C1: LINEAR EQUATIONS (PHƯƠNG TRÌNH TUYẾN TÍNH)

Sections 1.3: Graphs of Linear Equations

 A graph consists of an x-axis (horizontal axis) and y-axis (vertical axis),
and a particular point on the graph is identified by its co-ordinates, (x, y);
 The first co-ordinate is the horizontal position of the point; the second co-
ordinate is the vertical position.

The main feature & Plotting of Points

North-East (NE)
South-East (SE)
South-West (SW)
North-West (NW)

Linear Equations
 Definition of an equation: an equation is any expression containing an
"equals" sign.
 The general equation of a straight line takes the form a multiple of x + a
multiple of y = a number
 ax+y = b for some given numbers a and b
 The numbers d and e are referred to as the coefficients.
 EX: -2x+y=1
 The coefficients are -2 and 1

Intercept & Slope

 Using the equation: y=2x-3 or y=ax+b
 a=2 and b=-3
 When x=0 -> y=-3
 The line passes (0; -3) so the y intercept
is -3, in other words, the constant term, b,
represents the intercept on the y-axis.
 The a, the coefficient of x, determines
the slope of a line.

Example
EX1:
Two new models of a smartphone are launched on 1 January 2018. Predictions
of sales are given by:
 Model 1: =4+0.511
 Model 2: = 8 + 0.111
where Si (in tens of thousands) denotes the monthly sales of model i after n
months.

a) State the values of the slope and intercept of each line and give an
interpretation.
b) Illustrate the sales of both models during the first year by drawing
graphs on the same axes.
 c) Use the graph to find the month when sales of Model 1 overtake those of
Model 2.

EX2:
Three companies can supply a university with some mathematical software.
Each company has a different pricing structure:
 Company I provides a site license which costs $130 000 and can be used by
anyone at the university;
 Company 2 charges $ 1000 per user;
 Company 3 charges a fixed amount of $40 000 for the first 60 users and
$500 for each additional user.
(a) Draw a graph of each cost function on the same set of axes.
(b) What advice can you give the university about which company to use?

Section 1.5: Sypply & Demand Analysis

 A function, f, is a rule which assigns to each incoming number, x, a uniquely
defined outgoing number, y. -> y=2x+3 or f(x)=2x+3
 The incoming variables -> independent variable
 The outgoing variables -> dependent variable

 Identify the independent and dependent variable:

 Annual Income of an individual and total Annual Expenditure by the individual.
 Weekly income of an individual and number of hours worked per week by the
individual.
 Annual Income of an individual and number of years of education of the
individual.
 Price of fuel and quantity consumed of fuel by UK households.
 Price of fuel and quantity of fuel supplied to world market by oil-producing
countries.
 Number of students attending UK Universities and average tuition fees.

Demand
 Look at the Handcrafting "silver" rings:
 If you set a price of £1 per ring, you sell eight rings;
 If you set a price of £2, you sell seven;
 If you set a price of £3, you sell six;
 If you set a price of £4, you sell five;
 If you set a price of £9, you do not sell any!
 Let P be the price and Q be the number that you sell
 We have: D: Q=9-P

This equation is known as the demand equation for your silver rings. It
shows how many will be sold (Q) when the price is P.

Demand functions
 The quantity demanded, Q, of a good depends on the market price, P. We
might express this as -> Q=f(P) or P=g(Q)
 f and g, are said to be inverse functions

 Written in the form P = g(Q), P= aQ + b

 a, b are parameters
 The process of identifying the key features of the real world and making
appropriate simplifications and assumptions is known as modelling.
 a<0: decreasing functions
 a>0: increasing functions
Endogenous & Exogenous
 In practice, Q depends on other factors as well. These include
 the incomes of consumers, Y,
 the price of substitutable goods, PS,
 the price of complementary goods, PC,
 advertising expenditure, A,
 and consumers' tastes, T.
 Q=f(P, Y, PS, PC, A, T)

 Q and P endogenous variables (allowed to vary and are determined within

the model)

 The remaining variables are called exogenous (constant and are

determined outside the model)

Supply
 What price will you choose to set? Well, actually, you don't choose the price;
you let the market choose it for you. In order to find what price will emerge,
we need to consider the supply equation as well.
 If you are offered only El per ring, you are not willing to spend time
producing them, so you do not produce any.
 If you are offered E2, you are willing to produce only one.
 If you are offered E3, you are willing to produce two; and so on.
 If you are offered E 10, you produce nine.
 Supply function: Q=-1+ P
 P=aQ+b
Equilibrium
 The corresponding price, P0, and quantity, Q0,
are called the equilibrium price and quantity.

 At this point the market is in equilibrium because

the quantity supplied exactly matches the quantity
demanded.

Example
 A potter makes and sells ceramic bowls. It is observed that when the price
is $32, only 9 bowls are sold in a week; but when the price decreases to $10,
weekly sales rise to 20. Assuming that demand can be modelled by a linear
function. Set up the demand function
 The demand and supply functions ofa good are given by
P=-2QD+50P=1/2QS+25
 Where P, QD and QS denote the price, quantity demanded and quantity
supplied, respectively.
(a) Determine the equilibrium price and quantity.
(b) Determine the effect on the market equilibrium if the government decides
to impose a fixed tax of $5 on each good.

