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Lecture Notes On Mathematics For Business: International School of Business, UEH, Vietnam
Lecture Notes On Mathematics For Business: International School of Business, UEH, Vietnam
International School of Business, UEH UEH, Vietnam October 19, 2021 1 / 171
Chapter R: Review for Basic Algebra
Outline of the chapter: In this chapter, we will review the most important topics
in algebra. Knowing algebra is a fundamental prerequisite to success in higher
mathematics. The topic includes
Exponents
Radicals
Polynomials
Haeussler E., Paul R., and Wood R (2014). Introductory Mathematical Analysis for Business, Economics, and the Life
International School of Business, UEH UEH, Vietnam October 19, 2021 2 / 171
Chapter R: Review for Basic Algebra R.1. Algebraic expressions with one or more variables
Definition
An algebraic expression is simply a combination of letters, brackets and other
mathematical symbols such as +, −, ×, :, and so on. Letters used in algebraic
expressions represent variables/unknown.
Example
x
20 + x, , x + 2y , x 2 + 3(y − 5),
y
Algebra is a language, and you must be familiar with its rules to correctly
interpret algebraic statements. The following order of operations has been agreed
upon through centuries of usage: Brackets first (B) - Indices second (I) - Division
and Multiplication third (DM) - Addition and Subtraction fourth (AS). This is
sometimes remembered using the acronym BIDMAS!
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Chapter R: Review for Basic Algebra R.1. Algebraic expressions with one or more variables
Example
A company has a policy to reimburse employees for use of their cars for travel: for
the first 50 miles they may be able to claim 90 cents a mile, but this could fall to
60 cents a mile thereafter. If the distance, x miles, is no more than 50 miles, then
travel expenses, E (in dollars), could be worked out using the formula E = 0.9x.
If x exceeds 50 miles, the employee can claim $0.9 a mile for the first 50 miles
but only $0.6 a mile for the last (x − 50) miles. The total amount is
E (x) = 0.9 × 50 + 0.6(x − 50).
Travel expenses can therefore be worked out using two separate expressions:
International School of Business, UEH UEH, Vietnam October 19, 2021 4 / 171
Chapter R: Review for Basic Algebra R.2. Equations, Inequalities of one or more variable
Definition
An equation is a mathematical statement that consists two equal algebraic
expressions, one on each side of an ’equals’ sign.
Example
Net Income = Revenue – Expenses (net income equation)
Break-even Point = Fixed Costs / (Sales Price Per Unit – Variable Costs Per
Unit) [Use the break-even point formula to determine how many products
you need to sell during a period to break even.]
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Chapter R: Review for Basic Algebra R.2. Equations, Inequalities of one or more variable
Definition
Inequality identifies two algebraic expressions are not equal by means of
the symbols like 6=, <, >, ≤, ≥.
Definition
A linear equation is of the form
Equations that are not falling in the above form are called non-linear
equations. For example, 2x 2 + 1 = 2, x + y 3 = 4.
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Chapter R: Review for Basic Algebra R.4. Linear/non-linear inequalities
Definition
Similar to linear equations, a linear inequality is of the form
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Chapter R: Review for Basic Algebra R.5. Sketching a linear equation/inequality of 2 variables
plot these two points on graph paper and use a ruler to draw the line
passing through them.
Noting that the easiest thing to choose a value of x (in terms of the
amount of arithmetic involved) is to put x = 0 and find y and then to put
y = 0 and find x.
Example
Sketch the line according to the equation 2x + 3y = 6.
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Chapter R: Review for Basic Algebra R.5. Sketching a linear equation/inequality of 2 variables
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Chapter R: Review for Basic Algebra R.5. Sketching a linear equation/inequality of 2 variables
The area shaded darkly in the figure is the set of all points (x, y ) satisfying
the inequality y ≤ x + 2
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Chapter R: Review for Basic Algebra R.6. Exponents
Definition
Integer exponents. If n is a natural number, then an = a × a × a × · · · × a
where a appears as a factor n times.
Example
3 −1 4
20 = 1;
4 = 3
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Chapter R: Review for Basic Algebra R.7. Radicals
√
The symbol n is a radical sign, the number a is the radicand, and n is the
√ √
index of the radical. The familiar symbol a is used instead of 2 a.
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Chapter R: Review for Basic Algebra R.8. Polynomials
Definition
A polynomial is a term or a finite sum of terms in which all variables have
whole number exponents, and no variables appear in denominators.
Example
x 3 + 8 : polynomial of degree 3
x 2 y + xy 4 : polynomial of degree 5
2x + 5 : polynomial of degree 1
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Chapter 1. Mathematics of Finance
Savings - Loans.
Investment appraisal
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Chapter 1. Mathematics of Finance 1.1. Percentages
What is a percentage?
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Chapter 1. Mathematics of Finance 1.1. Percentages
The word percentage literally means per cent, i.e. per hundred or out of
100. It stands for a portion of a whole expressed as a number between 0
and 100 rather than as a fraction and it is represented by the symbol %
Example
20 students out of a total of 37 in the student list are female. What
percentage are female?
20
Answer. Our class has 37 × 100 ≈ 54.3% female students. [This does not
mean that there are more than 54 female students in the class.]
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Chapter 1. Mathematics of Finance 1.1. Percentages
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Chapter 1. Mathematics of Finance 1.1. Percentages
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Chapter 1. Mathematics of Finance 1.1. Percentages
Index number = the scale factor from the base year × 100
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Chapter 1. Mathematics of Finance 1.1. Percentages
Example
The table below shows the values of household spending (in billions of
dollars) during a 5-year period.
