Linear Equations & Functions (Extended Review Problems Set 1.

20)

Extended Review Problems Set-1.20

Text: G. D. Prichett & J. C. Saber

Solutions: Muhammad Shamim
1 Winthrop Printing Company has estimated the cost of making new
brochures for one of its major clients as follows: an initial cost of
$2500, $3 per brochure for the first 5000 brochures, $2 per brochure
for the next 10000 brochures, and $1.50 per brochure for any
brochure in excess of 15000.
(a) Determine the cost function and graph it.
(b) What are the total and average costs of 4000 brochures?
(c) Of 14000 brochures?
(d) Of 24000 brochures?
(e) How many brochures were printed if the total charge was
$60000?
(f) If the average charge was $2.75?
Solution: (a) Let x = number of units,
C(x) = cost

Given fixed cost = $2500

When 0  x  5000, then

C(x) = 3x + 2500

When 5001  x  10000, then

C(x) = 2x – [2(5000) – {3(5000) + 2500}]
= 2x – [10000 – 15000 – 2500]
= 2x – [– 7500]
= 2x + 7500
When x > 10000, then
C(x) = 1.50x – [1.50(10000) – {2(10000) + 7500}]
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= 1.50x – [15000 – 20000 – 7500]
= 1.50x – [– 12500]
= 1.50x + 12500
 C( x )  3x  2500 0  x  5000

Req. tax functions are  C( x )  2x  7500 5000  x  10000 (Ans)
C( x )  1.50x  12500 15000  x

Graph:
 C( x )  3x  2500 0  x  5000

We have  C( x )  2x  7500 5000  x  10000
C( x )  1.50x  12500 15000  x

When x = 5000, then C = 3(5000) + 2500 = 17500
Req. point of inflection is (5000, 17500).

When x = 10000, then y = 2(10000) + 7500 = 27500

Req. 2nd point of inflection is (10000, 27500). Now we can get the
following figure:

C-axis

30000
' (10000, 27500)
20000
(5000, 17500)
10000

0 5000 10000 15000 x-axis

 C( x )  3x  2500 0  x  5000

fig: Graph of  C( x )  2x  7500 5000  x  10000
C( x )  1.50x  12500 15000  x


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 Linear Equations & Functions (Extended Review Problems Set 1.20)
(b) When x = 4000, then
Req. total cost [C(x)] = 3(4000) + 2500 = $14500 (Ans)

When x = 4000, then

Total Cost 14500
Req. average cost =   $3.625 (Ans)
unit 4000

(c) When x = 14000, then

Req. total cost [C(x)] = 2(14000) + 7500 = $35500 (Ans)

When x = 14000, then

Total Cost 35500
Req. average cost =   $2.54 (Ans)
unit 14000

(d) When x = 24000, then

Req. total cost [C(X)] = 1.50(24000) + 12500 = $48500 (Ans)

When x = 24000, then

Total Cost 48500
Req. average cost =   $2.02 (Ans)
unit 24000

(e) When C(x) = 60000, then

C(x) = 1.50x + 12500
 60000 = 1.50x + 12500
 1.50x = 47500
 x = 31666.67
 x  31667 suits (Ans)
Total Cost
(f) Average cost =
unit
2x  7500
 2.75 =
x
 2.75x = 2x + 7500
 0.75x = 7500
 x = 10000 brochures. (Ans)
2 Hasbro Toy Company has determined that its fixed cost of
retooling its machines to manufacture a new toy line is $15000. The
company has projected that cost will increase by $2 for each $5
increase in sales.
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 Bowen, Prichett & Saber’s Mathematics Manual
(a) Express revenue, cost, and profit as function of sales volume.
(b) Find the breakeven dollar volume of sales.
(c) What is net profit on sales of $20000?
Solution: Given Fixed cost (c) = $15000
Increment in cost = $2
Increment in sales = $5
(a) We know,
Revenue (R) = s [Ans.]
Cost (C) = ms + c
 Increment in cost 
=  s + 15000
 Increment in sales 
2
=   s + 15000
5
= 0.40s + 15000 [Ans.]

