Module 2

Break – Even Point Analysis

MATH 4: APPLIED MATHEMATICS

Mary Jane Alivio - Bundac

Faculty Member, Mathematics Department
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Lesson 2.2. Break-Even Point Analysis: Non-Linear Function

To increase or maximize the profit, it is a common belief that an increase in production

would also 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.

In this situation, it only implies that the management should not expect selling the
product up to the last piece with the same price as its original price at the start of the business
due to some possible reasons:
1. the product is seasonal;
2. the product is soon to expire;
3. the product is not in demand;
4. the product has change its mode; or
5. the market is saturated with the product of the same kind.

So, if any of the mentioned reason may happen, one of the common remedies that the
management should apply is to offer the product for Sale. Here, the three major components in
determining the break-even points or BEP for the non-linear functions such as the Total Revenue
(R(x)), Total Cost (C(x)), and the Total Profit (P(X)) must now express in a quadratic form.

Now the quadratic form ax2 + bx + c, where a, b, and c are constants and the number of
unit is represented by a variable x.

The figure below shows the graph of Non-Linear Functions:

Sales

Loss Gain Loss

BEQ1 BEQ2
No. of products produce and sold

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This means that there could be two break-even quantities and two break-even points
which are denoted by (BEQ1 and BEQ2) and (BEP1 and BEP2) respectively in the non-linear
functions.

Hence, in order for the company to enjoy gain they should produce and sold products
greater than the break-even quantity one (BEQ1) but fewer than the break-even quantity two
(BEQ2) at the same time, otherwise they will suffer loss.

Example:

A company produces and sells a particular product. Unit selling price is PhP130.00
and unit variable cost is Php80.00. The fixed cost is Php4,000.00. Due to stiff
competition, the sale of the product began to decline. The unit selling price decreased
by 10% of the units sold. The variable cost and fixed cost remain the same.

a. Represent the new unit selling price.

b. Determine the R(x), C(x), and P(x) functions.
c. Find the BEP quantity and revenue.
d. What is the profit at a sales volume of 550 units?

Solution:

Let x = quantity of units sold

Given:
V = PhP80
p= PhP130
FC = PhP4,000

a. New unit selling price: (130 – 0.10x) (at 10% discount per unit)

b. Revenue Function:
R(x) = (130 – 0.10x)x
R(x) = 130x – 0.10x2

Cost Function:
C(x) = 80x + 4,000

Profit Function:
P(x) = R(x) – C(x)
= (130x – 0.10x2) – (80x + 4,000)
= 130x – 0.10x2 - 80x – 4,000
P(x) = 50x – 0.10x2 – 4,000
P(x) = - 0.10x2 + 50x – 4,00

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c. At Break-Even Point (BEP), P(x) = 0

P(x) = - 0.10x2 + 50x – 4,000

0 = - 0.10x2 + 50x – 4,000

or - 0.10x2 + 50x – 4,000 = 0

x2 - 500x + 40,000 = 0 multiplied by -10

(x – 100) (x – 400) = 0 Factoring

x – 100 = 0; x – 400 = 0 Equate both factors to 0

x = 100 ; x = 400 solve for x

Solving for the BEP revenue:

at x = 100 at x = 400
R(x) = 130x – 0.10x2 R(x) = 130x – 0.10x2

= 130(100) – 0.10(100)2 = 130(400) - .10(400)2

R(x) = Php12,000 R(x)=Php36,000

Therefore, there are two break-even points, (100, 12,000) and (400, 36,000). This
means that the company will incur a loss if it sells less than 100 units or more than 400
units.

Check:
P(x) = - 0.10x2 + 50x – 4,000
at x = 99 units at x = 402

P(99) = - 0.10(99)2 + 50(99) – 4,000 P(402) = - 0.10(402)2 + 50(402) - 4000

= - Php30.10 (loss) = - Php60.40 (loss)

d. P(x) = - 0.10x2 + 50x – 4,000

if x = 550 units

P(550) = - 0.10(550)2 + 50(550) – 4,000

= - Php6,750 (loss)

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Exercises:

Solve the following problems completely:

1. A factory sells a particular product at a price (200 – 0.10x) pesos per unit. The variable
cost per unit is Php90.00. Fixed cost of the factory is Php10,000.
a. Write the R(x), C(x), and P(x) functions.
b. Find the units to produce to break-even.
c. Find the break-even revenue.
d. Interpret the meaning of two break-even points.
e. Find the profit at a sale of 500 units.
f. Will there be a profit if there are remaining 90 units? What remedy can you
recommend?

