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Chapter 2: The Straight Line and Applications.

Calculate and plot a demand schedule (slide show)Worked Example


2.6, Figure 2.19: Slides 2 - 11
Plot a demand function from the points of intersection with the axis
Worked Example 2.6, Figure 2.19: Slides 12, 13, 14, 15
Calculate and plot a supply schedule Worked Example 2.7, Figure
2.22: Slide 16
Fixed Cost, Variable Cost and Total Cost:
Calculate and plot a TC function (slide show), Worked Example 2.9,
Figure 2.25: Slides 17, 18, 19, 20
Calculate and Plot a Total Revenue function (TR) Worked Example
2.10, Figure 2.26: Slide 21

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 1


Demand Function P =100 - 0.5Q

Label the horizontal and vertical axis


Calculate the demand schedule from the equation
given above, for positive values of P and Q
Plot the points
Draw the graph
Label the graph

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 2


Demand Function P =100 - 0.5Q :
Calculate the demand schedule (Method A)
Table 2.3 Demand schedule
Q P = 100 - 0.5Q P on the vertical (y) axis
0 P = 100 -0.5(0) = 100
40 P = 100 -0.5(40) = 80
80 P = 100 -0.5(80) = 60
120 P = 100 -0.5(120) = 40
160 P = 100 -0.5(160) = 20
200 P = 100 -0.5(200) = 0
Intercept (vertical) = 100:
Slope = - 0.5:
Horizontal intercept = 200
Q on the horizontal (x) axis

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 3


Demand Function P =100 - 0.5Q :
Plot the demand schedule

Table 2.3 Demand schedule P =100 - 0.5Q


Quantity (x) Price (y)
P Price
0 100 120

40 80 100

80 60 80

120 40 60

160 20 40

200 0 20

Intercept (vertical) = 100 0 Q Quantity


Slope = - 0.5:
0

40

80

120

160

200
Horizontal intercept = 200

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 4


Demand Function P =100 - 0.5Q :
Plot the demand schedule

Table 2.3 Demand schedule


Quantity (x) Price (y)
P =100 - 0.5Q
0 100 P Price

40 80
120

80 60 100

120 40 80

160 20 60

200 0 40

Intercept (vertical) = 100 20

Q Quantity
Slope = - 0.5: 0

40

80

160
120

200
Horizontal intercept = 200

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 5


Demand Function P =100 - 0.5Q :
Plot the demand schedule

Table 2.3 Demand schedule


Quantity (x) Price (y) P =100 - 0.5Q
0 100 P Price
120

40 80
100

80 60
80

120 40
60

160 20
40

200 0
20

Intercept (vertical) = 100


0 Q Quantity
Slope = - 0.5:
0

40

80

160
120

200
Horizontal intercept = 200

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 6


Demand Function P =100 - 0.5Q :
Plot the demand schedule

Table 2.3 Demand schedule


Quantity (x) Price (y) P =100 - 0.5Q
P Price
0 100
120

40 80
100
80 60
80

120 40
60

160 20
40

200 0
20

Intercept (vertical) = 100


0 Q Quantity
Slope = - 0.5:
0

40

80

120

160

200
Horizontal intercept = 200

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 7


Demand Function P =100 - 0.5Q :
Plot the demand schedule

Table 2.3 Demand schedule


Quantity (x) Price (y) P =100 - 0.5Q
P Price
0 100
120

40 80
100

80 60
80

120 40
60

160 20
40

200 0
20

Intercept (vertical) = 100


0 Q Quantity
Slope = - 0.5:
0

40

80

120

160

200
Horizontal intercept = 200

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 8


Demand Function P =100 - 0.5Q :
Plot the demand schedule

Table 2.3 Demand schedule


Quantity (x) Price (y) P =100 - 0.5Q
0 100 P Price
120
40 80
100

80 60
80

120 40
60

160 20
40

200 0
20

Intercept (vertical) = 100


0
Q Quantity
Slope = - 0.5:

40

80

120

160

200

240
Horizontal intercept = 200

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 9


Demand Function P =100 - 0.5Q :
Plot the demand schedule

Table 2.3 Demand schedule


Quantity (x) Price (y) P =100 - 0.5Q
P Price
0 100
120

40 80
100

80 60
80

120 40
60

160 20
40

200 0
20

Intercept (vertical) = 100


0 Q Quantity
Slope = - 0.5:
0

40

80

160
120

200

240
Horizontal intercept = 200

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 10


Demand Function P =100 - 0.5Q :
Join the points and label the graph

Table 2.3 Demand schedule


Quantity (x) Price (y) P =100 - 0.5Q
P Price
0 100
120

40 80
100

80 60
80
P = 100 - 0.5Q
120 40
60

160 20
40
D : Demand
200 0
20

Intercept (vertical) = 100


0 Q Quantity
Slope = - 0.5:
0

40

80

160
120

200

240
Horizontal intercept = 200
Figure 2.17
Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 11
Demand Function P =100 - 0.5Q :
Alternatively, plot the vertical intercept(Method B)
Table 2.3 Demand schedule
Quantity (x) Price (y) P Price
120
0 100
40 80
100
Vertical intercept = 100
80
80 60
60
120 40
40
160 20
20
200 0
0
Q Quantity
Intercept (vertical) = 100

