School of Business & Economics North South University

Why apply mathematics in business and economics?

Two reasons:
1) Mathematics is more concise and precise. E.g. We can write ‘𝑥 is equal to 𝑦’1 in English, but
using Mathematics we can write ‘𝑥 = 𝑦 ′ which is (made) more concise (using symbols); we can
write the profit of a business is very high, but using Mathematics we can write profit = $100, 000
(which is more precise).
2) We can use mathematical concepts and ideas to analyze business and economic situations.
E.g. we can use the concept of subtraction ( − ) to calculate the profit of a business, that is
profit = revenue – cost
And we can use the concept of addition ( + ) to calculate the total cost of business, that is
total cost = fixed cost + variable cost
The first mathematical concept or idea we are going to cover is Set Theory.

What is a Set?
A set is a collection of distinct elements or objects (numbers, letters, names, etc.)
A set has two important properties:
1) No repetition of elements. E.g. we cannot write, 𝐴 = { 1, 1, 2, 2 }, but we can write 𝐴 = { 1, 2 }
2) The sequence (order) does not matter. E.g. { 1, 2 } = { 2, 1 }

There are two ways of writing a set:

1) Enumeration: listing the elements. E.g. The set, 𝑨 = { 1, 2 } is written using enumeration
2) Description: describing the elements (not listing). E.g. let’s say we want to collect all the
positive integers (whole numbers) in a set. It is not possible to enumerate all the integers and hence
we can use the method of description, 𝐵 = { 𝑥 | 𝑥 𝑎 𝑝𝑜𝑠𝑡𝑖𝑣𝑒 𝑖𝑛𝑡𝑒𝑔𝑒𝑟 }. Note: 𝐵 contains all the
positive integers. E.g. D = { 𝑧 | 𝑧 < 0 } is a set that contains all negative numbers (both integers
and fractions).
Remember: in mathematics we use symbols to make statements more concise. Therefore, instead
of writing ‘1 is an element of set 𝐴’ we can write ‘ 1 ∈ 𝐴 ‘ . Therefore, we can also write, 10 ∈ 𝐵
(since 10 is a positive integer and 𝐵 contains all positive integers) and −0.5 , −100 ∈ 𝐵 (since
both −0.5 𝑎𝑛𝑑 − 100 are negative numbers).

1
Yellow highlights are used when a statement has been translated from english to mathamatics.
School of Business & Economics North South University

Relationship between Sets:

If we have more than one sets, then there are certain relations that might occur.
E.g. 𝐴 = { 1, 2 } and 𝐸 = { 1, 2, 3, 4 }. In this case, A is a subset of E because all the elements of
A are in C. Symbolically, 𝐴 ⊂ 𝐸. However, E is not a subset of A since some elements of C are
not in A, that is 𝐸 ⊄ 𝐴
The null set, { } , which does not contain any element is a subset of all sets.
Sometimes we might be interested to know how many subsets can be generated from a given set.
The answer is given by the formula 2𝑛 where 𝑛 represents the number of elements. Set A has two
elements, therefore, 22 = 4 subsets can be generated from A. They are: { 1 }, { 1, 2 }, { 2 }, { }
Business Example:
A consumer can consume three products Apple: A, Banana: B, Orange: O. Let, 𝐶 = { 𝐴, 𝐵, 𝑂 }.
Find all the subsets of 𝐶. What do the subsets represent? What does the null set represent here?
𝐶1 = { 𝐴 }, 𝐶2 = { 𝐴, 𝐵 }, 𝐶3 = { 𝐴, 𝐵, 𝑂 }, 𝐶4 = { 𝐵, 𝑂 },
𝐶5 = { 𝐵 }, 𝐶6 = { 𝑂 }, 𝐶7 = { 𝐴, 𝑂 }, 𝐶8 = { }
The subsets represents all the options that the consumer has when consuming the given products,
e.g., the consumer may consume any one fruit 𝐶1 , 𝐶5 , 𝐶6 , any two fruits 𝐶2 , 𝐶4 , 𝐶7, etc.
Null set represents the situation where the consumer consumes none of the three products.

Operations on Sets:
When we have more than one sets, we can perform certain operations:
1) The Union of Sets, ∪ , gives us a new set containing both the common and uncommon
elements. E.g. 𝐴 = { 1, 2 } and 𝐶 = { 1, 2, 3, 4 }, then 𝐴 ∪ 𝐵 = { 1, 2, 3, 4 }
2) The Intersection of Sets, ∩ , gives us a new set containing only the common elements. . E.g.
𝐴 = { 1, 2 } and 𝐶 = { 1, 2, 3, 4 }, then 𝐴 ∩ 𝐵 = { 1, 2 }
3) The Complement of a given set, ~ , gives us a new set containing only the elements that are
there in the Universal Set, 𝑈 , but not in the given set. . Given: 𝐴 = { 1, 2 } and 𝑈 = { 1, 2, 3, 4 },
then 𝐴̃ = { 3, 4 }
Business Example:
A business has two factories: A and B.
𝐷 = { 𝑥 | 𝑥 𝑖𝑠 𝑎 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 𝑜𝑓 𝑓𝑎𝑐𝑡𝑜𝑟𝑦 𝐴 }, 𝐸 = { 𝑦 | 𝑦 𝑖𝑠 𝑎 𝑓𝑎𝑐𝑡𝑜𝑟𝑦 𝑜𝑓 𝑝𝑟𝑜𝑑𝑢𝑐𝑡 𝐵 }.
Note: here, D and E contains all the products that factory A and B can produce, respectively.
(Continued in next page)
School of Business & Economics North South University

What does 𝐷 ∪ 𝐸 represent?

