1. 1.2 Linear functions & Applications
Linear Functions: y=mx+b, y-y1=m(x-x1)
Supply and Demand Functions
Equilibrium Point
Cost, Revenue, and Profit Functions
Break-even Point (quantity, price)

2. Linear functions - good for supply and demand curves.
If price of an item increases, then consumers less likely to buy so the demand for the item decreases
If price of an item increases, producers see profit and supply of item increases.

3. Linear Function f defined by
(for real numbers m and b)
x=independent variable
y=dependent variable

4. Cranberry example and explanation of quantity (x-axis), price (y-axis)
See Page 18 of e-text
Cranberry example of late 1980’s early 1990’s.
Explanation of why price is on the y-axis.

5. Demand Function defined by p = D(q)
The function that gives the relationship between the number of units (q) that customers are willing to purchase at a given price (p).
The graph of a demand function is typically decreasing.

6. EXAMPLE If
is the relationship between p, the price per unit in dollars and q, the quantity demanded, what is the demand when the price is $50 per unit?

7. ANSWER
p = -0.04q + 72
50 = -0.04q +72
-22 = -0.04q
550 = q

8. EXAMPLE:
Find the price when the level of demand is 500.

9. Answer:
p = -0.04q + 72 p = (500) +72 p = p = 52

10. Supply Function defined by p = S(q)
gives the relationship between the number of units (q) that suppliers are willing to produce at a given price (p).
The graph of a supply function is typically increasing.

11. EXAMPLE
If p = q is the relationship between the price (p) per unit and the quantity (q) supplied, When the price is set at $73 per unit, what quantity will be supplied?

12. Answer
p = q
73 = q
68 = 0.04q
1700 = q

13. Example 2 page 22
Part c shows (6, $4.50) as the intersection of the supply and the demand curve.
If the price is > $4.50, supply will exceed demand and a surplus will occur.
If the price is < $4.50, demand will exceed supply and a shortage will occur.

14. Graph of example 2

15. Equilibrium Point
The price at the point where the supply and demand graphs intersect is called the equilibrium price. The quantity at the point where the supply and demand graphs intersect is called the equilibrium quantity.

16. To find the equilibrium quantity algebraically, set the supply and the demand functions equal and solve for quantity.

17. Example
Using demand function p = q supply function p = .02q + 3 to find… (a) the equilibrium quantity (b) the equilibrium price (c) the equilibrium point

18. Answer a) 74 – 0.08q = 0.02q + 3 71 = 0.10q 710 = q c) (710, $17.20)
b) p = 0.02q + 3
p = 0.02(710) + 3
p = 17.2

19. Fixed costs (or overhead)
costs that remain constant regardless of the business’s level of activity.
Examples
rental fees
salaries
insurance
rent

20. costs that vary based on the number of units produced or sold.
Variable Costs
costs that vary based on the number of units produced or sold.
Examples
wages
cost of raw materials
taxes

21. Cost Function
Total cost
C(x)= variable cost + fixed cost

22. Example
A company determines that the cost to make each unit is $5 and the fixed cost is $1200. Find the total cost function

23. Answer
C(x) = 5x

24. Marginal Cost is the rate of change of cost C(x) at a production level of x units and is equal to the slope of the cost function at x (in linear functions) It approximates the cost of producing one additional item.

25. Example
The marginal cost to make x capsules of a certain drug is $15 per batch, while it cost $2000 to make 40 batches. Find the cost function, given that it is linear.

26. Answer Use and slope = 15, point (40, $2000) y – 2000 = 15 (x - 40)

27. Revenue, R(x) R(x) = p x p is price per unit x is number of units
money from the sale of x units
R(x) = p x
p is price per unit
x is number of units

28. Profit, P(x)
the difference between the total revenue realized and the total cost incurred: P(x)= R(x) – C(x)

29. Example
If the revenue from the sale of x units of a product is R(x) = 90x and the cost of obtaining x units is (a)determine the profit function. (b)find the profit from selling 300 units.

30. Answer a) P(x) = R(x) – C(x) P(x) = 90x – (50x + 800) P(x) = 40x – 800
b) P(300) = 40 (300) – 800
P(300) = $11,200

31. Review of Profit, Revenue, and Cost
P(x)= R(x) – C(x)
when R(x) > C(x) then P(x)> 0 or a gain.
If R(x) < C(x) then P(x) < 0 or a loss.

32. Finding breakeven quantity
If R(x) = C(x), then P(x) = 0. Where this happens
is the breakeven point
To find the breakeven quantity (x-value of the break even point) either use a or b below.
Set R(x)=C(x) and solve for x.
Set P(x)=0 and solve for x.
Always round the breakeven quantity up to the next whole number.

33. A manufacturer can produce x units for (240 + 0. 18x) dollars
A manufacturer can produce x units for ( x) dollars. They can sell the product for $3.59 per unit.
(a) find the cost function (b) find the revenue function (c) find the profit function (d) the break-even quantity (e) the profit from producing 250 units. (f) number of units for profit of $1000.