INSTITUTE OF MANAGEMENT SCIENCES

UNIVERSITY OF BALOCHISTAN

TOPIC: MATHEMATICS, DIFFERENCE BETWEEN PURE &

APPLIED MATHEMATICS AND APPLICATION OF MATHEMATICS
IN BUSINESS AND ECONOMICS

SUBMITTED TO: MR. IMRAN

SUBJECT: MATHEMATICS

SUBMITTED BY: KHALID KHAN

MBA SECTION (A)
1ST SEMESTER
M10

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 CONTENTS

• MATHEMATICS

• DIFFERENCE BETWEEN PURE & APPLIED MATHEMATICS

• APPLICATION OF MATHEMATICS IN BUSINESS & ECONOMICS

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 INTRODUCTION
DEFINITION
Mathematics is the body of knowledge centered on such concepts as quantity, structure,
space, and change, and also the academic discipline that studies them. It is "The science that
draws necessary conclusions". Mathematics is the science of pattern, whether found in
numbers, space, science, computers, imaginary abstractions. Mathematicians explore such
concepts, aiming to formulate new conjectures and establish their truth by rigorous deduction
from appropriately chosen axioms and definitions.

Through the use of abstraction and logical reasoning, mathematics evolved from counting,
calculation, measurement, and the systematic study of the shapes and motions of physical
objects. Knowledge and use of basic mathematics have always been an inherent and integral
part of individual and group life. Refinements of the basic ideas are visible in mathematical
texts originating in the ancient Egyptian, Mesopotamian, Indian, Chinese, Greek and Islamic
worlds. Rigorous arguments first appeared in Greek mathematics, most notably in Euclid's
Elements. The development continued in fitful bursts until the Renaissance period of the 16th
century, when mathematical innovations interacted with new scientific discoveries, leading to
an acceleration in research that continues to the present day.

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PURE & APPLIED MATHEMATICS
APPLIED MATHEMATICS

Applied mathematics considers the use of abstract mathematical tools in solving concrete
problems in the sciences, business, and other areas. An important field in applied
mathematics is statistics, which uses probability theory as a tool and allows the description,
analysis, and prediction of phenomena where chance plays a role. Most experiments, surveys
and observational studies require the informed use of statistics. (Many statisticians, however,
do not consider themselves to be mathematicians, but rather part of an allied group.)
Numerical analysis investigates computational methods for efficiently solving a broad range
of mathematical problems that are typically too large for human numerical capacity; it
includes the study of rounding errors or other sources of error in computation.

Mathematical fluid dynamics

Mathematical physics Numerical analysis
Optimization

Probability Financial mathematics Game theory

Statistics

PURE MATHEMATICS
Pure mathematics is basically the fundamental theory behind the techniques that are used in
the different math disciplines. As an example, you spend most of your grade school years
learning pure mathematics in the areas of algebra, geometry, and trigonometry. Pure
Mathematics is used to demonstrate the functions and relationships in a mathematical
context.
Pure mathematics is without limitations. It contains complex numbers such as; √-25. Applied
mathematics contains also the material of pure mathematics but pure mathematics is free of

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applied mathematical limitations. It is basically the science of numbers and science of other
logical sciences.

DIFFERENCES BETWEEN APPLIED MATHEMATICS AND PURE MATHEMATICS

The main differences between Applied Mathematics and Pure Mathematics are the topics
studied, and the approach to solving problems and developing understanding. Both programs
help students develop the critical skill of using mathematics to find solutions to problems
involving real-life situations. Students planning to pursue programs requiring the study of
mathematics at the post-secondary level should be registered in Pure Mathematics.

The difference between Pure Mathematics and Applied Mathematics lies in application and
use. Pure Mathematics is studied with no consideration of necessity or application; they
develop the principles of Mathematics for the sake of the principles of Mathematics.
Research in the Fibonacci sequence is an example of this: the Fibonacci sequence has almost
no useful application to mankind. Applied Mathematics, on the other hand, are studied purely
for the sake of application. Examples of this lie in Economics, Computer Science, and
Engineering.

