCISE: Solve the following
i.
ii.
.
iii.

a. There are no real of zero or negative

b. of numbers between zero and one are negative
c. for any base
d.
e.
f.
g.
h.
i.

EXAMPLES

1. Expand the following using the properties of logarithms and simplify

i.
ii. (√ *

iii. ( )

2. Use the properties of logarithms to write the following as a single logarithm

i.
ii.
iii.

65
ℎ . . . . ℎ
 .
1.
i.

ii. (√ *

(( ) )

( ( ))

[ ]
[ ]

iii. ( )

But ( ) ℎ and so ℎ
. ℎ ℎ ,

2.
i.

ii.
Changing both of them to the same base (in base 2)

ℎ ℎ

66
ℎ . . . . ℎ
 ( )

EXAMPLE:

1. Solve the following equations;

a.
b.
c.
d.

.
1.
a.

b.

, then it follows that

But now when we have

For we ignore since there no real of negatives

c.

67
ℎ . . . . ℎ
d.

ℎ ℎ
let , then , solving the quadratic equation we get
. .
When . ,We have . .

2. Solve the following equations

i.
ii.
iii.

i.

( )

ii.

iii.

68
ℎ . . . . ℎ
 ( )

. .

Note. Exponential functions are inverse of natural

69
ℎ . . . . ℎ
 A function which is given by the equation is called hyperbolic function. The simplest
hyperbolic function is . The graph of consists of two separate parts
ℎ

Functions of the form model average, cost, supply demand and other functions.

EXAMPLE
The demand function of a good is given by the equation which is the supply
function is linear function .
a. Write the demand function in the form
b. Graph the supply and demand function on the same graph
c. Estimate the equilibrium point using your graph.

.
a.

b. ℎ

The output of any production function process demands on a validity of input, known as factors of
production. These include land, capital labour and enterprise. For simplicity we restrict our attention to
capital and labour. Capital and labour . Capital denotes all man made aids to production such as
building tools and plant machinery. Labour denotes all paid work in production process, which depends
on and may be written as which is called production function.

A production function is said to be homogeneous, if when each input factor is multiplied by a positive
real constant . The constant can be completely factored out. If the exponent of the factor is one; The
function is homogeneous of degree greater than one. If the exponent of the factor is less than one; The
function is homogeneous of degree less than one. Mathematically, a function is
homogeneous of degree , if for all positive real values of

EXAMPLE: Determine if the following are homogenous and if they are what is the degree of their
homogeneous?

a.

70
ℎ . . . . ℎ
 b.
. .
c. ℎ
d.
e.

.
a.

( ) it is homogeneous of degree one

b.

[ ] it is homogeneous of degree two.

. .
c. ℎ
. .
ℎ
. . . .
. . .
. [ℎ ] it is homogeneous of degree less than one.

d.

[ ]

e.

it is a non-homogeneous because, we cannot completely factor out

to remain with the original function.

A production function exhibits returns to scale if when all inputs are increased given constant
production , output increase by the same proportion greater than , there are increasing returns to
scale. If output increase by a proportion smaller than , there are diminishing returns to scale. In other
words, if the production function is homogeneous of degree greater than, equal or less than one returns
to scale are increasing, constant or diminishing respectively.

EXAMPLE: A cobb-Douglas production function takes the form

71
ℎ . . . . ℎ
In which is positive constant, and are inputs of capital and labour respectively and are positive
fraction less than one. In a strict cobb-douglas function . In a generalized cobb-douglas
function may be greater or equal to one. In either case, the degree of homogeneity return to
scale can be read immediately from the sum of exponents. If you have

ℎ .

EXAMPLE: Given the product functions

. .
a.
. .
b.

.
. .
a.
. .
. . . .
. . [ . . ]
. . . , Thus the return to scale is increasing.

. .
b.
. .
. . . .
. . . .

. . . , Thus the return to scale is diminishing.

. .
EXAMPLE; Given where and . Find

.
. .
. .

. .
.

72
ℎ . . . . ℎ
 .
.

A matrix is defined as a rectangular ray of numbers. Some examples of matrices are

[ ] * + [ ] * +

The square brackets are commonly used to enclose the numbers in a matrix called the entries of the
matrix. A matrix is determined by the numbers of rows and columns.

Find the entry of

[ ℎ]

is a that is three rows by four columns matrix

We use the capital letters to denote matrices

We can only add and subtract matrices of the same dimensions.

EXAMPLE; Given the following matrices

* + * + * + * +

Find if possible the following

* + * + * +

* + * + It’s not possible to add because they are of different

dimensions.

* + * + * +

73
ℎ . . . . ℎ
 .

We can only multiply two matrices if and only if the number of columns in first matrix is equal to the
number of rows of the second matrix.

⏟ ⏟ ⏟

⏟ ⏟ ⏟

Note that multiplication of matrices is not commutative. That is * +[ ] [ ]* +

ℎ ℎ

The null or zero matrices is a matrix of any dimension in which every element is zero, such as

* + * +

The unit or identity matrix is a square matrix in which matrix is zero, except the elements in the main
diagonal, each of which has value such as

* + [ ] [ ]

The unit or identity matrix is represented by the symbol

If a matrix is a matrix formed from by interchanging its rows with its columns is called the transpose of
.

DEFINITION: The transpose of an matrix is denoted is the form matrix whose row is the
column of .

e.g. * + ℎ [ ]

74
ℎ . . . . ℎ
 , Example. [ ]

, Example. [ ]

Equal matrix has the same dimensions and same elements, e.g. * + * +

If is an matrix and is a real number, then will denote the matrix obtained by
multiplying each entry by . This operation is called scalar multiplication and is called the scalar
multiples of .

