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MJNV1W03 - Business Mathematics: Class Branding 1A

Here are the steps to solve this problem: a) TR = 2.5Q (Total Revenue per unit is $2.5) TC = 44 + 1.4Q (Fixed cost is $44 and variable cost per unit is $1.4) b) Set TR = TC and solve for Q: 2.5Q = 44 + 1.4Q 1.1Q = 44 Q = 40 c) With tax of $0.70, variable cost increases to $1.4 + $0.7 = $2.1 TC = 44 + 2.1Q Set TR = TC: 2.5Q = 44 + 2.1

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134 views18 pages

MJNV1W03 - Business Mathematics: Class Branding 1A

Here are the steps to solve this problem: a) TR = 2.5Q (Total Revenue per unit is $2.5) TC = 44 + 1.4Q (Fixed cost is $44 and variable cost per unit is $1.4) b) Set TR = TC and solve for Q: 2.5Q = 44 + 1.4Q 1.1Q = 44 Q = 40 c) With tax of $0.70, variable cost increases to $1.4 + $0.7 = $2.1 TC = 44 + 2.1Q Set TR = TC: 2.5Q = 44 + 2.1

Uploaded by

Katarina Kim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MJNV1W03 – Business Mathematics

Class Branding 1A

Session 3
September 20, 2018
Content
Simultaneous Equations
• Solve 2 linear equations (2 unknowns) and
illustrate the solution graphically
• Solve 3 linear equations (3 unknowns)
• Equilibrium price and quantity in the goods
market
• Equilibrium in labor market
• Price controls
• Tax, subsidies and their distribution
• Break-even analysis
Solving 2 Linear Equations + Graph
Example:
1) 2X+3Y = 12.5
2) -X + 2Y = 6
• Solution:
1) 2X + 3Y = 12.5
2) x 2  -2X + 4Y = 12
7Y = 24.5
Y = 24.5/7 = 3.5
Subtitute Y = 3.5 in equation 2)  -X + 2(3.5) = 6
X=7–6=1
 X = 1 and Y = 3.5
Solving 2 Linear Equations + Graph
2 equations with 2
y-axis unknowns may have:
2X+3Y = 12.5 7

6 -X + 2Y = 6 • A unique solution
5 • No solution, example
4 (y=1+x and y-x=2)
3
(1,3.5) • Infinitely many
solutions, example
2 (2.5,2.5) (y=2-x and 2y+2x=4)
1  same/coincide/
identical lines
-4 -3 -2 -1 0 1 2 3 4 5 x-axis
Solving 2 Linear Equations + Graph
2 equations with 2
unknowns may have:
y-x=2
y=1+x
• A unique solution

• No solution, example
(y=1+x and y-x=2)

• Infinitely many solutions,


2y+2x=4 example (y=2-x and
y=2-x
2y+2x=4)  same /
coincide / identical lines
Three Simultaneous Equations with 3 Unknowns

Solve these simultaneous equations

2x  y  z  4 ... (1)
x yz3 ... (2)
2x  2 y  z  12 ... (3)
Hints:
• Select 2 equations and eliminate 1 unknown
• Select another 2 equations and eliminate previous unknown

Study Work example 3.6


Equilibrium Price and Quantity
application
in The Goods Market
(Pe,Qe)
120

100

80
Given:
Qd = 200-2Pd
Price

60
Demand Curve Qs = -20+2Ps
40 Supply Curve

20 Calculate Pe & Qe
0
0 50 100 150 200 250
Quantity

• When price above Pe  excess supply


• When price below Pe  excess demand  shortage
Equilibrium in Labour Market
application
(We,Le)

Given:
Wd = 9-0.6Ld
Ws = 2+0.4Ls
Wage

Calculate We & Le

Labor

• When wage above We  excess supply  unemployment


• When wage below We  excess demand  Labor shortage
Price Controls
application
Price ceilings

– The price is not allowed to go P = 10 + 0.5Q


above the maximum or “ceiling”
price
– Imposed by the government to
protect consumers because the P = 100 – 0.5Q
Pe is considered too high
– Leads “black market” (because
Qd > Qs at price = 40)
– Consumer is willing to pay 70 at
the black market Study Work example 3.9
Price Controls
application
Price floors

– The “price” is not allowed to go


below the minimum or “floor” 4.8
price
– Imposed by the government to
protect producers because the
Pe or We is considered too low
4.8 equilibrium wage
– Minimum wage laws 6  “price” floor (minimum wage)
– Results in labour supplied >
labour demand, causes
unemployment Study Work example 3.10
Taxes, Subsidies, and Their Distribution

Fixed Tax per unit of output

– The supply curve will shift to the left.


– Consumer will pay the new Pe (higher than Pe) and
Producer receives the new Pe minus tax (lower than Pe).

 worked example 3.12 page 121


Effects of Fixed Tax per
Unit of Output
Ps=16+0.5Qs
• Tax $6/unit
Consumer • Because of tax, the
P=58 Ps=10+0.5Qs producer will get
less
55 money/motivation
to produce 
Producer Pd=100-0.5Qd supply function will
P=52 shift to ......

0 50 84 90 100 150 200


Quantity
Effects of Fixed Tax per Unit of Output
Try yourself!!
120

100

80 Qd = 200-2Pd
Price

60
Demand Curve
Qs = -20+2Ps
40 Supply Curve

20

0
0 50 100 150 200 250
Quantity

• Tax $6/unit
• Because of tax, the producer will get less money/motivation
to produce  supply function will shift to ...... Qs = -20+2(Ps-6)
Taxes, Subsidies, and Their Distribution

Subsidies

– The supply curve will shift to the right.


– Consumer will pay the new Pe (lower than Pe) and Producer
receives the new Pe plus subsidy (higher than Pe).

 worked example 3.13 page 123


Taxes, Subsidies, and Their Distribution

Distribution of taxes/subsidies (for linear function)

⁻ % tax/subsidies paid/received by Consumer:


md
md  ms

⁻ % tax/subsidies paid/received by Producer


ms
md  ms
Break-even Analysis

• Break – Even Point:


Total Revenue = Total Cost

• Example :
The total revenue and cost function are given as
follows :
TR = 3Q
TC = 10 + 2Q
Calculate the break-even point and make the graph.
Break-even Analysis
TC TR
TR = 3Q
45
40 Break-even point
35
TC = 10 + 2Q
TC = TR = 30
25

20
15 At break-even, Q = 10
10

5
0 Q
0 2 4 6 8 10 12 14
Problem Example
A firm receives $2.5 per unit for a particular good. The fixed
costs incurred are $44 while each unit production cost $1.4.

a. Write down the equation for total revenue and total


cost
b. Calculate the break even point algebraically
c. If government imposes a tax of $0.70 per unit,
recalculate the break-even point.
d. Show the graphical solutions for part (b) and (c).

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