Occasionally, Pure Maths may lead to a useful application -- research in the field of Physics
is usually done without the intention of a useful application; however, what we have learned
about physics is used in processes stretching from the creation of personal computers to
launching a rocket from Cape Canaveral.

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APPLICATION OF MATHEMATICS IN BUSINESS & ECONOMICS
This area of Biz/ed looks at mathematics in the context of business and economics. Many
students arrive at university to study either economics or business and find that a big barrier
to their progress is not the understanding of the economics or business concepts themselves,
but the mathematics that goes with it.

This resource is aimed at helping those who lack confidence in using mathematics for
economics and business by reviewing some of the basics before moving on to look at some
more involved problems.

The first thing to point out is that maths is very much about confidence and being logical. The
confidence comes in knowing what to do when and why. The logical bit is ensuring you treat
each part of a calculation in the correct order and laying out your answer clearly. If you
struggle with maths then remembering these two points will help to ensure a greater degree of
achievement and if you achieve, it helps to build your confidence in tackling more complex
problems.

Operations

• Addition - The sum of two numbers.

• Subtraction - The difference between two numbers.
• Multiplication - The process of repeatedly adding additional numbers. 10 x 3 means
adding 10 to itself three times, 5x means 5 lots of x.
• Division - The inverse of multiplication. It looks at how many times one number will
go into another or how many times one number can be divided up.

Fairly obvious stuff so far. Remember with multiplication that the sign 'X' is most
recognisable but in many cases the 'X' is not written in and instead '.' is used or nothing at all!
So 5p + 3y means '5 lots of whatever number 'p' represents PLUS 3 lots of whatever 'y'
represents'. Similarly 'py' means p times y (p x y).

Each of the above are called operations - they are things that you have to do to sets of
numbers or expressions. When there are a number of operations to be carried out, there are
rules that you should follow. These rules can be remembered easily through the acronym

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BODMAS. BODMAS helps you to follow through the correct order for carrying out multiple
operations. It stands for:

B - Brackets - do anything within a bracket first

O - Order - do anything that is raised to a power, e.g. 4²
D - Division - carry out any division operations
M - Multiply - next do any multiplication
A - Addition - then any addition
S - Subtraction - finally subtraction

There are a number of basic equations used in economics and business. An understanding of
what they mean and what they tell us is an important starting point before looking at more
complex equations. The key equations you might come across in the first year of a degree
course might be:

• Demand functions
• Supply functions
• Production functions
• Cost functions
• Revenue functions
• Consumption functions
• Aggregate Demand functions
• Aggregate Supply functions

To deal with these functions you need to understand what the equation you are being given is
telling you and how it relates to the graphical representation that you might be more familiar
with from textbooks. Let us look at one example:

Qd = 80 - 3P

This equation tells us that the level of demand is dependent on the price charged. The
inclusion of the numbers gives us more specific details about the nature of that relationship.
The '80' is the vertical intercept - the point at which the demand curve cuts the y axis. The
minus sign tells us that there is a negative relationship between the level of demand and price
- so if price goes up, demand will fall and vice versa. The '3P' element tells us that for every 1
unit change in price, demand will rise/fall by 3 units. The bigger the coefficient of P the

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stronger the relationship is - which may give a clue to the degree of price elasticity because
this number will tell you the rate of change of demand when price changes.

We can now work out values of Qd given different price levels. If a business was able to
analyse its sales data it may be able to come up with a function of this type that it could factor
in to its decision making processes. If the price were 10, let's say, then the demand level
would be 80 - 3(10). It is at such times when you have to remember the basics we have
covered so far - multiplying positive and negative numbers and the order in which operations
are carried out. Here the answer is 50.