EXAMPLE; Given * + * + find

a) * + * +

b)
* + * + * + * + Cannot be subtracted because
matrices have different dimensions

Multiplication of two matrices with dimensions is and requires that the matrices be
conformable, that is or the number of column in , the leading matrix equals the number of
rows in ,the matrix. Each row vector in the lead matrix is then multiplied by each column vector
of the matrix. According to the rule of multiplying row by column vectors

EXAMPLE; Given

* + [ ] * +

Find

75
ℎ . . . . ℎ
 * +[ ]

* +

* +

[ ]* +

[ ]

[ ]

EXAMPLE; Given

[ ] [ ]

Find

[ ][ ] [ ]

[ ][ ] [ ] [ ]

NOTE: Given the matrices , Note the following

1. Only in special cases,

2.
3. . Thus transpose of a product of matrices is equal to the product of their
transpose in reverse order
4.

76
ℎ . . . . ℎ
A distributor records the weekly sales of personal computers in their retails outlets in different
parts of the country

ℎ ℎ

ℎ
ℎ
ℎ
The cost price of each model is

Pentium Basic .

Pentium Extra .

Pentium latest .

Amount is in thousands. Use matrix multiplication to find

a. The total weekly cost of computers to each shop.

b. The total weekly revenue for each model for each shop.
c. The total weekly profit for each shop, which shop makes the greatest overall profit?
ℎ ℎ .

ℎ . . .
ℎ . . .
ℎ . . .

.
a. Let [ ] [ . ]
.

. .
[ ][ . ] [ . ]
. .

ℎ .
ℎ .
ℎ .

. . . . . .
b. [ . . . ] [ . . . ] [ ]
. . . . . .

77
ℎ . . . . ℎ
 . . . . .
[ ][ . . . ] [ . . . ]
. . . . . .

. .
c. [ . ] [ . ]
. .

. .
[ . ] [ . ]
. .

.
[ . ]
.

DEFINITION; A determinant is a square array of number or symbols for example

* + * + [ ]

Determinants of matrix, a determinant is evaluated as follows

| | * +

EXAMPLE; Find the determinant of * +

| | * +

Given [ ] to find the determinant of , we do as follows;

* + * + * +

[ ] [ ] [ ]

Practical example

78
ℎ . . . . ℎ
 [ ] * + * + * +

Matrix algebra permits the concise expression of a system of linear equation. As a simple illustration;
Note that the system of linear equation

Be expressed in matrix form as , where * + * + * +

is the coefficient matrix, is a solution vector is the vector of constants.

EXAMPLE; Given

Express it in matrix form

* +[ ] * +

Row operations mean application of simple algebraic operations to the rows of a matrix with no change
in the linear relationship. The three basic row operation allow

1. Any two of a matrix to be interchanged

2. Any row or rows to be multiplied by a constant provided the constant is not zero.
3. Any multiple of a row to be added to or subtracted from any other row.

79
ℎ . . . . ℎ
Given a system of equations in matrix form , the augmented matrix | is the coefficient matrix
with column vector of constants set alongside. Its separated by a line or a bar.

EXAMPLE; The augmented matrix for

Is given by | ( | +

To use this method to solve linear equations, simply express the system of equations as an augmented
matrix and apply row operations to the augmented matrix until the coefficient matrix is reduced to an
identity matrix. The solution to the system of equations can be read from the remaining element in the
column vector . To transform the coefficient matrix into identity matrix, work along the principle axis,
first obtain a 1 in the position of the coefficient matrix, and then use the row operation to obtain
zero everywhere else in the first column. Next to obtain a one in the position and use the row
operations to get zero everywhere else in the column. Continue getting ones along the principle
diagonal and then clearing the column until the identity matrix is obtained.

EXAMPLE 1;

Use the reduction method to solve for and in the system of equations.

( | )

( | )

( | )

( | )

80
ℎ . . . . ℎ
 ( | )

EXAMPLE 2;

Solve the following system of equation using reduction method

( | +

( | +

( | +

( | +

( | +

( | +

( | +

81
ℎ . . . . ℎ
An inverse matrix , which can only be found for a square non-singular matrix , is a unique matrix
satisfying the relationship

Given * + ℎ * +

EXAMPLE: Given * +, find

* +

Given [ ]

| | | | | |

| | | | | |

| | | | | |

[ | | | | | |]

[ ]

82
ℎ . . . . ℎ
 [ ]

Note; An ad joint matrix is the transposed co-factor matrix

EXAMPLE; Given * +* + * +

* +

* +* +* + * +* +

* +* + * +

* + [ ] * +

The determinant of the inverse of a matrix will be illustrated by the following example

EXAMPLE; Given [ ] find

Note; A singular matrix is one whose determinant is equal to zero.

| | | | | |

83
ℎ . . . . ℎ
 | | | | | |

| | | | | |

[ | | | | | |]

[ ]

[ ]

EXAMPLE: Solve for using the inverse method, given

[ ][ ] [ ]

[ ]

Finding the determinant —

| | | | | |

| | | | | |

[ | | | | | |]

[ ]

84
ℎ . . . . ℎ
 [ ]

[ ]

[ ] [ ][ ] [ ]

Use determinant to solve equations (crammers rule). The crammers rule uses determinants to solve a
system of equations

{ {

* +* + * +

* +

* +

85
ℎ . . . . ℎ
 {

* +[ ] * +

* + * +

Note: If you are using crammers rule and the determinant of the first matrix is , then you have infinite
solution; if the other determinants are also zeroes, or no solution.

The solution of three linear equations in three unknowns is given by

EXAMPLE; The equilibrium condition for three related products simplifies to the following equations.

Use crammers rule to solve for the equilibrium price

| |

| | | | | |

| | | | | | | |

86
ℎ . . . . ℎ
 | | | | | | | |

| | | | | | | |

Given the following national income model

Where and are constants.

a) Write this model as three equations in terms of the variables and

b) Using crammers rule to derive expression for the equilibrium level of income consumption and
taxation

EXAMPLE;

1. Use the Gaussian elimination method to find the inverse of the following matrices
a. ( | )

( | )

( | ,

87
ℎ . . . . ℎ
 ( | *

( ,

b. ( +

( | ,

|
( )

|
( )

( | +

[ ]

Consider a three sector economy such as industry agriculture and financial services. The output from
any sector such as agriculture may be required by

1. The other sector

88
ℎ . . . . ℎ
 2. The same sector
3. External demand, such as sales, exports etc.