Profit (P) = R – C
= s – (0.40s + 15000)
= s – 0.40s – 15000
= 0.60s – 15000 [Ans.]
(b) For breakeven quantity,
R=C
 s = 0.40s + 15000
 s – 0.40s = 15000
 0.60s = 15000
 s = 25000 units

When s = 25000, then

Breakeven dollar volume of sales (revenue) (R) = s
= $25000 (Ans)
(c) Net Profit (P) = 0.60s – 15000
= 0.60(20000) – 15000
= 12000 – 15000
= – 3000
= $3000 loss [Ans.]
3 Ace Glass Company has found that its total factory cost of making
eight-ounce tumblers is C(q) = 5q + 250. If it produces 10000 eight-
ounce tumblers, find
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 Linear Equations & Functions (Extended Review Problems Set 1.20)
(a) The variable cost.
(b) The total cost.
(c) The variable cost per tumbler.
(d) The average cost per tumbler.
(e) The marginal cost of the 500th tumbler.
(f) The marginal cost of the 5th tumbler.
Solution: Given Total cost, C(q) = 5q + 250

(a) When x = 10000, then

Variable cost = 5q = 5(10000) = 50000 (Ans)
(b) When x = 10000, then
Total cost = 5q + 250
= 5(10000) + 250
= 50000 + 250
= 50250 (Ans)

(c) When x = 10000, variable cost per unit = 50000/10000 = 5 (Ans)

(d) When x = 10000, average cost per unit = 50250/10000 = 5.025 (Ans)

(e) When x = 500th unit, marginal cost = 5 (Ans)

(f) When x = 5th unit, marginal cost = 5 (Ans)

4 Economic analysis of the past 20 years has shown that personal
consumption expenditures increased from $318 billion to $696
billion while disposable income increased from $355 billion to $739
billion.
(a) What is the marginal propensity to consume?
(b) What is the marginal propensity to save?
Solution:
Let A  (disposable income, consumption expenditure)  (355, 318)
B  (disposable income, consumption expenditure)  (739, 696)
(a) We know, Marginal Propensity to Consume is
y 2  y1 696  318 378
MPC =    0.98 (Ans)
x 2  x1 739  355 384

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(b) We also know, Marginal Propensity to Save is

MPS = 1 – MPS = 1 – 0.98 = 0.02 (Ans)

5 As sales change from $27000 to $35000, selling expense changes

from $1600 to $2000. The relationship between sales and selling
expense is known from past history to be linear. Find the equation
describing this relationship.

Solution:
Let A  (sales, selling expense)  (27000, 1600)
B  (sales, selling expense)  (35000, 2000)

Required linear relationships between sales (x) and selling expense (y) is

x  x1 y  y1
=
x1  x 2 y1  y 2
x  27000 y  1600
 =
27000  35000 1600  2000
x  27000 y  1600
 =
 8000  400
x  27000 y  1600
 =
20 1
 20(y – 1600) = 1(x – 2700)

 20y – 32000 = x – 2700

 20y = x + 29300
 y = 0.05x + 1465 [Ans.]

6 On its line of extra-firm king-size mattresses, Mattress Discounters

Company has a linear total cost function and has determined that it
can produce 300 mattresses for a total cost of $130000. The company
can also produce 700 mattresses for a total cost of $210000. The
current sale price of these mattresses is $375 apiece.
(a) Find the revenue, cost, and profit functions using q for
number of units.
(b) Compute profit if 200 mattresses are made and sold.
(c) Compute profit if 900 mattresses are made and sold.
(d) Find the breakeven number of mattresses.
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 Linear Equations & Functions (Extended Review Problems Set 1.20)
(e) What is the breakeven dollar volume of sales?
(f) Draw the breakeven chart. Label the cost, revenue, and fixed
cost lines, and the breakeven point.

Solution: Given Selling price per unit (p) = $375

Let A  (mattresses, cost)  (300, 130000)

B  (mattresses, cost)  (700, 210000)

(a) Revenue (R) = 375x [Ans.]

For cost function,

x  x1 y  y1
=
x1  x 2 y1  y 2
x  300 y  130000
 =
300  700 130000  210000
x  300 y  130000
 =
 400  80000
x  300 y  130000
 =
1 200
 1(y – 130000) = 200(x – 300)
 y – 130000 = 200x – 60000
 y = 200x + 70000

Profit (P) = Revenue – Cost

= 375x – (200x + 70000)
= 375x – 200x – 70000
= 175x – 70000 [Ans.]

(b) When x = 200 units, then

Profit (P) = 175x – 70000
= 175(200) – 70000
= 35000 – 70000
= – $35000
= $35000 loss [Ans.]

(c) When x = 900 units, then

Profit (P) = 175x – 70000
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= 175(900) – 70000
= 157500 – 70000
= $87500 [Ans.]

(d) For breakeven quantity

Revenue (R) = Cost (C)

Or Profit (P) = 0
 175x – 70000 = 0
 175x = 70000
 x = 400 units [Ans.]
(e) When x = 400 units, then
Required breakeven sales volume (R) = 375x
= 375(400)
= $150000 [Ans.]

 Required breakeven point = (400 units, $150000).

