Mathematics for Business and Economics - Exam

Points
Exam date: August 23, 2019
1
Non-graphic calculator and one A4 sheet with formulas and other Enrolment Year
content are allowed. Time: 90 minutes. Good luck! • full-time 2
• part-time
Name and surname 3
Student ID
4

A
Problem 1 (15 points)
The total revenue function of a company is

TR(K, L) = KL + 14K + 20L,

and the total cost function is

TC(K, L) = K 2 + 2L2 + 2K + 5L + 55,

where K is the capital input, and L is the labor input. How much capital and labor
should the company employ to maximize its profit? What is its profit? Verify that
the solution obtained really is a maximum.

Solution:

The profit function is

π(K, L) = TR(K, L) − TC(K, L) = KL − K 2 − 2L2 + 12K + 15L − 55.

To maximize it, we find the partial derivatives and set them equal to zero:

πK = L − 2K + 12 = 0,

πL = K − 4L + 15 = 0.
The solution is K ∗ = 9, L∗ = 6, and the profit is π ∗ = π(9, 6) = 44.
To verify that this really is a maximum, we find the second partial derivatives

πKK = −2, πLL = −4, πKL = 1

and the Hessian

2
Hess = πKK πLL − πKL = 7.
Since Hess > 0 and πKK < 0, this is the maximum.
The company should employ 9 units of capital and 6 units of labor to make 44
monetary units of profit.
Problem 2 (25 points)
Consider the function
3 ln 
ƒ () = 2 − .

a) (15) Find its domain, poles, the first and second derivative, extrema, and inter-
vals where it is increasing or decreasing. What happens to the function value as
 → ∞ and as  → 0? Sketch its graph in the given coordinate system.
Ze
b) (10) Find the integral ƒ () d. On the graph from a), shade the region whose
1
area you’ve computed.

Solution:

a) Domain: (0, ∞).

Pole: 1 = 0.
Derivatives:
3(ln  − 1) 3(3 − 2 ln )
ƒ 0 () = , ƒ 00 () = .
2 3
3(ln  − 1)
Extrema: From the equation ƒ 0 () = 0 we get = 0 ⇒ ln  = 1 ⇒ 2 = e.
2
3 3
Since ƒ (e) = 2 − e
and ƒ 00 (e) = e3
> 0, there is a local minimum at A(e, 2 − 3e ) ≈
A(2.72, 0.90).
The interval where the function is increasing (e, ∞).
The interval where the function is decreasing (0, e).
Limits:
lim ƒ () = 2, lim ƒ () = ∞.
→∞ →0

3 ln  ln 
Z   Z
b) First we compute the indefinite integral 2− d = 2 − 3 d.
 
In the last integral, we use sub-
y
stitution t = ln , dt = d

to get
6
ln 
Z Z
d = t dt = 5


= 21 t 2 + C = 12 (ln )2 + C. 4

The definite integral is 3

Ze
ƒ () d = 2
1
€ Še 1
= 2 − 23 (ln )2  =
1
7 
= 2e − 2
≈ 1.94. −2 −1 0 1 2 3 4 5 6
−1

−2
Problem 3 (15 points)
 
1 0 0
For the matrix A = 2 1 0 , solve the matrix equation
2 2 1

A − X = A−1 X.

Solution:

We first solve the equation algebraically

A − X = A−1 X
A = A−1 X + X
A−1 X + X = A
(A−1 + )X = A
X = (A−1 + )−1 A

We find the inverse of the matrix A:

     
1 0 0 1 0 0 1 0 0 1 0 0 1 0 0 1 0 0
 2 1 0 0 1 0  ∼  0 1 0 −2 1 0  ∼  0 1 0 −2 1 0  .
2 2 1 0 0 1 0 2 1 −2 0 1 0 0 1 2 −2 1
 
1 0 0
We have A−1 = −2 1 0 . We now compute the matrix
2 −2 1
     
1 0 0 1 0 0 2 0 0
A−1 +  = −2 1 0 + 0 1 0 = −2 2 0
2 −2 1 0 0 1 2 −2 2

and find its inverse

   
2 0 0 1 0 0 2 0 0 1 0 0
 −2 2 0 0 1 0  ∼  0 2 0 1 1 0  ∼
2 −2 2 0 0 1 0 −2 2 −1 0 1

