What is an Equation?

Mathematically, an equation can be defined as a statement that supports the equality of two
expressions, which are connected by the equals sign “=”
What is an Empirical Model?
An empirical model is a mathematical or statistical representation of a system, process, or
phenomenon based on observed data or experience rather than theoretical considerations alone. It
describes the relationship between variables and is derived from experimental data or
observational studies rather than from first principles or fundamental laws.
Key characteristics of empirical models include:
1. Data-driven: They are built from observed data points or experimental results rather than from
theoretical derivations.
2. Predictive: They are used to predict the behavior or outcomes of a system under different
conditions based on patterns observed in the data.
3. Simplification: They often simplify complex systems into manageable mathematical forms
that capture essential relationships between variables.
4. Validation: They are validated against additional data or experiments to ensure their accuracy
and reliability.
What is an Equilibrium Condition?
An equilibrium condition refers to a state in which all forces, influences, or processes acting on a
system are balanced. In short, it is a state of balance. In economics, equilibrium occurs when
supply and demand in a market are balanced. This balance determines the market price and
quantity of goods or services exchanged.
Define Mathematical Model
A mathematical model is a representation of a real-world system, process, or phenomenon using
mathematical concepts and language. It involves translating the essential features of the system
into mathematical equations, formulas, or algorithms that can be analyzed, manipulated, and
used to make predictions or understand the behavior of the system under different conditions.
Key characteristics of mathematical models include:

 Abstraction: Mathematical models simplify complex real-world systems by focusing on the

most relevant aspects and relationships.

 Formalism: They use mathematical language (equations, functions, variables) to express

relationships between variables and parameters.
 Predictive Power: Models allow predictions to be made about the behavior of the system
under conditions that may not have been directly observed.

 Validation: Models are validated by comparing their predictions with experimental data or
real-world observations to ensure their accuracy and reliability.

What is behavioral equation

A behavioral equation typically refers to a mathematical representation or model that describes

the relationship between different variables that influence human behavior or decision-making.
These equations are often used in fields such as psychology, sociology, economics, and
management to predict or explain how individuals or groups behave under various conditions.

In economics, behavioral equations might describe how individuals make decisions about
consumption, savings, or investment based on factors like income, prices, and preferences.

What is constant?

In various contexts, a "constant" refers to a value that does not change. In economics, constants
often refer to fixed parameters or values used in models or analyses. For instance, interest rates or tax
rates can be considered constants when analyzing financial or economic data.

What is parameter.

In general terms, a "parameter" refers to a characteristic or a constant factor that serves to define a
particular system or phenomenon. The precise meaning of "parameter" can vary depending on the context
in which it is used. In economics, interest rates, tax rates, inflation rates, and market demand elasticity are
parameters that affect economic decisions and forecasts.

What is an Economic Model?

An economic model is a simplified framework designed to represent economic processes,

relationships, or behaviors in order to understand and analyze real-world economic phenomena.
These models are essential tools used by economists and policymakers to make predictions, test
theories, and evaluate the potential outcomes of different policy decisions. Here are some key
characteristics and components of economic models:

Assumptions: Economic models are based on assumptions about how individuals, firms,
governments, and other economic agents behave. These assumptions help simplify complex real-
world interactions and focus on specific aspects of economic behavior.
Variables and Relationships: Economic models typically include variables that represent key
economic factors such as prices, quantities, incomes, interest rates, and so on. The relationships
between these variables are defined based on economic theory and empirical evidence.

Equations or Frameworks: Economic models often use mathematical equations, graphs, or

conceptual frameworks to illustrate the relationships between variables. For example, supply and
demand curves in microeconomic models illustrate how prices and quantities are determined in
markets.

Economic models are used for various purposes, including:

Prediction: To forecast the effects of changes in economic variables or policy interventions.

Analysis: To understand the mechanisms underlying economic phenomena and the interactions
between different economic agents.

Policy Evaluation: To assess the potential outcomes and trade-offs of different policy choices
before they are implemented.

Types of Models: There are several types of economic models, including:

Microeconomic Models: Focus on the behavior of individual agents such as consumers, firms,
and markets.

Macroeconomic Models: Study aggregates such as national income, unemployment, inflation,

and economic growth.

Econometric Models: Use statistical techniques to estimate relationships between economic

variables based on empirical data.

Dynamic Stochastic General Equilibrium (DSGE) Models: Capture interactions between

households, firms, and governments over time in a dynamic framework.

