APPLICATION OF

FUNCTIONS IN BUSINESS
 Total Cost, Revenue, and Profit- The profit a firm makes in a product
is the difference between the revenue
 (amount received in sales) and its costs (amount spent by firm to
produce the product). If x units are produced and sold, it is written:
P(x) = R(x)-C(x)
 Where: P(x) = profit from x sale of units
 R(x) = total revenue from sale of x units
 C(x) = total cost of production and sale of x units
 In general, revenue is found by the equation:
 Revenue= (price of units) (number of units).
 -The total cost C is composed of two parts, fixed costs and variable costs.
Fixed cost, FC, remains
 constant regardless of the number of units produced. Examples of fixed
costs include depreciation, rent,
 utilities, and so on. Variable costs, VC, are those directly related to the
number of units produced. Thus,
 the total cost is found by using the equation: C= FC + VC.
 A firm’s breakeven point occurs when P (x) = 0, or when R(x) = C(x).
 Example: A manufacturer sells a product for $10 per unit. The manufacturer’s fixed costs are $1200
per month, and the variable costs are $2.50 per unit. How many units must the manufacturer produce each
month to break even?

 Solution: The total revenue for x units of the product is R(x) =10x. The fixed costs are $1,200. The variable
cost is $2.50 for x units produced. Thus, the equation for total cost is
 C(x)=2.50x+1200.
 Using the equation:
 R(x) = C(x)
 10x = 2.50x+1200
 7.5x =1200
 x =160
 Thus, the manufacturer will break even if 160 units are produced.
 Supply, Demand and Market Equilibrium- the first quadrant of parabolas or
other quadratic equations are
 frequently used to represent supply and demand functions. Market
equilibrium occurs when the quantity of units
 demanded equals the quantity of units supplied. To solve for market
equilibrium solve the system of equations
 for quantity, q, and price, p.
Example: If the supply function for a commodity is given by 100 2 p = q + and the demand function
Is given by p= -20q+2500 find the point of equilibrium.

Solution: At the market equilibrium, both the equations will have the same
p-value. Thus substituting q2 + 100 for p in p= -20q+2500 yields

q2 + 100 = -20q+2500
q2+ 20q-2400=0
(q-40)(q+60)=0
q= 40 or q= -60
Because a negative quantity is not physically possible, the positive valued solution must
be used. The equilibrium point occurs when 40 units are sold, at (40,1700).
 * Profit (P) = Revene - Cost
 * Revenue (R): The amount a company receives from sales.
 Revenue = (Price per unit)×(# of units)
 * Cost (C)
 fixed cost (FC) - stays constant regardless of the # of units produced. Ex. rent, utilities.
 variable cost (VC) - changes depending on the # of units produced.
 Cost = FC+VC
 * Marginal profit (MP): the slope of the profit function = rate of change in profit with respect to the units produced
and sold.
 * Marginal cost (MC): the slope of the cost function.
 * Marginal revenue (MR): the slope of the revenue function.
 Ex.1 (p.119) Suppose that a firm manufactures MP3 players and sells them for $50 each. The costs incurred in the
production and sale of the MP3 players are $200,000 plus $10 for each player
 Produced and sold. Write the profit function for the production and sale of x player.