40

80

120

160

200

240
Slope = - 0.5:
Horizontal intercept = 200

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 12


Demand Function P =100 - 0.5Q :
and plot the horizontal intercept
Table 2.3 Demand schedule
Quantity (x) Price (y)
0 100 120

40 80
100
Vertical intercept = 100
80
80 60
60
120 40 Horizontal intercept = 200
40
160 20
20
200 0
0 Q Quantity
Intercept (vertical) = 100

160

200
120
40

80
Slope = - 0.5:
Horizontal intercept = 200

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 13


Demand Function P =100 - 0.5Q :
Join the horizontal and vertical intercepts
Table 2.3 Demand schedule
Join the horizontal and vertical intercepts
Quantity (x) Price (y) P Price
120

0 100
100
40 80
80
80 60
60
D : Demand
120 40
40
160 20
20
200 0
0 Q Quantity
Intercept (vertical) = 100

200
0

40

80

240
120

160
Slope = - 0.5:
Horizontal intercept = 200 Figure 2.19

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 14


The
P =General
a - bQ Linear PDemand function
=100 - 0.5Q
such as P

120

a = 100 100 Slope = - b = - 0.5


D
80

P = 100 - 0.5Q
60

40

20

0 Q
0

200
40

80

120

160

240
a
200
b

Figure 2.19 Demand function, P = 100 - 0.5Q

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 15


Supply Function P = 10 + 0.5Q
Calculate and plot the supply schedule P = 10 + 0.5Q
Table 2.4 Supply schedule
Q: Quantity P: P = 10 +0.5Q
0 10: P =10 +0.5(0) P = 10 + 0.5Q
P
20 20: P = 10+0.5(20) 70

40 30 60 S

60 40 50

80 50
40
P = 10 + 0.5Q
30
100 60
20
Slope = 0.5
Intercept (vertical) = 10
c = 10 10

Slope = 0.5 0
Q

-20

20

40

60

80

100
0
Horizontal intercept = - 20 Figure 2.22

NOTE: the supply function may be plotted by simply joining the intercepts
Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 16
Total Cost Function:Derive the equation :
Example: Given the following: TC = 10 + 2Q
Fixed Costs (FC) = 10
Variable Costs, VC = 2 for one unit
Variable costs, VC = 2Q for Q units
TC on the vertical axis
Hence, Total Cost for Q units is

TC = FC + VC , in general
TC = 10 + 2Q, in this example

Plot
Q on the horizontal axis
Costs on the vertical axis
Q on the horizontal axis

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 17


Total Cost Function: TC = 10 + 2Q
Plot the horizontal line: FC = 10
Plot Fixed Costs

This is a horizontal line, Cost 24

which cuts the vertical axis C 22

20

at Costs = 10 18

16

14
FC = 10
12

10

0 Q Quantity
0 1 2 3 4 5 6

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 18


Total Cost Function: TC = 10 + 2Q
Plot the points
Table 2.5: TC = FC +VC
TC = 10 + 2Q
Cost 24
Calculate and plot the total cost schedule
C 22
Points 20
Q VC = 2Q TC = FC +VC (Q, TC) 18

0 0 TC = 10 + 0 = 10 (0, 10) 16
FC = 10
1 2(1) = 2 TC = 10 + 2 = 12 (1, 12) 14

12
2 2(2) = 4 TC = 10 + 4 = 14 (2, 14)
10
3 2(3) = 6 TC = 10 + 6 = 16 (3, 16) 8
4 2(4) = 8 TC = 10 + 8 = 18 (4, 18) 6

5 2(5) = 10 TC = 10 + 10 = 20 (5, 20) 4

6 2(6) = 12 TC = 10 + 12 = 22 (6, 22) 2

0 Q Quantity
0 1 2 3 4 5 6

Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 19


Total Cost Function: TC = 10 + 2Q
Join the points: Label the graph
Table 2.5: TC = FC +VC
TC = 10 + 2Q
Total Cost24
Calculate and plot the total cost schedule TC
22

20 TC = 10 + 2Q
Q VC = 2Q TC = FC +VC (Q, TC) 18
0 0 TC = 10 + 0 = 10 (0, 10) 16

1 2(1) = 2 TC = 10 + 2 = 12 (1, 12) 14


FC = 10
12
2 2(2) = 4 TC = 10 + 4 = 14 (2, 14)
10
3 2(3) = 6 TC = 10 + 6 = 16 (3, 16)
8
4 2(4) = 8 TC = 10 + 8 = 18 (4, 18) 6
5 2(5) = 10 TC = 10 + 10 = 20 (5, 20) 4

6 2(6) = 12 TC = 10 + 12 = 22 (6, 22) 2

0 Q Quantity
0 1 2 3 4 5 6

Figure 2.25
Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 20
Total Revenue: TR = 3.5Q:
Calculate and plot the TR

TR = 3.5Q
Table 2.6 Total revenue
Price is fixed at P = 3.5 Total
revenue, TR 28

Q TR = PQ =3.5Q (Q, TR) 21

0 TR = 3.5 (0) = 0 (0, 0) TR = 3.5Q

2 TR = 3.5 (2) = 7 (2, 7) 14

4 TR = 3.5 (4) = 14 (4, 14) 7

6 TR = 3.5 (6) = 21 (6, 21)


0 Q Quantity,
0 2 4 6

Figure 2.26: Linear total revenue function


Copyright2001 Teresa Bradley and John Wiley & Sons Ltd 21

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