Mo001 4 2017

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MO001/4/2017
Quantitative Modelling 1
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Semesters 1 and 2
Department of De ision S ien es
This do ument ontains guidelines to be used together with

the pres ribed textbook
Essential Mathemati s for E onomi s and Business

by Teresa Bradley
Bar code
Contents
1 Introdu tion 5
1.1 The textbook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 Knowledge assumed to be in pla e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 A tivities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.5 Errata . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
I Linear fun tions 7

2 The straight line and appli ations 8
2.1 The equation of a straight line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Mathemati al Modelling (Ex luded) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Appli ations: demand, supply, ost, revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3.1 Demand and supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3.2 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.3.3 Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3.4 Prot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 More mathemati s on the straight line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.5 Translations of linear fun tions (Ex luded) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.6 Elasti ity of linear demand and supply fun tions . . . . . . . . . . . . . . . . . . . . . . . . . 14
II Simultaneous linear fun tions 16

3 Simultaneous equations 17
3.1 Solving simultaneous linear equations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.2 Equilibrium and break-even . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.2.1 Equilibrium in the goods and labour markets . . . . . . . . . . . . . . . . . . . . . . . 19
3.2.2 Pri e ontrols and government intervention in markets . . . . . . . . . . . . . . . . . . 20
3.2.3 Market equilibrium for substitute and omplementary goods (Ex luded) . . . . . . . . 21
3.2.4 Taxes, subsidies and their distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.2.5 Break-even analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.3 Consumer and produ er surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.3.1 A tivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9 Linear algebra and appli ations 24

9.1 Linear programming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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III Nonlinear fun tions 27

4 Nonlinear fun tions and appli ations 28
4.1 Quadrati , ubi and other polynomial fun tions . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1.1 Solving a quadrati equation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.1.2 Properties and graphs of quadrati fun tions (parabolas) . . . . . . . . . . . . . . . . . 30
4.1.3 Quadrati fun tions in e onomi s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.1.4 Cubi fun tions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.2 Exponential fun tions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.2.1 Denition and graphs of exponential fun tions . . . . . . . . . . . . . . . . . . . . . . . 36
4.2.2 Solving equations that ontain exponentials . . . . . . . . . . . . . . . . . . . . . . . . 36
4.2.3 Appli ations of exponential fun tions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.3 Logarithmi fun tions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.3.1 How to nd the log of a number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4.3.2 Graphs and properties of logarithmi fun tions . . . . . . . . . . . . . . . . . . . . . . 37
4.4 Hyperboli fun tions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
IV Dierentiation 39
6 Dierentiation and appli ations 40
6.1 Slope of a urve and dierentiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1.1 The slope of a urve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.1.3 The derivative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.2 Appli ations of dierentiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.3 Optimisation for fun tions of one variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.4 E onomi appli ations of optimisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.5 Curvature and other appli ations (Ex luded) . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.6 Further dierentiation and appli ations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.7 Elasti ity and the derivative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
V Integration 47
8 Integration and appli ations 48
8.1 Integration as the reverse of dierentiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.2 The power rule for integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.3 Integration of the exponential fun tion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.4 Integration by algebrai substitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.5 The denite integral and the area under a urve . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.6 Consumer and produ er surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
A Solutions to a tivities 51
A.1 Se tion 2.1 (The equation of a straight line) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
A.2 Se tion 2.3 (Appli ations: demand, supply, ost, revenue) . . . . . . . . . . . . . . . . . . . . 51
A.3 Se tion 2.4 (More mathemati s on the straight line) . . . . . . . . . . . . . . . . . . . . . . . . 54
A.4 Se tion 2.6 (Elasti ity of linear demand and supply fun tions) . . . . . . . . . . . . . . . . . . 54
A.5 Se tion 3.1 (Solving simultaneous linear equations) . . . . . . . . . . . . . . . . . . . . . . . . 55
A.6 Se tion 3.2 (Equilibrium and break-even) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
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A.7 Se tion 3.2.5 (Break-even analysis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

A.8 Se tion 3.3 (Consumer and produ er surplus) . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
A.9 Se tion 4.1.1 (Solving a quadrati equation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
A.10 Se tion 4.1.2 (Properties and graphs of quadrati fun tions) . . . . . . . . . . . . . . . . . . . 60
A.11 Se tion 4.1.3 (Quadrati fun tions in e onomi s) . . . . . . . . . . . . . . . . . . . . . . . . . 61
A.12 Se tion 4.4 (Hyperboli fun tions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
A.13 Se tion 6.1.3 (The derivative) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
A.14 Se tion 6.4 (E onomi appli ations of optimisation) . . . . . . . . . . . . . . . . . . . . . . . . 64
4
Chapter 1: Introdu tion
These notes are intended to guide you through the textbook. Important parts will sometimes be highlighted
or explained in another way than in the book.
1.1 The textbook

The book pres ribed for this module is
Essential Mathemati s for E onomi s and Business by Theresa Bradley.

When we feel that the notes in the textbook an be explained in another way or if there is something
interesting that an enhan e your understanding of a on ept, we will provide additional notes. It is,
however, of utmost importan e that you work attentively through the textbook, using these notes only as a
guideline.
C) as urren y, whi h is of ourse not what we use in

The textbook uses pounds () and sometimes euros (A
South Afri a. To keep it simple, we onvert pounds and euros dire tly to rand (R), that is 1 = R1 and
C1 = R1,
A without taking ex hange rates into a ount.
In South Afri a we also use the de imal omma and not the de imal point as in the textbook. Even though
you will not be penalised for using the de imal point, these notes and all tutorial letters will ontain the
de imal omma.
At the beginning of ea h hapter and some se tions in the textbook, obje tives are given. These obje tives
are mostly the same as the assessment riteria of the study units. They dier only where parts of the material
in the textbook are ex luded and do not need to be studied.
At the end of ea h hapter, a summary of important on epts is provided.
From Chapter 2 in these notes, the hapter and se tion numbers orrespond with those in the textbook.
1.2 Knowledge assumed to be in pla e

The mathemati al preliminaries that are dis ussed in Chapter 1 of the textbook are regarded as pre-
knowledge, sin e you should have done it at s hool. Please work through this hapter if you nd that
you need to at h up with any of the following topi s:
arithmeti operations (addition, subtra tion, multipli ation, division),

the order in whi h su h operations should be arried out,
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fra tions (addition, subtra tion, multipli ation, division),

solving equations (in luding fa torisation),
onverting urren ies,
solving simple inequalities and writing down intervals representing inequalities,
al ulating per entages,
evaluating and transforming formulae ( hanging the subje t of a formula).
We furthermore assume that you are pro ient with the use of a al ulator.
1.3 Software
At the end of ea h hapter in the textbook the use of Mi rosoft Ex el for the topi under onsideration is
shown. You are wel ome to work through these notes, but sin e it is quite umbersome to plot fun tions
in Ex el, we rather introdu e you to the mathemati al pa kage Maxima. This is free software that an
be downloaded from the internet. See the notes for installation and the use of Maxima under Additional
Resour es on myUnisa.
Maxima is easy to use. For example, to plot a fun tion you simply sele t the Plot fun tion, enter a mathe-
mati al expression, hoose begin and end values on the axes and when you enter, a graph of the fun tion is
shown.
When you graph fun tions regularly, you may develop an intuitive sense of the properties of ertain fun tions.
It an also help you to he k your answers to assignment questions.
1.4 A tivities
Do the a tivities at the end of ea h se tion by hand (with pen on paper) before you look at the solutions.
This will give you an indi ation of how well you understand the pre eding study material and provide the
opportunity to exer ise your mathemati al writing skills.
1.5 Errata
We have identied small errors in the fourth edition of the textbook. These are listed below. If you nd
more su h errors (also in other editions), please bring it to our attention.
Page 77, line 1: . . . the orresponding hange in x, given as . . .

Page 110, line 6 of the solution: . . . (4) adding equations (1) and (3)
Page 128: The onsumer surplus is al ulated in orre tly. At A on the graph, P = 100. Therefore
CS = 0,5(90)(100 55) = 2 025. (Ignore the 110 inserted in Figures 3.11 and 3.12.)
Page 132: Questions 4 and 5 are the same. Ignore either one of them.
Page 167: In Table 4.8, the last value of x should be 12.
Page 186: Rule 4 that is mentioned in the note before the progress exer ise, is on page 191.
Page 288: The equation in (ii) should be AC = 3Q2 18Q + 34.
f (x) dy
Page 357: Number 1, six lines from the bottom should be y = e
dx = f (x) ef (x) .
Page 456, line 1: . . . sket h the supply fu tion and then shade the produ er surplus. . . .
Page 483, Tables 9.3 and 9.4: The olumn heading Selling pri e should be Revenue.
6
STUDY UNIT I
LINEAR FUNCTIONS
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Chapter 2: The straight line and appli ations
2.1 The equation of a straight line

The straight line is the simplest mathemati al fun tion, dened by
f (x) = mx + c or y = mx + c,
where m is the slope of the line and c is the inter ept on the verti al axis.
You should be able to plot linear fun tions it was part of the s hool syllabus.
The rest of the study unit relies heavily on your ability to plot and interpret su h linear fun tions and you
may expe t assignment and/or exam questions on it. We therefore advise you to work through this se tion
to refresh your memory and maybe learn something you didn't know!
In the textbook dierent methods of plotting a straight line and nding the equation of a straight line are
dis ussed in detail.
Work through the study material (pages 38 53). Worked examples 2.1 2.5 are important.
You need to be able to determine the equation of a straight line when given
the slope and the y inter ept,
the slope and a point on the line, or
two points on the line,
and graph a linear fun tion by using

its slope and inter ept, or
two points on the line.
A tivity
Apply what you have learnt and answer the following questions, writing it down with pen on paper.
Solutions are available on page 51.
1. For the straight line given by y = 4x + 3, nd the slope and both horizontal and verti al inter epts.
2. Plot the straight line given by 2y + 6x = 12.
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2.2 Mathemati al Modelling (Ex luded)

In a subje t like De ision S ien es, mathemati al models are reated and solved for a wide range of pra ti al
problems. These are then used to optimise some quantity, for example to minimise ost or to maximise
revenue and/or prot.
This paragraph gives the ba kground of where mathemati al modelling ts into the bigger pi ture, how su h
models are onstru ted and it dis usses e onomi models in general.
This paragraph is not for examination purposes, but it may put the notion of modelling as su h
into ontext for you. We therefore en ourage you to read it.
2.3 Appli ations: demand, supply, ost, revenue

2.3.1 Demand and supply
For this module we onsider the simplest models of demand and supply where the demand for and the supply
of a produ t depend on pri e only. All other possible variables are onsidered to be onstant.
(a) Demand
The term demand represents the quantity of a produ t or servi e (denoted by Q in the textbook) that
onsumers would buy at a ertain pri e (P ).
The demand for a produ t is negatively related to the pri e that is asked for the produ t, that is
the quantity demanded will de rease when the pri e in reases.