Critique and Limitations: Economic models are simplifications of reality and may not fully
capture all factors influencing economic outcomes. Critics often point out assumptions that may
not hold in real-world situations, and the sensitivity of model predictions to changes in these
assumptions.

What is coefficient
A coefficient is the numerical factor that is multiplied by a variable in an algebraic expression or
equation. For example, in the equation 3x+2y=8x coefficients are 3 and 2 for the variables x and
y respectively.

What is a definitional equation?

A definitional equation is an equation that defines a mathematical or scientific concept or term explicitly.
It typically expresses the relationship between different quantities or variables in a way that gives a
precise meaning to the concept being defined.

What is a variable

A variable is a fundamental concept used across mathematics, science, and various fields of
study to represent an unknown or changing quantity. In simpler terms, a variable is a symbol
(often a letter) that can take on different values in different situations or scenarios.
Dependent and Independent Variables: In functions and equations, variables can be categorized
as independent variables (which are inputs) and dependent variables (which are outputs,
depending on the values of the independent variables).
What is a Quadratic Function?

A quadratic function is a type of polynomial function of the form

f(x)=ax2+bx+c

where a, b, and c are constants, and a≠0

What is a Linear Function?

A linear function is a fundamental type of mathematical function that describes a relationship between
two variables x and y in a straight line. The general form of a linear function is:

f(x)=ax + b

where a and b are constants. In this equation

What is Power Function

A power function is a mathematical function of the form:

f(x)=a x b

where a and b are constants, and b is typically a real number. The variable x is the base, and b is
the exponent or power to which the base is raised

What is a Rational Function?

A rational function is a function that can be expressed as the ratio of two polynomial functions:

f(x)=Q(x) / P(x)

Define a Function

a function is a fundamental concept that describes a relationship or correspondence between two

sets of objects, where each element of the first set (called the domain) is associated with exactly
one element of the second set (called the codomain).

What is Economic Function

In economics, an economic function typically refers to a mathematical relationship or formula

that describes the relationship between economic variables. These functions are used to model
and analyze various aspects of economic behavior, decision-making, and outcomes. Here are a
few common types of economic functions

Utility Function: A utility function represents the preferences of an economic agent (such as a consumer
or a firm) over different combinations of goods and services. It quantifies the satisfaction or utility that an
agent derives from consuming different bundles of goods.

Production Function: A production function describes the relationship between inputs (such as labor and
capital) and output (such as goods or services) in the production process of a firm. It shows how much
output can be produced given different combinations of inputs.

Q =f (K, L), where Q is output, K is capital input, and L is labor input.

Cost Function: A cost function shows the relationship between the cost of production and the
level of output. It helps firms determine the cost-minimizing level of production and analyze
how costs change with output.

C=C(Q) C is total cost and Q is output.

Demand Function: A demand function describes the quantity of a good or service that
consumers are willing and able to purchase at different prices, assuming other factors remain
constant.

Qd=D(p), where Qd is quantity demanded and p is price

Supply Function: A supply function shows the quantity of a good or service that producers are
willing and able to sell at different prices, assuming other factors remain constant.

Qs=S(p) where Qs is quantity supplied and p is price.

What is saving
In economics, saving refers to the act of setting aside a portion of one's income or resources for
future use rather than spending it immediately on consumption. It represents the difference
between disposable income (income after taxes and other deductions) and consumption
expenditures.

Autonomous consumption
It refers to the minimum level of consumption expenditure that occurs even when a person has zero
disposable income. In simpler terms, it is the amount of money individuals and households need to spend
on basic necessities regardless of their income level. This concept is rooted in the idea that even when
income drops to zero (due to unemployment or other factors), people still need to spend money on
essential items like food, clothing, and shelter.