𝐷 ∪ 𝐸 represents all the products that the business can produce (or all the products that the two
factories can produce).
What does 𝐷 ∩ 𝐸 represent?
𝐷 ∩ 𝐸 represents only those products that can be produced in both the factories A and B.
̃ represent?
What does 𝐷
̃ represents all those products that factory A cannot produce
𝐷 (End of example)
If we have more than one sets, we can perform another operation called Cartesian or Direct Product
of Sets (sometimes called multiplication of sets). To understand this new operation we need to
cover two other basic ideas related to and part of set theory. Let’s start:
1) Remember: { 𝑠𝑜𝑢𝑝, 𝑟𝑖𝑐𝑒, 𝑐𝑎𝑘𝑒 } is an unordered set where ordering does not matter. For
example, the given set tells us a consumer consumes the products: soup, rice and cake. But from
the set we cannot say which product was consumed first, which was consumed second and which
was consumed last.
However, if we use the first bracket and write ( 𝑠𝑜𝑢𝑝, 𝑟𝑖𝑐𝑒, 𝑐𝑎𝑘𝑒 ), then this is an ordered set
where ordering is significant and we can conclude: the soup was consumed first, then rice and
lastly cake.
2) ℝ denotes a special set. It is the set of all real numbers, that is all the fractions and integers. For
1 1
example, 1, 0.5, -100, 200 are all elements of ℝ. Therefore, we may write: 1, 0.5, -100, 200 ∈ ℝ

Direct (Cartesian) Product of Sets ( Symbol: × ):

As already mentioned, if we have more than one sets, we can perform another operation on sets
called the direct or Cartesian product of sets (sometimes called multiplication of sets).
Let us define this operation using set theory:
A × B = { (𝑥, 𝑦) | 𝑥 ∈ 𝐴 𝐚𝐧𝐝 𝑦 ∈ 𝐵 }
Let’s try to decode (decipher) the above mathematical statement. The above statement is saying
that if we take the Cartesian product of two sets A and B then we are going to get a new set
containing ordered pairs2 in all of which the first element is from the set A and3 second element
is from set B. This is the definition in english.
(Example next page)

2
Since the ordered set has two elements
3
In mathematics, ‘and’ ‘or’ has a very precise use. ‘and’ is used when both the statements or conditions must be
true and ‘or’ is used when any one condition can be true.
School of Business & Economics North South University

For example: 𝐴 = { 1, 2 }, 𝐵 = { 3, 4 }
𝐴 × 𝐵 = { (1, 3), (1, 4), (2, 3), (2, 4) } Note: The result is consistent with the definition last
page; we are getting a new set containing ordered pairs in all of which the first element is from A
and the second element is from B.
Another example: ℝ × ℝ = ℝ2 = { (𝑥, 𝑦) | 𝑥 ∈ ℝ 𝑎𝑛𝑑 𝑦 ∈ ℝ }
Note: The above set represents all ordered pairs where the first element can be any real number
and the second element can be any real number.
The last example introduces to us another popular mathematical symbol: ℝ2 . We can also represent
ℝ2 using a diagram. ℝ2 is the graphical system we use in almost all areas of study.

Note: The above graph also contains all ordered pairs containing two elements where the first
element can be any real number and the second element can be any real number. So, we may
think of ℝ2 as a universal set.
In a particular situation, we want to work with ordered pairs where the elements have a particular
relation. For example, in a situation we may only need those ordered pairs where the first
element is exactly equal to the second element, that is { (𝑥, 𝑦) | 𝑦 = 𝑥 }. Note: in this relation for
every value of 𝒙 there is only one corresponding value of 𝒚 and therefore this relation is called
a function. For example, if 𝑥 = 1, then 𝑦 = 1 , 𝑦 cannot take any other value. The same is true
for all other values of 𝑥. Therefore, 𝑦 = 𝑥 is a function.
However, in this case: { (𝑥, 𝑦) | 𝑦 < 𝑥 } for every value of 𝑥 there is more than one
corresponding value of 𝑦. For example, if 𝑥 = 3, then 𝑦 can be 2, 1.5, 1 there are infinite
possibilities! Therefore, 𝒚 < 𝒙 is not a function. Graphically, this is relation is denoted by the
area below the 𝑦 = 𝑥 line.
Reference: Chiang, A.C. & Wainwright, I. (2005). Fundamental Methods of Mathematical
Economics, 4th ed. McGraw – Hill International Edition.