Construction of Function

Function established a relation between two or more

sets of objects
 X Y

Price of
Commodity, Demand,
Advertising Sales,
Expenses, Expenditure
Income
Function established a relation between two or more sets of objects

X
Price of Y
f
Commodity Demand
Advertising Sales
Expenses Expenditure
Income

domain range
• Function

• If each value of a variable X there corresponds one definite

value of another variable Y, then we say that Y is a function of
X and is denote by Y = f (X).
– Set of values of X for which the value of function Y is determined is
called domain of the function
– Set of values of Y is called the range of the function.
– X is called independent variable and Y is dependent variable

• Explicit and Implicit functions

– When a function is expressed directly in terms of dependent variable,

function is said to be explicit function otherwise an implicit function .
– e.g. y = x2 + 2 x – 7 is a explicit function
– e.g. y = f(x), F(x, y), etc. is an implicit function
• Domain and Range of functions

• (i) y = x - 15, 0 ≤ x ≤ l
– Domain of x is the closed interval [0, 1] and the range of y is [-15, -
14]
(ii) y = x2 + 6x-2, 1 ≤ x ≤ 2
– Domain of x is the interval [1, 2] and the range of y is [5, 14]

• Operations on functions: Given two function f and g

– (f + g) (x) = f (x) + g (x)

– (f - g) (x) = f (x) - g (x)
– (f o g) (x) = f (x) o g (x)
– (f / g) (x) = f (x) / g (x), g (x) ≠ 0
• Linear Function:

• A linear function is defined as y = f (x) = b + ax

• Where a and b are given real number and x is a variable taking
all numerical values in an interval.
• It is linear in x, as the graph of the function is a straight line.
(0, b)
y= b + ax
b

(-b/a, 0)
• In this equation the power of x is 1.
• The line cut the x axis at a distance –b/a units from the origin
and the y axis at a distance of b from the origin.
• Here a is called slop and b is called intercept of the equation.
• Nonlinear function:

• Function of the form f(x) = ax2 + bx + c, where a, b, c are

constants is called a quadratic function.

• Exponential and logarithmic function:

• A function defined by f (x) = ax, where a > 1 and the exponent

x is any real number is called an exponential function to base a.
• Logarithm to the base a of x is denoted by loga x and is defined
by y = f (x) = loga x
– Domain of the logarithmic function is the set of all positive real number
and range is the set of all real number.
– Logarithmic function is reverse of the exponential function and vice
versa.
• Some function in business:

• Supply function: Quantity of particular commodity to a

sellers have available to offer in the market at various prices.

• Demand function: Quantity of a particular commodity that

buyers are willing to purchase at various prices.

• Let x denote the quantity of commodity demand and p its price

( x and p being available)

• Demand function is x = f (p) showing dependence of x on p,

similarly, p = g (x) showing dependence of p on x

• Implicit function F (x, p) = 0

• Cost function:

• If x is the quantity produced of a certain goods by a firm at total

cost c can be written as C (x). Implicit function F (c, x) = 0

• Cost of a certain commodity may consider to be composed of two

components i.e. Fixed cost F (x) and Variable cost V (x)

• Fixed cost F (x) = {rent, insurance, other overhead expenses that

exist even with no production}

• Variable cost V (x) = expenses with a direct bearing on each unit

being produced viz. man hour, raw material, fuel etc. It depends
on number of units produced.

• Total cost C (x) = Fixed cost F (x) + Variable cost V (x)

Revenue function:

• Revenue is the amount of money derived from the sales of a

product and depends upon the price of the product and the
quantity of the product that is actually sold.

• R (x) = p × x

Profit function:

• The revenue and cost function lead to the profit function.

• As profit is excess of revenue over the cost of production, the

profit function is P (x) = R (x) – C (x)
• Construction of function:

Example.1

• A banana seller buys bananas at R1 rupees and sells at R2

rupees (R2 > R1).

• Unsold fruits at the end of day are sold at R3 rupees (R3 < R1).

• What is the profit function for the fruit seller?

• Solution:

• Profit depends on how many fruits he is able to sell in relation to

the quantity of fruits he bought in the beginning of the day.

• Let D be the demand of fruits at R2 per fruit and Q the stock of

fruits.

• Case (i): D < Q. (demand falls short of stock)

– Profit = R2 (no of fruits sold) + R3 (excess of stock over demand) - R1 (stock)
– = [R2D + (Q-D) R3] - QR1
– = D (R2-R3) + Q (R3-R1)

• Case (ii): D≥Q. (demand more than the stock.)

– In this case, he will be able to sell the total stock.
– Profit = QR2 - QR1
• Example.2

• A factory has x items on hand for shipment to a destination at

the cost of Re 1 a piece to meet a certain demand d.

• In case the demand d overshoots the supply x, it is necessary

to meet the unsatisfied demand by purchases on the local
market at Rs 2 a piece.