For example, the output from all three sectors (in millions kwacha) In these three sector economy could
be distributed as follows

So the total output required from each sector must satisfy the final demand as well as the demand from
other sectors which require this as basic raw material or input.

The table above is perfectly balanced, put suppose the other demand from each sector change, how is
the total output required re-calculated. We use matrices to answer this question and one fundamental
assumption is needed that is

ℎ .

. ℎ

.
ℎ

Divide each input to each sector by the total input to calculate the fraction of the total input which
comes from all sectors.

The relationship between the total outputs from the three sectors to the input requirement from all
sectors and final other demands may now be described by the matrix equation.

[ ][ ] [ ] [ ]

Generally the matrix equation is

89
ℎ . . . . ℎ
Where the column of total outputs is, is a column of final (other) demand from outside the three
sectors. The matrix is called the matrix of technical coefficients. Each column of gives the fraction of
inputs to that sector. If the final other demands are changed this equation may be used to solve for the
total output required.

[ ]

[ ]

EXAMPLE;

Given the input/output matrix

Find the output matrix if final demand changes to for and for

[ ]

* + [ ]

[ ]

( * ( *

90
ℎ . . . . ℎ
 [ ]

[ ]* + [ ]

.
[ ] * +
.

1. Form the technical matrix by dividing each entry by the total demand.
2. Subtract
3. Find the determinant
4. The inverse
5. Multiply it by the increase or decrease.

A sequence is a list of numbers which follows a definite pattern or rule. A series is a sum of a sequence.

. A sequence of numbers, called terms, such that any two

consecutive numbers in the sequence are separated by a fixed common difference is arithmetic
progression (A.P). for example si an A.P with common difference .

Consider the A.P with the first term and common difference , and then the
ℎ term of the progression is

We may write the sum of the first terms of the A.P in two ways

Adding the two expression term by term we get

Giving the following result

91
ℎ . . . . ℎ
EXAMPLE: Find the ℎ term and the sum of the first terms of an A.P given by

EXAMPLE; An A.P has and . Find and

Solving simultaneously we get

From we have

92
ℎ . . . . ℎ
An individual borrows , agreeing to reduce the principal by at the end of each month and
pay annum that is per month, on all unpaid balances. Find the sum of all interest payments.

You will have to make about payments

. . .

. .

. .

. : A sequence of numbers called terms such that any two

consecutive numbers in the sequence have a fixed common ratio, is a geometric progression (G.P) for
instance is a G.P with common ratio . The G.P with first term and common ratio
is the ℎ term of the G.P is given by

Let denote the sum of the first terms

Then, subtracting the

second equation from the first equation, we get

93
ℎ . . . . ℎ
When | | , alternatively

EXAMPLE; Find the ℎ term and the sum of the first terms of the G.P

a.
b. . . .

a.

( )

b.

.
. .
.

. [ . ]

. [ . ]
.

EXAMPLE;

94
ℎ . . . . ℎ
 The value of a certain machine at the end of each year is as much as its value at the
beginning of the year. If the machine costs . Find its value after years.

. .

The sum of an infinite geometric progression is given by

| |

EXAMPLE:
Find the sum of infinite G.P
a.
b.

a.

b.

95
ℎ . . . . ℎ
Simple interest is a fixed percentage of the principal, , that is paid to an investor each year,
irrespective of the number of years the principal has been deposited that is money invested at simple
interest will increase in value by the same amount each year. So if the investor is paid a fixed annual
amount of , then the amount of simple interest , received over years is given by the formula

Therefore, the total value after years is the principal plus interest and is given by

When total value (future value), the interest rate and time are known, the principal (present value) may
be calculated by re-writing the formula

EXAMPLE; is invested for three years at an interest rate of

a. Calculate the simple paid in any one year

b. Calculate the total value of servings at the end of one, two and three years
c. Calculate the present value, when future value is after three years

a.

b.

c.

96
ℎ . . . . ℎ
 .

In the modern business environment, the interest on money borrowed is usually compounded.
Compound interest pays interest on the principal plus on any interest accumulated in previous years.
The total value, of the principal, when interest is compounded at per annum each year, the
interest earned is added to the total amount on deposit ( Principal, , plus any accumulated interest) at
the beginning of that year.

Notice that the amounts due at the end of each year form a geometric progression where and
the common ratio giving the sequence

EXAMPLE: Calculate the amount owned on loan of over three years at an interest rate of
compound annually

The present value of a future sum , is the amount which when put on deposit at , at rate
interest will grow to the value after years. The present value, , is calculated by rearranging

EXAMPLE: is invested at compound interest for three years.

a. Calculate the value of the investment at the end of the three years.
b. Compute the present value of receiving in three years when the discount rate per
annum

a. .
.
.

b.

97
ℎ . . . . ℎ
 .
.

In the compound interest formula, there are four variable and . If any of three of these
variables is given the forth may be determined. For instance, given

Make the subject, we get

( *

( )

Making the subject, we get

( *

( *

EXAMPLE;

1. Suppose that amounted to . in a savings account after three years. If the interest is
compounded annually , find the rate of interest compounded annually
2. How long will it take for to amount to at an annual rate compounded annually

1. ( )

98
ℎ . . . . ℎ
 .
( *
. .
( )
2.

( * .
.

So far, it has been assumed that the compound interest is compounded once every year. In reality,
interest may be compounded several times per year. For example it may be compounded daily, weekly,
monthly, quarterly, semi-annually or continuously.