If 2011 is taken as the base year, the index number of 2011 is 100 and the
index number of the year 2012 is 723.7
697.2 × 100 = 103.8, which means the
value household spending in 2012 is 103.8 % of its value in 2011. In other
words, the household spending increased by 3.8 % during 2012.
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Chapter 1. Mathematics of Finance 1.1. Percentages
The index number of each year w.r.t. the base year of 2011 are shown in
Table 3.2.
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Chapter 1. Mathematics of Finance 1.1. Percentages
There are two other index numbers called Paasche index and Laspeyres
index which are to measure the variation of a bundle of goods over time.
Passche index is an index number for groups of data weighted by the
quantities used in the current year
Laspeyres index is an index number for groups of data which are
weighted by the quantities used in the base year.
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Chapter 1. Mathematics of Finance 1.1. Percentages
Example
Table 3.6 below shows the number of each type bought in 2014 together
with the unit prices of each item in 2014 and 2015.
20 × 10 + 35 × 23 + 10 × 5
× 100 = 124.1
20 × 8 + 35 × 18 + 10 × 6
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Chapter 1. Mathematics of Finance 1.1. Percentages
If the quantities bought in 2015 are those shown in Table 3.7 then the
current weighted index in 2015 (which is called the Passche index) is
17 × 10 + 38 × 23 + 12 × 5
× 100 = 129.9
20 × 8 + 35 × 18 + 10 × 6
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Chapter 1. Mathematics of Finance 1.1. Percentages
Adjust value data for inflation is to find again the real data after
removing the effect of inflation. So what is the inflation?
Inflation is basically a rise in prices.
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Chapter 1. Mathematics of Finance 1.1. Percentages
Example
The table below shows the price (in thousands of dollars) of an average
house in a certain town during a 5-year period. The price quoted is the
value of the house at the end of each year.
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Chapter 1. Mathematics of Finance 1.1. Percentages
Use the annual rates of inflation given in Table 3.9 to adjust the prices to
those prevailing at the end of 1991 and compare the rise in both the
nominal and real values of house prices during this period?
Answer: Remember that 1991 is chosen as the base year. The real value
of the house
at the end of 1992 is 93,000 (the1.071
nominal value)
= 86, 835.
Thus the house has fallen in value by over $2000 compared with its
price in 1991 ( $ 89,000)
100,000
at the end of 1993 is 1.035×1.071 = 90, 213
106,000
at the end of 1994 is 1.023×1.035×1.071 = 93, 476
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Chapter 1. Mathematics of Finance 1.1. Percentages
The table below shows the nominal values and adjusted values rounded to
the nearest thousand for comparison after taking inflation into account.
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Chapter 1. Mathematics of Finance 1.2. Simple interest - Compound interest
Suppose that Peter invests P0 dollars into a bank with the annual interest
rate of r %. How much will he receive?
P1 = P0 (1 + r %)
where INT is the interest paid direct to the investor and it is called
the simple interest.
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Chapter 1. Mathematics of Finance 1.2. Simple interest - Compound interest
However after 1 year, Peter still lets that amount in his account, so at
the end of the second year, he will receive
P2 = P0 (1 + r %) + r % × P0 (1 + r %) = P0 (1 + r %)2 .
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Chapter 1. Mathematics of Finance 1.2. Simple interest - Compound interest
Example
If $10,000 invested at 5% interest compounded annually then the amount
the investor receives
5
after 216 days is P216 days = 10, 000 + 10, 000 × 100 × 216
365 ≈ 10, 295.89
5 4
at the end of the fourth year is P4 = 10, 000 1 + 100 = $12, 155.06
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Chapter 1. Mathematics of Finance 1.2. Simple interest - Compound interest
It is worth noting that the interest are often compounded more frequently
than a year, so the periodic interest rates are required to be considered.
The following is the simple rule for periodic rates w.r.t. the annual rate
r %:
If the interest is compounded semiannually then
2×n
Pn = P0 1 + r 2% .
4×n
r%
If the interest is compounded quarterly then Pn = P0 1 + 4 .
More general,
if the interest is compounded m times per year then
m×n
r%
Pn = P0 1 + m .
However, r % is only nominal rate, because the interest rate that we
actually earn for a year if interest is compounded more than one time a
year is higher. This rate is called effective rate.
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Chapter 1. Mathematics of Finance 1.2. Simple interest - Compound interest
If no other specification is stated, the interest rate is the nominal rate. In fact
there are many kinds of interest rates. The different types of interest rates,
including real, nominal, effective, and annual, are distinguished by key economic
factors, that can help individuals become smarter consumers and shrewder
investors. You’ll dig deeper this topic in financial courses.
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Chapter 1. Mathematics of Finance 1.2. Simple interest - Compound interest
Example
A principal of $10 is invested at 12% interest for 1 year. The future value
if the interest is compounded
annually =
semiannually =
quarterly =
monthly =
weekly =
After calculating the future values above, we will see that the future value
rises as the frequency of compounding rises.
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Chapter 1. Mathematics of Finance 1.2. Simple interest - Compound interest
Example
A principal of $2,000 is invested at 10% interest compounded continuously.
After how many days will the investment first exceed $2,100?
The number e is named after the Swiss mathematician Leonhard Euler and is
m x
e ≡ limm→∞ 1 + m1 . Euler then proved that limx→∞ 1 + x1 = e. Note that
m ∈ IN, x ∈ IR
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Chapter 1. Mathematics of Finance 1.2. Simple interest - Compound interest
Pk = P0 (1 + rp %)k ,
Pn = P0 e r %×n
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Chapter 1. Mathematics of Finance 1.3. Savings and loans
Recall that
A geometric sequence is a sequence of numbers a1 , a2 , . . . , an with a
an
constant ratio between consecutive terms r = an−1 . Thus
1 1 1 1
Example: 2 , 4 , 8 , 16 is a geometric sequence.
