MTHS112: Classwork Week 6 Revision
Chapter 2: APPLICATION OF FUNCTIONS
Week 6: Linear functions
Preparation:
Work through Week 6 (pp. 53-61) in the prescribed textbook Mathematical Techniques.
These exercises has the following outcomes:
Demonstrates the method of simple modelling using a linear function or straight line.
Help develop a deeper understanding of the function concept.
Show the relationship between a function and its inverse.
Show how to sketch and interpret linear functions.
Familiarise you with the interplay between q and p.
Demand and supply functions
1. The quantity supplied is 10 units when the price is R3 per unit, and 15 units when
the price is R4 per unit. Assume that there is a linear relationship between price
and quantity.
From the phrasing in the sentence the quantity supplied depends on the price per unit.
1.1 Complete:
The independent variable is: Price per unit P
The dependent variable is: Quantity supplied Q
1.2 Determine an equation for the supply Q as a function of the price P.
We have to determine an equation of the form: Q = aP + b.
Method 1: Modelling using analytical geometry for straight lines
If Q depends on P the coordinates is of the form (P; Q).
Q = aP + b is similar to the analytical geometry form of a straight line, i.e. y = mx + c,
with y, the the dependent variable, which becomes Q, x, the independent variable
which becomes P, m the slope which becomes a, and c, the y-intercept, which
becomes b.
y 2 y1 Q2 Q1
am = ......................................................................
x2 x1 P2 P1
Calculate a, substitute the value of a into Q = aP + b and solve for b.
Method 2: General modelling (valid for all types of functions)
There are two unknowns, namely a and b. Hence, we need two equations to solve for
the unknown values (see Chapter 1). Substitute point (P1; Q1) into the function and then
repeat the process for the second point (P2; Q2):
Q1 = aP1 + b (1)
Q2 = aP2 + b (2)
Determine the values of a and b using simultaneous solving.
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1.3 Draw the graph of Q versus P.
1.4 Change the subject of the equation in 1.2 to P.
Q = aP + b
P = (Q ‒ b) / a
1.5 Draw a graph of P versus Q.
1.6 What is the relationship between the two graphs which you have sketched?
Die een is die inverse van die ander een.
1.7 What is the easiest way to plot graph of Q aP b on axes of P versus Q?
It is not necessary to rewrite the equation in the form P is a function of Q.
One only has to find the intercepts with the axes.
Consider Q = aP + b
Let P = 0, then Q = b
Plot b on the Q-axis.
Let Q = 0, then P = (‒b) ÷ a
Plot ‒(b ÷ a) on the P-axis.
Join the two points to find straight line.
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2. Consider the supply and demand schedules:
Price Demand (no. of
Supply (no. of units)
(R/unit) units)
10 10 3
12 9 4
14 8 5
16 7 6
18 6 7
20 5 8
2.1 Provide a graphical repesentation of the demand and supply schedules in terms of
price per unit versus quantity.
2.2(a) Determine the demand and supply functions in the form Q aP b .
Use one of the methods described in 1.2
Demand function: Qd = ‒½P + 15
Supply function: Qs = ½P ‒ 2
2.2(b) Determine the demand and supply equations in the form P aQ b .
Use one of the methods described in 1.2
Demand equation: Pd = ‒2Q + 30
Supply equation: Ps = 2Q + 4
2.3 Determine the coordinates of the market equilibrium, i.e. the exact point where the
two graphs intersect.
Qd = Qs or Pd = Ps
‒½P + 15 = ½P ‒ 2 ‒2Q + 30 = 2Q + 4
P = R17,00 Q = 6,5
Q = 6,5 P = R17,00
NB: We do not round off the quantity Q to the nearest integer, because the market
equilibrium is a theoretical point and in this context the decimal has value.
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3. Assume the demand for a certain product is given by Q, with P the price per unit
of the product and Y the total income of the consumer.
