BREAK-EVEN ANALYSIS: Non-Linear Functions To increase or maximize the profit, it is a common belief that an increase in production would increase

the profit. This is however not true in general, for as the market becomes saturated with the product, we cannot expect to continue selling it at its original price. The price should be decreased therefore and the decrease sometimes depends on the number of units to purchase by the customer. Example: A product sells at P12 per unit. Fixed cost is P40 and the variable cost per unit is P7. After observing that the sale of the product has begun to decline, its per unit selling price is decrease by 10% of unit sold. Variable cost and fixed remain unchanged. a. b. c. d. Represent the new selling price per unit Write the TR, TC and profit function Find the break-even point quantity and revenue Find the profit at a sale of 50 units.

Solution: Let x = number of units sold I. II. New selling price per unit ( ( ) ) per unit

Since ( ) ( )

III.

At break-even point, profit = 0

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(-10)

)(

multiplying the equation by -10 factoring the quadratic trinomial

)(

equating both factors to zero, and solving for x

(break-even qty) Solving for the break even revenues: If x = 10

(break-even qty)

if x = 40

)(

)(

(break-even revenue)

(break-even revenue)

Therefore, there are two break-even points: (10, 110) and (40, 320). This means that selling more than 40 units would mean a loss for the company. We can show this substituting values in the profit functions, such as x = 9 and x = 41. IV. If x = 50 ( ( ) ) ( )

(Loss) Risk is at hand if the price per unit is decreased by a certain percent of the volume of sale. In our preceding discussion, the company will make a profit only between the two break-even points. It is therefore important to study the extent of prospective profit before proceeding to decrease the price. Questions like how much profit, or what is the possible maximum profit? must be asked. Given a non-linear function, we can easily find its maximum or minimum point by the use of derivatives.
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BASIC RULES FOR DERIVATIVES I. The derivative of a constant is zero. ( Examples: 1) y = 500 can also be written as 2) y = -10 )

II. The derivative of a variable with respect to itself is 1. Example: 1) y = x =1 III. The derivative of the nth power or a variable is equal to n times the variable raised to the (n1)th power. Examples: 1) = (5) =5 2) = (-2) = -2

IV. The derivative of a constant time the function is equal to the constant times the derivative of the function. Examples: 1) = (3)(5) = 15 2) =( ) = 3) = (6)(-5) y' = -30

V. The drivative of a sum or difference or two or more functions is the sum or difference of their derivatives. Examples: 1) ( )( ) ( )( ) +0

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Finding the Critical Points of Non-Linear Functions The are two critical points: a. Maxima or maximum point b. Minima or minimum point Steps in locating the critical points 1. Find the derivative of the function or (read as y-prime) 2. Set the first derivative to zero and solve for x 3. Substitute this value of x in the original function and solve for y. These values of x and y are the coordinates in the maxima and minima. 4. Test whether the point is maxima or minima by finding the second derivative (read as y-double prime). If the second derivative is negative, the point is maxima. If the second derivative is positive, the point is minima. Example 1: Locate and classifiy the critical point Original equation ( )( ) finding the first derivative

0=

setting the first derivative to zero and solving for x

Substituting

in the original equation

( )

( )

90 Critical point: (5, 90)

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Testing wether the point is maxima and minima: original equation ( )( ) finding the first derivative FIRST DERIVATIVE finding the second derivative

SECOND DERIVATIVE Since Y is negative, therefore the critical point (5, 90) is a maximum point.

Example 2: Locate the critical points and classify them into maxima or minima.

Solution: original equation ( )( ) ( )( ) finding the first derivative FIRST DERIVATIVE setting Y to zero simplifying the eqtn by dividing by 12

factoring ( )( ) setting each factor to zero

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Solving for Y: At x = -2 original equation ( ( ) ) ( ( ) ) ( ) substitute x = -2

crtical point (-2, 54) At x = 1 original equation ( ) ( ) ( ) substitute x = 1

crtical point (1, 0)

Testing wether the point is is maxima or minima: original equation ( )( ) ( )( ) finding the first derivative FIRST DERIVATIVE

( )(

finding the second derivative SECOND DERIVATIVE

At x = -2 ( ) substitute x = -2

Therefore, the point (-2, 54) is maximum

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At x = 1 SECOND DERIVATIVE ( ) substitute x = 1

Therefore, the point (1, 0) is minimum

Application of Maxima and Minima in Business Example 1: The profit function of a manufacturer is given as where P represents the profit, while x is the number of units to sell. Find the maximum profit. Solution: original equation ( )( ) finding the first derivative FIRST DERIVATIVE equating the first derivative to zero solve for x

number of units for maximum profit To find the maximum profit, sustitute 25 in x and find P.

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Example 2: A factory estimated that its equation for cost is represented by the function , where C is the cost and x is the number of units to produce. a. Find the number of units for minimum cost. b. Find the minimum cost. Solution: a. ( )( ) original equation finding the first derivative FIRST DERIVATIVE solving for x

units for minimum cost

b. To find the minimum cost, substitute 200 in x and find c

MINIMUM COST

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