The geometric series of the first n terms, by Newton binomial, is
n
X rn − 1
ai = a1 + r × a1 + r 2 × a1 + . . . r n−1 × a1 = a1
r −1
i=1
We’ll make use of the Newton binomial formula in the two important
activities in Finance, such as savings and loans.
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Chapter 1. Mathematics of Finance 1.3. Savings and loans
Suppose that each payment is made at the beginning of the periods and
every payment is an equal amount a. Then the accumulated amount, after
n periods, will be calculated by
(1 + r )n − 1
Vn = a(1 + r ) + a(1 + r )2 + · · · + a(1 + r )n = a(1 + r ) .
r
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Chapter 1. Mathematics of Finance 1.3. Savings and loans
Loans: one needs an amount of money right now and decides to borrow it
from a bank. The loan is promised to pay back by a series of repayments
(or, also called, an annuity) made at equal time intervals. Such an annuity
can be thought of as the opposite of a sinking fund!
Suppose that each repayment is made at the end of the periods, then the
actual value of a debt, after n repayments made, is
1 − (1 + r )−n
V0 = a(1 + r )−1 + a(1 + r )−2 + · · · + a(1 + r )−n = a ,
r
where a is the amount repaid equally at each period.
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Chapter 1. Mathematics of Finance 1.3. Savings and loans
Example
[Savings] Peter saves $100 in a bank account at the beginning of
each month. The bank offers a return of 12% compounded monthly.
How much does Peter save after 12 months?
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Chapter 1. Mathematics of Finance 1.3. Savings and loans
Example
[Savings] Suppose $1,000 is placed in a savings account on the 1st of
December 2016 and, from then on, $50 is deposited in the account on
the first of the next months. If the interest is at 4.3% compounded
monthly, how much is in the account on 1 Jan., 2019?
Just after the 16th repayment, the debtor would like to pay off the rest
of loan by only three quarter repayments at the interest rate of 4.5%
compounded quarterly. What is each quarterly repayment?
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Chapter 1. Mathematics of Finance 1.4. Investment appraisal
Example
Find the present value of $1,000 in 4 years’ time if the discount rate is
10% compounded
semiannually and
continuously ?
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Chapter 1. Mathematics of Finance 1.4. Investment appraisal
Example
A project requiring an initial outlay of $15,000 is guaranteed to produce a
return of $20,000 in 3 years’ time. Use the
Net Present Value
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Chapter 2: Functions
Notice that at the end of this chapter, you must be able to:
determine independent/dependent variables of issues mostly arising in
Business,
represent relationship between quantities using
equations/inequalities/functions,
recognize possible properties of a quantity based on other quantities,
find the domain of a function and sketch a function,
know how to compute exactly or approximately related quantities,
finally know how to fit data points by regression model.
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Chapter 2: Functions 2.1. Linear functions
Definition
The slope of a nonvertical line is defined as the vertical change (the “rise”) over
the horizontal change (the “run”) as one travels along the line. In symbols,
taking two different points (x1 , y1 ) and (x2 , y2 ) on the line, the slope is
change in y ∆y y2 − y1
m= = = where x1 6= x2 .
change in x ∆x x2 − x1
The slope of a horizontal line is 0 and the slope of a vertical line is undefined.
Note that using similar triangles, it can be shown that the slope of a line is
independent of the choice of points on the line. That is, the same slope will be
obtained for any choice of two different points on the line.
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Chapter 2: Functions 2.1. Linear functions
The least square line y = b1 + b0 x that gives the best fit to the data points
(x1 , y1 ), (x2 , y2 ), . . . , (xn , yn ) has slope b0 and y-intercept b1
P P P P P
n (xy ) − ( x)( y ) y − b0 x
b0 = P P ; b1 =
n (x 2 ) − ( x)2 n
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Chapter 2: Functions 2.1. Linear functions
Although the least squares line can always be found, it may not be a good model.
One measure of how well the original data fits a straight line is the correlation
coefficient developed by statistics pioneer Karl Pearson (1857—1936),
denoted by r , which can be calculated by the following formula.
P P P
n (xy ) − ( x) ( y )
r=p P P q p P P
n (x 2 ) − ( x)2 n (y 2 ) − ( y )2
Below are some scatterplots that correspond to values of r .
Note that if r is equal or close to zero, there is no linear correlation between the
data points (but some nonlinear function might provide an excellent fit for the
data).
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Chapter 2: Functions 2.2. Nonlinear functions
Special functions
Combinations of functions
Inverse functions
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Chapter 2: Functions 2.2. Nonlinear functions
What is a function?
Example
Revenue of a certain good is variable, it depends on quality, price,
demand, or even advertising expenses, etc. In other words, revenue,
quality, price, expenses are related by a way or another.
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Chapter 2: Functions 2.2. Nonlinear functions
Let X, Y be two sets (or also called, for example, two events in
probability). A function f : X → Y is a rule that assigns, to each element
x of X , at most one element y of Y , denoted f (x).
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Chapter 2: Functions 2.2. Nonlinear functions
Domain: the set of all inputs x allowable is called the domain of function
f and denoted D. Mathematically speaking,
D = {x|f (x) is well defined}
Range: If D is the domain of f then the set of all outputs f (x) is called
the image/range of f and denoted R. Briefly,
R = {f (x)|x ∈ D}
From now on, if no other specification is stated, D and R mean the
domain and the range of function of interest, respectively.
Example
Which following rule is a function? If it’s a function, find the domain and
range.