Consumers will buy less of a produ t if the pri e of it gets higher, while they will buy more of a produ t
at a lower pri e.
Consider Figure 2.16(a) (page 60 of the textbook).
The demand fun tion Q = 200 2P is graphed. Here Q is the dependent variable (on the verti al axis).
We see that the slope of the demand line is negative (2). When the pri e is zero, Q = 200 items are
demanded. On the other hand, when the pri e is R100, the quantity demanded is zero. This means that
the pri e is too high and nobody will buy the produ t.
In Figure 2.16(b) the same demand fun tion is graphed with P as the dependent variable, that is
P = 100 0,5Q. The slope is again negative (0,5) showing that higher demand orresponds with lower
pri es.
To draw the linear demand fun tions as in Figure 2.16, we an either nd two points on the line, or use
the slope and inter ept.
For example, in Figure 2.16(a), two points on the line are found. By setting P = 0 we nd Q =
200 2(0) = 200 (the point (0; 200)) and by setting Q=0 we nd 0 = 200 2P or P = 100 (the point
(100; 0)).
The general form of the demand fun tion is
P = a bQ,
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where a is the verti al inter ept and b is the slope of the line. This is illustrated in Figure 2.17 on page 61
of the textbook.
Applying the same method as above gives the two oordinates (Q; P ) where this line uts the axes as
a

(0; a) and
b; 0 .
Work through the study material on the demand fun tion and Worked example 2.6.
(b) Supply
The term supply represents the quantity of a produ t or servi e (also denoted by Q) that is made available
in the market, depending on the pri e (P ) of the produ t or servi e. There is a positive relationship
between the supply of a produ t and the pri e of it, that is
the quantity supplied in reases when the pri e in reases.

When the pri e of a good is high, suppliers want to sell more in order to make more prot, thus in reasing
supply.
As was the ase with the demand fun tion, the supply fun tion an be graphed with either supply (Q)
or pri e (P ) as dependent variable. Figures 2.21 and 2.22 in the textbook show su h graphs.
For the ase where Q is the dependent variable (on the y axis) the equation of the supply line is
Q = 10 + 2P (Figure 2.21) and for P as dependent variable, it is P = 5 + 0,5Q (Figure 2.22).
Note that the slope of the line in ea h of the graphs is positive, indi ating a positive relationship between
pri e and supply.
The general form of the supply fun tion is
P = c + dQ,
where c is the verti al inter ept on the graph and d is the slope of the line. This is illustrated in
Figure 2.20 on page 65 of the textbook.
Work through the study material on the supply fun tion and Worked examples 2.7 and 2.8.
You should now be able to
graph linear demand and supply fun tions with quantity/pri e as dependent variable, using either the
slope and inter ept, or the inter epts on the verti al and horizontal axes;
transform linear demand/supply fun tions from having quantity as dependent variable to having pri e
as dependent variable, and vi e versa.
2.3.2 Cost
Work through the study material on ost in Paragraph 2.3.2 and Worked example 2.9.
The linear total ost fun tion TC = FC + V C an be graphed as before by using either the slope and the
verti al inter ept (or another point on the line), or any two points on the line (for instan e the oordinates
on the axes).
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For example, in the given total ost fun tion
T C = 20 + 4Q,
with Q the number of units produ ed, the slope is 4 and the inter ept on the verti al axis is 20 (when Q = 0).
We ould graph this fun tion by using the verti al inter ept (0; 20) and another point on the line. If Q = 5,
for example, T C = 20 + 4 5 = 40, giving the oordinate (5; 40).
Alternatively, we ould use the verti al inter ept and the slope. Here, the verti al inter ept is at C = 20 and
for a slope of +4, we move 4 units up for every unit we move to the right. If we therefore move 5 units to
the right from (0; 20), we have to move 20 units up, rea hing the point (5; 40).
The graph is shown in Figure 2.1.
TC
40 (5; 40)
30
20 Fixed ost
10
1 2 3 4 5 Q
Figure 2.1: The graph of the ost fun tion T C = 20 + 4Q.
2.3.3 Revenue
In retail stores, pri es for produ ts usually are xed. The amount of money that a storekeeper will re eive
from selling a ertain produ t is alled the total revenue from the produ t.
Total revenue is simply the pri e per unit of a produ t (P ) multiplied by the number of units demanded (Q),
that is
T R = P Q.
So, if a produ t is sold for R10 per unit, total revenue is given by
T R = 10Q.
To graph this fun tion, we ompare it to the standard form of the straight line, namely y = mx + c and nd
that the slope m = 10 and the inter ept c = 0, meaning that the line goes through the origin (0; 0). The
graph is shown in Figure 2.2.
Work through the study material on revenue in Paragraph 2.3.3 and Worked example 2.10a.
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TR
40 (4; 40)
30
20
10
1 2 3 4 Q
Figure 2.2: T R = 10Q
2.3.4 Prot
BusinessDi tionary. om denes prot as
The surplus remaining after total osts are dedu ted from total revenue, and the basis on whi h
tax is omputed and dividend is paid. It is the best known measure of su ess in an enterprise.
(www.businessdi tionary. om/denition/prot.html#ixzz3as2w 1F7 )
Furthermore, Investopedia explains prot as follows:

Prot is the money a business makes after a ounting for all the expenses. Regardless of whether
the business is a ouple of kids running a lemonade stand or a publi ly traded multinational
ompany, onsistently earning prot is every ompany's goal.
(www.investopedia. om/terms/p/prot.asp)
The prot fun tion is given by
= total revenue total cost

= TR TC
= T R (F C + V C).
[Note that prot is denoted by to distinguish it from P that is reserved to denote pri e.
When T R = T C , no prot is made ( = 0) and we say the ompany breaks even; when T R > T C (i.e.
> 0), the ompany makes a prot and when T R < T C (i.e. < 0), the ompany makes a loss.
Work through the study material on prot in Paragraph 2.3.4 and Worked example 2.10b.
model problems in the business world in terms of linear fun tions (demand, supply, ost, revenue and
prot) and
des ribe, plot, manipulate and interpret su h linear fun tions.
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A tivity
Apply what you have learnt and answer the following questions, writing it down with pen on paper.
1. Suppose the demand fun tion for joyrides at a merry-go-round is given by Q = 64 4P , where Q is
the number of rides per hour and P is the pri e per ride in rand.
(a) Find the demand when P =0 and the pri e when Q=0 and write these results as oordinates.
(b) Use these oordinates to plot the demand fun tion with Q on the verti al axis.
( ) What is the hange in demand (Q) if pri e (P ) in reases by one unit?
(d) Transform the demand fun tion to have pri e (P ) as dependent variable.
2. The demand and supply fun tions for baby marrows are Q = 210 3,5P and P = 0,25Q + 22,5,
respe tively, with P the pri e in rand and Q is the quantity in boxes.
(a) Transform the supply fun tion to have Q as the dependent variable.
(b) Graph the demand and supply fun tions on the same diagram with Q as dependent variable, using
the inter epts on the verti al and horizontal axes.
( ) Find the point where the demand and supply fun tions interse t. What does this point tell us?
3. A rm produ es al ulators for a ertain shop. Their xed ost is R1 000 and ea h al ulator osts R15
to produ e. The al ulators are sold for R35 ea h.
(a) Write down the equation for total weekly ost.
(b) Graph the total ost fun tion for Q = 0 to 100.

( ) What is the total ost to produ e 25 al ulators?
(d) How many al ulators are produ ed if total osts amount to R7 000?
(e) Find the total revenue fun tion.
(f ) Graph the TR fun tion for Q = 0 to 100.

(g) How many al ulators are sold when T R = 1 750?
(h) Does the rm's total revenue ex eed total osts when 80 al ulators are produ ed? What does
this mean?
(i) Find the rm's prot when 80 al ulators are produ ed.
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2.4 More mathemati s on the straight line

In this se tion, methods to determine the slope and equation of a straight line are dis ussed. These are the
following:
2.4.1 Cal ulating the slope of a line, given two points on the line.
2.4.2 Finding the equation of a line, given the slope and any point on the line.
2.4.3 Finding the equation of a line, given two points.
Work through Se tions 2.4.1 to 2.4.3, and Worked examples 2.11 2.13.
A tivity
1. A supplier supplies 50 T-shirts when the pri e is R60 per T-shirt and 90 T-shirts when the pri e is
R110 per T-shirt.
(a) Determine the equation of the supply fun tion as a fun tion of Q.
(b) How many additional T-shirts are supplied for ea h su essive R1 in rease in pri e?
( ) How many T-shirts are supplied when the pri e is R85?
(d) What is the pri e when 120 T-shirts are supplied?
2.5 Translations of linear fun tions (Ex luded)

2.6 Elasti ity of linear demand and supply fun tions
As we have seen before, one an nd helpful denitions and explanations of on epts like elasti ity from the
internet, by simply entering it in a sear h engine like Google. For example, the following denition from
www.sparknotes. om makes the on ept elasti ity quite lear:
Elasti ity refers to the degree of responsiveness in supply or demand in relation to hanges in
pri e. If a urve is more elasti , then small hanges in pri e will ause large hanges in quantity
onsumed. If a urve is less elasti , then it will take large hanges in pri e to ee t a hange in
quantity onsumed.
On YouTube (www.youtube. om) many videos of le turers explaining mathemati al/e onomi al on epts an
be found by googling something like pri e elasti ity of demand youtube. If you have problems understanding
some on ept, you may benet from su h videos.
Work through the study material on elasti ity (pages 83 90) and Worked example 2.19.
14
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al ulate point elasti ity of demand;
al ulate ar pri e elasti ity of demand over an interval on the demand fun tion;
al ulate the pri e elasti ity of supply;
interpret and explain what the resulting oe ient of elasti ity in ea h of these ases means in pra ti e.
Note: The notation || stands for the absolute value of . This is the size of , without onsidering the sign.
The formal denition for absolute value is
(
if 0,
|| =
if < 0.
A tivity
1. Suppose the demand fun tion for a ertain kind of al ulator is Q = 250 5P , with Q the number of
al ulators demanded at pri e P.
(a) Find the expression for point elasti ity of demand in terms of P only.
(b) Cal ulate the point elasti ity of demand at pri es P = 20 and P = 30 and explain ea h of the
results.
( ) Cal ulate the ar elasti ity of demand if the pri e in reases from R25 to R35.
2. Suppose the supply fun tion for a ertain produ t is given by P = 90 + 0,05Q, with P and Q the pri e
and quantity, respe tively.
(a) Find the formula for pri e elasti ity of supply in terms of P.
(b) Determine the pri e elasti ity of supply when the pri e is R70.
( ) Cal ulate the ar elasti ity of supply when the pri e in reases from R40 to R60.
15
STUDY UNIT II
SIMULTANEOUS LINEAR FUNCTIONS
16
Chapter 3: Simultaneous equations
To al ulate e onomi al values like equilibrium pri e/quantity, break-even points, onsumer surplus, et it is
ne essary to nd the point where two (or more) equations interse t.
3.1 Solving simultaneous linear equations

In the textbook, the method of elimination is mostly applied. The method of substitution that we will use
in the examples throughout this hapter, is dis ussed on page 106.
Let us, for instan e, solve the simultaneous equations of Worked Example 3.2 algebrai ally by using substi-
tution.
The equations are
2x + 3y = 12,5 (1)
x + 2y = 6 (2)
From equation (2) we nd that
x = 2y 6. (3)
When we repla e the x in equation (1) with 2y 6, we nd
2(2y 6) + 3y = 12,5
4y 12 + 3y = 12,5
7y = 24,5
y = 3,5.
When we now substitute y = 3,5 into equation (3), we get x = 2(3,5) 6 = 1.