Qd 350 5P 0,025Y
In this problem we try to include the effect of the consumers' income into the initial
modelling of demand using the internal relationship between quantity demanded Q and
price per unit P.
3.1 Rewrite the demand function Q in terms of P if the average income of the
consumers is fixed at R20 000.
Substitute R20 000 into the equation for the function and we get Q'd = ‒5P + 850
Comparing with the original function we see that the slope stays the same (m = ‒5)
3.2 Graph the demand function on the given set of axes.
P in rand
170
Q
850
NB: Make sure you understand how to draw this graph (see 1.7).
3.3 Suppose there is a recession and the average income decreases to R16 000.
Graph the new demand function on the same set of axes given in 3.2 and explain
the change in the relationship between quantity demanded and price per unit.
Substitute R16 000 into the equation of the function Q'd = ‒5P + 750
Sketch the new function on the same set of axes in 3.2.
Conclusion
What story is the mathematical modelling telling us?
The slope stayed constant, hence the inherent ratio between quantity Q demanded and
price per unit P did not change. The propensity to buy in terms of the unit price stayed
the same. The effect of the decrease in the income is that the quantity demanded Q
and the unit price P decreased in the same ratio.
NB: Notice the difference and the interplay between the mathematical and the
economics approach. In mathematics we are informed by the mathematical
rules and interpretations. Then we compare them with the economical data and
theories and decide if we have to refine our model or apply it.
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4. A market researcher established that the demand function for a product is given
by Qd 120 10P and the supply function by Qs 8P .
In this exercise we model demand and supply using straight lines and include the effect
of an external factor on the quantity demanded.
4.1 Determine coordinates of market equilibrium.
Qd = Qs
120 ‒ 10P = 8P
P = R6,67
Substitute into Qd = 120 ‒ 10P or Qs = 8P
Q = 53,3
4.2 Draw sketch graphs of the demand and supply functions on the given system of
axes for the region Q 0, P 0 . Indicate the market equilibrium with an A.
P in rand
12
6,67
Q
53,3 96 120
Sketching of Qd = 120 ‒ 10P:
Let P = 0 Q = 120
Let Q = 0 P = 12
Sketching of Qs = 8P
Let P = 0 Q=0
To find the second point we can choose any convenient value for P or Q.
Choose P = 12 (a point which is already on the graph) Q = 96
Or use the coordinates of the market equilibrium.
4.3 Assume the demand increases by 25% owing to an advertising campaign. Sketch
the new demand function on the system of axes given in 4.1. Indicate the new
market equilibrium with the letter B. Determine the coordinates of the new market
equilibrium. Give an explanation for the change.
When we want to make changes to the modelling, it is safer to use the original functional
relationship Q(P).
Q'd = 1,25Qd = 1,25(120 ‒ 10P) = 150 ‒ 12,5P
NB: In this case the modelling indicates that the inherent relationship between
quantity demanded and price per unit (slope of the line) has changed. This is in
contrast to the previous problem (see 3.3).
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Sketch the new demand function as a dotted line. Determine the new market equilibrium
and indicate the coordinates on the graph.
Conclusion
What story is the mathematical modelling telling us?
The slope does not stay constant, hence the external factor had an effect on the
propensity to buy (demand). The initial price per unit stayed constant (R12 on P axis),
but the initial demand increased by 25% (100 to 120 on Q axis) due to the external factor
(e.g. advertising campaign). However, the market stabilized at a higher demand and a
higher price per unit.
5. A market researcher found that the demand function for a product is given by
Qd 100 12P and the supply function by Qs 12 8P .
In this exercise we include the unit tax paid by the supplier into the modelling of the
quantity supplied.
5.1 Determine the values of the price and quantity at the market equilibrium.
Qd = Qs
100 ‒ 12P = ‒12 + 8P
P = R5,60
Substitute into Qd = 100 ‒ 12P or Qs = ‒12 + 8P
Q = 32,8
5.2 Illustrate the demand and supply functions on the given set of axes.
P in rand
8,33
5,60
1,50
Q
32,8 96 100
5.3 Determine the effect of a unit tax of R5 on the supply function and sketch the new
supply function on the set of axes as a dashed line.