• Construct the cost function if x is the number shipped from the

factory.
• Solution:

• Let C (x) denote the cost function.

• If d ≥ x i.e. shipment demand ≥ supply from factory

– C (x) = 1 (x) + 2 (d - x) = x + 2 (d - x)

• If d < x i.e. shipment demand < supply from factory

– C (x) = 1 (x) = x

• It is possible to combine this into a single representation

– C (x) = x + 2 max (0, d - x)
• Example 3 (Quantity Discounts and Price Breaks)

• A retailer offers the following price breaks on an item:

– Rs. 10 per kg for any amount ordered up to 10 kg

– Rs. 7 per additional kg above 10 kg and up to 100 kg
– Rs. 5 per additional kg beyond 100 kg.

• Construct the cost function for x kg ordered.

Solution:

• Let C (x) be the cost function.

• Then from the definition of the discounts

• we have

10 x for 0 ≤ x ≤ 10
• C (x) = 100 + 7(x-10) for 10 < x ≤ 100
100 + 630 + 5(x-100) for x> 100
Example 4

• Assume that for certain values of the advertising expenditure,

the sales are a linear function of the expenditure.

• It is known that for an advertising expenditure of Rs. 50000,

the sales would be Rs. 400000.

• If no advertising expenditure is incurred the sales would be

Rs. 200000.

• Construct the sales function.

Solution:

• Let y = sales in Rs and x = advertising expenditure in Rs

• Since y is assumed to be linear in x, let y = ax + b.
• When x = 0, we are given that y = 200000.
• Also for x = 0 gives y = b.
• Hence, b = 200000.
• When x = 50000, y = 400000,
• so that 400000 = 50000 a + b = 50000 a + 200000
• 50000 a = 200000
• a=4
• The sales function is therefore given by y = 4x + 200000
Question 5:

• Express the number of units (quantity) q that can be sold as a linear function of
price p.

• 1000 units of a product can be sold at a price of Rs 5 per unit and 1200 units at
a price of Rs 4.50 per unit.
Solution:
• Let p and q be the price and quantity of the product.
• q = b + a p (linear function)
• So 1000 = b + 5 a
• 1200 = b + 4.5 a
• By solving these two equations we get the value of b and p
• b = 1000 - 5a
• b = 1200 – 4.5a
• - - +
• 0 = -200 – 0.5a
• a = - 400 and b = 1000 – 5 x (– 400) = 3000
• So q = - 400 p + 3000
• Range = 3000/400 = 7.5
• 0≤p≤7.5
Question 6:

• The cost of tax, insurance and hire installments for a car in a

single year is Rs 4000; maintenance including petrol is Re 1
per km of running the car and assume there are no other
charges.

• Draw a graph showing the total annual cost per km as a

function of the kilometers run in a year and write down its
equation.
Solution:

• Cost of tax + insurance + hire = Rs 4000 is fixed cost

• Variable cost = Re 1 / km of running the car
• Total cost = Fixed cost + variable cost = 4000 + 1 (x)
• Where x is the total kilometers
total cost 4000  x 4000
Cost per km    1
total km x x
250
• x 4000
1 200
x
• 20 201 150
• 40 101
100
• 60 66
50
20 40 60
• Question 7: An industrial enterprise can sell 500 units of a
product to another concern at a price of Rs. 40 per unit. The
fixed costs are Rs. 10000 and the variable cost is Rs. 30 per
unit. If the enterprise has excess capacity, should the order be
accepted?
• Solution:

1. The evaluation criterion in this problem is to maximize profit

2. Two alternative course of action are:
(a) To accept the order
(b) To reject the order
3. Construction of mathematical model
• Total cost = Fixed costs + Volume x Variable cost/Unit
= 10000 + 30 x 500 = 25000

• Sales Revenue = Volume x Price/Unit = 500 x 40 = 20000

• Profit = Sales Revenue – Total Cost = 20000 – 25000 = -5000

• Decision: Loss of 5000 will occur if company accepts order.

So, do not accept the order.
• Question 8: A business enterprises has received an order for making a
product. It associates with the fixed cost of Rs. 4000 and a variable cost
of producing a unit of Rs. 40. The product can be sold at the rate of Rs.
70 per unit. The level of demand is uncertain. The probability of demand
are given in Table

Level of Demand Probability

100 0.6
350 0.3
• Should the enterprise700 0.1or reject it?
go for making a product
• Solution

1. The evaluation criterion in this problem is to maximize expected

profit
2. Two alternative course of action are:
(a) To accept the order
(b) To reject the order
3. Construction of mathematical model

Level of Proba Total Cost = Fixed Costs Revenue = Volume Profit = Total Profit
demand bility +Volume X Variable Cost X Price Cost - Revenue Probability
100 0.6 8000 7000 -1000 -600
350 0.3 18000 24500 6500 1950
700 0.1 32000 49000 17000 1700
•Expected
Decision: Expected Profit is Rs 3050. So, the company can make
3050
Profit
product.