We may denote the number of conversions per year by , the interest rate applied at each conversion
is . For example an investment compounded twelve times per year will have twelve conversions
period. Thus if a five years investment is compounded twelve times annually, then the investment would
have sixty conversion period. Therefore, the value of the investment at the end of conversion periods
is

( ) ( )

EXAMPLE: is invested for three years at per annum compounded semi-annually.

a. Calculate the total value of the investment

b. Compare the return on the investment when interest is compounded annually to when it is
compounded semi-annually.
c. Calculate the total value of investment when compounded
i. Monthly
ii. Daily (assume )

a.

( )

.
( *

99
ℎ . . . . ℎ
 b.
.
.
c. ( )
.
i. ℎ ( )

.
ii. ( )

When compounding continuously, the formula reduces to

This is because

( ) [( ) ] [ ]

Since ( )

EXAMPLE: A financial consultant advises you to invest at compounded continuously for three
years. Find the total value of your investment.

The effective rate, that is equivalent to a nominal rate, ,

compounded times in a year is given by

[( ) ]

EXAMPLES

1. What effective rate is equivalent to a nominal rate of compounded

a) Semi-annually
b) Quarterly
2. How much will it take for money to double at the effective rate of ?

100
ℎ . . . . ℎ
3. If an investor has a choice of investing money at compound daily or compounded
quarterly which is the better choice?

1. Semi-annually
[( ) ]
.
*( * +

. .

Quarterly
[( ) ]
.
*( * +

. .

2.

3. *( ) +
.
( *
. .

[( ) ]
.
( *
. .

EXAMPLE; A trust fund for a child’s education is being set up by a single payment so that at the
end of years this will be . If the fund earns interest at the rate of compounded
semi-annually, how much money should be paid into the fund?

101
ℎ . . . . ℎ
 ( )

.
( ) .
( )

: Suppose . owns . ℎ Two sums of money; ,

due in two years, due in five years. If . wishes to pay off the total debt now by
single payment. How much should the payment be? Assume an interest rate of compounded
quarterly.

The single payment due now must be such that it would grow and eventually pay off the debt when
they are due, that is it must equal the sum of the present values of the future payment.

. . .

EXAMPLE: A debt of due six years now is instead to be paid off by three payments; now,
in three years and a final payment at the end of five years. What would this payment be if aan
interest rate of compounded annually assumed

Let be the final payment due in five

. . .

. .

An annuity is any finite sequence of payments made at fixed periods of time over a given interval. The
fixed period of time we consider will always be of equal length and we refer to that length of time as the
payment period. The given interval is the term of the annuity

1. Ordinary annuity e.g. salary

2. Annuity due e.g. rentals

102
ℎ . . . . ℎ
 ℎ

: The present value of an annuity is the sum of the present value of

all payments. It represents the amount that must be invested now to purchase all of then.

a) Consider the ordinary annuity

ℎ

Pre sent value of an annuity:

That is

This is a geometric series, with

( )

[ ]

[ ]

EXAMPLE

1. Find the present value of an annuity of per month for years at an interest of
compounded monthly.
2. Given an interest of compounded annually, find the present value of the following;
due at the end of each year for three years, and due thereafter at the end of each year
for four years
3. The premiums of an insurance policy are a quarter payable at the beginning of each
quarter. If the policy order wishes to pay premiums in advance, how much should be
paid provided that the interest rate is compounded quarterly

.
.
1. A present value of an annuity
[ ]

[ . ]
.
103
ℎ . . . . ℎ
 .

2. Ordinary annuity
ℎ
[ . ] [ . ] [ . ] .
. . .

3. Annuity due, present value of annuity due

[ ]

; The accumulation value (future value) , , of an annuity of

payment of each is the equivalent dated value of the set of these payment due at the end of the
term of the annuity.

For the ordinary annuity

[ ]

For the annuity due

[ ]

EXAMPLES

1. Find the amount of an annuity consisting of at the end of every ℎ for at

the rate of compounded quarterly
2. At the beginning of each quarter, is deposited into a savings account that pays
compounded quarterly. Find the balance in the account at the end of three years.

.
.
1.
[ ]

[ . ]
.
.

104
ℎ . . . . ℎ
 [ ]
2.
.
[ . ]( )
.
.

Suppose that a bank lend a borrower and charges interest at the normal rate of
compounded monthly. The plus interest is to be re-paid by the equal payments of kwacha at
the end of each month for ℎ . Essentially, by paying the borrowers the bank is purchasing
an annuity. Three payments of , using the formula, we find the months payment given by

.
.
.

The bank may consider each payment as consisting of two parts

a. Interest of outstand loan

b. Repayment of part of the loan.

This is called amortizing. A loan is amortized when part of each payment is used to pay interest and the
remaining part use to reduce the outstanding principal. Since each payment reduces the outstanding
principal. The interest portion of a payment decreases as time goes on.

Principal Interest for period Payment at end of all Principal repaid at

outstanding at periods the end of period
the beginning
period
1 5250 65.63 1793.93 1728.3
2 3521.69 44.02 1793.93 1749.91
3 1771.78 22.15 1793.93 1771.78
Total 151.8 5381.79 5250

1. Period payment:

2. Principal outstand at beginning of ℎ period: * +

3. Interest in ℎ payment: [ ]
4. Total interest paid
5. Principal contained in ℎ payment:

105
ℎ . . . . ℎ
 .

Net present value and internal rate of return are two techniques used to address investment projects.

Present value of cash inflow minus present value of cost outflow

 If Invest in the project.

 If Do not invest in the project

EXAMPLE: Suppose that you can invest in a business that guarantees too cash flows at the end
of years and

Assume an interest rate of compounded annually. Find the net present value of the cash flows.

. . .

DEFINITION; If gets closer and closer to a number as gets closer and closer to from both sides,
then the limit of as approaches . The behavior is expressed by writing

EXAMPLE: find

. . . . . .
. . . . . .

106
ℎ . . . . ℎ
 √
Therefore, as gets closer to gets closer to . , hence,

√
.