GRAPHING LINEAR FUNCTIONS

Let's take an example. Assume we have a demand function implied by the equation Qd = 150
- 5P. Assume some values for P ranging from 0 to 30 and put the information into a
spreadsheet such as Excel. Excel has a nasty habit of not recognising that in economics, the
dependent variable (in this case Qd) is on the horizontal (x) axis and that price (the
independent variable) is on the vertical (y) axis. In pure maths, the y axis is the dependent
variable and the x axis the independent variable. To get round this problem follow the steps
outlined below.

Plot the data as normal, for example:

Qd Price
0 30
25 25
50 20
75 15
100 10
125 5
150 0

• In the Chart Wizard, select the line option for your graph.
• In the next step, click on the 'series' tab.

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 • At the bottom where it says 'Category (X) axis labels:' click on the right hand icon - it
will shrink to just that box.
• Highlight the Qd series on your table (just the figures not the 'Qd' cell) the cells
appear in the shrunken box.
• Click on the right hand icon again to get back to the 'Source Data' dialogue box.
• Highlight Qd in the series box and click 'Remove'.
• When you have your finished graph, right click on the 'X axis' and in the Format Axis
dialogue box, uncheck the option 'Value (Y) axis crosses between categories'.

You should end up with a graph that looks something like the one below:

You will notice from the graph that the demand curve cuts the horizontal axis at a value of
150 - this is called the 'horizontal intercept'. Where demand cuts the vertical axis at 30 this
is called the 'vertical intercept'.

In the equation, the coefficient of P is -5. If we look at a change in price and a change in
demand as a result we can see that for every 5 unit change in price, demand will rise or fall
by 25 units. The slope of this graph is therefore 25 ÷ 5 = 5. Given that we know demand is a
negative function, we know that if price rises (or falls), demand will fall (or rise) as a result -
an inverse relationship. Looking carefully at the equation, we can see that the coefficient of P
is indeed -5. This coefficient therefore tells us the slope of the graph.

The diagram below highlights this principle.

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OTHER IMPORTANT PRINCIPLES IN ALGEBRA

FACTORISING

When factorising, we are attempting to break a number or a term into smaller components.
The factors of 12, for example, are 1, 2, 3, 4, 6 and 12. These are all numbers that we can
multiply by others to get 12. If we have an expression such as y 2 - 10y + 16 we can factorise
it by finding two numbers which when added together give the middle number (10) but which
when multiplied together give the last number (16). The factors of -10 and 16 are 2, 4 and 8.
-2 x -8 gives us 16 and (-2) + (-8) = -10. This equation can be written in its factorised form of
(y-2)(y-8). To check we can multiply out the brackets as follows:

Take the first term and multiply it by each term in the second bracket, then take the second
term in the first bracket and multiply by the two terms in the second. Add them all together!

y x y = y2, y x -8 = -8y
-2 x y = -2y and -2 x -8 = 16

So, when adding like terms together we get back to the original equation, y2 -10y + 16.

DIVIDING TERMS IN ALGEBRA

As in normal division, look to cancel down where appropriate. If the divisor is a letter
representing a number, then the same principle still applies. An example may serve to
illustrate the point more clearly.

Take the following equation:

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(35y3 + 10y2 - 15y) / 5y

We can divide 5y into 35y3, the answer being 7y2. 5y goes into 10y2 2y times. 5y goes into
-15y -3 times. This gives us the simplified equation 7y2 + 2y - 3.

To take another example:

(21y2+ 14y - 70) / 7 = 3y2 +2y - 10

In cases where the divisor will not go into the numerator, we can still simplify the equation
but end up with a fraction as shown below:

(3y2 + y - 9) / 3 = y2 + (1/3)y - 3

EQUILIBRIUM

Equilibrium is a term relating to a 'state of rest', a situation where there is no tendency to

change. In economics, equilibrium is an important concept. Equilibrium analysis enables us
to look at what factors might bring about change and what the possible consequences of those
changes might be. Remember, that models are used in economics to help us to analyse and
understand how things in reality might work. Equilibrium analysis is one aspect of that
process in that we can look at cause and effect and assess the possible impact of such
changes.