When we want to make changes to the modelling, it is safer to use the original functional
relationship Q(P).
Q's = ‒12 + 8(P ‒ 5) = ‒52 + 8P
NB: In this case the modelling indicates that the inherent relationship between
quantity demanded and price per unit (slope of the line) has not changed.
Compare with the situations in 3.3 & 3.4.
The graph is given in 5.4.
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5.4 Determine the values of the price and quantity at the new market equilibrium and
explain the difference.
New market equilibrium:
Qd = Qs
100 ‒ 12P = ‒52 + 8P
P = R7,60
Substitute into Qd = 100 ‒ 12P or Qs = ‒12 + 8P
Q =8,8
P in rand
Q's
8,33 Qs
7,60
6,50
5,60
Qd
1,50
Q
8,8 32,8 96 100
Conclusion
What is the story that the mathematical modelling is telling us?
The graph of Q's is parallel to the graph of Qs, hence the slope, which reflects the inherent
relationship between quantity supplied Qs and price per unit P, did not change. The P
intercept of the Q's graph is R5,00 higher than the original graph, telling us that initially
the supplier would try to retrieve the R5,00 tax from the consumer. However, the market
stabilized at R7,60, which is just R2,00 higher than the initial market equilibrium. This
implies that the supplier could transfer R2,00 of the tax to the consumer, and had to pay
The difference of R3,00.
Revenue, cost and profit functions
6. A firm has fixed cost of R450, variable costs of R5 per unit and a selling price of
R10 per unit.
6.1 Determine functions for the revenue, cost and profit in terms of the level of sales
q.
Revenue: R = 10q
Cost: C = 450 + 5q
Profit: P = R ‒ C = 5q ‒ 450
6.2 At what sales level does the firm break even?
R=C or P=0
10q = 450 + 5q 5q ‒ 450 = 0
q = 90
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6.3 Graph the firm’s total revenue, cost and profit functions. Indicate the areas of profit
and loss.
rand
R
450
P
q
90
‒450
The area of profit lies between the R and C lines with the revenue higher than the cost,
i.e. to the right of the break-even point.
The area of loss lies between the R and C lines with the revenue lower than the cost, i.e.
to the left of the break-even point.
The value of ‒450 for the y-intercept of the profit function shows that the first R450 of the
profit must cover the fixed cost.
The q- coordinate of the break-even point is the same as the zero point of the profit
function.
If R > C, then P > 0
If R < C, then P < 0
Budget function
7. Assume a consumer has a budget M to spend on two goods X and Y with prices
of Px and Py respectively.
7.1 What is the consumer’s budget function.
M = Px x + Py y
7.2 Determine an equation for the slope of the budget function.
y = ‒(Px / Py )x + (M/ Py)
Helling = ‒(Px / Py )
7.3 Determine the budget function for M = R4000, Px = R10 and Py = R30.
4000 = 10x + 30y
7.4 Graph the budget function.
200
166,7
133,3
8
400 500
x
7.5 Suppose the price of Y decreases to R10 per unit. Determine and sketch the new budget
constraint on your graph. Explain the difference.
Let M = R4000, Px = R10 and Py = R20 in M = Px x + Py y
4000 = 10x + 20y
According to the red graph the number of units of product x will stay constant, but more
units of y can be bought.
In general, slope is ‒(Px / Py ), hence if Py decreases, the slope will be still negative, but
steeper.
7.6 Suppose Px = R10 and Py = R30 and total income increases to R5000. Determine and
sketch this budget constraint on your graph. Explain the difference.
Let M = R5000, Px = R10 and Py = R30 in M = Px x + Py y
5000 = 10x + 30y
According to the green graph more units of x and y can be bought.
In general, M = Px x + Py y and if M increases, slope ‒(Px / Py ) stay constant, hence
more of x and y can be bought.