If and exists, then the following holds

1. [ ]

2. [ ]

3. * +

4. [ ] [ ] [ ]

EXAMPLE
√ √ √

5.

6.

NOTE; It is important to remember that the limit describe the behavior of a function near a particular
point, not necessary at the point itself.

EXAMPLES

Find the following limits

a.

b.

c. √

d.

107
ℎ . . . . ℎ
 .

√ √ √ √

[ ] [ ][ ]

√
1. (Rationalize the numerator)
√ (√ )(√ )
(√ ) (√ ) √

√
2. (Rationalize the numerator)
(√ )(√ )
(√ ) (√ ) (√ )

√ √ √

108
ℎ . . . . ℎ
 1. :

2. :
and , for any constant and , with

EXAMPLE: Find

a)

b)

The procedure for finding the limits at infinity

 Divide each term in by the highest power that appears in the denominator polynomial.
 Compute using algebraic properties of limits and reciprocal power rules.

( )

( )

( )

EXAMPLE; If a crop planted in soil where the nitrogen level is , then the crop yield can be modeled
by the function

Where and are positive constants. What happens to the crop yield as the nitrogen level is increased
indefinitely?

109
ℎ . . . . ℎ
 .

( )

We say that is an infinite limit if increases or decreases without bound as that is

or

EXAMPLE

a)

b)

c)

a)
. . .

b)
-0.999 -0.999999 -1.0001
2000 200 000

:If approaches as tends towards from the left , we write

. Likewise, if approaches as tends towards from the right, then
.

EXAMPLE

1. Evaluate the one sided limits and , given

110
ℎ . . . . ℎ
 2. Find
i.

ii.

1. Given the function;

{

And

2. Evaluating
i.
ii.

The limit of a function exists if and only if the two-sided limits exists and are equal, that is

EXAMPLE: Determine whether exists, where

Since, , then the limit exists, which is

111
ℎ . . . . ℎ
 .

A function is continuous at if the following conditions hold;

i. is defined
ii. exists
iii.

If is not continuous at , it is said to have a discontinuity there at .

Recall that if and are polynomials, then and

. These limit formulas can be interpreted to say that a polynomial or
rational function is continuous whether it is defined.

EXAMPLE;

1. Show that is continuous at

2. Show that is continuous at

1. , we show that the three conditions for continuity are satisfied, that is
i. defined
ii. and the limit exists
iii. , hence the function is continuous at

2. , we need only show that the three conditions for continuity hold, that is
i. it is defined
ii. limit exists
iii. Thus, the rational function is continuous at

EXAMPLE 2;

Discuss the continuity of each of the following functions

i.

ii.

112
ℎ . . . . ℎ
 iii. ℎ ,

i. the function is continuous for all values of except at (its undefined at )

ii. ,

is discontinuous at

iii. ℎ ,
We check the left and right limits, that is ℎ and ℎ . Now
ℎ
And
ℎ
Since, ℎ ℎ , the function ℎ is not continuous.

A function is said to be continuous on an open interval or , if it is continuous at

each point in that interval. Moreover, is continuous on the closed interval or
[ ], if it is continuous in the open interval and and

In other words, continuity on an interval, means that the graph of is one piece throughout the
interval.

An important feature of continuous function is the intermediate value property, which says that if
is continuous on the interval [ ] and is a number between and . Then for some
number between and

113
ℎ . . . . ℎ
In other words, a continuous function attains all values between any two of its values.

Show that the equation

Has a solution for

The expression

ℎ
ℎ

Is called a difference quotient for the function , the derivative of a function with respect to
is the function given by

ℎ
ℎ

This is called the first principal of differentiation. The process of computing the derivative is called
differentiation and we say that is differentiable at , if exists.

EXAMPLE

a. Find the derivative of the function

b. Find if √

Principal behind derivative

114
ℎ . . . . ℎ
 .

( )
a.

ℎ ℎ
ℎ

b.
√ √

(√ √ )(√ √ )
(√ √ )

(√ √ )

√ √

√ √ √

115
ℎ . . . . ℎ
The delta process provides a method of computing which is required to find

We summarize the delta process as follows where

1. Form
2. Divide by to obtain , provided
3. If the limit as approaches zero exists then the limit is the desired derivative.

EXAMPLE: Compute of the following functions

1.
2.
3. √

1.

[ ]

* +

116
ℎ . . . . ℎ
If the function is differentiated at , then it is also continuous at

 is increasing at , if
 is decreasing at , if

If the function is differentiated at , then it is also continuous at .

Note; that continuity does not imply differentiability.

If we had to use the limit definition every time we wanted to compute a derivative, it would be both
tedious and difficult to use calculus in application. There are techniques that greatly simplify the process
of differentiation.

1. For any constant . That is the derivative of a constant is zero.

2. For any real number , in words, to find the derivative of ,
reduce the exponent of of by and multiply the new power of by the original exponent.
NOTE; that the rule applies not only to functions , but also to those such as
√ ℎ
EXAMPLE; Find the derivative of the following functions
i.
ii. √
iii.

3. If is a constant and is differentiable, then so is and

[ ] [ ]

EXAMPLE; Differentiate
i.
ii.
√

117
ℎ . . . . ℎ
 .

4. ; If ℎ , where and
ℎ exist, then, ℎ

EXAMPLE;
i. Suppose , find
( )
ii. Given , find

iii. Given , find

√

i.

( )
ii.

iii.
√

5. ; if ℎ where and ℎ exist, then

ℎ ℎ
EXAMPLE;
i. Determine the derivative of
ii. Given

i.
ℎ
ℎ ℎ

118
ℎ . . . . ℎ
ii.
ℎ
ℎ ℎ

6. If , where and ℎ exist, then

ℎ ℎ
[ℎ ]
EXAMPLE;
i. Given , find

ii. If , find

i.
ℎ

[ ]

ii.
ℎ

ℎ ℎ
[ℎ ]

7. If where , then,
EXAMPLE;
i. Given determine

ii. Determine , given

i.
Let ℎ

119
ℎ . . . . ℎ
 ii.
ℎ

8.
[ ] , then [ ] .