For the purposes of this resource we are going to look at market equilibrium. Market
equilibrium occurs where the amount consumers wish to purchase at a particular price is the
same as the amount producers are willing to offer for sale at that price. It is the point at which
there is no incentive for producers or consumers to change their behaviour. Graphically, the
equilibrium price and output are found where the demand curve intersects (crosses) the
supply curve.

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Mathematically, what we are looking to find is the point where the quantity demanded (Qd) is
equal to the quantity supplied (Qs). Let's take our example from above:

Assume the demand is Qd = 150 - 5P and that supply is given by Qs = 90 + 10P. What we
now have is a task that involves understanding how to do simultaneous equations.

In equilibrium we know that Qs = Qd. Remember that Qs = 90 + 10P and that Qd = 150 - 5P.
Given that we know that an equation means that whatever is on the left hand side must be the
same as that on the right hand side we can re-write our simultaneous equation as follows:

90 + 10P = 150 - 5P

We can now go about collecting all the like terms onto each side (by doing the same to both
sides) and solving the equation to find P. Explanation 1 shows the long route and Explanation
2 the route you might normally see in a textbook.

EXPLANATION 1

(90 - 90) + (10P + 5P) = (150 - 90) - (5P + 5P)

We have added 5P to both sides and taken away 90 from both sides. This gives us:
15P = 60
Now divide both sides by 15 to get P on its own.
15P / 15 = 60 / 15
The 15P term will now cancel down. How many times does 15 go into 15P? Once.
60 / 15 = 4
P=4

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EXPLANATION 2

10P + 5P = 150 - 90
15P = 60
P=4

We now know the equilibrium price is 4 so we can substitute this into the equations to get the
Qd and Qs.

Qd = 150 - 5P
Qd = 150 - 5(4)
Qd = 150 - 20
Qd = 130

Doing the same thing to the supply:

Qs = 90 + 10P
Qs = 90 + 10(4)
Qs = 90 + 40
Qs = 130

So, the equilibrium price is 4 and the equilibrium quantity bought and sold is 130.

Other examples of where this technique might be used include finding equilibrium national
income in a two sector economy (for example, if just consumption and investment are
considered), in IS/LM analysis, in finding the break even point, in prodcution calculations
and many other areas.

Sometimes, you will also see demand and supply equations written differently; don't panic.
The principles are exactly the same. Take the examples below:

P = 900 - 0.5Q and P = 300 + 0.25Q

Which is the equation for the demand curve and which for the supply curve?

Remember, the relationship between demand and price is inverse so the negative sign in the
first equation tells you it is the equation for the demand curve. There is a positive

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relationship, however, between price and quantity supplied. The + sign thus tells you that the
second equation is the one for the supply curve.

Let's take these equations and find the equilibrium:

In equilibrium, the same price equates the demand and supply, so:
900 - 0.5Q = 300 + 0.25Q (Collect all the like terms together)
900 - 300 = 0.25Q + 0.5Q
600 = 0.75Q
Q = 800

If the equilibrium quantity (Q) = 800 then we can now find the equilibrium price through
substituting Q into the two equations:

P = 900 - 0.5 (800)

P = 900 - 400
P = 500

For supply (as a check)

P = 300 + 0.25 (800)
P = 300 + 200
P = 500

Some examples to work through:

1.Q = 3P + 2, Qs = 2 - P
2.3P + 7Q = 10, 4P - Q = 3
3.5P + 10Q = 10, 2P - Q = 1
4.2P + Q = 7, 3P + Q = 10
5.5P + 3Y = 7, 4P - 5Y = 3
6.4P + 6Q = -13, 3P - 5Q = 14
7.6P + 3Q = 1, 4P - 2Q = 2
8.3P + 5Q = 12, 6P - 4Q = 3
9.6P + 3Q = 2P + Q = 1

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 10. 2P + Q = 7, 4P + Q = 11
11. 5P + 7Q = 12, 6P - 3Q = 3
12. 2P + 3Z = 2, 6P - 12Z = 13

LIMITS AND CALCULUS

The next stage in our mini-tour is to look at the role of calculus in economics. For many
students, this is where things move from one conceptual level to another and things get really
tricky. Again, our advice is to do lots of practice questions to see the different approaches and
to ensure that you build the confidence that is bred from success.