2. The ADLEX Corporation offers a bargain sale of a particular item at (180 – 0.20x)
pesos per unit. Variable cost per unit is Php100, while the fixed cost is Php5,000.
a. Find the break-even quantity and revenue.
b. Find the profit at a sale of 100 units.

3. A manager at first decided to sell the company’s products at Php100.00 per unit. After
sometime, he decided to offer a discount at 2% of the volume of sale per unit. The
variable cost was Php75.00 per unit and fixed cost was Php5,000.
a. Find the profit or loss if 1,200 units are sold.
b. Find the break-even quantities and revenues.
c. If there are only 500 units left, will the company still gain profit at the above
discount?

Seatwork:

Answer the problems comprehensively.

1. MAB trading is selling a particular product at Php10.00. The profit is related to the
selling price: Php19,500x – 1,625x2, where x is the selling price. If the selling price is
decreased the profit will increase.
a. At the present selling price, how much profit is being made?
b. If the selling price is reduced to Php8.00 will the profit be decreased or increased?

2. The unit selling price of a product is (25 – 0.01x) and the unit variable cost is given as
(18 + 0.01x). Fixed cost is Php500 per day.
a. Formulate the R(x), C(x), and P(x) function.
b. Determine the production level to break-even.
c. Explain the meaning of having two break-even points.
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Assignment:

Solve the following problems involving non-linear functions.

1. The company sells their product at Php200.00 per unit, but due to very stiff
competition, the sales manager decided to reduce the selling price to 2% of its sales
volume per unit. The unit variable cost was Php150.00 and fixed cost was Php10,000.
Find:

a. The break-even quantity and revenue.

b. The profit (or loss) at x = 1,200 units.

2. Given: Unit selling price = (400 – 0.03x) pesos

Unit variable cost = Php380
Fixed cost Php20,000

a. Find the BEP quantity and revenue.

b. Find the profit (or loss) at x = 100 units.
c. In case of loss, what option does the manager have?

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Lesson 2.3 Rules for Derivatives

As mentioned earlier in this module, price affects the break-even point and profit.
Therefore, it is necessary to make a thorough investigation on “how much is the possible
maximum profit” that could be generated before lowering the price.

Since a non-linear function is calculus based, the maximum or minimum point is found
by the use of derivatives. Thus, it is important to study the rules of derivatives.

Terminologies:
Slope – is a ratio between the change of the output (y) and the change of the input (x).
Tangent Line – is a line that touches the curve at only one point. A line that always
goes through and follows the direction of the curve.
Normal Line – is a line perpendicular to the tangent line.
Derivative - is a slope of a line tangent to the curve.

Other terms used with the same meaning as derivative:

• Rate of Change
• Change of Speed (Velocity)
• Change of Velocity (Accelaration)
• Marginal Profit
• Marginal Revenue
• Marginal Cost

The following are the notations of functions and their corresponding derivatives:

Functions First Derivatives Second Derivatives

y dy/dx ; y ‘ d2y/dx2 ; y “
f(x) f ‘(x) f “(x)
R(x) R’(x) R”(x)
C(x) C’(x) C”(x)
P(x) P’(x) P”(x)

A variable other than x is often used as the independent variable. For instant, if y = f(t)
gives population growth as a function of time t, then the derivative of y with respect to t could
be written
f ‘(t), dy
dt

Other variables also may be used to name the function, as in g(x) or h(x).
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Now we will use the definition

f ‘(x) = lim h → 0 f(x + h) – f(x)

h

to develop some rules for finding derivatives more easily than by the four-step process given
the above formula.

The first rule tells how to find the derivative of a constant function defined by f(x) = k,
where k is a constant real number. Since f(x + h) is also k, by definition f ‘(x) is

f ‘(x) = lim h → 0 f(x + h) – f(x)

h

= lim h → 0 k – k
h

= lim h → 0 0
h

= lim h → 0 0

= 0,

establishing the following rule.

