Topic 1:

Elementary Linear Functions

Lecture Notes:
section 1.1

Jacques Text Book:

section 1.1 and 1.2
(Basic Revision)
section 1.3
 Linear Functions

The function f is a rule that assigns

an incoming number x, a uniquely
defined outgoing number y.

y = f(x)
The Variable x takes on different
values...

The function maps out how different

values of x affect the outgoing
number y.

A Constant remains fixed when we

study a relationship between the
incoming and outgoing variables
Simplest Linear Relationship takes
the form:
y = a+bx independent
dependent variable
variable
intercept

This represents a straight line on a

*

graph i.e. a linear function has a

constant slope

b = slope of the line = the change in

the dependent variable y, given a
change in the independent variable
x.
Example:
y = a + bx

y : is the final grade,

x : is number of hours studied,
a%: guaranteed
y=5+0x
output= constant slope input
y a b x
5 5 0 0
5 5 0 1
5 5 0 2
5 5 0 3
5 5 0 4
5 5 0 5

Linear Functions

60

50
Dependent Y Variable

40

30

20

10

0
0 1 2 3 4
Independent X Variable
y=5+15x
output= constant slope input
y a b X
5 5 15 0
20 5 15 1
35 5 15 2
50 5 15 3
65 5 15 4
Linear Functions

65

55
Dependent Y Variable

45

35

25

15

-5 0 1 2 3 4
Independent X Variable

If x = 4, what grade will you get?

Y = 5 + (4 * 15) = 65
Demand Function: D=a-bP
D= 10 -2P
D a -b P
10 10 -2 0
8 10 -2 1
6 10 -2 2
4 10 -2 3
Demand Function

12

10
Q Demand

0
0 1 2 3 4 5
Price

If p =5, how much will be demanded?

D = 10 - (2 * 5) = 0
Inverse Functions:

If y = f(x)
then x = g(y)
f and g are inverse functions

Let y = 5 + 15x

If a student gets y= 80% for their final

grade, how many hours per week did they
study?

Express x as a function of y:
The Inverse Function is:
x = (y-5)/15

solving, x = (80-5 / 15)

x = 5 hours per week
If D = a bP then the inverse demand
curve is given by P = (a/b) (1/b)D

So the inverse demand curve of the

function D= 10 -2P is P= 5 - 0.5D

Example
The demand for a pint of Guinness
in the Student bar on a Friday
evening is a linear function of price.
When the price per pint is 2, the
demand is 6 pints. When the price is
3, the demand is only 4 pints. Find
the function D = a + bP?
6 = a + 2b => a = 6-2b
4 = a + 3b => a = 4-3b

6-2b = 4-3b

Solving we find that b = -2

If b = -2, then a = 6-(-4) = 10

The function is D = 10 2P
What does this tell us?

Note, the inverse Function is

P = 5- 0.5D

(a simpler version of topic 1,

question 3- note: D= a +bP + Y)
A Tax Example.
1. Let 4000 be set as the target income.
All income above the target is taxed at
40%.

2. Income taxed at 40%, but for every 1

below 4000, the worker gets a negative
income tax (subsidy) of 40%.

Write out the linear function between

take-home pay and earnings for 1 & 2?

THP = E 0.4 (E 4000)

THP = E + 0.4 (4000 - E)

In both cases, THP = 1600 +0.6E
If the hourly wage rate is equal to 3 per
hour, rewrite take home pay in terms of
number of hours worked?

THP = 1600 +0.6E

Total Earnings E =
(no. hours worked X hourly wage)

THP = 1600 + 0.6(3H) = 1600 + 1.8H

Now add a (tax free) family allowance of

100 per child to the function

THP = 1600 + 0.6E + 100Z

Now assume that all earners are given a

100 supplement that is not taxable,
THP = 1600 + 0.6E + 100Z + 100
= 1700 + 0.6E + 100Z

First Question for Tutorial:

Topic 1, Q2:
Note: to find breakeven income,
set E = THP
Topic : Quadratic Functions