TO INFINITY AND BEYOND:

LIMITS AND INFINITY

One of the core characteristics of calculus is the idea of the 'limit' and 'infinity'. This often
proves a difficult concept for students who find maths hard because it is so abstract. In the
same way that it is very difficult to conceptualise what a million pounds looks like or to get
one's head around the notion that the government spend £500 billion a year. The limit and
infinity are difficult to come to terms with. What is needed therefore is some way of putting
these concepts into context. The following explanation is an attempt to do that before we get
into the numbers side of things.

WHAT IS INFINITY?

It is very difficult to conceptualise what we mean by infinity. For example, if we look at the
fraction 1⁄3 it is reasonable to conceptualise what we mean by it. Get a cake, cut it into three
equal parts - not much problem there. But if we express 1⁄3 as a decimal we get a slightly
different problem. The answer is 0.3 recurring - if we continued the calculation, i.e. by
dividing 3 into 1 we would continue for evermore. The same problem arises with other
common numbers - try pi for example (22⁄7) or the square root of 2.

Let us take pi. What is the true value of it? We use the number 3.14 to express pi but that is
not 100% accurate - far from it. 3.142 is more accurate - we are closer to the real value of pi
but still a long way away from it. How about 3.14285714 - that is much closer but still an
infinite number of figures away from its true value. Same thing with the square root of 2. The

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square root of 2 is a number somewhere between 1 and 2. How do we know this? Well, the
square root of 1 is 1 and the square root of 4 is 2. The square root of 2, therefore, must lie
somewhere between these two extremes.

We can narrow things down a bit further, 1.52= 2.25 so we now know the number we are
looking for is between 1 and 1.5. If we continue on this trial and error process we can narrow
down the number further and further. We can find that the square root of 2 must be less than
1.45 (2.1025), less than 1.44 (2.0736) and so on until we get to 1.41 (1.9881). So is the
square root of 2 1.41? Obviously not. So lets go a bit further.

Is the number we are looking for 1.419? No, that gives us 2.013561. We could continue in
this vein until we get to the figure 1.414 but again that would not be the square root of 2
because 1.4142 is 1.999396. But we are close - aren't we? Well let's take the next digit. Is
1.4149 the square root of 2? No because that equals 2.00194201. If we move through the
digits from 1.4149 down to 1.4141 we could see that the next digit in the sequence is 1.4142,
which when squared is 1.99996164 - so getting closer.

We could carry on this process for evermore and get ever closer to the square root of two but
never quite getting any definitive number - there would just be an ever increasing sequence of
9s after the 1. with some other number after the last 9! What we can say is that we are
approaching the limit which represents the square root of 2.

The same principle can be applied to gradients on curves. The basic formula for finding a
gradient on a curve is the change in y (Δ y) divided by the change in X (Δ x). But this is only
an approximation - the gradient of a curve changes at every point. What you now have to
imagine is an infinite number of points on the gradient - a bit like the infinite number of
figures in the calculation for the square root of 2.

Look at the diagram below.

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The point on the curve we are interested in finding out is C. Like the case with the square root
of 2 above, we know that the gradient will lie between the value of the gradient at A and the
gradient at point B. As an estimate, the gradients can be found by the formula given above
and shown on the graph (ΔY/ΔX) If we took the gradient further down from A (say at point
A1) we would get closer to the answer and if we took the gradient at point B1 we would have
a further narrowing down of the range - just like we did when we calculated the square root
of 2. We could continue the process getting ever closer to point C and continue to narrow
down the likely answer. This is what we mean by the 'limit'. We can say that the gradient of C
is only one true finite number. But it may be impossible to find that number because we could
get infinitely close to it but never quite get there. It is written thus:

lim f(x) = Q
where Q is the limit of f(x) as X approaches a

Another way that is often used to help describe the principle of a limit is to think of velocity.
Imagine a bullet being fired from a gun. We could measure the distance the bullet travelled
and the time it took and calculate the average speed of the bullet over that time period. The
graph for this relationship is shown below.

