ASSIGNMENT 3

Course Title: Introduction to Mathematics

Topics included: Cost, Revenue and Profit functions, Supply functions, Demand Functions, Break Even
Analysis
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Question no. 01:

A company produces a product which it sells for $55 per unit. Each unit costs the firm $23 in variable expenses,
and fixed costs on an annual basis are $400,000. If x equals the number of units produced and sold during the
year:
a) Formulate the linear total cost function
b) Formulate the linear total revenue function
c) Formulate the linear profit function
d) What does annual profit equal if 10,000 units are produced and sold during the year?
e) What level of output is required in order to earn zero profit?

Question no. 02:

A publisher has a fixed cost of $250,000 associated with the production of a college mathematics book. The
contribution to profit and fixed cost from the sale of each book is $6.25.

a) Determine the number of books which must be sold in order to break even
b) What is the expected profit if 50,000 books are sold?

Question no. 03:

Part A

A leading firm requires software for its internal use. The firm wants to evaluate whether it is less costly to have
its own programming staff and resources or to have programs developed by an external development firm. The
cost of both options are a function of the number of lines of code. After the mathematical analysis it has been
estimated that the in-house development will cost $1.75 per line of code. In addition, annual overhead costs for
supporting the program will be $35000. While Software developed outside the firm costs, on average, $2.5 per
line of code.
a) How many lines of codes per year make costs of the two options equal?
b) If programming needs are estimated at 35000 lines per year, what are the costs of the two options?
c) In part b what would be the in-house cost per line of code have to equal for the two options to be equally
costly?

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Part B

Because the parameters used in mathematical models are frequently estimates, actual results may differ from
those projected by the aforementioned mathematical analysis. To account for some of the uncertainities which
may exist in a problem, analysts often conduct sensitivity analysis. The objective is to assess how much a
solution might change if there are changes in model parameters. Assume in part A that the software
development costs by outside firms might actually fluctuate by ±15%.
Compute the breakeven points if the costs are 15 percent higher or lower and compare your results with the
mathematical model achieved prior to the sensitivity analysis.

Question no. 04:

The supply function qs = f (p) for a product is quadratic. Three points which lie on the supply function are (60,

2750), (70, 6000) and (80, 9750).

a) Determine the equation for the supply function

b) Make any observation you can about the restricted domain of the function
c) Compute and interpret the p intercept.
d) What quantity will be supplied at a price of $75
Question no. 05:

The Canada in 2019 had five federal income tax brackets, with rates of 15%, 20.5%, 26%, 29% and 33%. If you
fall into the 33% bracket, that doesn’t mean that the entirety of your taxable income will be subject to a 33%
tax. Instead, 33% is your top marginal tax rate.

FEDERAL TAX BRACKETS 2018 – 2019 Tax rate (%)

$46,605 or less 15
$46,605 to $93,208 20.5
$93,208 to $144,489 26
$144,489 to $205,842 29
More than $205,842 33

a) Create a Mathematical Model that represents the aforementioned information to calculate the annual
income tax.
b) How much annual income tax you will have to pay if your monthly taxable income is $ 12,000.
Let X be the taxable income
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For Slab 1 [0-$46,605]
T(x) = X(0.15)
T(x) = 0.15x

For Slab 2 [$46,605-$93,208]

T(x) = 46,605(0.15) + (x-46,605)0.205
T(x) = 6990.75 + 0.205x - 9554.025
T(x) = 0.205x – 2563.275

For Slab 3 [$93,208-$144,489]

T(x) = 46,605(0.15) + 93,208(0.205) + (x-93,208)0.26
T(x) = 6990.75 + 19107.64 - 24234.08 + 0.26x
T(x) =

For Slab 4 [$144,189-$205,842]

T(x) = 46,605(0.15) + 93,208(0.205) + 144,189(0.26) + (x-144,189)0.29
T(x) = 6990.75 + 19107.64 +37489.14 - 41814.81 + 0.29x
T(x) = 21772.72 + 0.29x
For Slab 5 [Above $205,842 ]
T(x) = 46,605(0.15) + 93,208(0.205) + 144,189(0.26) + (205,842)0.29 + (x-205,842)0.33
T(x) = 6990.75 + 19107.64 + 59694.18 – 67927.86 + 0.33x
T(x) = 17864.71 + 0.33x

0.15x [ for

0.205x – 2563.275
T(x)=
0.26x + 1864.21
0.29x + 21772.72
0.33x + 17864.71

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 Question no. 06:
A leading manufacturer of video games is about to introduce four new games. The accompanying table
summarizes price and cost data, Combined fixed costs equal $600,000. A marketing research study predicts that
for each unit sold of Diablo, 2 units of Call of Duty: Modern Warfare, 3 units of Sekiro and 4 units of Starcraft
II will be sold.

Games

Diablo Call of Duty Sekiro Starcraft II

Selling Price (in dollars) 55 48 33 22

Variable cost/unit (in dollars) 22 17 12 11

a) How many product mix units must be sold to break even?

b) How does it translate into sales of individual games?

Question no. 07:

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Question no. 08:

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