What is Utility

In economics, "utility" refers to the satisfaction or pleasure derived by consumers from the
consumption of goods and services. It is a central concept in understanding consumer behavior
and decision-making. Utility Function: Economists often use a utility function to represent how
consumers make choices based on their preferences. A utility function assigns a numerical value
to the satisfaction or utility a consumer derives from consuming a particular combination of
goods and services.
Total Utility: This refers to the total satisfaction a consumer derives from consuming a certain
quantity of a good or service. As consumption increases, total utility generally increases, but at a
decreasing rate (law of diminishing marginal utility).
Marginal Utility: This is the additional satisfaction gained from consuming one more unit of a
good or service. Marginal utility diminishes as consumption increases because each additional
unit provides less additional satisfaction than the previous one.
Demand and Supply
Demand and supply are fundamental concepts in economics that describe the relationship
between the quantity of a good or service that consumers are willing and able to purchase
(demand) and the quantity that producers are willing and able to supply (supply) at various
prices.
Demand:
Demand refers to the quantity of a good or service that consumers are willing and able to
purchase at various prices over a specific period. The law of demand states that, all else being
equal, as the price of a good or service increases, the quantity demanded decreases, and vice
versa. This inverse relationship between price and quantity demanded is typically represented on
a graph as a downward-sloping demand curve.
Factors that influence demand include:
Price of the good or service itself.
Prices of related goods (substitutes and complements).
Income of consumers.
Tastes and preferences.
Expectations about future prices or income.
Changes in any of these factors can shift the entire demand curve. For example, an increase in
consumer income typically shifts the demand curve for normal goods to the right (increased
demand), while a decrease shifts it to the left (decreased demand).
Supply:
Supply refers to the quantity of a good or service that producers are willing and able to offer for
sale at various prices over a specific period. The law of supply states that, all else being equal, as
the price of a good or service increases, the quantity supplied increases, and vice versa. This
positive relationship between price and quantity supplied is typically represented on a graph as
an upward sloping supply curve.
Factors that influence supply include:
Price of the good or service itself.
Prices of inputs (such as labor, raw materials, and capital).
Technology and innovation.
Expectations about future prices or costs.
Number of suppliers in the market.
Equilibrium:
In a competitive market, the equilibrium price and quantity are determined by the intersection of
the demand and supply curves. At this point, the quantity demanded equals the quantity supplied,
resulting in no surplus or shortage of the good or service in the market. This equilibrium price is
where buyers and sellers agree on transactions, balancing the market.

What is Autonomous Saving

Autonomous saving refers to the portion of income that individuals or households choose to save
regardless of their level of disposable income. It represents the baseline or minimum amount of saving
that occurs even when there is no disposable income left after consumption expenditures. It is the amount
of saving that remains constant regardless of changes in income. Even if income decreases (due to factors
like unemployment or reduced earnings), autonomous saving persists at its predetermined level
What is Marginal Utility

Marginal utility refers to the additional satisfaction or benefit (utility) that a consumer derives from
consuming an additional unit of a good or service. It is based on the principle of diminishing marginal
utility, which posits that as a person consumes more units of a good or service, the additional satisfaction
obtained from each additional unit decreases.

What is Marginal Revenue

Marginal revenue is the derivative of the total revenue function with respect to the quantity of output sold.
Mathematically, it can be expressed as:

MR=ΔTR/ΔQ
What is quadratic cost function

A quadratic cost function is a specific type of cost function used in economics and business to
model the relationship between total cost and the quantity produced. It takes the general form of:

C(q)=aq2+bq+c

where:

 C(q) represents the total cost incurred when producing q units of output.
 q is the quantity of output produced.
 a, b, and c are constants that determine the shape and characteristics of the cost function.

What is Linear Cost function

Costs increase directly with production. It takes the form:

C(q)= aq +b

 C(q) represents the total cost incurred when producing q units of output.
 q is the quantity of output produced.
 a and b are constants that determine the slope and intercept of the cost function.

What is Total Revenue

Total revenue (TR) is the overall income that a firm receives from selling a given quantity of
goods or services. In economics, it is calculated by multiplying the price (P) of the product by
the quantity (Q) of units sold:
 Total Revenue (TR)=P×Q

What is Revenue Function

A revenue function describes the total income generated from the sale of a specific quantity of
goods or services. It is typically expressed as a mathematical function that relates the quantity
sold (often denoted as x) to the revenue earned (denoted as R(x).

In mathematical terms, if the price per unit of the product or service is p, then the revenue
function R(x)

R(x)=p⋅x

where:

 x represents the quantity of goods or services sold,

 p represents the price per unit.

Cubic Cost Function

the cubic cost function is based on three implicit assumptions:

1. When Q = 0, total cost is equal to total fixed cost.

2. Total fixed cost remains constant at levels of output up to capacity

3. With an output expansion there is an initial stage of increasing return to the variable
factor; thereafter a point is reached (the inflection point) at which there is constant return to
the variable factor; finally, there is diminishing return to the variable factor.

What is MPC

The Marginal Propensity to Consume (MPC) measures the proportion of an additional unit of
income that a consumer spends on consumption rather than saving. In simpler terms, it reflects
how much of each extra dollar of income people are likely to spend rather than save. It is a key
concept in economics used to analyze the relationship between changes in income and changes in
consumption.