The solution to these simultaneous equations is therefore x=1 and y = 3,5.
Let us also solve the equations of Worked example 3.3 by using substitution.
These equations are
2x + 3y = 0,75 (1)
5x + 2y = 6 (2)
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From equation (1) we nd
2x = 3y + 0,75
x = 1,5y + 0,375. (3)
Substituting this into equation (2) gives
5(1,5y + 0,375) + 2y = 6
7,5y + 1,875 + 2y = 6
5,5y = 6 1,875
4,125
y= = 0,75.
5,5
When we substitute y = 0,75 into equation (3), we nd
x = 1,5(0,75) + 0,375 = 1,5.

The solution to this system of simultaneous equations is the point where the lines representing
the equations interse t, that is the point (x; y) = (1,5; 0,75)
Work through Worked examples 3.1 3.5 to also get a quainted with the method of elimination.
Note: It is important to be able to tell when a set of simultaneous equations has a unique solution, no
solution or innitely many solutions.
Three equations in three variables

In the ase of three equations ontaining three variables (unknowns), the same methods an be applied. To
solve the set of three simultaneous equations in Worked example 3.6, we apply a ombination of elimination
and substitution.
The equations are
2x + y z = 4 (1)
x+ yz = 3 (2)
2x + 2y + z = 12 (3)
When we subtra t equation (2) from equation (1), we eliminate both y and z and get x = 1.
When we substitute x=1 into equations (2) and (3) we nd
1+ yz = 2 giving yz =2 (4)
2 + 2y + z = 12 giving 2y + z = 10 (5)
Adding equations (4) and (5) eliminates z, and we nd
3y = 12 or y = 4.
We now substitute y=4 into equation (4) and nd
4 z = 2 or z = 2.
The solution to this system of simultaneous equations is the point where all three equations pass
through, that is where x = 1, y = 4 and z=2 in the three dimensional spa e.
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A tivity
1. Solve the following system of simultaneous equations:
4x 3y + 1 = 13
0,5x + y 3 = 4
2. Find the solution to the following simultaneous equations:
18 10Q
P =
5
3Q + 5P
2=
2
3. Solve the following simultaneous equations:
5 7
q 3p = and 3p = 3(q 3).
2 2
3.2 Equilibrium and break-even

When we google equilibrium, the general denition is given as a state in whi h opposing for es or inuen es
are balan ed.
3.2.1 Equilibrium in the goods and labour markets

Market equilibrium o urs when the demand and supply of a produ t (or good1 ) are balan ed, that is when
the number of units that onsumers demand (Qd ) is equal to the number of units that produ ers supply
(Qs ). Equilibrium also o urs when the pri e that onsumers are willing to pay (Pd ) for a good is equal to
the pri e that the produ er is willing to a ept (Ps ).
At market equilibrium, the following onditions hold:
Qd = Qs and Pd = Ps .
Work through the study material on market equilibrium in Se tion 3.2.1 and Worked example 3.7.
Note that onsumer demand is the number of units of a produ t that onsumers (people) buy in stores and
produ er supply is the number of units that a produ er produ es and makes available to be sold in retail
stores.
Labour market equilibrium o urs when the labour that rms demand (Ld ) is equal to the labour that workers
supply (Ls ). Also, when the wage (or salary) that a rm is willing to pay (ws ) is equal to the wage that
workers are willing to a ept (wd ), the labour market is in equilibrium. At labour market equilibrium, the
following onditions hold:
Ld = Ls and wd = ws .
Work through the study material on labour market equilibrium and Worked example 3.8.
1
Goods are produ ts that are pur hased for onsumption by the average onsumer.
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3.2.2 Pri e ontrols and government intervention in markets

Pri e eilings
When government believes that the equilibrium pri e is too high for onsumers to pay, they may establish a
pri e eiling whi h is below market equilibrium. This is also known as maximum pri e ontrol, where a pri e
is not allowed to go over the maximum (or eiling) pri e.
Let us now work through Worked example 3.9.

The demand and supply fun tions are the same as in Worked example 3.8. These are the following (also
showing the transformed equations with Q as subje t):
Pd = 100 0,5Qd or Qd = 200 2Pd

Ps = 10 + 0,5Qs or Qs = 2Ps 20
The equilibrium pri e and quantity are found to be
Qe = 55 and Pe = 90.
(a) A pri e eiling of R40 is introdu ed. To analyse the situation, we al ulate the numbers demanded and
supplied at the pri e P = 40:
Qd = 200 2(40) = 120 and Qs = 2(40) 20 = 60.
Sin e demand is higher than supply, there is a shortage of 120 60 = 60 units in the market. (Produ ers
will only make 60 units available to be sold in retail stores at the lower pri e.)
(b) This shortage opens an opportunity for someone to buy the 60 units at the lowered pri e of R40 an sell
it on the bla k market for more than the equilibrium pri e. (There is a demand.)
The pri e that onsumers are willing to pay if these 60 units are made available, is
Pd = 100 0,5) = 70.
The potential prot that the bla k marketeer an make, is
= TR TC
= number sold price asked number bought cost per unit
= 60 70 60 40
= 1 800.
See Figure 3.7 in the textbook for a graphi al representation of this situation.
Pri e oors
When governments believe that the equilibrium pri e is too low for produ ers to re eive, a minimum pri e,
alled a pri e oor an be set to prote t the produ ers. Su h a pri e operates above market equilibrium.
Work through Worked example 3.10.
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A tivity
Do the following questions from Progress exer ise 3.2 (p. 117), providing your interpretation of the values
obtained.
1. Question 2
2. Question 7
3.2.3 Market equilibrium for substitute and omplementary goods (Ex luded)
3.2.4 Taxes, subsidies and their distribution
The important aspe ts highlighted in this se tion are the following:
1. When a xed tax per unit is imposed on a produ t, the produ er will re eive the pri e P minus tax t,
that is P t. The supply fun tion P = a + dQ will then be ome P t = a + dQ.
2. When a produ t is subsidised by s per unit, the produ er will re eive the pri e P plus the subsidy,
that is P + s. In this ase the supply fun tion be omes P + s = a + bQ.
In both these ases the equilibrium shifts, ae ting the equilibrium onsumer pri e.
Work through Worked examples 3.12 and 3.13
A tivity
Do Question 7 of Progress exer ise 3.3 in the textbook (page 127).
Solutions are provided at the end of the textbook on page 582.
3.2.5 Break-even analysis

At break-even the revenue re eived is equal to the osts asso iated with the pro esses that are involved to
re eive the revenue. This means that at break-even,
TR = TC or T R = F C V C,
with FC the xed ost(s) and VC the variable ost.

A tivity
1. Do Question 8 from Progress exer ise 3.3 (p. 126). Provide your interpretation of the values obtained.
(a) Cal ulate the equilibrium pri e and quantity.
(b) Cal ulate the value of total revenue and total ost at break-even.
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3.3 Consumer and produ er surplus

Consumer surplus
Consumer surplus is dened as the dieren e between what onsumers are willing and able to spend on a
produ t and what they a tually spend (at market pri e).
The market pri e of a produ t is often lower than what onsumers are willing to pay. In terms of what we
have learnt so far,
the market pri e is given by the equilibrium pri e and

the demand fun tion gives the pri e that onsumers are willing to pay.
Let us onsider the demand fun tion P = 100 0,5Q and the supply fun tion P = 10 + 0,5Q for a ertain
produ t. The pri e and quantity at equilibrium are found to be P0 = 55 and Q0 = 90, respe tively. (See
Se tion 3.2.)
The demand fun tion is graphed in Figure 3.1(a) with the shaded area under the demand line representing
the amount that onsumers are willing to spend on the produ t.
At the market pri e of R55 per unit, 90 units of the produ t are sold and the amount that onsumers spend
is P0 Q0 = 55 90 = R4 950. This is represented by the shaded area of the re tangle in Figure 3.1(b).
As dened earlier, the onsumer surplus is the amount that onsumers would be willing to spend over and
above expenditure at market pri e. This is represented by the area under the demand line from Q=0 to Q0
and above the line representing the market pri e. This area is shown in Figure 3.1( ).
P P P
100 A 100 A 100 A
P0 = 55 E0 P0 = 55 E0 P0 = 55 E0
Q0 = 90 200 Q Q0 = 90 200 Q Q0 = 90 200 Q

(a) Amount willing to spend (b) Amount a tually spent ( ) Consumer surplus
Figure 3.1: Cal ulating onsumer surplus
The onsumer surplus for our problem is al ulated as follows:
CS = amount consumers are willing to spend amount actually spent

= area under demand line from 0 to Q0 P0 Q0
= area of triangle P0 E0 A
= 0,5 90 (100 55) (Area of triangle = 1/2 base height.)
= R2 025.
22
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Produ er surplus
When onsidering the situation from the produ er's point of view, the market pri e might be higher than
the minimum pri e at whi h produ ers are willing to produ e.
For the supply fun tion P = 10 + 0,5Q as before, the produ er sells Q0 = 90 units of the produ t at market
pri e of P0 = R55 per unit. The resulting revenue is 90 55 = R4 950, whi h is the area represented by the
shaded area in Figure 3.2(a).
However, the supply line represents pri es that are a eptable to the produ er. The shaded area in Fig-
ure 3.2(b) therefore shows the revenue a eptable to the produ er. This is the area under the supply line,
between Q=0 and Q0 = 90.
Produ er surplus is therefore given by the revenue at market pri e, minus the revenue the produ er would
be willing to a ept. This is shown in Figure 3.2( ).
P P P
100 100 100
P0 = 55 E0 P0 = 55 E0 P0 = 55 E0
10 10 B = 10
Q0 = 90 200 Q Q0 = 90 200 Q Q0 = 90 200 Q
(a) Revenue at market pri e (b) A eptable revenue ( ) Produ er surplus
Figure 3.2: Cal ulating produ er surplus
Produ er surplus for our supply fun tion is al ulated as follows:
P S = P0 Q0 area under supply line to the left of Q0

= 0,5 90 (55 10) (Area of triangle P0 E0 B = 1/2 base height.)
= R2 025.
The total surplus at market pri e is simply the sum of the onsumer and produ er surplus at market pri e.
An example is graphi ally shown in Figure 3.14 in the textbook (page 131).
A le ture on onsumer and produ er surplus is available on the Kahn A ademy's website at
www.khana ademy.org/e onomi s-nan e-domain/mi roe onomi s/ onsumer-produ er-surplus .
Wat h this if you need more insight into this topi .
Work through the notes in the textbook and Worked example 3.15.
3.3.1 A tivity
1. Do Question 2 of Progress Exer ise 3.4
23
Chapter 9: Linear algebra and appli ations
Only Se tion 9.1 of this hapter is in luded as study material for this module.
9.1 Linear programming