Lecture Notes:
section 1.2

Jacques Text Book:

section 2.1
 Quadratic Functions

Represent Non-Linear Relationships

2
y = ax +bx+c where a0
Intercept
a, b and c are constants

So the graph is U-Shaped if a>0,

And Hill-Shaped if a<0
And a Linear Function if a=0
 2
e.g. y = -x +4x+5
2
y = - 1. x + 4 . x+ 5
y a x2 b X C
-7 -1 4 4 -2 5
5 -1 0 4 0 5
9 -1 4 4 2 5
5 -1 16 4 4 5
-7 -1 36 4 6 5
Since a<0 => Hill Shaped Graph
Quadratic Functions

10
8
y=0, then x= +5
Intercept = 5 6 OR x = -1
4
2
0
-2 -2 0 2 4 6

-4
-6
-8
Independent X Variable
 Special Case: a=1, b=0 and c=0
So y = ax2+bx+c => y = x2
y= a x2 b x c
16 1 16 0 -4 0
4 1 4 0 -2 0
0 1 0 0 0 0
4 1 4 0 2 0
16 1 16 0 4 0
36 1 36 0 6 0
Quadratic Functions

40
35
30
25
20
Y = X2

15
10
5
0
-4 -2 -5 0 2 4 6
-10

Intercept = 0 Independent X Variable

Min. Point: (0,0)
If the curve cuts the x-axis in 2
places: there are always TWO
values of x that yield the same
value of y when y=0

If it cuts x-axis only once: when

y=0 there is a unique value of x

If it never cuts the x-axis: when

y=0 there is no solution for x

How to find Value(s), if any, of x

when y=0?
Solve General Quadratic Equations:

x=
b (b 2
4ac )
2a

2
e.g. y = -x +4x+5
hence, a = -1; b=4; c=5

4 (16 4(1 5) )
x=
2
4 (16 + 20 )
x =
2
46
=
2

Hence, x = +5 or x = -1 when y=0

Function cuts x-axis at +5 and 1
Example 1:
2
y = x -4x+4
hence, a = 1; b= - 4; c=4

If y = 0

+4 (16 4(1 4) )
x=
2

4 0
x =
2
x = 2 when y = 0
Function only cuts x-axis at one
point, where x=2
Example 2
2
y = 3x -5x+6
hence, a = 3; b= - 5; c=6

If y = 0

+5 (25 4(3 6) )
x=
6
4 25 72 4 47
x = =
6 6

when y = 0 there is no solution

The quadratic function does not

intersect the x-axis
Understanding Quadratic Functions
intercept where x=0 is c
a>0 then graph is U-shaped
a<0 then graph is inverse-U
a = 0 then graph is linear

b 4ac > 0 : cuts x-axis twice

2

b 4ac = 0 : cuts x-axis once

2

b 4ac < 0 : no solution

2
Essential equations for Economic
Examples:

Total Costs = TC = FC + VC

Total Revenue = TR = P * Q

= Profit = TR TC

Break even: = 0, or TR = TC

Profit Maximisation: MR = MC
An Applied Problem
2
A firm has MC = 3Q -32Q+96
And MR = 236 16Q
What is the profit Maximising Output?

Maximise profit where MR = MC

2
3Q -32Q+96 = 236 16Q
3Q2-32Q+16Q +96 236 = 0
3Q2-16Q 140 = 0
Solve the quadratic using the formula
where a = 3; b = -16 and c = -140
Solution:
Q = +10 or Q = -4.67
Profit maximising output is +10
 350

300
MC
MR

250

200
MR and MC

150

100

50

0
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12
Q
Another Example.

If fixed costs are 10 and variable costs per

unit are 2, then given the inverse demand
function P = 14-2Q:

1.Obtain an expression for the profit

function in terms of Q

2.Determine the values of Q for which the

firm breaks even.

3.Sketch the graph of the profit function

against Q
Solution:
1. Profit Function
= (14 - 2Q)Q (2Q + 10)
= -2Q + 12Q 10
2

2. Breakeven
Apply formula to solve quadratic where
=0
-2Q2 + 12Q 10 = 0

Solution: at Q = 1 or Q = 5 the firm

breaks even
3. Graphing Profit Function
STEP 1: coefficient on the squared term
determines the shape of the curve
STEP 2: constant term determines where
the graph crosses the vertical axis
STEP 3: Solution where = 0 is where
the graph crosses the horizontal axis
20
Profit

10

0
-2 -1 0 1 2 3 4 5 6 7 8

-10
Profit

-20

-30

-40

-50
Q