MPC=ΔC/ΔY

where:

 ΔC is the change in consumption,

 ΔY is the change in income.
What is MPS: The Marginal Propensity to Consume (MPC) is the ratio of the change in
consumption (ΔC) to the change in disposable income (ΔYd ). Mathematically, it is expressed as:

MPC=ΔC/ΔYd

where:

 ΔC is the change in consumption,

 ΔYd is the change in disposable income.

Rate of commodity substitution

It is the rate at which the consumer is willing to give up commodity ‘X’ for one more unit of
commodity ‘Y’. He tries to maintain the same level of satisfaction. In simple words, it is the same as
the utility gained for good Y as the utility lost for good X. One can calculate the marginal rate of
substitution as

M.R.S. Y X = Δ X / Δ Y, on any point on the indifference curve.

What will happen when MR is greater than AR

It suggests that the revenue from selling additional units is contributing positively to the overall
average revenue. This typically happens in a scenario where the firm is selling its goods or
services at a price where MR is greater than AR.

In essence, when MR is greater than AR, it indicates a positive contribution to average

revenue from selling additional units. This scenario can influence pricing and output decisions,
especially in the context of profit maximization and market competitiveness.

What will happen when AR is greater than MR

Average revenue (AR) is the revenue generated per unit of output sold. In a competitive market
where firms are price takers, AR equals the market price. If AR is greater than MR, it suggests
that the firm is selling additional units at a price (AR) that is higher than the revenue generated
from the last unit sold (MR). This situation implies that the firm could potentially increase its total
revenue by selling more units at the current market price. However, the increase in total revenue per
additional unit sold is less than the market price (AR). In other words, the firm is not maximizing its
revenue from each additional unit sold. In summary, when AR is greater than MR, it suggests that
the firm could increase total revenue by selling more units at the current market price, but it's not
maximizing profit because MR is less than AR.

How the impacts of taxation can be analyses by using elasticity

Price elasticity is a representation of how buyer activity changes in response to movements in

the price of a good or service. In situations where the buyer is likely to continue purchasing a
good or service regardless of a price change, the demand is said to be inelastic. When the price
of the good or service profoundly impacts the level of demand, the demand is considered highly
elastic. he level of consumption across the economy remains steady with price changes. Elastic
products are those whose demand is significantly affected by price. This group of products
includes luxury goods, houses, and clothing.

The formula for determining the consumer's tax burden, with "E" representing elasticity, is as
follows:

 E (supply) / (E (demand)) + E (supply)

Tax incidence is a measure of the tax burden between producers and consumers or between
different groups in an economy. Elasticity, which measure the relationship between prices
and the demand for goods, is an element that helps determine tax incidence. Inelastic goods
are those that consumers will continue to buy, even as the price goes up—for example,
gasoline and prescription drugs. By contrast, with elastic goods, like a new home, car, or
fashion, consumer demand will drop as prices rise. The tax burden shifts with inelastic vs.
elastic goods.

Price Ceiling: A price ceiling is a government-imposed maximum price that can be charged for a
particular good or service. It is typically set below the market equilibrium price with the intention of
making the product more affordable for consumers. Price ceilings are often used to prevent price
gouging during emergencies, to make essential goods more accessible, or to address concerns about
inflation.

What is elasticity of supply.

The price elasticity of supply is a measure of the degree of responsiveness of the
quantity supplied to the change in the price of a given commodity. It is an important
parameter in determining how the supply of a particular product is affected by
fluctuations in its market price.

Price Elasticity of Supply Formula

Types of Elasticity of Supply

1. Perfectly Elastic Supply: A commodity becomes perfectly elastic when its elasticity of
supply is infinite. This means that even for a slight increase in price, the supply becomes
infinite. For a perfectly elastic supply, the percentage change in the price is zero for any
change in the quantity supplied.
2. More than Unit Elastic Supply: When the percentage change in the supply is greater
than the percentage change in price, then the commodity has the price elasticity of supply
greater than 1.

3. Unit Elastic Supply: A product is said to have a unit elastic supply when the change in
its quantity supplied is proportionate or equal to the change in its price. The elasticity of
supply, in this case, is equal to 1.
4. Less than Unit Elastic Supply: When the change in the supply of a commodity is lesser
as compared to the change in its price, we can say that it has a relatively less elastic
supply. In such a case, the price elasticity of supply is less than 1.
5. Perfectly Inelastic Supply: Product supply is said to be perfectly inelastic when the
percentage change in the quantity supplied is zero irrespective of the change in its price.
This type of price elasticity of supply applies to exclusive items. For example, a designer
gown styled by a famous personality.