Linear programming (LP) is a method where a problem is modelled by representing the onstraints that
exist in the situation as linear fun tions. The obje tive fun tion of the model, su h as maximising prot or
minimising ost, also onsists of a linear relationship between the variables of the problem. When su h a
model is solved, values for the variables are found that optimise the obje tive fun tion.
The important aspe ts of an LP model are the onstraints and the obje tive fun tion. Also the way variables
are hosen to represent elements of the problem have an impa t on the su ess of su h a model and should
be done autiously.
Consider the following problem situation:
A manufa turer of leather arti les produ es boots and ja kets. The manufa turing pro ess on-
sists of two a tivities, namely Making whi h involves utting and stit hing and Finishing.
There are 800 labour hours available per month for making the arti les and 1 200 hours for
nishing them. It takes four hours to make a pair of boots and three hours to nish it. It takes
two hours to make a ja ket and four hours to nish it. They sell a pair of boots for R900 and a
ja ket for R1 200.
Formulate an LP model for this problem with the obje tive to maximise monthly revenue.
When we read this problem statement, we realise that the manufa turer needs to determine how many pairs
of boots and how many ja kets they should manufa ture to maximise revenue. The de ision variables are
therefore hosen to represent this obje tive, namely
x is the number of pairs of boots to manufa ture; and
y is the number of ja kets to manufa ture.
To give stru ture to the given information, we set up the following table:
Boots Ja kets Hours

(x) (y ) available
Making 4 2 800
Finishing 3 4 1 200
Pri e 900 1 200
24
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The revenue from selling boots is R = 900x and the revenue from selling ja kets is R = 1 200y . The obje tive
fun tion is to maximise total revenue, namely
T R = 900x + 1 200y.
The onstraints of the problem are represented by the following linear inequalities:
4x + 2y 800 (only 800 hours available for making)

3x + 4y 1 200 (only 1 200 hours available for finishing)
x 0 (not possible to produce a negative number)
y 0 (not possible to produce a negative number)
Sin e there are only two variables, we an graph of the inequalities on the same axes, determine the feasible
area and solve the optimisation problem.
To graph an inequality, we rst treat it as an equation. For example, to graph 4x + 2y 800, we onsider
the equation 4x + 2y = 800.
By setting x = 0, we nd the y inter ept to be y = 400 (from 4(0) + 2y = 800).
If we set y = 0, we nd the x inter ept to be x = 200 (from 4x + 2(0) = 800).
We an now draw the line through the oordinates (0; 400) and (200; 0).
To determine whi h side of the line represents the inequality, we take the origin (0; 0) and see whether it
satises the inequality. Substituting x=0 and y=0 into the inequality, we nd 4(0) + 2(0) = 0 whi h is
less than 800 and therefore true. The origin therefore falls inside the feasible area of this inequality and we
an shade this area as in Figure 9.1(a).
The same pro edure an be followed to draw the fun tion 3x + 4y = 1 200 and nd the feasible area as shown
in Figure 9.1(b).
The non-negative onstraints x 0 and y 0 restri ts us to the quadrant where x and y are always positive.
In Figure 9.1( ) all the inequalities are drawn on the same axes. The area where the feasible areas overlap
(the he kered area) is the feasible area of the model. In this area all the onstraints are satised.
400 400 400
300 300 300
200 200 200
100 100 100
100 200 300 400 100 200 300 400 100 200 300 400
(a) 4x + 2y 800 (b) 3x + 4y 1 200 ( ) Feasible area
Figure 9.1: Finding the feasible area
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Now, to nd the point in this feasible area where the total revenue fun tion T R = 900x + 1 200y is a
maximum, we an either al ulate the value at ea h orner point and hoose the highest number, or we an
draw the isorevenue lines to nd the optimum. These pro edures are both des ribed in the textbook.
The feasible area and isolines are shown in Figure 9.2 where it is lear that revenue is a maximum at the
point (80; 240). (Find this point by solving the simultaneous equations 4x + 2y = 800 and 3x + 4y = 1 200.)
400
300
(80; 240)
200
100
100 200 300 400
Figure 9.2: Feasible area and isorevenue lines
Work through the notes in Se tion 9.1 and Worked examples 9.1 and 9.2.
A tivity
Do the following problems of Progress exer ise 9.1 (page 487). Che k your answers against the solutions
provided at the ba k of the textbook (page 642).
1. Question 2
2. Question 6
3. Question 10
26
STUDY UNIT III
NONLINEAR FUNCTIONS
27
Chapter 4: Nonlinear fun tions and appli ations
4.1 Quadrati , ubi and other polynomial fun tions
A polynomial is a fun tion of the form
f (x) = an xn + an1 xn1 + + a2 x2 + a1 x1 + a0 .
The degree of a polynomial is the highest power of x in its expression.
In the following table polynomials of degrees 0, 1, 2 and 3 are shown with the fun tion names, general forms
and examples.
Fun tion General

Degree name form Example(s)
0 Constant a, b, c, . . . 2 = 2x0 , 45 = 45x0

1 Linear fun tion y = ax + b y = 2x1 + x0 = 2x + 1
2 Quadrati fun tion y = ax2 + bx + c f (x) = 3x2 + x + 3
3 Cubi fun tion y = ax3 + bx2 + cx + d T C = 0,5Q3 5Q2 + 1,5Q + 25
For this module, the nonlinear polynomials mentioned above, namely quadrati fun tions (degree 2) and
ubi fun tions (degree 3) are dis ussed in detail.
The graphs of these fun tions have distin t features that we will dis uss here. In Figures 4.1(a) and 4.1(b)
the quadrati fun tion f (x) = 3x2 + x + 3 and the ubi fun tion T C = 0,5Q3 5Q2 + 1,5Q + 25 are shown1 .
4.1.1 Solving a quadrati equation

An equation y = ax2 + bx + c is alled a quadrati equation. Here, a, b and c are onstant values. Also, a
and b are alled the oe ients of x2 and x, respe tively.
Solving a quadrati fun tion implies that the values of x where the graph of the fun tion uts the x axis,
must be found. These values are alled the roots of the quadrati fun tion.
To nd the roots of the quadrati equation, we set y = 0 to nd ax2 + bx + c = 0 and solve this equation in
standard form.
1
These graphs were generated by Maxima. We en ourage you to use this software to visualise nonlinear fun tions.
28
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(a) f (x) = 3x2 + x + 3 (b) T C = 0,5Q3 5Q2 + 1,5Q + 25
Figure 4.1: Graphs of quadrati and ubi fun tions
The equation x2 = 32x, for example, is written in standard form as either x2 +2x3 = 0 or x2 2x+3 = 0.
These equations are the same, sin e we an simply multiply either one of them on both sides of the equal
sign by 1, to nd the other.
There are two methods to solve quadrati equations, namely by using fa torisation
2 or by using the formula
as given on page 149.
1. By using fa torisation, we solve the equation as follows:
x2 + 2x 3 = 0
(x + 3)(x 1) = 0. (factorise)
When either x+3 = 0 or x 1 = 0, the left-hand side of the equation is zero, whi h makes the
statement true. The roots of the equation are therefore at x = 3 and x = 1.
2. It is not always possible to easily fa torise a quadrati equation and we need another method to solve
su h equations. In su h ases we use the `minus b' formula as given on page 149 of the textbook,
namely

b b2 4ac
x= .
2a
Using this formula, the roots of x2 + 2x 3 = 0, with a = 1, b = 2 and c = 3, are found as

(2) (2)2 4(1)(3)
x = 2(1)

2 4+12
= 2

2+ 16 2 16
= 2 or x= 2
= 3 = 1.
Note: One may multiply by 1 when working with equations, but not when working with fun tions. The
fun tions f (x) = x2 + 2x 3 and f (x) = x2 2x + 3 are obviously not the same, as an be seen from their
graphs in Figure 4.2.
Work through the study material in Se tions 4.1.1 and 4.1.2 and Worked examples 4.1 and 4.2.
Note the dierent types of solutions/roots that are possible for quadrati equations.
2
We assume that you are familiar with fa torisation. If you need to refresh your memory on this, we suggest you onsult the
internet. For example, visit the website www.purplemath. om/modules/solvquad.htm.
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MOW1CC34497
(a) f (x) = x2 + 2x 3 (b) f (x) = x2 2x + 3
Figure 4.2: Quadrati fun tion multiplied by 1 (using Maxima)
A tivity
Do the following problems in Progress exer ise 4.1 (page 152 of textbook). Worked solutions on page 58.
1. Question 3
2. Question 8
3. Question 16
4. Question 20
5. Question 21
4.1.2 Properties and graphs of quadrati fun tions (parabolas)

In the textbook, Ex el is used to graph quadrati fun tions and their properties are dedu ed from the graphs.
Here, we show how to graph quadrati fun tions by using their properties.
The properties that follow, are given in terms of a quadrati fun tion in standard form, namely
f (x) = ax2 + bx + c.
(a) The general form of the graph

From Figure 4.2(a) (above) we see that when the oe ient of x2 is positive, the turning point of the
graph is at the bottom, and the legs of the graph point upward.
On the other hand, as an be seen from Figure 4.2(b), when the oe ient of x2 is negative, the graph's
turning point is at the top and the legs point down.
When the oe ient of x2 is positive (> 0) the fun tion has at a minimum turning point,
and when the oe ient of x2 is negative (< 0) the graph has a maximum turning point.
(b) The y axis inter ept

The y inter ept of a quadrati fun tion f is the point where it uts the y axis, that is where x = 0. The
verti al inter ept of f is therefore f (0) = a(0)2 + b(0) + c = c.
30
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The y inter ept of f (x) = ax2 + bx + c is given by c.
( ) The x axis inter ept(s)

The points where a quadrati fun tion uts the x axis, are found where y = 0. We therefore need to set
f (x) = ax2 + bx + c = 0 to nd the quadrati equation ax
2 + bx + c = 0 and solve for x.
We nd these roots by either fa torisation or by using the `minus b' formula. (See above.)
The kind of roots of a fun tion an be determined by looking at the dis riminant (b2 4ac) that we
nd under the square root in the `minus b' formula. This quantity is known as the sin e it dis riminates
between dierent types of inter epts.

When b2 4ac > 0, we an al ulate b2 4ac and two dierent roots are found.
When b2 4ac = 0, the `minus b' formula be omes

b
2a , giving a single root. The fun tion tou hes
the x axis in this turning point.
When b2 4ac < 0, we annot evaluate the square root. The square root of a negative number is
3
not a real number . In this ase the fun tion doesn't tou h the x axis and has no x inter epts.
(d) The turning point

An important aspe t of a quadrati fun tion that is ne essary to graph the fun tion, is the oordinates
of the turning point. The x value
4 of the turning point is alled the vertex of the graph and it is given
by
b
xm = .
2a
The y value at this point is f (xm ).
b b

The oordinates of the turning point of a quadrati fun tion is
2a ; f 2a .
Example 1
Consider the quadrati fun tion (in standard form)
f (x) = x2 2x + 3.
(a) We see that a = 1 < 0 and we know the parabola will have a maximum turning point.
(b) The y inter ept is 3. (If we set x = 0, we nd y = 3.)