EXAMPLE;
i. Find the derivative of

Exponential and logarithmic functions have simple derivatives. The derivative of , given by

Given , then

EXAMPLE;

Differentiate the function

a.
√
b.

c. ℎ

a.
ℎ
Then by the product rule

ℎ ℎ

√
b.

120
ℎ . . . . ℎ
 ( *

c. ℎ
By the chain rule;
[ ] .
ℎ ( *

( *√

Given then

EXAMPLE; Differentiate the following functions

a.
b.

a.
ℎ

b.
[ ]

NOTE;

1. Derivative of is

2. Derivative of is

121
ℎ . . . . ℎ
 EXAMPLE; Find the derivative of the following functions

1.
2.
3.

.
1.

2.

The functions we have worked with so far have all been given in the form of . The function in
this form are said to be explicit. For example

However, some practical problems will lead to equations in which the function is not written explicitly
in terms of independent variable , for example

Since it has not been solved for , such equation is said to define implicitly a function of and the
function is said to be in implicit form.

EXAMPLE; Find the derivative of the following functions

a.

122
ℎ . . . . ℎ
 b.

Suppose an equation defines implicitly as a differentiable function of to find , we proceed as

follows;

1. Differentiate sides of the equation with respect to , remember that is really a function of
and use chain rule when differentiating terms containing .
2. Solve the differentiated equation algebraically for

When we have a function which is a product or quotient function in which variables occur in powers by
taking the natural logarithms of both sides of simplifies the differentiation of the function.

EXAMPLE; Find the derivative of the following functions

( )
a. * +

√
b.
√

c.

( )
a. * +

* +

* +

[ ]

123
ℎ . . . . ℎ
 [ ]

[ ]

* + [ ]

( )

The derivative or differentiation of a function is denoted by is the first

degree differentiation with respect to .

When differentiation is performed of . Then, is the second derivative

of the function with respect to , similarly, when differentiation is performed again with respect to on
, the third differentiation is given by, is the third degree
differentiation.

EXAMPLE; Find of the function given by

is the total cost required to produce units of a product. In short, it is

the cost required to conduct business. There are two types of cost;

1. Fixed costs; unchanged or un-varied costs that is flat although the number of units of a product
varies. For example monthly rental of a building
2. Variable costs; the costs which depend on the number of units produced for example raw
material. In general, the function for cost can be written as

124
ℎ . . . . ℎ
 3. Average total cost; is total cost for producing one unit of a product that is

Marginal or ultimately total cost function , in business, the rate of change for a function is
known as marginal function, denoted, is the rate of change for total cost function over
quantity.

EXAMPLE; given the average cost function

a. What is the total cost function?

b. What is the marginal total cost function?
c. Calculate the rate of change for cost when of product produced.

a.

b.
c.

In business and economics, the cost is usually minimized to obtain the (higher) maximized production
revenue and total profit.

1. Find and
2. Let and solve for , suppose and has to be positive.
3. If , then is the quantity or level of production which minimizes the cost.

EXAMPLE;

If . is the cost function

a. Obtain the average cost function

b. Determine the production level, , which minimizes the average cost
c. What is the minimum value for the average cost

125
ℎ . . . . ℎ
 .

a.

.
.

b. . ,

c.
.

; if the revenue from production and sales of units of the

product. If is the price and is the quantity of the product, then total revenue is given by;

; is the revenue received from selling one unit of a product, that is

; is the rate change of total revenue

over quantity of a product, that is .

EXAMPLE; The demand function of a product is given by

126
ℎ . . . . ℎ
 a. What is the total revenue function?
b. Determine the marginal total revenue function

a.

b.

In business the total revenue is usually maximized to achieve the maximum profit.

1. Find and
2. Let and solve for . Suppose and has to be positive.
3. If , then is the quantity or level of production which maximizes the revenue.

EXAMPLE; The demand function of a product is given by

a. Determine the quantity which maximizes the total revenue

b. Obtain the price which maximizes the total revenue

a. * +

b.

The total profit or loss function, is obtained from the production of a single product. In general

; The average total profit obtained from the production of a single

unit product, is given by

127
ℎ . . . . ℎ
EXAMPLE;

a) Given the demand function for vehicle spare parts item as and the average total
cost per unit item given by a function; . Determine the total profit
function
b) The demand function for a product is given by . and the total cost is
. Find
I. Total revenue function
II. Total profit
III. The marginal profit

a)
( )

b) . .
.
.
.
[ ] .

A production function illustrates the relationship between input and output. Thus, the production
function may take a general form of

The expression states that the level of output depends on the amount of input used in production
process. In the short run, the input can be assumed to be fixed so the level of output is
then only a function labour , that is . For example . . The marginal product of
labour is the rate of change in total output , with respect to labour. The average product of
labour is the total output divided by the number of units of labour.

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ℎ . . . . ℎ
EXAMPLE; Given the short run production function .

a) Determine the equation for the marginal product of labour, calculate and comment on the
marginal product of labour when of labour employed
b) Derive the equation for the average product of labour, calculate and comment on the average
product labour for the first of labour used.

For any increase in input then output will increase by

.
. .

The average productivity per unit is

Total production

In the analysis of labour supply function, a distinction is made between. A perfect competitive firm that
faces horizontal labour supply function . This firm must accept the market wage rate. The wage
rate is not affected by the number of units of labour. A monopoly is a firm that faces an upward sloping
laabour supply function . The wage rate is paid by a determined by the labour
supply function.

EXAMPLE; For the labour supply function .

a) Determine the expressions for

b) Show that

a) . .