Types of Goods

Normal good means an increase in income causes an increase in demand. It has a positive
income elasticity of demand YED. Note a normal good can be income elastic or income
inelastic.

Luxury good means an increase in income causes a bigger percentage increase in demand. It
means that the income elasticity of demand is greater than one. For example, HD TV’s would be
a luxury good. When income rises, people spend a higher percentage of their income on the
luxury good.
Inferior good means an increase in income causes a fall in demand. It is a good with a negative
income elasticity of demand.

Necessity good – something needed for basic human existence, e.g. food, water, housing,
electricity

Comfort good – a good which isn’t a necessity, but gives enjoyment/utility, e.g. subscription to
Netflix or take-away food. A comfort good may become a luxury.

Complementary Goods. Goods which are used together, e.g. TV and DVD player

Substitute goods. Goods which are alternatives, e.g. Pepsi and Coca-Cola.

Optimization

Optimization in economics refers to the process of maximizing or minimizing an objective

function subject to a set of constraints. This mathematical approach is fundamental in economic
theory and practice, helping to analyze various decision-making processes, resource allocation,
production processes, consumer behavior, and more

Objective Function: This represents what is to be maximized or minimized, such as profit,

utility, welfare, or cost.

Constraints: These are limitations or restrictions that must be adhered to during optimization.
Constraints can be related to resources, technology, budget, or other factors that influence
decision-making.

Types of Optimization:

Maximization: Finding the highest possible value of the objective function (e.g., maximizing
profit).

Minimization: Finding the lowest possible value of the objective function (e.g., minimizing
cost).

Economic Optimization such as Utility Maximization, Cost Minimization, Revenue

maximization

Constrained Optimization: Substitution Method

Substitution method to solve constrained optimisation problem is used when constraint
equation is simple and not too complex. For example, substitution method to maximise or
minimise the objective function is used when it is subject to only one constraint equation of
a very simple nature.
In this method, we solve the constraint equation for one of the decision variables and
substitute that variable in the objective function that is to be maximised or minimised. In
this way this method converts the constrained optimisation problem into one of
unconstrained optimisation problems of maximisation or minimisation .

(Add a solved problem along with this)

Lagrange Multiplier Technique

The substitution method for solving constrained optimisation problem cannot be used easily
when the constraint equation is very complex and therefore cannot be solved for one of the
decision variable. In such cases of constrained optimisation we employ the Lagrangian
Multiplier technique. In this Lagrangian technique of solving constrained optimisation
problem, a combined equation called Lagrangian function is formed which incorporates both
the original objective function and constraint equation.

This Lagrangian function is formed in a way which ensures that when it is maximised or
minimised, the original given objective function is also maximised or minimised and at the
same time it fulfills all the constraint requirements. In creating this Lagrangian function, an
artificial variable λ (Greek letter Lamda) is used and it is multiplied by the given constraint
function having been set equal to zero. λ is known as Lagrangian multiplier.

The CES Production Function

Arrow, Chenery, Minhas and Solow in their new famous paper of 1961 developed the
Constant Elasticity of Substitution (CES) function. This function consists of three variables
Q, С and L, and three parameters A, and.

It is expressed as

where Q is the total output, С is capital, and L is

labour. A is the efficiency parameter indicating the state of technology and organisational
aspects of production.

It shows that with technological and/or organisational changes, the efficiency parameter
leads to a shift in the production function, α (alpha) is the distribution parameter or capital
intensity factor coefficient concerned with the relative factor shares in the total output, and θ
(theta) is the substitution parameter which determines the elasticity of substitution.

Properties
 1. The CES function is homogenous of degree one. If we increase the inputs С and L in
the CES function by n-fold, output Q will also increase by n-fold.
2. In the CES production function, the average and marginal products in the variables С
and L are homogeneous of degree zero like all linearly homogeneous production
functions.
3. The parameter (theta) in the CES production function determines the elasticity of
substitution. In this function, the elasticity of substitution

Merits of C.E.S. Production Function

1. CES function is more general

2. CES function covers all types of returns.
3. CES function takes account of a number of parameters.
4. CES function takes account of raw materials among its inputs
5. CES function is very easy to estimate

Limitations

1. The CES production function considers only two inputs

2. The distribution parameter or capital intensity factor coefficient, α is not
dimensionless.
3. It suffers from the drawback that elasticity of substitution between any part of inputs
is the same which does not appear to be realistic.