( ) Sin e the dis riminant is b2 4ac = (2)2 4(1)(3) = 16 > 0, the equation x2 2x + 3 = 0 has two
distin t roots, namely x = 3 and x = 1 as shown before.
(2)
(d) The vertex of f is at x = b
2a = 2(1) = 1. At x = 1 we nd f (1) = (1)2 2(1) + 3 = 4, so
the turning point is at (1; 4).
The graph of f is shown in Figure 4.3. The points that were al ulated above are indi ated as bla k dots.
3
It is an imaginary number, whi h falls outside the s ope of this module.
4
When we ome to dierentiation later on, we will see how this point is derived.
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(1; 4) f (x)
4
3 2 1 1 2
x
1
Figure 4.3: f (x) = x2 2x + 3
A tivity
For ea h of the following quadrati fun tions, determine the inter epts on the axes and the turning point.
Indi ate the shape of ea h by means of a rough graph.
1. f (x) = 2x2 x 3
2. f (x) = 4x2 16x + 16
3. f (x) = 3x2 + 3x 2
4.1.3 Quadrati fun tions in e onomi s

Work through Worked examples 4.7, 4.8 and 4.9.
Do not use Ex el as shown in the textbook. Either draw the graphs by using the te hnique dis ussed in the
previous se tion or use Maxima.
Example
The ACE ompany de ides to enter the market with a new mi rowave oven, the ACE2015. The produ tion
osts entail xed osts of R120 000 per month and a unit ost of R400 per oven produ ed. A market survey
established that at a wholesale pri e of R600 per unit, demand will be 1 000 units per month, but if the pri e
is in reased to R1 000 per unit, there will be no demand. Assuming that the demand fun tion is linear, they
on lude that demand is
Q = 2 500 2,5P,
where P is pri e in rand and Q is the number of units demanded.
At what value should the wholesale pri e be set and how many units must be produ ed if the prot is to be
maximised?
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The total ost fun tion is given by xed osts plus variable ost, that is
T C = 120 000 + 400Q.
From the demand fun tion we nd the total ost fun tion in terms of pri e to be
T C = 120 000 + 400(2 500 2,5P ) = 1 120 000 1 000P.
We know that total revenue is given by the number of units sold times the pri e, that is
T R = P Q = P (2 500 2,5P ) = 2 500P 2,5P 2 .
The prot fun tion is therefore
= TR TC
= 2 500P 2,5P 2 (1 120 000 1 000P )
= 2,5P 2 + 3 500P 1 120 000.
This is a quadrati fun tion with a = 2,5, b = 3 500 and c = 1 120 000.
Sin e the oe ient of P 2 < 0, the prot fun tion has a maximum turning point.
The dis riminant b2 4ac = (3 500)2 4(2,5)(1 120 000) = 23 450 000 > 0. The fun tion therefore has two
distin t roots.
The vertex is at
b 3 500
Pm = = = 700,
2a 2 2,5
whi h means that prot is a maximum when P = R700. The maximum prot at this pri e is
m = 2,5(700)2 + 3 500(700) 1 120 000 = 105 000
that is R105 000.
A tivity
1. Consider the example above. ACE onsiders in orporating two robots into the produ tion line. If they
do so, the saving on labour ost an redu e the unit ost of the ACE2015 to R300. However, the apital
expenditure in urred will raise their xed osts to R200 000. How will in orporating the robots ae t the
optimal pri e and protability?
2. Clan y's Chariots, a ar-rental rm, has a eet of 100 identi al vehi les. The xed daily osts amount
to R150 per ar, while ea h ar used in urs an additional ost of R50 per day. Experien e shows that if
the rent is set at R200 per day, all ars are rented out, whereas for ea h in rease of R20 the number of
ars rented out drops by ten. Determine the optimal pri e, the number of ars rented out per day at that
pri e and the maximum prot.
[Hint: Determine the total ost and demand fun tions from the information given and then obtain an
expression for prot.
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3. For the following questions from Progress exer ise 4.3, use the method des ribed above to al ulate
inter epts, verti es and turning points and to draw graphs of quadrati fun tions. Use Maxima to onrm
that your graphs are orre t. Che k your answers against the solutions at the ba k of the textbook.
(a) Question 1
(b) Question 4
( ) Questions 6 and 7
4.1.4 Cubi fun tions

A ubi fun tion in general notation is
f (x) = ax3 + bx2 + cx + d,
where a, b, c and d are onstants.
Let us work through Worked examples 4.10a and 4.10b together.
Worked example 4.10a

To plot f (x) = x3 and f (x) = x3 in Maxima, we simply enter the fun tions as x3 and -x3 to get
Figures 4.4(a) and 4.4(b).
(a) f (x) = x3 (b) f (x) = x3
Figure 4.4: Graphs of f (x) = x3 and f (x) = x3
It is lear that neither of these fun tions has any turning points. The roots of f (x) = y = x3 are found by
setting y= 0, that is x3 =0 whi h gives x=0 as the only root. The same
3
applies for f (x) = x .
Worked example 4.10b
Instead of al ulating fun tion values for a range of values for x, we enter the fun tions into Maxima as
0.5*x3-5*x2+8.5*x+27 and -0.5*x3-5*x2+8.5*x+27, set the range of x values to show the graphs
properly and enter to get the graphs in Figures 4.5(a) and 4.5(b).
To nd the roots of polynomials like ubi fun tions in Maxima, sele t Allroots under the Equations tab,
enter the fun tion as shown above and press enter.
For f (x) = 0,5x3 5x2 + 8,5x + 27 it gives one root at x = 1,54820 1,5.
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(a) f (x) = 0,5x3 5x2 + 8,5x + 27 (b) f (x) = 0,5x3 5x2 + 8,5x + 27
Figure 4.5: Graphs for Worked example 4.10b
Forf (x) = 0,5x3 5x2 +8,5x+27 it gives the following three roots: x = 2,81984 2,8, x = 1,72621 1,7
and x = 11,09363 11,1. [Note that stands for approximately equal to.
You will nd the tools to determine the turning points of ubi fun tions when we get to dierentiation in
Study unit 4.
Work through Worked example 4.11. Use Maxima to draw the graphs.
Cubi fun tions with dierent numbers of roots and turning points
The graph of a ubi fun tion an have no turning points and a single root, as shown in Figure 4.6(a). It
an also have two turning points with one root (Figure 4.6(b)), two roots (Figure 4.6( )) or three roots
(Figure 4.6(d)).
(a) No turning point, one root (b) Two turning points, one roots
( ) Two turning points, two roots (d) Two turning points, three roots
Figure 4.6: Cubi fun tions
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4.2 Exponential fun tions

4.2.1 Denition and graphs of exponential fun tions
Exponential fun tions have a variable (x) as the power (or index) of a onstant, that is
f (x) = ax .
The following are graphs of typi al exponential fun tions:
(a) f (x) = ex (b) f (x) = 800

1+790e0,1x
( ) f (x) = 500(1 e0,3x )
Figure 4.7: Exponential fun tions
Work through the study material and Worked examples 4.12 and 4.13.
A tivity
Do the following questions in Progress exer ise 4.5. The solutions are on page 589 of the textbook.
1. Question 4(a)
2. Question 9(b)
3. Question 13
4. Question 20
5. Question 24
4.2.2 Solving equations that ontain exponentials
Work through the study material and Worked example 4.14.
A tivity
Do the following questions in Progress exer ise 4.6 (the answers are on page 594 of the textbook):
1. Question 1
2. Question 5
3. Question 16
4. Question 23
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4.2.3 Appli ations of exponential fun tions
Work through Worked examples 4.15 and 4.16
A tivity
Use Maxima to graph the fun tions of the following questions in Progress exer ise 4.7 and 4.8 (solutions are
available on page 595 597 of the textbook):
1. Question 2 ( Progress exer ise 4.7)

[Note: In Maxima, enter the value e as %e.
4.3 Logarithmi fun tions

4.3.1 How to nd the log of a number
Work through the study material on logs (Se tions 4.3.1 4.3.4) and
Worked examples (4.17 4.22).
A tivity
Do the following questions in Progress exer ise 4.10 (the answers are at the ba k of the textbook, page 598):
1. Question 2
2. Question 8
3. Question 10 (Use Maxima for (b))
4.3.2 Graphs and properties of logarithmi fun tions

In the following gure, log(x) and ln(x) the fun tions in Worked example 4.19 are graphed on the same
diagram by using Maxima:
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[Note: Maxima uses log(x) for ln(x). We therefore enter log10 (x) as log(x)/ ln(10) see Rule 4 in Table 4.16
(page 191).
This is the same graph as shown on page 190 of the textbook. Take note of the properties of log fun tions
dedu ed from it.
A tivity
Do the following questions in Progress exer ise 4.11 (the answers are at the ba k of the textbook):
1. Question 2
2. Question 12(b)
3. Question 15
4. Question 21
5. Question 24(b)
4.4 Hyperboli fun tions

Work through se tions 4.4.1 and 4.4.2 and Worked examples 4.23 4.24.
The graph required for Worked example 4.24 as drawn by using Maxima is as follows:
A tivity
Do the following questions in Progress exer ise 4.13 (the answers are at the ba k of the textbook):
1. Question 2
2. Question 5
3. Question 7
38
STUDY UNIT IV
DIFFERENTIATION
39
Chapter 6: Dierentiation and appli ations
6.1 Slope of a urve and dierentiation

6.1.1 The slope of a urve
The study material in Se tions 6.1.1 and 6.1.2 gives ba kground on dierentiation from rst prin iples.
Work through se tions 6.1.1 and 6.1.2 and Worked example 6.1.
Important on epts and terminology to take note of are the following:
The slope of a line tangent to a urve (simply alled a tangent) varies.

The formula used to nd the equation of the tangent at a point (x1 ; y1 ) on a urve is
y y1 = m(x x1 ),
where m is the slope of the tangent.
The limit when the length of ords onne ting points on a urve tends to zero, is given by
y dy
lim = ,
x0 x dx
and is alled the derivative of y with respe t to x.
dy d
Note: We mainly use the following notations for dierentiation in these notes:
dx , dx f (x) and f (x).
6.1.3 The derivative

The pro ess of nding the derivative of y with respe t to x, denoted by
dy
dx , is alled dierentiation.
Work through the study material in se tions 6.1.3 to 6.1.6 and Worked examples 6.2, 6.3 and 6.4.
The power rule is the basi rule to determine the derivative of xn , where n may be any real number. The
rule is as follows:
dy
If y = xn then
dx = nxn1 .
dy
For example, if y = x5 , then
dx = 5x4 .
40
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Important rules for dierentiation using the power rule are the following:
The derivative of a mathemati al term multiplied (or divided) by a onstant is the derivative of the
term multiplied (or divided) by the onstant.
d n
For any term of the form kxn , the derivative is k dx x = k nxn1 . The onstant k an be positive,
negative or a fra tion.
d 3 d 3
For example,
dx 10x = 10 dx x = 10 3x2 = 30x2 .
The derivative of a onstant term is zero.
Remember that anything to the power zero is equal to one. A onstant like 5 an be written as 51
d
whi h is also equal to 5 x0 . The derivative of 5 is therefore
dx 5 = 5 0 x01 = 0 sin e anything
multiplied by zero is zero.
The derivative of a polynomial y = f (x) = axn + bxn1 + + cx2 + dx1 + e with a, b, c, d and e
onstants, is the sum of the derivatives of the terms.
d 4
For example,
dx (x + 2x3 5x2 + 3x + 100) = 4x3 + 6x2 10x + 3.
After working through the material and doing the examples, you should have a good understanding of nding
the derivative of single mathemati al terms in the form y = xn and polynomials. If this is not the ase,
please go ba k and work through these parts again.
It is very important that you are able to dierentiate fun tions by applying the power rule.
A tivity
Do at least the following questions in Progress exer ise 6.1: (The answers are at the ba k of the textbook
and the solutions are written out on page 63.)
1. Question 3( )
2. Question 3(e)
3. Question 5(b)
4. Question 6(b) dierentiate the result.
5. Question 8( )
6.2 Appli ations of dierentiation

This se tion fo uses on marginal and average fun tions.
Marginal fun tions are found by dierentiating fun tions like total revenue (T R) and total ost (T C ). They
give the rate at whi h T R or T C hanges per unit in rease in Q at any point.
On the other hand, average fun tions are found by dividing the TR or TC by the number of units, Q. It
gives the average revenue or ost throughout an interval.
Work through the study material in Se tions 6.2.1 and 6.2.2 and Worked examples 6.6 6.10.
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[Note: Se tion 6.2.3 on produ tion fun tions is ex luded.
The following variables are regularly used in the textbook:
TR Total revenue MR Marginal revenue AR Average revenue

TC Total ost MC Marginal ost AC Average ost
FC Fixed ost MV C Marginal variable ost AF C Average xed ost
VC Variable ost AV C Average variable ost
A tivity
Do the following questions in Progress exer ise 6.3 (answers are at the ba k of the textbook). Use Maxima
to plot the graphs.
1. Question 2
2. Question 3
3. Question 6
4. Question 9
6.3 Optimisation for fun tions of one variable

The optimum of a fun tion is always at a turning point where the fun tion is either a maximum or a
minimum. Turning points o ur where the slope of a fun tion is equal to zero.
Work through the study material of Se tions 6.3.1 6.3.3 and Worked examples 6.16 6.19.
A tivity
Do the following questions in Progress exer ise 6.5. Find the answers at the ba k of the textbook.
1. Question 1
2. Question 6
Do the following questions in Progress exer ise 6.6.