.
b)

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ℎ . . . . ℎ
The marginal propensity to consume is defined as the change in consumption per unit change in
income, likewise, the marginal propensity to save, is defined as the change in saving per unit
change in income.

.
EXAMPLE; Given the consumption function

a) Write down the equation for and

b) Write down the equation for and

.
.
a)
. .
. .

.
.

. .
.
b) .
. .
.
.

Utility is described as the level of satisfaction or benefit a consumer receives from consuming various
goods. Total utility, , can be defined as total benefit or satisfaction received by an individual from all
the goods that he or she consumes. Assuming that the consumer considers a single product . The utility
function is written as

Where a quantity of good consumed, for example; if represents beer, total utility is the satisfaction
received from consuming paints of beer

is the derivative of the total utility with respect with respect to that is

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EXAMPLE; Given the total utility function for as , calculate and comment on the
values of marginal utiity when

a)
b)
c)
d)

a)
b)
c)
d)

Optimization is mainly concerned with finding maximum and minimum points, also known as optimum
points on a curve.

We know that gives the equation for slope at any point . Also, at turning points.

NOTE; if the equation , has no solution then there is no turning point

EXAMPLE; Find the turning point for the following functions

a)
b)

a)

Therefore, the turning point is

131
ℎ . . . . ℎ
 b)
. ℎ

Determining maximum and minimum turning points

1. Find and
2. Solve . The solution of this equation gives the x-co-ordinates of the turning points

3. If , the point is a minimum turning point

4. If , the point is a maximum turning point

5. If , there is a point of inflection

EXAMPLE;

a) Find the turning points for the curve

b) Determine which point is a maximum and which is the minimum

a)

b)

EXAMPLE;

1. The output for a firm over time is given by the function

Determine the years in which output is at a minimum and a maximum

2. A hotel charges different prices for the same meal in two different markets. The demand
function in each market is given by the respective equations.

132
ℎ . . . . ℎ
 . The company’s cost function is given by the equation
ℎ
a) For each market, write down the marginal revenue and marginal cost
b) Determine the price and quantity at which profit is maximized
c) If price discrimination is declared illegal, which price should the company charge to maximize
profit?

1.

If units of a commodity are demanded by market at a unit price where is a differentiable

function, then the price elasticity of demand for the commodity is given by

And has the interpretation

ℎ ℎ

That is

ℎ
ℎ

NOTE; Since demand decreases as the unit price increases, we have . Therefore, since
and , it follows that, the price elasticity of demand we get is negative;

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ℎ . . . . ℎ
EXAMPLE; Suppose the demand and price for a certain commodity are related by the linear equation

where

a) Express elasticity as a function of

b) Calculate the elasticity of demand when the price is . Interpret your answer
c) Calculate the elasticity of demand when the price is
d) At what price is the elasticity demand equal to ?

a)

b)
This implies that increases in price at will produce a decrease in demand.
c)
.
d)

Economist usually defines price elasticity of demand as a positive number | | | |. There are three
categories of elasticity;

1. | | | | ; Elastic demand; The percentage increase in demand is greater than the

percentage increase that causes it. Thus demand is relatively sensitive to change in price
2. | | | | ; Inelastic demand; The percentage decrease in demand is less than the
percentage increase in price that causes it. Demand is relatively insensitive to change in price.
3. | | | | ; Unitary; The percentage change in price and demand are approximately
equal.

1. | | Revenue decreases as price increases

2. | | Revenue increases as price increases
3. | | No effect on revenue

EXAMPLE; The manager of a bookstore determines that when a certain new novel is prices at kwacha
per copy. Then daily demand will be

Copies, where √

a. Determine where the demand is elastic, inelastic or unitary with respect to price
b. Interpret the result off part (a) in terms of behavior total revenue as a function of price

134
ℎ . . . . ℎ
 .

| | | |

Elastic
| |

[ ]

√
Inelastic

Interpretation

Functions of two variables, written in general form as , for example , where

and are independent variables and is a dependent variable, that is its values depends on and .

EXAMPLE; Suppose that at certain factory, output is given by the production function

units, where is capital investment measured in unit of and the size of labour
of force measure in worker hour

a. Compute the output if the capital is and worker hour

b. Show that output in (a) will double if both capital and labour are doubled

135
ℎ . . . . ℎ
 .

a.

If the derivative of the function with respect to one of independent variable is

termed partial derivative of the function. The partial derivative of a function gives the instantaneous
rate of change of the dependent variable. To determine the effect of a change in a single independent
variable, we regard every independent as constant. The partial derivative with respect to is denoted as

And with respect to

EXAMPLE: Find the first order partial derivatives for each of the following function

a)
. .
b)
c)

a) With respect to

With respect to

b) With respect to
. .

. .

With respect to
. . . .
.
c) With respect to

136
ℎ . . . . ℎ
 With respect to

To find the second-order partial derivatives, simply differentiate first-order partial derivative again. The
only problem is that there are several possibilities, if there are two first-order partial derivatives,
each first-order partial derivative could be differentiated with respect to the same variable again, giving
two second partial derivatives.

( * ( *

However, these two mixed second order partial derivatives are equivalent, that is

EXAMPLE; Given the equation

( * ( *

EXAMPLE; A supply function is given by the equation

a) Find the derivative of

b) Find the differential of

137
ℎ . . . . ℎ
 c) If is increased by , use differential to approximate change in

a)
b)
c) ( )

The argument for the differential of a function of one variable may be extended to functions of two
variables, so the total differential of , a function of two variables is written as

EXAMPLE; A company’s revenue is given by the equation , where is the payment on

wages and is the advertising expenditure.

a) Find the differential of

b) Use the differentials to find the approximate percentage change if spending on
I. Wages is increased by , no change in advertising
II. Advertising decrease by , no change in wages
III. Wages increases by and advertising is decreased by

a) ( ) ( )
b) ( )
.
.
. .

.
.
. .

( ) ( )
. .
. .
. .