(a) x and f are related by f (x) = x1 .
by a table (algebraically)
by a graph (graphically) :
in words (verbally)
Notice that if a single function can be represented in all four ways, it’s
often useful to go from one representation to another to gain additional
insight into the function.
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Chapter 2: Functions 2.2. Nonlinear functions
Example
Let C be the cost of mailing an envelope with weight w . The rule that the
US Postal Service used as of 2010 is as follows: The cost is 88 cents for
up to 1 oz, plus 17 cents for each additional ounce (or less).
Write a general formula for the cost function and draw its graph.
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Chapter 2: Functions 2.2. Nonlinear functions
Properties of function
Monotone: A function f is called increasing (resp. decreasing) on I ⊂ D
if, for all x1 , x2 ∈ I , x1 < x2 implies f (x1 ) ≤ f (x2 ) (resp. f (x1 ) ≥ f (x2 ))
Special functions
Polynomial function of degree n:
f (x) = an x n + an−1 x n−1 + · · · + a1 x + a0 , where n is non-negative
integer and the coefficients a0 , a1 , . . . , an are constants
n = 0: Constant functions f (x) = c, i.e. the value of f is always c
whatever x is.
n = 1: Linear functions f (x) = ax + b
n = 2: Quadratic function f (x) = ax 2 + bx + c
Case-defined functions (or called also piece-wise functions): functions
defined by more than a formula over different intervals are called
case-defined functions, example the absolute-value function is the
case:
x if x ≥ 0
|x| =
−x otherwise.
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Chapter 2: Functions 2.2. Nonlinear functions
Combinations of functions
For any functions f and g , we define the following operations:
Sum/Difference: (f ± g )(x) = f (x) ± g (x)
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Chapter 2: Functions 2.3. Functions used in Business
In any competitive market, it is often that demand functions are decreasing, while
supply functions are increasing. However it is not always true for all markets, for
example, electricity market in Vietnam.
Economic equilibrium is a state in which supply and demand for a certain
commodity are equal. [Equilibrium points in N-person games by John Nash, 1950]
John Forbes Nash Jr. (June 13, 1928 – May 23, 2015) was an American
mathematician who is the only person to be awarded both the Nobel Memorial
Prize in Economic Sciences in Game theory in 1994 and the Abel Prize in 2015.
The movie ‘A beautiful mind’ is about Nash’s life.
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Chapter 2: Functions 2.3. Functions used in Business
Continuity
Derivative of a function
Rules of differentiation
Rates of change.
Elasticity
Marginal functions
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Chapter 3. Differentiation 3.1. Limits
Example
−1 2
f (x) = xx−1 is not defined when x = 1. What can we say about the value
of f as x ≈ 1?
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Chapter 3. Differentiation 3.1. Limits
Theorem
limx→a f (x) exists if and only if limx→a+ f (x) and limx→a− f (x) exist and
are equal. In that case limx→a f (x) = limx→a+ f (x) = limx→a− f (x)
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Chapter 3. Differentiation 3.1. Limits
if we can make f (x) arbitrarily big by taking x sufficiently close but not
equal to a.
Example
1
limx→0 x2
=∞
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Chapter 3. Differentiation 3.1. Limits
Theorem
If c ∈ R then the constant function f (x) ≡ c is often denoted c itself.
And we have
lim c = c and lim x = a
x→a x→a
1 x
1
lim (1 + x) x = e and lim 1+ =e
x→0 x→∞ x
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Chapter 3. Differentiation 3.1. Limits
Limit Laws
Theorem
If limx→a f (x) and limx→a g (x) exist then
(a) limx→a [f (x) + g (x)] = limx→a f (x) + limx→a g (x)
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Chapter 3. Differentiation 3.1. Limits
Corollary
Let n be a positive integer. If limx→a f (x) exists then
(a) limx→a cf (x) = c limx→a f (x)
(b) limx→a x n = an
(c) limx→a (f (x))n = (limx→a f (x))n
√ √
(d) limx→a n x = n a
In the above formula if n is even we assume that a > 0
p p
(e) limx→a n f (x) = limx→a n f (a)
In the above formula if n is even we assume that limx→a f (x) > 0.
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Chapter 3. Differentiation 3.1. Limits
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Chapter 3. Differentiation 3.2. Continuity
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Chapter 3. Differentiation 3.2. Continuity
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Chapter 3. Differentiation 3.2. Continuity
One often says that a picture is worth more than thousand words. So in
order to understand the concepts of continuity, let do the example below.
Example
Let f be given by the graph in the figure below. Which intervals is f
continuous on?
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Chapter 3. Differentiation 3.2. Continuity
Example
Suppose the long-distance rate for a telephone call from Hazleton,
Pennsylvania to Los Angeles, California, is $0.08 for the first minute or
fraction thereof and $0.04 for each additional minute or fraction thereof. If
y = f (t) is a function that indicates the total charge y for a call of t
minutes duration then
Formulate the charge function
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Chapter 3. Differentiation 3.3. Tangent and Velocity Problems
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Chapter 3. Differentiation 3.3. Tangent and Velocity Problems
Tangent problem. Find the slope of a tangent line at P(c, f (c)) on the
curve C of equation y = f (x).
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Chapter 3. Differentiation 3.3. Tangent and Velocity Problems
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Chapter 3. Differentiation 3.3. Tangent and Velocity Problems
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Chapter 3. Differentiation 3.3. Tangent and Velocity Problems
f (a + h) − f (a)
v (a) = limh→0
h
Note that we are not concerned with the direction in which the movement
occurs, but displacement and velocity. The speed of the movement is
|velocity |.