1. Question 8
2. Question 16

1. Question 2
2. Question 7

1. Question 3
2. Question 6
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6.4 E onomi appli ations of optimisation

Work through the study material of this se tion. Worked examples 6.21 6.25 are very important.
Work through them with pen on paper.
A tivity
Do the following questions in Progress exer ise 6.9:
1. Question 3 (Solution on page 64 of this do ument.)
2. Question 7 (Solution on page 618 of textbook.)
6.5 Curvature and other appli ations (Ex luded)
6.6 Further dierentiation and appli ations

In Se tion 6.6.1, the dierentiation of spe ial fun tions like exponential and logarithmi fun tions is dis ussed.
Table 6.19 provides the rules.
A tivity
Do the following questions in Progress exer ise 6.12: (Solutions on page 620 of textbook.)
1. Question 3
2. Question 12
3. Question 13
4. Question 17
Chain rule
The hain rule for dierentiation (Se tion 6.6.2) is used for a fun tion of a fun tion. Consider for example
the fun tion
y = (2x + 3)2 .
This is a fun tion of a fun tion with the inner fun tion u(x) = 2x + 3 and y = (u(x))2 .
We therefore denote the fun tion 2x + 3 by u, so we have y = u2 whi h is easy to dierentiate in terms of u,
namely
dy
= 2u.
du
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If we dierentiate u = 2x + 3 with regard to x, we nd
du d
= (2x + 3) = 2.
dx dx
When we put these results together, we nd
dy dy du
=
dx du dx
= 2u 2
= 4(2x + 3).
Work through material on page 336 and Worked example 6.34 with pen in hand.
A tivity
1. Question 2
2. Question 3
3. Question 9
4. Question 17
Produ t rule
The produ t rule for dierentiation (Se tion 6.6.3) is used when we have a produ t of two fun tions.
Consider the fun tion

f (x) = (x2 + 2x + 1)(3x + 2).
du dv
Here, u(x) = x2 + 2x + 1 with
dx = 2x + 2 and v(x) = 3x + 2, with
dx = 3. The derivative of f a ording
to the produ t rule is
du dv
f (x) = v +u
dx dx
= (3x + 2)(2x + 2) + (x2 + 2x + 1) 3
= 6x2 + 10x + 4 + 3x2 + 6x + 3
= 9x2 + 16x + 7.
Another example of a fun tion ontaining the produ t of two fun tions is
f (x) = x2 e2x+1 .
du dv
Here, u(x) = x2 with
dx = 2x and v(x) = e2x+1 , with
dx = e2x+1 2 and the derivative of f is
du dv
f (x) = v +u
dx dx
= e2x+1 2x + x2 2e2x+1
= 2xe2x+1 + 2x2 e2x+1
= 2xe2x+1 (1 + x).

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A tivity
1. Question 5
2. Question 7
3. Question 16
Quotient rule
The quotient rule for dierentiation (Se tion 6.6.4) is used when we have a quotient of two fun tions.
Consider the fun tion
x2 + 2x + 1
f (x) = .
3x + 2
du dv
Here, u(x) = x2 + 2x + 1 with
dx = 2x + 2 and v(x) = 3x + 2, with
dx = 3. Now, a ording to the
quotient rule,
v du dv
dx u dx
f (x) =
v2
(3x + 2)(2x + 2) (x2 + 2x + 1)(3)
=
(3x + 2)2
6x2 + 10x + 4 (3x2 + 6x + 3)
=
(3x + 2)2
3x2 + 4x + 1
= .
(3x + 2)2
Note: The quotient of two fun tions an always be transformed so it is the produ t of two fun tions. For
2x+3
example, the fun tion f (x) = 3x+2 an be written as
f (x) = (2x + 2)(3x + 2)1 .
Applying the produ t rule with u = 2x + 2 and v = (3x + 2)1 results in
du dv
f (x) = v +u
dx dx
= (3x + 2)1 (2) + (2x + 2) (3(3x + 2)2 )
2 3(2x + 2)
=
3x + 2 (3x + 2)2
2(3x + 2) 3(2x + 2)
=
(3x + 2)2
2
= .
(3x + 2)2
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A tivity
1. Question 1
2. Question 3
3. Question 5
The appli ations in Worked examples 6.37 and 3.38 are very important. Work through them.
A tivity
1. Question 8
2. Question 10
6.7 Elasti ity and the derivative

In Se tion 2.6 pri e elasti ity of demand ( with linear demand fun tions) was dened as
Q P 1 P
d = = .
P Q b Q
For a non-linear demand fun tion, pri e elasti ity of demand is given by
dQ P
d = .
dP Q
Work through the study material and Worked examples 6.39 and 3.40.
[Note: Se tions 6.7.2 and 6.7.3 are ex luded for this module.
A tivity
1. Question 1
2. Question 2
3. Question 3
46
STUDY UNIT V
INTEGRATION
47
Chapter 8: Integration and appli ations
8.1 Integration as the reverse of dierentiation

The study material in this se tion shows that integration is simply the reverse of dierentiation. Read
through this se tion, taking spe ial note of the onstant that should be added when integrating.
8.2 The power rule for integration

The power rule of integration is as follows:
xn+1
Z
xn dx = + c.
n+1
As an example, onsider the fun tion
f (x) = x3 + 3x2 + x + 1.
When we apply the power rule of integration, we nd
x3+1 x2+1 x1+1 x0+1

Z
f (x) dx = +3 + + +c
3+1 2+1 1+1 0+1
x4 x2
= + x3 + + x + c.
4 2
Work through the study material and Worked examples 8.1, 8.2 and
8.3.
A tivity
1. Question 1
2. Question 6
3. Question 12
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8.3 Integration of the exponential fun tion

You will often en ounter problems where the exponential fun tion needs to be integrated. It is therefore
important that you work through this se tion in detail.
d x
= ex . ex dx ex
R
We know that
dx e So, the solution to is plus some onstant.
Z
As an example, onsider the fun tion f (x) = 3ex . Integrating f gives f (x) dx = 3ex + c.
Do Worked example 8.4 with pen in hand.
8.4 Integration by algebrai substitution

The method des ribed in this se tion is the reverse of the hain rule for dierentiation.
As an example, onsider the fun tion
10
f (x) = dx.
2x 1
du du
To integrate f, we set u = 2x 1 and dierentiate to get
dx =2 or du = 2dx whi h gives dx = 2 . Now,
10
Z Z
f (x) dx = dx
u
10 du
Z
=
u 2
1
Z
=5 du
u

d 1
= 5 ln u + c since ln x =
dx x
= 5 ln(2x 1) + c.
Work through the study material and Worked examples 8.5, 8.6 and 8.7.
A tivity
1. Question 5
2. Question 13
3. Question 17
4. Question 28
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8.5 The denite integral and the area under a urve

Work through the explanation of how to nd the approximate area under a urve. Note that
Z b
b

f (x) dx = F (x) = F (b) F (a).
a a
Although the textbook uses the notation where the variable is in luded when stating the limits, we show it
without the variable as in many books on al ulus.
Work through Worked examples 8.8 8.11.
A tivity
1. Question 3
2. Question 6
3. Question 11
4. Question 15
5. Question 19
8.6 Consumer and produ er surplus
Work through the notes on onsumer and produ er surplus and Worked examples 8.12, 8.13 and 8.14.
A tivity
1. Question 4
2. Question 8
3. Question 17
4. Question 20
50
Appendix A: Solutions to a tivities
A.1 Se tion 2.1 (The equation of a straight line)

1 Slope = 4; horizontal inter ept x = 0,75 (when y = 0); verti al inter ept y=3 (when x = 0).
2 In standard form y = 3x + 6.
The slope of the line is 3 and the inter ept on the verti al axis is 6.
Using this information, the line is plotted as follows:
y
18
16
14
12
10
8
6
4
2
x
3 2 1 1 2 3
A.2 Se tion 2.3 (Appli ations: demand, supply, ost, revenue)

1a When P = 0, then Q = 64 and when Q = 0, then P = 64
4 = 16.
These give the oordinates (0; 64) and (16; 0).
1b The demand fun tion is graphed in gure A.1.
1 When pri e P in reases by R1, the demand (Q) will de rease by 4 rides per hour (the slope is 4).
1d Writing the demand fun tion Q = 64 4P with P on the left-hand side gives 4P = 64 Q whi h results
in P = 16 14 Q = 16 0,25Q when simplied.
2a Writing the supply fun tion P = 0,25Q + 22,5 with Q as the subje t, we nd 0,25Q = 22,5 P whi h
results in Q = 90 + 4P .
2b To graph the demand and supply fun tions, we nd the oordinates on the axes for ea h. For the demand
fun tion Q = 210 3,5P , when P = 0, Q = 210 and when Q = 0, P = 60, giving the oordinates (0; 210)
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Q
64
16 P
Figure A.1: Q = 64 4P
and (60; 0).

