Lecture 3

Application of Functions in Real Life

Objectives

 Functions as Mathematical Model

 Examples
Mathematical Model

 a description of a system using mathematical concepts and language

 used in the natural sciences (such as physics, biology, earth science,
chemistry) and engineering disciplines (such as computer science, electrical
engineering), as well as in the social sciences (such as economics, psychology,
sociology, political science)
 help explain a system and to study the effects of different components, and
to make predictions about behavior
Function Definition
(Review)
 a process or a relation that associates each element x of a set X, the domain
of the function, to a single element y of another set Y (possibly the same set),
the codomain or range of the function
Example #1
Example #2
Example #3
Example #4
But before the complex… we start with
simple examples to solve…
 A carpenter can construct bookcases at a cost of $40 each. If the carpenter
can sell the bookcases for x dollars each, it is estimated that 300 - 2x
bookcases will be sold per month.
 Express monthly profit as a function of x
 Determine the monthly profit and monthly sales at selling price $110 per bookcase
 Determine the Break Even Point
Solution

 Set
 P(x) = monthly profit
 C(x) = cost per month
 R(x) = revenue per month
 S(x) = sales per month
 Given
 C(x) = (300- 2x)(40)
 R(x) = (300-2x)(x)
 P(x) = R(x) – C(x) = (300-2x)(x) – (300-2x)(40) = 300x – 2x2 – 12000 + 80x
= -2x2 + 380x – 12000
 S(x) = 300-2x
Solution

 S(110) = 300-2(110) = 300-220 = 80

 P(110) = -2(110)2 + 380(110) - 12000 = -2(12100) + 41800 – 12000 = 5600

 Check
 R(110) = (300-2(110))(110) = (300-220)(110) = 80(110) = 8800
 C(110) = (300-2(110))(40) = (300-220)(40) = 80(40) = 3200
 P(110) = R(110) – C(110) = 8800 – 3200 = 5600
Let the troubles begin…

 Concept: As a general rule, economists assume that the quantity of a good or

service that individuals are willing and able to purchase during a fixed period
of time depends upon five major variables:
 The price of the good itself,
 The income of the buyers,
 The prices of related goods and services,
 The expected price of the good in future periods, and
 The tastes of the consumers.
Let the troubles begin…

 Demand Function
 The law of demand states that quantity purchased varies inversely with price. In
other words, the higher the price, the lower the quantity demanded. This
phenomenon occurs because when consumers' opportunity cost increases, they
must give something else up or switch to a substitute product.
Demand Case

 A business sells 200 units per month at a price of P100 each. It is projected
that monthly sales will increase by 2 units for each P1.00 reduction in price.
 Create the demand function. Find D and R. Graph.
 What is the possible highest price?
 What is the possible highest number of sales?
 How much will be demanded at the price P80.00?
 How much price can be charged at a demand of 25,000 units?
Let the troubles continue…

 Supply Function
 The law of supply is the microeconomic law that states that, all other factors being
equal, as the price of a good or service increases, the quantity of goods or services
that suppliers offer will increase, and vice versa. The law of supply says that as the
price of an item goes up, suppliers will attempt to maximize their profits by
increasing the quantity offered for sale.
Supply Case

 A business produces 500 units per month at a price of P100 each. At a price of
P120 for the same unit, the company is willing to produce 550 a month.
 Create the supply function. Find D and R. Graph.
 What is the possible lowest price?
 What is the possible lowest number of production?
 How much will be supplied at the price P80.00?
 How much price can be charged at a supply of 25,000 units?
And the finale…

 Market Equilibrium Price (MEP)

 Equilibrium is the state in which market supply and demand balance each other,
and as a result, prices become stable. Generally, an over-supply for goods or
services causes prices to go down, which results in higher demand. The balancing
effect of supply and demand results in a state of equilibrium.
OK… more examples…

 The supply equation is given as 4y = 3x + 100.

 The demand equation x + 3y = 360.
 For x representing the quantity and y as the price.
 Do the following:
 Create the supply and demand functions.
 Find D and R for each function.
 Graph.
 Solve for MEP
Last…

 Given
 Revenue Function R(x) = x(94.8x-5x)
 Cost Function C(x) = 156 + 19.7x
 With D:[1,15]
 Do the following:
 Graph
 Solve for MEP