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Chapter 3. Differentiation 3.4. Derivative
f (a + ∆x) − f (a)
lim .
∆x→0 ∆x
This limit arises actually not only in geometry and physics but in many
other practical situations, so it is given a special name: DERIVATIVE!
Definition
The derivative of a function at the number a, denoted by f 0 (a) (followed
by Newton’s notation) which is read ’f dashed of a‘, is
f (a + ∆x) − f (a) ∆f
f 0 (a) = lim = lim
∆x→0 ∆x ∆x→0 ∆x
if the limit exists and, in this case, f is said to be derivable (or also called
differentiable) at a.
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Chapter 3. Differentiation 3.4. Derivative
Note that
f must be absolutely defined at a and about a if f 0 (a) exists
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Chapter 3. Differentiation 3.4. Derivative
Example
So the slope of the tangent line at −2 to the curve, called the derivative of
the function at -2, is
∆y f (−3) − f (−1)
= = −4
∆x (−3) − (−1)
Note that the tangent line to the curve at 0 is horizontal, so its slope at
x = 0 is zero, and thus, f 0 (0) = 0.
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Chapter 3. Differentiation 3.4. Derivative
Example
Observe that the graph of f drops on (−∞, 0) (so f 0 < 0 on this interval)
and rises on (0, +∞) (so on this interval f 0 < 0).
The point at which x = 0 is called the turning point!
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Chapter 3. Differentiation 3.4. Derivative
Noting that not all functions are derivable. For example, function is not
continuous at a point then it is not derivable at that point, that is, the
graph at this point is broken into two pieces or has a hole.
Even continuous functions that whose graph has a sharp corner are also
not derivable.
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Chapter 3. Differentiation 3.5. Rules of Differentiation
Theorem
If f and g are derivable and c is a constant then
(f ± g )0 = f 0 ± g 0
(fg )0 = f 0 g + fg 0
f 0 g −fg 0
( gf )0 = g2
(cf )0 = cf 0
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Chapter 3. Differentiation 3.5. Rules of Differentiation
Example
Given two functions f , g whose graphs are shown below. Let
u(x) = f (g (x)), v (x) = g (f (x)), and w (x) = g (g (x))
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Chapter 3. Differentiation 3.5. Rules of Differentiation
The point at which the function changes the concavity is called the point
of inflection.
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
Elasticity
Marginal analysis
Optimization in Business
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
Rate of change
The rate of change of f (x) at x is given by the slope of its tangent line at
x or the steepness of its graph : f 0 (x).
Example
An efficiency study of the morning shift [from 8:00 a.m. til 12:00 noon] at
a certain factory indicates that an average worker arriving on the job at
8:00 a.m. will have produced Q(t) = −t 3 + 8t 2 + 15t units t hours later.
At what time is the worker performing most efficiently? and least
efficiently?
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
Example
A yearly rate of change of 500 individuals in a city whose total populations
is 5 million yields a negligible relative (per capita) rate of change of
500
5,000,000 = 0.0001 or 0.01%, while the same rate of change in a town of
500
2,000 would yield a relative rate of change 2,000 = 0.25 or 25%, which has
enormous impact on the town.
Q 0 (x)
The relative rate of change of Q(x) = Q(x) and the corresponding
100 Q 0 (x)
percentage rate of change of Q(x) = Q(x) .
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
Elasticity
For instance, the demand for products such as soap, flashlight batteries, or
salt will not be much affected by a small percentage change in unit price,
while a comparable percentage change in the price of airline tickets or
home loans can affect demand dramatically.
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
Demand is said to be
elastic if |E | > 1 ⇒ the percentage decrease in demand is greater
than the percentage increase in price that caused it, and thus,
demand is relatively sensitive to changes in price
unit elastic if |E | = 1
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
The relationship between revenue and price is shown below. Note that the
revenue curve is rising where demand is inelastic, falling where demand is
elastic, and has a horizontal tangent line where the demand is of unit
elasticity.
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
Example
The manager of a bookstore determines that when a certain new
paperback novel is priced at p dollars per copy, the daily demand will be
√
q = 300 − p 2 copies, where 0 ≤ p ≤ 300
(a) Determine where the demand is elastic, inelastic, and of unit elasticity
with respect to price.
(b) Interpret the results of part (a) in terms of the behavior of total
revenue as a function of price.
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
Marginal functions
Recall that
f (a + ∆x) − f (a) ∆f
f 0 (a) = lim = lim
∆x→0 ∆x ∆x→0 ∆x
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
in which
the right hand side is the cost of increasing the level of production by
one unit, from q0 to q0 + 1
the left hand side approximates the additional cost incurred when the
level of production is increased by one unit, from q0 to q0 + 1.
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
The geometric relationship between the marginal cost and the additional
cost are shown in the figure below.
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
Example
Unit of output Total cost (in dollars) Marginal cost (in dollars)
1 5 5
2 9 4
3 12 3
4 16 4
5 21 5
6 29 8
Observe that the marginal cost curve decreases sharply with smaller
output and reaches a minimum. As production is expanded to a higher
level, it begins to rise at a rapid rate.
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
In other words,
Example
Suppose the total cost in dollars of manufacturing q units of a certain
commodity is C (q) = 3q 2 + 5q + 10. If the current level of production is
40 units, estimate how the total cost will change if 40.5 units are produced.
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
The derivative formula applies not only to cost, but also for other
economic quantities, such as revenue, profit, and so on.
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
Example
A company manufactures toy soldiers. After some production, it costs the
company $5 in materials and labor to create its 100th toy soldier. That
100th toy soldier sells for $15. Profit for this toy is $10.