Section 1.7: National Income Determination

 Firms use resources such as land, capital, labor and raw materials to
produce goods and services.
 These resources are known as factors of production and are taken to
belong to households.
 National income represents the flow of income from firms to households
given as payment for these factors.
 Income can be used for the consumption of goods produced by firms, or it
can be put into savings.
 Consumption, C, and savings, S, are therefore functions of income, Y: that
is,

C=f(Y), S=g(Y)

Consumption Function
 Consumption function: C=aY+ b
 The intercept b is the level of consumption when there is no income
-> autonomous consumption
 The slope, a, is the change in C brought about by a I-unit increase in Y and is
known as the -> marginal propensity to consume (MPC)
 0<a<1

 But: Y=C+S -> S=(1-a)Y-b

 The slope of the savings function is called the marginal propensity to save
(MPS) and is given by 1 — a: that is,
 MPS = 1 -a = 1 -MPC
 -b: autonomous savings.

The Model of National Economy

  From the upper diagram: C+I=Y
 From the lower diagram: Y=C+S
 If the economy is in
equilibrium, the flow of income and
expenditure balance so that.

Government Expenditure & Taxation

 The national income: Y=C+I+G
 With the tax (T), Yd=Y-T -> disposable income
 In practice, the tax will:
- either be autonomous (T= T * for some lump sum T *)
- or be a proportion of national income (T = ty for some proportion t), or a
combination of both (T = tY+ T*).

 Example:
Given that
 G=20 -> I=35
 C=O.9Yd +70 -> T=0.2Y+25
 Calculate the equilibrium level of national income.

Investment
 Previously, the investment, I, was taken to be constant.

 It is more realistic to assume that planned investment depends on the rate

of interest, r.
 As the interest rate rises, so investment falls and we have a relationship
I= cr + d where c<0 and d>0.

 Deriving Y and I equation from:

C=O.8Y+ 100
I=-20r+ 1000

 IS schedule: O.2Y+ 2018 = 1100

 LM schedule: MS*=Y+k21+k3
 MS: Money supply, fixed (Controlled by central bank)
 MD: Money demand
- Transaction demand, precautionary demand: L1=k1Y
- Speculative demand: L2=k2r+k3
- k1 and k3 are positive constant, is negative constant
MD=L1+L2=k1Y+k2r+k3
 If the money market is in equilibrium, then
MS=MD

C2: NON-LINEAR EQUATIONS

Section 2.1: Quadratic functions
 The simplest non-linear function is known as a quadratic function and
takes the form f(x)=ax2+bx+c for some parameters a, b and c.

Solve the quadratic equations

 For equation: ax2+bx+c=0
 The number b2-4ac is called the discriminant:
 If b2-4ac>0, then there are two solutions:

 If b2-4ac=0, then there is one solution:

 If b2-4ac<0, then there are no solutions because √(b2 -4ac) does not exist.

Revenue, Cost and Profit

 The profit function is denoted by the Greek letter π (pi, pronounced 'pie')
and is defined to be the difference between total revenue, TR, and total cost
TC: that is, π=TR-TC

 The total revenue received from the sale of Q goods at price P is given by
TR = PQ

Example
 Given the demand function • P = 100 — 2Q
express TR as a function of Q and hence sketch its graph.
(a) For what values of Q is TR zero?
(b) What is the maximum value of T R?

TR=(100-2Q) Q=IOOQ-2Q2
a) The total revenue is zero when Q = 0 and Q =50.
b) By symmetry, the parabola reaches its maximum halfway between 0 and 50:
that is, at Q 25. The corresponding total revenue is given by
TR=100(25)-2(25)2=1250

Total Cost, Variable Cost and Fixed Cost

 Total cost function, TC, which relates the production costs to the level of
output, Q.

 Fixed costs, FC, include the cost of land, equipment, rent and possibly
skilled labor.

 Variable costs, on the other hand, vary with output and include the cost of
raw materials, components, energy and unskilled labor.

 TVC = (VC)Q
 TC FC + (VC)Q

 The average cost, AC=FC/Q+VC/Q

Graphs
Picture 1
Picture 2

Example
 Given the demand function QD=75-(1/4)P
 Find the total revenue function written in terms of Q [TR = P(Q)]
 Calculate the point at which total revenue is equal to zero
 Calculate the point at which total revenue is maximized.
 A manufacturer faces two types of costs in its production process, fixed
costs which are equal to £1OOO and variable costs which are equal to £2 for
each tire produced.
 State the total cost function for this firm
 Calculate average costs
 Calculate total costs if 700 tires are produced.

 Using the total revenue function calculated from question 1 and the total
cost function calculated in question 2.
 Derive the profit function for the firm
 What is the break — even -point
 What is the value of profits when production equals 125 units?
 How much is the maxiziming profit? At the maximizing profit, what should
the company produce.