For the supply fun tion P = 0,25Q + 22,5, when P = 0, Q = 90 and when Q = 0, P = 22,5, giving the
oordinates (0; 90) and (22,5; 0). The fun tions are graphed on the same axes as follows:
Q
210
180
150
120
90
(40; 70)
60
30
30 10 20 30 40 50 60 70P
60
90
Sin e negative pri es and quantities do not make sense, only the quadrant where both P and Q are positive
are shown in demand and supply graphs. You may, however, use the oordinate on the negative axes to draw
the line.
2 The point of interse tion an either be read o the graph or it an be found by solving the fun tions
simultaneously [see Paragraph 3.1.. This point is at (40; 70) whi h says that when pri e P = 40, demand
and supply are equal with Q = 70. (When demand and supply are equal, we say the market is in equilibrium.)
3a From the given information we nd that F C = 1 000 and V C = 15. The total weekly ost fun tion is
therefore given by
T C = F C + V C = 1 000 + 15Q,
where Q is the number of al ulators produ ed per week. In fun tion notation, we write this as
T C(Q) = 1 000 + 15Q.
3b From the total ost fun tion, we see that the slope is 15 and the inter ept on the T C axis is 1 000. So, when
nothing is produ ed, the ost is R1 000, and when 100 al ulators are produ ed, T C = 1 000+15100 = 2 500.
The graph is shown in Figure A.2.
3 The total ost of produ ing 25 al ulators is T C(25) = 1 000 + 15(25) = 1 375.
52
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TC
2500 (100; 2 500)
2000
1500
1000
500
10 20 30 40 50 60 70 80 90 100 Q
Figure A.2: T C = 1 000 + 15Q
3d To determine the number of al ulators produ ed when T C = 7 000, we solve for Q in the equation
7 000 = 1 000 + 15Q and nd that 15Q = 6 000 whi h gives Q = 400.
3e Total revenue is given by the number of al ulators sold/demanded (Q) multiplied by the pri e per al u-
lator. Therefore, T R = 35Q.
3f To graph the T R fun tion for Q = 0 to 100, we need to nd two points on the line. When no al ulators
are sold, T R = 0, that is the oordinate (0; 0). When 100 al ulators are sold, T R = 3 500 giving the
oordinate (100; 3 500).
The graph of TR is shown in Figure A.3.
TR
3500 (100; 3 500)
3000
2500
2000
1500
1000
500
10 20 30 40 50 60 70 80 90 100 Q
Figure A.3: T R = 35Q
3g To nd the number of al ulators sold when T R = 1 750, we set 1 750 = 35Q from whi h it follows that
Q = 50. Therefore, 50 al ulators are sold.
3h When 80 al ulators are sold,
T C(80) = 1 000 + 15(80) = 2 200 and T R(80) = 35(80) = 2 800.
Sin e TR > TC we on lude that revenue ex eeds osts, so a prot is made.
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3i The prot when Q = 80 is given by
(80) = T R(80) T C(80) = 2 800 2 200 = 600,
that is R600.
A.3 Se tion 2.4 (More mathemati s on the straight line)

1a We have two distin t points on the supply line, namely (Q1 ; P1 ) = (50; 60) and (Q2 ; P2 ) = (90; 110).
The equation of the supply fun tion is in the form P = c + dQ.
We rst nd the slope d, that is
P2 P1
d=
Q2 Q1
110 60
=
90 50
50
= = 1,25.
40
Now, to nd the inter ept (c) on the P axis, we substitute one of the given points, say (50; 60), into the
equation P = c + 1,25Q, that is 60 = c + 1,25(50) from whi h it follows that c = 2,5. The supply fun tion
is therefore
P = 2,5 + 1,25Q.
1b The number of T-shirts that will be supplied additionally for ea h R1 in rease in pri e is given by the slope
of the supply fun tion with Q as subje t. We therefore need to transform the equation from P = 2,5+1,25Q
to have Q at the left, that is
1,25Q = P + 2,5 or Q = 0,8P + 2.
Therefore, for ea h R1 in rease in pri e, 0,8 T-shirts are supplied additionally.
1 When the pri e is R85, then Q(85) = 0,8(85) + 2 = 70 T-shirts are supplied.
1d When 120 T-shirts are supplied, the pri e is P (120) = 2,5 + 1,25(120) = R147,50 per T-shirt.
A.4 Se tion 2.6 (Elasti ity of linear demand and supply fun tions)
1a We need the demand fun tion in the form P = a bQ to apply the derived formulas. Therefore, Q=
250 5P is manipulated to get P = 50 0,2Q. From this we see that a = 50 and b = 0,2.
The point elasti ity of demand is given by
1 P 1 P P P
d = = = = .
b Q 0,2 250 5P 50 P P 50
P
Note that this an be written down dire tly by using Equation 2.14, namely d = P a .
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1b When P = 20, d = 20
2050 = 32 . Sin e |d | = 2
3 < 1, 1 This means that
we say that demand is inelasti .
a hange in pri e will not have a signi ant ee t on demand. In fa t, if pri e is in reased by 1%, demand
will de rease by 0,667%.
30
When P = 30, d = 3050 = 23 . Sin e |d | = 3
2 > 1, we say that demand is elasti . This means that a
hange in pri e will have a signi ant ee t on demand. In fa t, if pri e is in reased by 1%, demand will
de rease by 1,333%.
1 We need the values of demand at these pri es, i.e. Q(25) = 250100 = 150 and Q(35) = 250535 = 75.
The ar elasti ity of demand is therefore
1 P1 + P2
d =
b Q1 + Q2
25 + 35
= 5
150 + 75
= 1,78.
Sin e |d | > 1 demand is on average elasti over the interval 25 P 35.
2a If P = c + dQ, then dQ = P c. Therefore, point elasti ity of supply be omes
1 P P P
s = = = .
d Q dQ P c
2b When P = 70, s = 70
7090 = 3,5. Sin e |s | > 1, supply is elasti at pri e R70. When the pri e in reases
by 1%, supply will in rease by 3,5%.
2 Ar elasti ity of supply is given by s = d1 QP11 +P

+Q2 . From the supply fun tion P = 90 + 0,05Q
2
we nd that
Q = 20P 1 800. So, at P = 40, Q = 1 000 and when P = 60, Q = 600. Therefore,
1 40 + 60
s =
0,05 1 000 600
100
= 20
1 600
= 1,25.
Sin e |s | > 1, supply is elasti over the given pri e interval.
A.5 Se tion 3.1 (Solving simultaneous linear equations)

1 First, we simplify the equations to nd
4x 3y = 12 (1)
0,5x + y = 7 (2)
From (2) we nd that y = 7 0,5x. When we substitute this into (1) we nd
4x 3(7 0,5x) = 12
4x 21 + 1,5x = 12
5,5x = 33
x=6
and y = 7 0,5(6) = 4.
1
The notation |d | is used for the absolute value of d , ignoring the sign.
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2 Again, we rst simplify and get
5P + 10Q = 18 (1)
5P + 3Q = 4 (2)

18 10Q
When we substitute the rst equation as it is given P = into (2), we nd
5

18 10Q
5 + 3Q = 4
5
18 10Q + 3Q = 4
7Q = 14
Q = 2.
Substituting this value into (1) gives
2
5P + 10 2 = 18 or P = = 0,4.
5
3 Simplifying the equations gives
5q 6p = 7 (1)
qp=3 (2)
From (2) we nd q = p + 3. Substituting this into (1) gives 5(p + 3) 6p = 7 whi h results in p = 8.
Substituting this into (2) gives q = 11.
A.6 Se tion 3.2 (Equilibrium and break-even)

1 (PE 3.2 Q2)
The demand and supply fun tions with both P and Q as subje t, are as follows:
Pd = 800 2Qd or Qd = 400 0,5Pd

Ps = 40 + 8Qs or Qs = 5 + 0,125Ps
(a) To nd the equilibrium, we set Pd = Ps , that is
800 2Q = 40 + 8Q
2Q 8Q = 800 40
10Q = 840
Q = 84.
Therefore, at equilibrium Q = 84 rings are supplied/demanded. When we substitute this into Pd =

800 2Q, we nd the equilibrium pri e to be P = 800 2(84) = R632.
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(b) The level of ex ess supply when P = 720:
Qs Qd = (5 + 0,125(720)) (400 0,5(720))

= 95 40
= 55.
If the pri e per ring is raised to R720, the produ er will supply 55 more rings.
( ) The level of ex ess demand when P = 560:
Qd Qs = (400 0,5(560)) (5 + 0,125(560))

= 120 75
= 45.
If the pri e per ring is lowered to R560, ustomers will demand 45 more rings.
2 (PE 3.2 Q7)

The demand and supply fun tions with both w and L as subje t, are as follows:
wd = 70 4Ld or Ld = 17,5 0,25wd

ws = 10 + 2Ls or Ls = 5 + 0,5ws
(a) At equilibrium, wd = ws , that is
70 4Ld = 10 + 2Ls
4L 2L = 10 70
6L = 60
L = 10.
Therefore, at equilibrium, 10 labourers are working. When we substitute L = 10 into wd = 70 4L, we

nd the equilibrium wages to be w = 70 4(10) = R30.
(b) The ex ess demand for labour when w = 20:
Ld Ls = (17,5 0,25(20)) (5 + 0,5(20))

= 12,5 5
= 7,5.
If the wages are lowered to R20, then 7,5 8 more workers will be needed to work.
( ) The ex ess supply for labour when w = 40:
Ls Ld = (5 + 0,5(40)) (17,5 0,25(40))

= 15 7,5
= 7,5.
If wages are raised to R40, then 8 more workers will be willing to work.
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A.7 Se tion 3.2.5 (Break-even analysis)

1a (PE 3.3 Q8)
It is given that the pri e per unit P = 30, xed osts F C = 200 and variable ost VC =5 per unit.
From the available information we nd the formul for total revenue and total ost to be
T R = P Q = 30Q and T C = F C + V C = 200 + 5Q.
At the break-even point,

TR = TC
30Q = 200 + 5Q
25Q = 200
Q = 8.
The rm should produ e and sell 8 units to break even.
1b At break-even, T R = 30(8) = 240 and T C = 200 + 5(8) = 240 whi h are equal as we would expe t.
A.8 Se tion 3.3 (Consumer and produ er surplus)

1 (PE 3.4 Q2)
(a) Demand and supply fun tions are given as Pd = 58 0,2Q and Ps = 4 + 0,1Q
At equilibrium, 58 0,2Q = 4 + 0,1Q whi h results in 0,3Q = 54 or Q0 = 180. Substituting this into
either fun tion gives P0 = 22.
This means that at equilibrium 180 seats on the bus will be sold for R22 ea h. See the graph in the
solution at the ba k of the textbook.
(b) (i) At equilibrium onsumers spend P0 Q0 = 22 180 = R3 960.

(ii) Consumers are willing to pay P0 Q0 + 0,5 22 (58 22) = 3,960 + 3 240 = R7 200.
(iii) Consumer surplus CS = R3 240.
( ) (i) At equilibrium, the bus ompany re eives R3 960.
(ii) The bus ompany is willing to a ept 180 4 + 0,5 180 (22 4) = 720 + 1 620 = 2 340.
(iii) P S = 3 960 2 340 = 1 620.
A.9 Se tion 4.1.1 (Solving a quadrati equation)

1 (PE 4.1 Q3)
We use fa torisation to solve this quadrati equation:
Q2 + 6Q 5 = 0
Q2 6Q + 5 = 0
(Q 5)(Q 1) = 0.
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This gives Q5=0 or Q1=0 whi h results in Q=5 or Q = 1.