Basic Rules of Derivatives:

I. The Constant Rule

If f(x) = k, where k is any real number, then

f ‘ (x) = 0.

(The derivative of a constant is 0.)

Example: Find the derivative.

1. If f(x) = 9, then f ‘(x) = 0
2. If f(x) = -100, then f ‘(x) = 0
3. If f(x) = 32, then f ‘(x) = 0

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II. The Power Rule

If f(x) = xn, for any real number n, then

f ‘(x) = nxn-1,

(The derivative of f(x) = xn is found by multiplying by the exponent n and decreasing the
exponent on x by 1.)

Example: Find the derivative.

1. y = x5
dy/dx = 5x5-1
dy/dt = 5x4

2. y = t it implies that y = t1
dy/dt = 1t1-1
= t0 (by def’n. x0 = 1)
dy/dt = 1

3. f(x) = 1/x4 means that f(x) = x-4 (by def’n. x-n = 1/xn)
f ‘(x) = - 4x-4-1
f ‘(x) = - 4x-5 or – 4
x5

4. f(x) = √𝑥 is the same as f(x) = x1/2

f ‘(x) = ½ x1/2 – 1
= 1/2x-1/2
f ‘(x) = 1 or 1
2x 1/2 2√𝒙

III. The Constant Times a Function

Let k be a real number. If f(x) exists, then

f(x) = kxn
f ‘(x) = knxn-1.

(The derivative of a constant times a function is the constant times the derivative of the
function.)

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Example: Find the derivative.

1. y = 6x4
dy/dx = 6(4)x4-1
dy/dx = 24x3

2. y = - 5x-5
dy/dx = 25x-6 or
dy/dx = 25
x6

3. f(x) = ¾ x8
f ‘(x) = 6x7

4. f(x) = 5/x or f(x) = 5x-1

f ‘(x) = - 5x-2 or
f ‘(x) = - 5
x2

IV. The Sum or Difference Rule

If f(x) = u(x) ± v(x), and if u’(x) and v’(x) exist, then

f ’(x) = u’(x) ± v’(x).

(The derivative of a sum or difference of functions is the sum or difference of the

derivatives.)

Example: Find the derivative.

1. y = 6x5 + 4x4 – 3x3
dy/dx = 30x4 + 16x3 – 9x2

2. f(x) = 12x2 – ½ √𝑥 – 4 + 5x + 8
x
‘
f (x) = 24x – ¼ x + 4x-2 + 5 or
-1/2

f ‘(x) = 24x – 1 + 4 + 5 or
4x1/2 x2

3. f(x) = (2x2 + 3x)2 rewrite f(x) in its expanded form

f(x) = 4x4 + 12x3 + 9x2
f ‘(x) = 16x3 +36x2 + 18x

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V. The Product Rule

If f(x) = u(x) . v(x), and if u ’(x) and v ’(x) both exist, then

f ‘(x) = u(x) . v ‘(x) + v(x) . u ‘(x).

(The derivative of a product of two functions is the first function times the derivative of
the second, plus the second function times the derivative of the first.)

Example: Find the derivative.

1. y = (x2 + 2x) (3x2 + x)

Solution:
Let u(x) = x2 + 2x u ‘(x) = 2x + 2
v(x) = 3x2 + x v ‘(x) = 6x + 1

dy/dx = (x2 + 2x) (6x + 1) + (3x2 + x) (2x + 2)

= 6x3 +13x2 + 2x + 6x3 +8x2 + 2x (product of binomials)
3 2
= 12x + 21x + 4x (combined similar terms)
2
dy/dx = x(12x + 21x + 4)

2. f(x) = 4x3(x3 + x2)

Solution:
Let u(x) = 4x3 u ‘(x) = 12x2
v(x) = x3 + x2 v ‘(x) = 3x2 + 2x

f ‘(x) = 4x3(3x2 + 2x) + (x3 + x2) (12x2)

= 12x5 + 8x4 + 12x5 + 12x4
= 24x5 + 20x4
‘
f (x) = 4x4(6x + 5)

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VI. The Quotient Rule

If f(x) = u(x) , and if u ’(x) and v ’(x) both exist, then
v(x)

f ‘(x) = v (x) . u ‘(x) - u(x) . v ‘(x)

[v(x)]2

(The derivative of a quotient of two functions is the denominator times the

derivative of the numerator minus the numerator times the derivative of the
denominator all divided by the square of the denominator.)