1 0 0 12 0 0
   
2 0 0 1 0 0
∼  0 2 0 1 1 0  ∼  0 1 0 12 12 0  .
0 0 2 0 1 1 0 0 1 0 12 21
Finally we get
1    1 
2
0 0 1 0 0 2
0 0
X = (A−1 + )−1 A =  12 12 0  · 2 1 0 =  32 12 0  .
0 12 12 2 2 1 2 32 21

Remark: Another option is to first multiply the equation by A from the left and then
express X. We get X = (A + )−1 A2 and the same numerical result.
Problem 4 (15 points)
Lara enrolls to SEB LU to study international economics. She wins a scholarship. As
she graduates in September 2022, she wants to buy an electric scooter. Therefore,
she deposits e50 into a savings account at the end of each month from October
2019 to September 2022. The bank uses an annual interest rate of 1.8% and re-
lative monthly compounding. Find Lara’s savings account’s balance at the end of
September 2022 after her last deposit.

Solution:

The deposits are  = e50, the final balance is B.

The annual interest rate is p% = 1.8%.
p
The monthly interest factor is r = 1 + 100·12
= 1.0015.
Cash flow diagram

     

...

Oct Nov Dec Aug Sep time

’19 ’19 ’19 ’22 ’22

The moment of valuation is at the end of September 2022.

The equivalence of cash flows gives:

B = r 35 + r 34 + · · · + r 2 + r + 
B = (r 35 + r 34 + · · · + r 2 + r + 1)
r 36 − 1
B=·
r−1
1.001536
−1
B = 50 · = e1848.06.
1.0015 − 1
The final balance is e1848.06.
Mathematics for Business and Economics - Exam
Points
Exam date: August 23, 2019
1
Non-graphic calculator and one A4 sheet with formulas and other Enrolment Year
content are allowed. Time: 90 minutes. Good luck! • full-time 2
• part-time
Name and surname 3
Student ID
4

B
Problem 1 (15 points)
The total revenue function of a company is

TR(K, L) = KL + 20K + 14L,

and the total cost function is

TC(K, L) = 2K 2 + L2 + 5K + 2L + 44,

where K is the capital input, and L is the labor input. How much capital and labor
should the company employ to maximize its profit? What is its profit? Verify that
the solution obtained really is a maximum.

Solution:

The profit function is

π(K, L) = TR(K, L) − TC(K, L) = KL − 2K 2 − L2 + 15K + 12L − 44.

To maximize it, we find the partial derivatives and set them equal to zero:

πK = L − 4K + 15 = 0,

πL = K − 2L + 12 = 0.
The solution is K ∗ = 6, L∗ = 9, and the profit is π ∗ = π(6, 9) = 55.
To verify that this really is a maximum, we find the second partial derivatives

πKK = −4, πLL = −2, πKL = 1

and the Hessian

2
Hess = πKK πLL − πKL = 7.
Since Hess > 0 and πKK < 0, this is the maximum.
The company should employ 6 units of capital and 9 units of labor to make 55
monetary units of profit.
Problem 2 (25 points)
Consider the function
2 ln 
ƒ () = 3 − .

a) (15) Find its domain, poles, the first and second derivative, extrema, and inter-
vals where it is increasing or decreasing. What happens to the function value as
 → ∞ and as  → 0? Sketch its graph in the given coordinate system.
Ze
b) (10) Find the integral ƒ () d. On the graph from a), shade the region whose
1
area you’ve computed.

Solution:

a) Domain: (0, ∞).