Now, suppose the 101st toy soldier also costs $5, but this time can sell for
$17. The profit for the 101st toy soldier, $12, is greater than the profit for
the 100th toy soldier. This is an example of increasing marginal revenue.
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
Optimization in Business
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
On the one hand, if the company were to manufacture one large batch every year,
it would minimize setup costs but incur high warehouse costs. On the other hand,
if it were to make many small batches, this would increase setup costs.
Calculus can be used to find the number that should be manufactured in each
batch in order to minimize the total cost. This number is called the economic
lot size.
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
To solve the problem, we need to consider the variable q number of units in each
batch. In addition, we have the following constants:
So the total production cost is the sum of the manufacturing and storage costs
kq
TC (q) = fM 2fM
q + gM + 2 and the lot size that minimizes total costs is k .
For example. A paint company has a steady annual demand for 24,500 cans of
automobile primer. The comptroller for the company says that it costs $ 2 to
store one can of paint for 1 year and $ 500 to set up the plant for the production
of the primer. Find the number of cans of primer that should be produced in each
batch, as well as the number of batches per year, in order to minimize total
production costs.
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Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
For example. A large pharmacy has an annual need for 480 units of a certain
antibiotic. It costs $3 to store one unit for one year. The fixed cost of placing an
order (clerical time, mailing, and so on) amounts to $31. Find the number of units
to order each time, and how many times a year the antibiotic should be ordered.
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Chapter 4. Partial Differentiation
Unconstrained/constrained optimization
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Chapter 4. Partial Differentiation 4.1. Functions of several variables
Note that
Substitutes are products/services in different forms that have the same
functionality.
Alternatives are products/services with different functions serve the same
purpose.
Complementary goods/services is an item used in conjunction with another
good/service. Usually the complementary good has little to no value when
consumed alone, but when combined with another goods/services, it adds to
the overall value of the offering. Ex, an iPhone and apps with it.
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Chapter 4. Partial Differentiation 4.1. Functions of several variables
Definition
A function, f , of n variables is a rule that assigns to each incoming tuple of
numbers, (x1 , x2 , . . . , xn ), a uniquely defined outgoing number, z. In symbols we
write this as z = f (x1 , x2 , . . . , xn ).
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Chapter 4. Partial Differentiation 4.1. Functions of several variables
Example
Graph of the equation x 2 + y 2 + z 2 = 1. In fact, we can write z as a
function in terms of x and y and hence D is a unit disk centered at (0, 0)
on the xy −plane.
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Chapter 4. Partial Differentiation 4.1. Functions of several variables
Recall that given a function of one variable, f 0 (x) represents the rate of
change of the function as x changes. For functions of several variables,
what do we do if we only want one of the variables to change, or if we
want more than one of them to change?
Only one variable to change:
Definition
First-order partial derivative w.r.t. x:
∂f f (x0 +∆x,y0 )−f (x0 ,y0 )
∂x (x0 , y0 ) ≡ fx (x0 , y0 ) = lim∆x→0 ∆x
∂f
Accordingly to compute for example ∂x , we need only to differentiate
mathematical expressions with respect to x and let all remaining letters in
the mathematical expressions constants in disguise. It is the same for
other variables.
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Chapter 4. Partial Differentiation 4.1. Functions of several variables
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Chapter 4. Partial Differentiation 4.1. Functions of several variables
Tangent plane.
Normal vector at a point (x0 , y0 ) on a surface z = f (x, y ) is
(fx (x0 , y0 ), fy (x0 , y0 ), −1)
Intuitively, if the tangent plane is parallel to the xy −plane then the partial
derivatives fx (x0 , y0 ) = fy (x0 , y0 ) = 0.
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Chapter 4. Partial Differentiation 4.2. Unconstrained optimization
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Chapter 4. Partial Differentiation 4.2. Unconstrained optimization
Example
Graph of the function f (x, y ) = −x 2 − y 2 has the shape of a paraboloid
opened downwards
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Chapter 4. Partial Differentiation 4.2. Unconstrained optimization
Example
Graph of the function f (x, y ) = x 2 − y 2 has the shape of a hyperbolic
paraboloid
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Chapter 4. Partial Differentiation 4.2. Unconstrained optimization
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Chapter 4. Partial Differentiation 4.4. Partial elasticity and marginal functions
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Chapter 4. Partial Differentiation 4.4. Partial elasticity and marginal functions
Example
Given the demand function Q = 100 − 2P + PA + 0.1I where the price of
a certain good P = 10, the price of an alternative good PA = 12, and the
income of consumers I = 1000, find
price elasticity of demand
cross-price elasticity of demand
income elasticity of demand
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Chapter 4. Partial Differentiation 4.4. Partial elasticity and marginal functions
Utility. Consumers are faced with a choice of how many hours each week
to spend working and how many to devote to leisure. To analyze the
behavior of consumers quantitatively, we associate with each set of options
a number, U, called utility, which indicates the level of satisfaction.
Accordingly suppose that there are two goods, G1 and G2 , and that the
consumer buys x1 items of G1 and x2 items of G2 . The variable U is then
a function of x1 and x2 , which we write as U = U(x1 , x2 )
Example
If U(3, 7) = 20 and U(4, 5) = 25 then the consumer derives greater
satisfaction from buying four items of G1 and five items of G2 than from
buying three items of G1 and seven items of G2 .