Example: Find the derivative.

1. y = 5x2 – x
x2 + x

Solution:
Let u(x) = 5x2 – x u ‘(x) = 10x – 1
v(x) = x2 + x v ‘(x) = 2x + 1

dy/dx = (x2 + x) (10x – 1) – (5x2 – x) (2x + 1)

[x2 + x]2

= (10x3 + 9x2 – x) – (10x3 + 3x2 – x) (product of binomials)

[x2 + x]2

= 10x3 + 9x2 – x - 10x3 - 3x2 + x (removed grouping symbol)

[x2 + x]2

dy/dx = (6x2) / [x2 + x]2

2. f(x) = x3 + 2x2
2x3 + x2

Solution:
Let u(x) = x3 + 2x2 u ‘(x) = 3x2 + 4x
v(x) = 2x3 + x2 v ‘(x) = 6x2 + 2x

f ‘(x) = (2x3 + x2) (3x2 + 4x) – (x3 + 2x2) (6x2 + 2x)

[2x3 + x2]2

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f ‘(x) = (6x5 + 11x4 + 4x3) – (6x5 + 14x4 + 4x3)

[2x3 + x2]2

= 6x5 + 11x4 + 4x3 – 6x5 - 14x4 - 4x3)

[2x3 + x2]2

f ‘(x) = (- 3x4) / [2x3 + x2]2

Exercises:

Find the derivative of each of the function defined as follows.

1. y = 3x3 – x2 - x
12

2. y = 6x4 + 4x-5

3. f(x) = - 100√𝑥 – 11x2/3

𝑥2
4. f(x) = x4 – 5x3 + +5
9

5. f(x) = - 2x3/2 + 8x-5

6. f(x) = (3x2 + 2) (2x – 1)

7. f(x) = -12x3(2x3 + 3x2)

8. f(x) = (x + 1) (√𝑥 + 2)

9. h(t) = 5 – 3t
4+t

10. g(x) = (2x2 + 3x)

(3x2 – 4x)

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Assignment:

Solve the problems as application of differentiation.

1. Average Profit The total profit (in hundreds of pesos) from selling x self-help
books is
P(x) = 5x – 6 ,
2x + 2

Find the average profit from each sales level.

a. 8 books b. 15 books c. x books
d. Find the marginal average profit function?
e. Is this a reasonable function for profit? Why or why not?

2. Employee Training A company that manufactures bicycle has determined that

a new employee can assemble M(d) bicycles per day after d days of on-the-job
training, where
M(d) = 100d2__ ,
3d2 + 10

a. Find the rate of change function for the number of bicycles assembled with
respect to time.
b. Find and interpret M ‘(2) and M ‘(5).

3. Muscle Reaction When a certain drug is injected into a muscle, the muscle
responds by contracting. The amount of contraction, s (in millimeters) is
released to the concentration of the drug, x (in millimeters) by

𝑥
s(x) = ,
𝑚+𝑛𝑥

where m and n are constants.

a. Find s ‘(x).
b. Find the rate of contraction when the concentration of the drug is 50 ml,
m = 10, and n = 3.

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4. Bacteria Population Assume that the total number (in millions) of bacteria
present in a culture at a certain time t (in hours) is given by

N(t) = (t – 10)2 (2t) + 50.

a. Find N ‘(t).

Find the rate at which the population of bacteria is changing at the following
times.
b. 8 hours
c. 11 hours
d. The answer in part b is negative, and the answer in part c is positive. What
does this mean in terms of the population of bacteria?

5. Vehicle Waiting The average number of vehicles waiting in a line to enter a

parking ramp can be modelled by the function

𝑥2
f(x) = ,
2(1−𝑥)

where x is a quantity between 0 and 1 known as the traffic intensity. Find the
rate of change of the number of vehicles in line with respect to the traffic
intensity for the following values of intensity.
a. x = 0.1 b. x = 0.6

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