Pole: 1 = 0.
Derivatives:
2(ln  − 1) 2(3 − 2 ln )
ƒ 0 () = , ƒ 00 () = .
2 3
2(ln  − 1)
Extrema: From the equation ƒ 0 () = 0 we get = 0 ⇒ ln  = 1 ⇒ 2 = e.
2
2 2
Since ƒ (e) = 3 − e
and ƒ 00 (e) = e3
> 0, there is a local minimum at A(e, 3 − 2e ) ≈
A(2.72, 2.26).
The interval where the function is increasing (e, ∞).
The interval where the function is decreasing (0, e).
Limits:
lim ƒ () = 3, lim ƒ () = ∞.
→∞ →0

2 ln  ln 
Z   Z
b) First we compute the indefinite integral 3− d = 3 − 2 d.
 
In the last integral, we use sub-
y
stitution t = ln , dt = d

to get
6
ln 
Z Z
d = t dt = 5


= 21 t 2 + C = 12 (ln )2 + C. 4

The definite integral is 3

Ze
ƒ () d = 2
1

e 1
= 3 − (ln )2 1 =
= 3e − 4 ≈ 4.15. 
−2 −1 0 1 2 3 4 5 6
−1

−2
Problem 3 (15 points)
 
−1 2 2
For the matrix B =  0 −1 2 , solve the matrix equation
0 0 −1

B + X = B−1 X.

Solution:

We first solve the equation algebraically

B + X = B−1 X
B = B−1 X − X
B−1 X − X = B
(B−1 − )X = B
X = (B−1 − )−1 B

We find the inverse of the matrix B:

   
−1 2 2 1 0 0 −1 2 0 1 0 2
 0 −1 2 0 1 0  ∼  0 −1 0 0 1 2  ∼
0 0 −1 0 0 1 0 0 −1 0 0 1
   
−1 0 0 1 2 6 1 0 0 −1 −2 −6
∼  0 −1 0 0 1 2  ∼  0 1 0 0 −1 −2  .
0 0 −1 0 0 1 0 0 1 0 0 −1
 
−1 −2 −6
We have B−1 =  0 −1 −2 . We now compute the matrix
0 0 −1
     
−1 −2 −6 1 0 0 −2 −2 −6
B−1 −  =  0 −1 −2 − 0 1 0 =  0 −2 −2
0 0 −1 0 0 1 0 0 −2

and find its inverse

   
−2 −2 −6 1 0 0 −2 −2 0 1 0 −3
 0 −2 −2 0 1 0  ∼  0 −2 0 0 1 −1  ∼
0 0 −2 0 0 1 0 0 −2 0 0 1

1 0 0 − 12 1
   
−2 0 0 1 −1 −2 2
1
∼  0 −2 0 0 1 −1  ∼  0 1 0 0 − 12 1
2
.
0 0 −2 0 0 1 0 0 1 0 0 − 12
Finally we get

− 21 1  1
− 32
   
2
1 −1 2 2 2
−1
X = (B−1 − )−1 B =  0 − 12 1  
2
· 0 −1 2  =  0 12 − 32  .
0 0 − 12 0 0 −1 0 0 1
2

Remark: Another option is to first multiply the equation by B from the left and then
express X. We get X = (B − )−1 B2 and the same numerical result.
Problem 4 (15 points)
Lars enrolls to SEB LU to study international business. He wins a scholarship. As he
graduates in September 2022, he wants to buy an electric scooter. Therefore, he
deposits e60 into a savings account at the end of each month from October 2019
to September 2022. The bank uses an annual interest rate of 1.2% and relative
monthly compounding. Find Lars’s savings account’s balance at the end of Sep-
tember 2022 after his last deposit.

Solution:

The deposits are  = e60, the final balance is B.

The annual interest rate is p% = 1.2%.
p
The monthly interest factor is r = 1 + 100·12
= 1.001.
Cash flow diagram

     

...

Oct Nov Dec Aug Sep time

’19 ’19 ’19 ’22 ’22

The moment of valuation is at the end of September 2022.

The equivalence of cash flows gives:

B = r 35 + r 34 + · · · + r 2 + r + 
B = (r 35 + r 34 + · · · + r 2 + r + 1)
r 36 − 1
B=·
r−1
1.00136 − 1
B = 60 · = e2198.23.
1.001 − 1
The final balance is e2198.23.