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Chapter 4. Partial Differentiation 4.4. Partial elasticity and marginal functions
Q = f (K , L)
∂U
Marginal utility of U w.r.t. x1 is ∂x1
the rate of change of U w.r.t. x1 . If
x1 and x2 both change then the net change in U can be found from the
∂U ∂U
small increments formula ∆U = ∂x 1
× ∆x1 + ∂x 2
× ∆x2
Example
1/4 3/4
Given the utility function U = x1 x2 determine the value of the
marginal utilities and when x1 = 100 and x2 = 200. Hence estimate the
change in utility when x1 decreases from 100 to 99 and x2 increases from
200 to 201.
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Chapter 4. Partial Differentiation 4.4. Partial elasticity and marginal functions
Example
The Cobb—Douglas production function given by Q = AK α × Lβ , in which
A, α, β are positive constants, is an homogeneous function of degree α + β. [It is
worth saying that this function is a particular form of the production function
widely used to represent the technological relationship inputs and output that can
be produced by those inputs and developed and tested against statistical evidence
by Cobb and Douglas during 1927–1947]
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Chapter 4. Partial Differentiation 4.4. Partial elasticity and marginal functions
If each input factor is paid an amount equal to its marginal product then
each term on the left-hand side gives the total bill for that factor.
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Chapter 5. Integration
Definite integration
Applications in Business
Consumer’s surplus
Producer’s surplus
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Chapter 5. Integration 5.1. Indefinite integration
Definition
If F 0 (x) = f (x) for all x in an interval I then then we say that F (x) is an
anti-derivative of f (x) on I .
Theorem
If F is an anti-derivative of f then all other anti-derivative have the form
F (x) + C where C is a real number.
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Chapter 5. Integration 5.1. Indefinite integration
Definition
If the function f has an anti-derivative then the integral of f denoted by
R R
f or f (x)dx is the collection of all anti-derivatives of f .
Please never drop out the number C in the result without stating any
reason!
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Chapter 5. Integration 5.2. Definite integration
Area between curves. Consider the region S that lies between the curves
y = f (x) and y = g (x) and limited by the vertical lines x = a and x = b,
where f (x) and g (x) are continuous functions such that f (x) ≥ g (x) for
all x ∈ [a, b]
y
y = f(x)
y = g(x)
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Chapter 5. Integration 5.2. Definite integration
y
y = f(x)
y = g(x)
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Chapter 5. Integration 5.2. Definite integration
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Chapter 5. Integration 5.2. Definite integration
The theorem says the integral of the rate of change is the amount of
change.
Example
R1
Let compute the integral 0 x 2 dx by both the Riemann sum and the
Fundamental theorem, and then compare results obtained.
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Chapter 5. Integration 5.3. Applications in Business
Consumers’ surplus.
Now, P0 is the price that consumers are prepared to pay for the last unit
that they buy, which is the Q0 th good. For quantities up to Q0 they would
actually be willing to pay the higher price given by the demand curve.
The shaded area BCD therefore represents the benefit to the consumer of
paying the fixed price of P0 and is called the consumer’s surplus, CS. The
value of CS can be found by observing that
Z Q0
area BCD = area OABD − area OABC = f (Q)dQ − P0 × Q0
0
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Chapter 5. Integration 5.3. Applications in Business
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Chapter 5. Integration 5.3. Applications in Business
Producers’ surplus.
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Chapter 5. Integration 5.3. Applications in Business
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Chapter 5. Integration 5.3. Applications in Business
In an earlier chapter we looked at the concepts of present value and future value
when a lump sum of money is deposited in an account and allowed to accumulate
interest. In some situations, however, money flows into and out of an account
almost continuously over a period of time. Examples include income in a store,
bank receipts and payments, and highway tolls. Although the flow of money in
such cases is not exactly continuous, it can be treated as though it were
continuous, with useful results.
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Chapter 5. Integration 5.3. Applications in Business
Let the continuous function f (t) represent the rate of flow of money per unit of
time. If t is in years and f (t) is in dollars per year, the area under f (t) between
two points in time gives the total dollar flow over the given time interval. More
precisely,
Z T
Total money flow = f (t)dt.
0
This “total money flow” does not take into account the interest the money could
earn after it is received. It is simply the total income.
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Chapter 5. Integration 5.3. Applications in Business
Example
The income from a soda machine (in dollars per year) is growing
exponentially. When the machine was first installed, it was producing
income at a rate of $1000 per year. By the end of the first year, it was
producing income at a rate of $1020.20 per year.
Find the total income produced by the machine during its first 3 years of
operation.
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Chapter 5. Integration 5.3. Applications in Business
If f (t) represent the rate of the continuous flow at an interest rate r compounded
continuously for T years, the present value of a continuous money flow is
Z T
P= f (t) × e −rt dt
0
Example
A company expects its rate of annual income during the next three years to be
given by f (t) = 75, 000t, 0 ≤ t ≤ 3. What is the present value of this income
over the 3-year period, assuming an annual interest rate of 8% compounded
continuously?
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Chapter 5. Integration 5.3. Applications in Business
Matrix inverse
Cramer’s rule
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Chapter 6. Matrices 6.1. What is a matrix?
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Chapter 6. Matrices 6.1. What is a matrix?
In particular,
If m = 1 then A is also called row vector.
If n = 1 then A is called column vector.
If m = n then the matrix is said to be square and in this case, we call
A is the square matrix of order n.
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Chapter 6. Matrices 6.2. Matrix Operations
A = B ⇔ aij = bij
Addition. Let A and B be two matrices of order m × n
A + B = [aij + bij ]
Subtraction. Let A and B be two matrices of order m × n
A − B = [aij − bij ]
Scalar Multiplication. Let k be a real number and A be a matrix of order m × n
k A = [k aij ]
n
X
ha, bi = ab T = a1 b1 + a2 b2 + · · · + an bn = ai bi
i=1
Example
a = (1 3 5), b = (−1 0 4) ⇒ ab T = 1 × (−1) + 3 × 0 + 5 × 4 = 19
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Chapter 6. Matrices 6.2. Matrix Operations
AB = [cij ],
Pn
where cij = k=1 aik bkj
We can multiply two matrices only when the number of columns in the
first matrix is equal to the number of rows in the second matrix.