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What if we wanted to find out the speed the bullet was traveling at a precise point in time
(point P). The speed of the bullet would be the gardient of the curve at point P precisely. To
do this we could take the average gradient between two points - P and Q in this example - and
this would be an approximation similar to the early approximation we made of the square
root of 2 being 1.41. However, if we moved point Q progressively closer to P, the gradient
would get nearer and nearer to the gradient at point P. In this example we are dealing with
speed. Speed presents a bit of a problem because to represent speed at a point in time the
bullet must be traveling some distance since it makes no sense to say that the bullet travels no
distance in no time at all! So what we are looking for is a close approximation to its speed at
a specific point in time and to do that we use this idea of limits - how fast is the bullet
travelling at a point in time which is infinitely small?

The graph represents this relationship; the gradient of the line at points P, Q1 is closer to that
of point P than Q; the gradient of the line at P, Q2 is closer still and so on in the same way
that 1.412 was closer to the square root of 2 than 1.41 and 1.414 was closer than 1.41 and
1.4142, etc. closer still.

What we have just been calculating is the derived function - the gradient of the tangent to a
curve at the point where P and Q coincide. From this a number of rules can be found which
will be used in our discussions on differentiation. The derivative is an important concept in
economics as it is used to measure the rate of change of a function at a particular point. It
might seem a little absurd to think about anything in human behaviour happening at a single
point in time but if we remember that in economics we are concened with decision making
the concept becomes a little easier to grasp.

Limits and margins are closely related. Think of income taxes, for example. The government
might be interested to know what might happen to the amount of hours worked if they

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decided to raise the basic rate of income tax from 22% and 40% to 23% and 41%. At the time
of writing the point at which someone moves from paying 22% to paying the current 40%
higher rate is £31,400. That means that every £1 earned over £31,400 would now be taxed at
40p in the pound rather than 22p. What effect does this have on incentives especially if the
rate were to increase? Would people work the same number of hours, work less because they
do not see it being worth their while putting in the extra hours if the government are going to
take more of their income or will they work more hours to make up for the fact that they are
being taxed more heavily?

The number of hours worked therefore could be seen as a function of the tax rate, i.e. is
dependent upon the tax rate. Using a model that may have been built around previous
observations on human behaviour with regard to tax and hours worked, the Treasury could
make a reasonable estimate of what might happen to hours worked and thus output, as a
result of increasing tax rates. Again, nobody is suggesting that these models or the equations
that are used within them are 100% accurate but they do provide a basis for informing
decision making.

NOTATION

One confusing aspect of the whole calculus thing is the different notation that is used. You
will have to get used to a variety of different types of notation. The following is a list of the
main types - remember that they all mean the same thing - the value which the fraction (the
change in y divided by the change in x) approaches as that fraction becomes infinitely
smaller.

• dy/dx
• f1(x)
• d/dx[f(x)]
• D

It is important to remember what we mean when we refer to the term 'function'. The
following example may serve to highlight the issue.

A function states that one value is dependent on another or a range of other factors. Take the
function q = f(30 - 5p + 18Y). This states that the value of q is dependent on the values and

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factors in the brackets - in this case it could be price (p) and incomes (Y). If incomes rise then
the quantity demanded will be affected and if price changes the level of demand will also be
affected.

The x and y terms can also change depending on the nature of the function. If you are
working with a consumption function you will find the value which represents the change in
consumption in relation to infinitesimally small changes in income; if it is a production
function, changes in output with respect to infinitesimally small changes in capital or labor or
land or a combination of all three.

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