(f) Breakeven Chart:

y-axis

Proit

Revenue Line Cost Line

$150000 BEP (25000 units, $250000)

Variable Cost
$75000
Loss
Fixed cost FC Line

0 200 400 600 x-axis

fig: Breakeven Chart

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 Linear Equations & Functions (Extended Review Problems Set 1.20)
7 An ounce of vodka contains 1/4 of an ounce of alcohol and an
ounce of kahlua contains 1/10 of an ounce of alcohol.
(a) Write the equation that results of v ounces of vodka are
mixed with k ounces of kahlua to make a drink containing
five ounces of alcohol.
(b) What is the substitution rate of kahlua per ounce of vodka?

Solution: Let A = amount of alcohol in vodka

B = amount of alcohol in kahlua

Given A’s portion = 1/4x

B’s portion = 1/10y
Total drinks = 5 ounces

(a) We know, A’s portion + B’s portion = Total nutrient

 1/4x + 1/10y = 5 (Ans)

B' s portion 1/ 5 10
(b) Req. substitution rate of B =    2 (Ans)
A' s portion 1/10 5

8 A new microcomputer system has been purchased for $75000. For

tax purposes, the company comptroller is depreciating the system by
a constant amount over the next 15 years to a scrap value of $7500.
(a) Write the equation for the depreciated value V of the system
at time t years.
(b) Interpret the slope and intercept of the line.

Solution:
(a) Given machine cost (C) = $75000
salvage value (S/V or c) = $7500
useful life of the machine (t) = 15 years

Cost  S / V
We know, constant depreciation rate per year (m) =
useful life
75000  7500
=
15
= $4500

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 Bowen, Prichett & Saber’s Mathematics Manual
 Required equation for depreciation is
D = mx + c
 D = 4500x + 7500 [Ans.]

(b) Interpretation: Here the slope (m) = 4500 means that the
machine will depreciates @ $4500 per year, and the intercept (c) =
$7500 means that machine’s rest value is $7500 no matter how many
years the machine is depreciated.

9 The demand function for a certain product shifts from

DD: p = – 0.3x + 45
to
DD: p = – 0.3x + 75
Compute the horizontal and vertical shifts, and write an interpretive
description of these numbers.

Solution: Given DD: p = – 0.3q + 45

DD: p = – 0.3q + 75

(a) We know, vertical shift = difference of price intercepts.

= 75 – 45
= 30, which means that price per unit is $30
higher at every level of quantity demanded.

(b) We know, horizontal shift = difference of quantity intercepts.

Here DD: p = – 0.3q + 45
 0.3q = – p + 45
p  45
 q=
0 .3
 p 45
 q= 
0 .3 0 .3
 q = – 3.33p + 150
and DD: p = – 0.3q + 75
 0.3q = – p + 75
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 Linear Equations & Functions (Extended Review Problems Set 1.20)
p  75
 q=
0 .3
 p 75
 q= 
0 .3 0 .3
 q = – 3.33p + 250

 horizontal shift = difference of quantity intercepts.

= 250 – 150
= 100, which means that quantity demanded is 50
units more at every price level.

10 A department store has overhead costs of $250000 and a linear

total cost function. The controller has set the store’s margin policy
using the example of a $140 markup on an item retailing for $500.
The controller has also estimated that other variable costs on the
same retail item selling for $500 are $15.

(a) Find the revenue, cost, and profit functions using s for sales
volume.
(b) Find the breakeven dollar volume of sales.
(c) Draw the breakeven chart.
(d) What will net profit be if sales are $3000000?

Solution: (a) Given fixed cost (c) = $250000

margin = 140/500 = 0.28
variable cost per unit = 15/500 = 0.03

Revenue(R) = s (Ans)

Cost (C) = total variable cost + fixed cost

= [0.03 + (1 – 0.28)] + 250000
= [0.03 + 0.72] + 250000
= 0.75s + 250000 (Ans)

Profit = R – C
= s – (0.75s + 250000)
= 0.25s – 250000. (Ans)

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 Bowen, Prichett & Saber’s Mathematics Manual
(b) For breakeven quantity,
R=C
 s = 0.75s + 250000
 0.25s = 250000
 s = 1000000 units

When s = 1000000, then

Breakeven dollar of sales volume (revenue) (R) = s
= $1000000 [Ans.]
 Required breakeven point = (1000000 units, $1000000) (Ans)

(c) Breakeven Chart:

y-axis

Profit

Revenue Line Cost Line

BEP (1000000 units, $1000000)

$1000000

Variable Cost
$500000 Loss

Fixed cost FC Line

0 500000 1000000 x-axis

fig: Breakeven Chart

(d) When s = 3000000, then

Net Profit = 0.25s – 250000
= 0.25(3000000) – 250000
= 750000 – 250000
= $500000 (Ans)

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