Example
" #" #
4 2 −1 −3
=
1 5 2 4
" #
4 × (−1) + 2 × 2 4 × (−3) + 2 × 4
1 × (−1) + 5 × 2 1 × (−3) + 5 × 4
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"
UEH, Vietnam
# October 19, 2021 149 / 171
Chapter 6. Matrices 6.2. Matrix Operations
We have that
" #" # " #
1 0 a11 a12 a11 a12
=
0 1 a21 a22 a21 a22
and
" #" # " #
a11 a12 1 0 a11 a12
=
a21 a22 0 1 a21 a22
In general AI = A = IA
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Chapter 6. Matrices 6.2. Matrix Operations
Example
A firm orders 12, 30 and 25 items of goods G1, G2 and G3. The cost of
each item of G1, G2 and G3 is $8, $30 and $15, respectively.
(a) Write down suitable price and quantity vectors, and use matrix
multiplication to work out the total cost of the order.
(b) Write down the new price vector when the cost of G1 rises by 20%,
the cost of G2 falls by 10% and the cost of G3 is unaltered. Use
matrix multiplication to work out the new cost of the order and hence
find the overall percentage change in total cost.
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Chapter 6. Matrices 6.2. Matrix Operations
Example
A chain of sports shops, A, B and C , sells T-shirts, trainers and tennis racquets.
The weekly sales and profit per item are shown in the tables below:
The 3 × 3 matrices formed from the sales and profit tables are denoted by S and
P, respectively.
(a) If SP T is denoted by A, find the element a11 and give a brief interpretation
of this number.
(b) If S T P is denoted by B, find the element b33 and give a brief interpretation
of this number.
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Chapter 6. Matrices 6.3. Inverse Matrix
AB = I = BA
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Chapter 6. Matrices 6.3. Inverse Matrix
3.
Add a nonzero multiple ofone row to another row.
x + 2y = 1 x + 2y = 1
⇔
3x + 4y = −5 0x − 2y = −8
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Chapter 6. Matrices 6.3. Inverse Matrix
Example
x + 3y + 2z =9
x − y + 3z = 16
3x − 4y + 2z
= 28
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Chapter 6. Matrices 6.3. Inverse Matrix
How to check a matrix invertible or not? one of the ways is finding its
determinant. If the determinant of a matrix is non-zero then the matrix is
invertible.
Matrix of order 2 × 2
a b
= ad − cb
c d
Matrix of 3 × 3:
a11 a12 a13
a21 a22 a23 =
a31 a32 a33
a
22 a23
a a23 a
21 a22
21
a11 - a12 + a13
a32 a33 a31 a33 a31 a32
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Chapter 6. Matrices 6.3. Inverse Matrix
where Mij is the determinant of the matrix formed by deleting the ith
row and the jth column of A.
where i ∈ 1, n.
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Chapter 6. Matrices 6.3. Inverse Matrix
2. Multiply each element in that row or column by its cofactor and add
the results
Note that
The value of a determinant will be the same no matter which row or column
is chosen.
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Chapter 6. Matrices 6.4. Cramer’s rule
Dx Dy
is given by x = ;y=
D D
a b1 c b a c
1 1 1 1 1
where D = ; Dx = Dy = ; and D 6= 0
a2 b2 c2 b2 a2 c2
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Chapter 6. Matrices 6.4. Cramer’s rule
Dx Dy Dz
is given by x = ;y= ;z=
D D D
a1 b1 c1 d1 b1 c1 a1 d1 c1
where D = a2 b2 c2 ; Dx = d2 b2 c2 Dy = a2 d2 c2 ;
a3 b3 c3 d3 b3 c3 a3 d3 c3
a1 b1 d1
Dz = a2 b2 d2 ; and D 6= 0
a3 b3 d3
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Chapter 6. Matrices 6.4. Cramer’s rule
D1 D2 Dn
x1 = , x2 = , . . . , xn =
D D D
provided that D 6= 0.
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Chapter 7. Linear Programming
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Chapter 7. Linear Programming 7.1. What is a linear programming?
Example
A manufacturer produces three models of bicycles. The time (in hours)
required for assembling, painting, and packaging each model is as follows:
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Chapter 7. Linear Programming 7.2. Standard form of a linear programming
where aij are constants, bi are non-negative constants, cj are constants for
all 1 ≤ i ≤ m, 1 ≤ j ≤ n, and x1 , x2 , . . . , xn ≥ 0.
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Chapter 7. Linear Programming 7.3. Geometric method
Example
x +y ≤2
max Z = 5x + 4y subject to 2x + 3y ≤ 6
x, y ≥ 0.
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Chapter 7. Linear Programming 7.4. Simplex method for max problem
In 1947, George B. Dantzig created a simplex algorithm to solve linear programmings for planning and decision-making in
large-scale enterprises. The algorithm’s success led to a vast array of specializations and generalizations that have dominated
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Chapter 7. Linear Programming 7.4. Simplex method for max problem
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Chapter 7. Linear Programming 7.4. Simplex method for max problem
S2. If there is any negative indicator then choose a column w.r.t. the
biggest negative indicator as a pivot column.
S4. Create a new simplex table in which the common entry of the pivot
column and the pivot row above is transformed into 1 and other
entries in the pivot column zeros by using the elementary row
operations [executing with pivot row only!]
To be continued ...
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