138
ℎ . . . . ℎ
 i. ( ) ( )
 Minimum provided
 Maximum provided
ii. . You neither have maximum nor minimum (point of inflation). (test failed) sandal
point.

EXAMPLE; Examine the given function for maximum or minimum by using the second derivative test

( )

Unconstrained optimization

: To find price that should be charged in each market to maximize profit,

EXAMPLE: A monopolist produces a single good but sells it in two markets. The demand function for
each market is and , where and , and are the price and
quantity in market and respectively. The cost function is , where

a) Find the price and quantity of the good in each market, which maximizes profit
b) Determine the price elasticity for each market
c) Find the price and quantity of the good in each market which maximizes profit when the
monopolist does not use price discrimination, that is

a)

But
[ ]

139
ℎ . . . . ℎ
 .

b) ( ) ( .
)( )

( ) ( )

c) { , Solving simultaneously we get,

, Adding the two equations

Diving through by we get

In many problems, a function of two variables is to be optimized subject to a restriction or constraint on

the variable. For example, an editor, constrained to stay within a fixed budget of , may wish to
decide how to divide this money between development and promotion in order to maximize the future
sales of a new book. Let and and the corresponding number
of books that will be sold. The editor would like to maximize the sales function subject to the
budgetary constraint that .

The method of langrage multiplier uses the fact that any relative extreme of the function subject
to the constraint must occur at a critical point of the function

140
ℎ . . . . ℎ
 [ ]

Where is a new variable (the langrage multiplier). To find the optimum value of a function
subject to a constraint, we define the langragian function as given above.

EXAMPLE;

a) The total revenue function for two goods is given by . Find the
number of each good which must be sold if revenue to be maximized when the firm is subject to
a budget constraint
b) The highway department is planning to build a picnic area for motorist along a major highway, it
is rectangular with an area of square meter and is to be fenced of a three side not adjacent
to the highway. What is the least amount of fencing that will be needed to complete the job?

a)

, Subtracting the two equations

, Solving the two equations simultaneously yields

Solving for

b)

141
ℎ . . . . ℎ
 { Solve using substitution method

c) Find the maximum and minimum values of subject to the constraint

..
{ . Solving using substitution method, we get

From equation

Determining whether the points are minimum

( ) ( )

142
ℎ . . . . ℎ
 . .
d) Find the values of and for which the utility function is maximized subject to the
budget constraint

.
. .

. .

. . . .
. .

. .
.
. . } Solve using substitution method
.

If , the optimum value of utility will increase by for each unit in the constraint and decrease by
for each unit reduction in the constraint.

EXAMPLE; Given the utility function , find the change in the maximum level of utility when the
budget constraint is increased by one unit

..

Solve by substitution

If is a function such that is anti-derivative of . Therefore, an anti-derivative of just a function for

which when differentiated gives . That is , then ∫ . The function is called
the integrand ∫ ℎ and is merely to remind us integration is done with
respect to .

( )
For example; , then ∫

143
ℎ . . . . ℎ
 1. ∫
2. ∫ Provided
3. ∫
4. ∫
5. ∫

1. For any constant ∫ ∫

2. For any two functions and , we have
∫( ) ∫ ∫

EXAMPLE: Integrate the following function

a) ∫ ( )

∫ ∫

b) ∫ √
∫ ∫( * ∫ ∫

A linear function is expressed as , where and are constants. The rule for integrating
a linear function raised to a power is given as

EXAMPLE;

1. ∫(√ )

144
ℎ . . . . ℎ
 2. ∫

∫ ( *

3. ∫

The integration discussed so far applies only to limited types of functions. Certain functions can be
integrated by substituting a variable for a function and integrating with respect to the substituted
variable.

EXAMPLE;

1. ∫
ℎ

∫ ∫

2. ∫

3. ∫
ℎ

The formula for the derivative of the product of two functions is often useful in evaluating integrals. If
and are differentiable functions, then

145
ℎ . . . . ℎ
 ∫ . ∫

EXAMPLE;

1. ∫

∫ . ∫

∫ ∫

2. ∫

∫ . ∫

∫ [ ∫ ]

1. ;
We now consider the integral of fractional function without loss of generality, we may assume
that the numerator and denominator have no common polynomial factors and the
degree of is less than the degree of (that is , define a proper rational function).
For if the numerator were not of lower degree could use long division to divide by
. Here would be a polynomial easily to integrate and would be a polynomial
lower degree than . Thus would then be a proper rational function.

EXAMPLE; Find

146
ℎ . . . . ℎ
 2x  1
x  2 x  3x 2 x  3x  4 x  17x  6
3 2 4 3 2

∫ ∫* +

∫ ∫ ∫

∫ ∫( *

| | | | | |

EXERCISE; Solve

147
ℎ . . . . ℎ
 2. ;
If the denominator of contains any linear factors, some of which are repeated, then for
each factor, , where is the maximum number of times occurs as a factor,
therefore, will correspond the sum of partial fractions

EXAMPLE; Determine

∫ ∫( *

| | | |

3.
Suppose a quadratic factor occurs in and it cannot be expressed as a
product of two linear factors with real coefficient. Such a factor is said to be irreducible
quadratic factor over real number. To each distinct irreducible quadratic factor that occurs
exactly one in , there will correspond a partial fraction of the form

EXAMPLE; Determine

Solve for ; we get

148
ℎ . . . . ℎ
 ∫ ∫[ ]

| | ∫

| | ∫
| | | |
| | | |

The area under a given curve can be computed by using definite integrals. That is

EXAMPLE; Evaluate the following functions

a) ∫

* + ( +

b) ∫ . ( )
.
* | |+ ( . )
.
.

In general, consumer surplus at corresponding quantity is given by

149
ℎ . . . . ℎ
EXAMPLE; Calculate the consumer surplus for the demand function

a) when market price,

b) when market price,

a) . ∫
⌉

b) . ∫
| | .

150
ℎ . . . . ℎ