Despite these limitations, the CES production function is useful in its application to prove
Euler’s theorem, to exhibit constant returns to scale, to show that average and marginal
products of С and L are homogeneous of degree zero, and to determine the elasticity of
substitution.
What is the Law of Returns to Scale?

When the output changes in the same proportion due to the changes in the inputs of the
production process, it is referred to as the law of returns to scale. The law of returns to scale is
only applied in the case of the long run. Because in the long run production process, no factor is
fixed. The law of returns to scale generally shows the variation in productivity and efficiency.
The lesser the amount of input used by a producer, which produces more output, the better the
productivity and efficiency.

Types of returns to scale: Constant, Increasing, Decreasing or diminishing returns to scale

Increasing Returns to Scale

Increasing returns to scale happens when the change in the inputs of production with a small
amount leads to the changes and output of production at a higher amount. Suppose the farm has
changed its input level by two times, but the output level of the farm changed four times. Under
increasing returns to scale, when the input increases by 20%, the output increases by 40%.

Constant Returns to Scale

Constant returns to scale mean changes in the input level will lead to changes in the input level
with the same proportion. Suppose the firm has changed its input level by two times, then the
output level of that firm will also be changed by 2 times. Constant returns to scale lead to,
suppose, a change in input increased by 20% the output will also be changed by 20%

Diminishing Returns to Scale

Diminishing returns to scale means an increase in the input will lead to a decrease in the output
of the production process. Suppose the firm has made an increase in the input level five times,
but this will lead to a decrease in the output level by two times. Here the firm's efficiency starts
to decrease, which leads to a decrease in the output level.

The General Form of Cobb and Douglas Production Function

The Cobb-Douglas production function is a widely used economic model that describes the
relationship between inputs (typically capital and labor) and output in production. It's named
after economists Paul Douglas and Charles Cobb, who introduced it in the 1920s.

The general form of the Cobb-Douglas production function is:

 Y represents the total output (or production),

 K is the amount of capital input,
 L is the amount of labor input,
 A is a parameter representing total factor productivity (which captures the efficiency of
combining inputs),
 α is the output elasticity of capital, and (1−α) is the output elasticity of labor

Describe the Factor Intensity of Cobb Douglas Production Function

In the context of the Cobb-Douglas production function, the factor intensity refers to the degree
to which inputs (typically capital and labor) are used in production relative to each other. This
concept is closely related to the output elasticities of capital α and labor (1−α) in the
production function.

Factor Intensity Relation: The factor intensity can be interpreted based on these elasticities:

 If α> 1−α capital (K) is more intensively used relative to labor (L).
 If α<1−α labor (L) is more intensively used relative to capital (K)

Define Linear Programming (LP)

In Mathematics, linear programming is a method of optimizing operations with some
constraints. The main objective of linear programming is to maximize or minimize the numerical
value. It consists of linear functions which are subjected to the constraints in the form of linear
equations or in the form of inequalities. Linear programming is considered an important
technique that is used to find the optimum resource utilization. The term “linear programming”
consists of two words as linear and programming. The word “linear” defines the relationship
between multiple variables with degree one. The word “programming” defines the process of
selecting the best solution from various alternatives. Linear Programming is widely used in
Mathematics and some other fields such as economics, business, telecommunication, and
manufacturing fields

Decision Variable and their relationships under LP

The decision (Activity) variable refer to candidates (Products, services, projects etc.), that are
competing with one another for sharing the given limited resources. These variables are usually
inter- related terms of utilization of resources and need simultaneous solutions. The relationship
among these variables should be linear.

Constraints under LP

Technical Constraints: Based on state of technology and availability of factors of productions.

Number of technical constraints will be same as number of factors of production.
Example: 4X + 3Y<800, 2X + 3Y <450. LHS shows factor inputs require to produce one unit of
output X and Y. RHS gives resources at the disposal of the firm.

Non- Negativity Constraints: Variables must assume non- negative values. That is all variables
must take values equal to or greater than zero. Therefore, the problem should not result in
negative values for the variables.

Linearity

All relationships (objective functions) must exhibits linearity, that is relationship among decision
variables must be directly proportional.

Feasible region
The possible area where a producer can operate is called feasible region. The area that satisfy all
the technical constraints.
(The image is just for reference to understand the feasible region colored in Green)