2 (PE 4.1 Q8)
Simplifying the equation gives Q2 6Q = Q(Q 6) = 0. This results in Q=0 or Q = 6.
3 (PE 4.1 Q16)
The equation is given in fa tored format, namely x(x 3)(x + 3) = 0. Th equation holds if x = 0, x = 3 or
x = 3.
4 (PE 4.1 Q20)
We rst need to simplify the given equation:
Q(2Q 9) = 4(Q + 3)
2Q2 9Q = 4Q + 12
2Q2 13Q 12 = 0.
Using the quadrati formula gives
p
(13) (13)2 4(2)(12)
Q=
2(2)

13 265
=
4
= 7,32 or 0,82.
5 (PE 4.1 Q21)

We are given T R = 1 800Q Q2 44 375.
(a) When T R = 0, we nd Q2 + 1 800Q 44 375 = 0. Using the quadrati formula, we nd
p
1 800 (1 800)2 4(1)(44 375)
Q=
2

1 800 3 062 500
=
2
= 25 or 1 775.
TR is zero when 25 journals are sold and again when 1 775 are sold.
(b) When T R = 765 625, we nd Q2 + 1 800Q 44 375 = 765 625 or Q2 + 1 800Q 810 000 = 0. Using
the quadrati formula, we nd
p
1 800 (1 800)2 4(1)(810 000)
Q=
2

1 800 0
=
2
1 800
=
2
= 900.
T R = 765 625 when 900 journals are sold.
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A.10 Se tion 4.1.2 (Properties and graphs of quadrati fun tions)

1 For f (x) = 2x2 x 3, a = 2, b = 1 and c = 3. Sin e a > 0, f has a minimum.
(1)
The vertex is at xm = b
2a = 2(2) = 14 = 0,25. The value of f at the vertex is f (0,25) = 2(0,25)2 0,25 3 =
3,125. The turning point is at (0,25; 3,125).
The y inter ept is c = 3.
Sin e the dis riminant b2 4ac = (1)2 4(2)(3) = 25 > 0, f has two distin t x inter epts, namely

b b2 4ac b+ b2 4ac
x = 2a and x = 2a

(1) 25 (1)+ 25
= 22 = 22
4 6
= 4 = 4
= 1 = 1,5.
The graph of f is as follows:
2 For f (x) = 4x2 16x + 16, a = 4, b = 16 and c = 16. Sin e a>0f has a minimum turning point.
(16)
2a = 24 =2 and f (2) = 4(2)2 16(2) + 16 = 0 giving the turning point as (2; 0).
The y inter ept is c = 16.
The dis riminant is b2 4ac = (16)2 4(4)(16) = 0. Therefore, the graph tou hes the x axis at its minimum
point at (2; 0).
3 For f (x) = 3x2 + 3x 2, a = 3, b = 3 and c = 2. Sin e a < 0, f has a maximum turning point.
(3)
2a = 23 = 0,5 and f (0,5) = 3(0,5)2 + 3(0,5) 2 = 1,25 giving the turning point
as (0,5; 1,25).
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The y inter ept is at c = 2.

The dis riminant b2 4ac = (3)2 4(3)(2) = 9 24 = 15 < 0, therefore the graph doesn't tou h the x
axis.
A.11 Se tion 4.1.3 (Quadrati fun tions in e onomi s)

1 If the robots are pur hased, the total ost fun tion is
T C = 200 000 + 300P.
The demand and total revenue fun tions remain the same as
Q = 2 500 2,5P and T R = 2 500 2,5P 2 .
The prot fun tion now be omes
= TR TC
= 2 500P 2,5P 2 (200 000 + 300(2 500 2,5P ))
= 2 500P 2,5P 2 200 000 750 000 + 750P
= 2,5P 2 + 3 250P 950 000.
Here, a = 2,5, b = 3 250 and c = 950 000. The pri e that maximises prot is
b 3 250
Pm = = = R650,
2a 2(2,5)
whi h is R50 per unit less than before. The maximum prot at this pri e is
m = 2,5(650)2 + 3 250(650) 950 000 = R106 250.
We would advise ACE to pur hase the robots, sin e their prot will be 106 250 105 000 = R1 250 higher.
2 We know that total ost is xed osts plus variable ost, that is
T C = 100 150 + 50Q = 15 000 + 50Q.
To nd the demand fun tion, we need two points on the line. It is given that when rent is R200, all the ars
are rented out, that is the point (P1 ; Q1 ) = (200; 100). Also, when the rent goes up by R20, the number
rented out drops by 10. Therefore, (P2 ; Q2 ) = (220; 90) is also on the demand line.
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90100 10
The slope of the demand fun tion is therefore b= 220200 =
= 0,5, giving the demand fun tion to be
20
Q = a+bP = a5P . To nd the value of a, we use the point (200; 100) to nd 100 = a 0,5(200) = a 100,
giving a = 200. The demand fun tion is therefore
Q = 200 0,5P.
The total revenue fun tion is given by
T R = P Q = P (200 0,5P ) = 200P 0,5P 2
and the prot fun tion is
= TR TC
= 200P 0,5P 2 (15 000 + 50Q)
= 200P 0,5P 2 15 000 50(200 0,5P )
= 200P 0,5P 2 15 000 10 000 + 25P
= 0,5P 2 + 225P 25 000.
This is a quadrati fun tion with a < 0, therefore it has a maximum turning point. The vertex is at
b 225
Pm = = = 225.
2a 2(0,5)
If the rent is R225, Qm = 200 0,5(225) = 87,5 ars will be rented out per day. Sin e it is impossible to
rent out half a ar, we round the number of ars to 88.
The prot when the rent is R225 per ar is (225) = 0,5(225)2 + 225(225) 25 000 = 50 937,50. This means
that if they rent out 88 ars per day for R225, they will make a daily prot of R50 937,50.
A.12 Se tion 4.4 (Hyperboli fun tions)

1 (PE 4.13 Q2)
Solving the equation gives
x
=3
x+4
x = 3x + 12
2x = 12
x = 6.
2 (PE 4.13 Q5)

First simplify the equation to nd
Q+5
=Q+1
Q5
Q + 5 = (Q1 )(Q 5)
Q + 5 = Q2 4Q 5
Q2 5Q 10 = 0.
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Now use the quadrati formula to solve the equation. That is
p
(5) (5)2 4(10)
Q=
2
5 8,06
=
2
= 6,53 or 1,53.
3 (PE 4.13 Q7)
(a) The graph of V shows that the value of the ar depre iates qui kly over the rst few years.
(b) Sin e the value of the ar is in thousands of rands, V = 20 if the value is R20 000. The value will
therefore be R20 000 after
84
20 = 1 +
1 + 2t
(20 1)(1 + 2t) = 84
19 + 38t = 84
38t = 65
t = 1,71 years.
A.13 Se tion 6.1.3 (The derivative)

1 (PE 6.1, Q3( ))
y = 10 + 5x + x2
dy
= 0 + 5 2x3
dx
2
= 5 3.
x
2 (PE 6.1 Q3(e))
Q3
P (Q) = + 700Q 15Q2
3
3Q2
P (Q) = + 700 2 15Q
3
= Q2 + 700 30Q.
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3 (PE 6.1 Q5(b))
1 1
y = = x 2
x
dy 1 3
= x 2
dx 2
1 1
= 3 =
2x 2 2 x3
4 (PE 6.1 Q6(b))

Simplifying gives

Q 1
4 = 4Q 2 Q2
q2
1
= 4Q 2 2
3
= 4Q 2 .
Dierentiating the result gives

d 3 5 6
4Q 2 = 6Q 2 = 5 .
dx Q2
5 (PE 6.1 Q8( ))
The rst derivative of P (Q) = 10Q + Q0,5 is
P (Q) = 10 + 0,5Q0,5
and the se ond derivative is

P (Q) = 0,25Q1,5 .
A.14 Se tion 6.4 (E onomi appli ations of optimisation)

1 (PE 6.9 Q 3)
(a) Total revenue is the pri e per unit times the number of units sold, that is
T R = P Q = (240 10Q)Q = 240Q 10Q2 .
Prot is total revenue minus total ost, that is
= 240Q 10Q2 (120 + 8Q) = 10Q2 + 232Q 120.
d
(b) Prot is a maximum when
dQ = 20Q + 232 = 0, that is when Q = 11,6 12 units.
d 240
Total revenue is a maximum when
dQ T R = 240 20Q = 0, that is when Q= 20 = 12 units.
d d
( ) MR = dQ T R = 240 20Q and MC = dQ (120 + 8Q) = 8.
At maximum prot (Q = 11,6), M R = 8 = M C .
(d) See graphs on page 616 of the textbook. M R and M C interse t at the point where prot is a maximum.
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DSC1520/001/4/2017

Department of De ision S ien es

This do ument ontains guidelines to be used together with

Essential Mathemati s for E onomi s and Business

I Linear fun tions 7

II Simultaneous linear fun tions 16

9 Linear algebra and appli ations 24

III Nonlinear fun tions 27

A.7 Se tion 3.2.5 (Break-even analysis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

1.1 The textbook

Essential Mathemati s for E onomi s and Business by Theresa Bradley.

C) as urren y, whi h is of ourse not what we use in

At the end of ea h hapter, a summary of important on epts is provided.

1.2 Knowledge assumed to be in pla e

arithmeti operations (addition, subtra tion, multipli ation, division),

fra tions (addition, subtra tion, multipli ation, division),

Page 77, line 1: . . . the orresponding hange in x, given as . . .

2.1 The equation of a straight line

and graph a linear fun tion by using

2. Plot the straight line given by 2y + 6x = 12.

2.2 Mathemati al Modelling (Ex luded)

2.3 Appli ations: demand, supply, ost, revenue

the quantity demanded will de rease when the pri e in reases.

Consider Figure 2.16(a) (page 60 of the textbook).

the quantity supplied in reases when the pri e in reases.

The general form of the supply fun tion is

You should now be able to

For example, in the given total ost fun tion

The graph is shown in Figure 2.1.

Figure 2.1: The graph of the ost fun tion T C = 20 + 4Q.

Figure 2.2: T R = 10Q

Furthermore, Investopedia explains prot as follows:

The prot fun tion is given by

= total revenue total cost

You should now be able to

des ribe, plot, manipulate and interpret su h linear fun tions.

( ) What is the hange in demand (Q) if pri e (P ) in reases by one unit?

(a) Write down the equation for total weekly ost.

(b) Graph the total ost fun tion for Q = 0 to 100.

(e) Find the total revenue fun tion.

(f ) Graph the TR fun tion for Q = 0 to 100.

2.4 More mathemati s on the straight line

2.4.3 Finding the equation of a line, given two points.

( ) How many T-shirts are supplied when the pri e is R85?

(d) What is the pri e when 120 T-shirts are supplied?

2.5 Translations of linear fun tions (Ex luded)

You should now be able to

al ulate point elasti ity of demand;

al ulate the pri e elasti ity of supply;

SIMULTANEOUS LINEAR FUNCTIONS

3.1 Solving simultaneous linear equations

The equations are

From equation (2) we nd that

When we repla e the x in equation (1) with 2y 6, we nd

When we now substitute y = 3,5 into equation (3), we get x = 2(3,5) 6 = 1.

From equation (1) we nd

x = 1,5(0,75) + 0,375 = 1,5.

Three equations in three variables

The equations are

1. Solve the following system of simultaneous equations:

2. Find the solution to the following simultaneous equations:

3. Solve the following simultaneous equations:

3.2 Equilibrium and break-even

Furthermore, Investopedia explains prot as follows:

The prot fun tion is given by

From equation (2) we nd that

When we repla e the x in equation (1) with 2y 6, we nd

From equation (1) we nd

The potential prot that the bla k marketeer an make, is

www.khana ademy.org/e onomi s-nan e-domain/mi roe onomi s/ onsumer-produ er-surplus .

By setting x = 0, we nd the y inter ept to be y = 400 (from 4(0) + 2y = 800).

If we set y = 0, we nd the x inter ept to be x = 200 (from 4x + 2(0) = 800).

(b) The y inter ept is 3. (If we set x = 0, we nd y = 3.)