1

QNT 130 Lecture Notes

Review of Basic Mathematics:

In this chapter, we present a review of basic mathematical concepts that the students have studied
in their high school mathematics subjects or courses given in the first year of college. A sound
review in mathematics is extremely useful in understanding applications in business. We cover
topics ranging from order of arithmetic operations to functions and graphs.

2.1 Order of Arithmetic Operations:

In simplifying arithmetic expression it is conventional to follow the order given below:

a) Parenthesis in the sequence ( ), {}, ||,
b) Exponents
c) Multiplication or division
d) Addition or subtraction


Example 1:

|{(12-4) ) 3 5 ( }+3|
(

+ + +
64
4
2 9 7 25 6
2

= | } { 3 2 8 + | 6
(

+ + +
64
4
2 9 7 25
2

| |
104
1 9 49 5 42
2
1
2 9 49 5 6 7
8
4
2 9 49 5 6 3 4
=
+ + + =
+ + + =
+ + + + =

______________________________________________


Example 2:

Solve | | 14 6 2 ) 4 (
2
+

Steps:

2
| | 206 14 6 2 ) 4 ( ,
206 14 192
192 6 32
32 2 16
16 4
2
2
= +
= +
=
=
=
Theref ore

Example 3:

Simplify ( ) 44 4 6 9
2



2.2 Rules of Exponents

Exponent is the power to which a number or variable is to be raised.

Example: 16 2 2 2 2 2
4
= =

In general p a a a a a
p
.......... = times

Some Basic Rules of Exponents

1)
q p q p
a a a
+
=

Example:

1024 4 4 4 4 4 4 4 4 4
5 3 2 2 3
= = = =
+


2) ( )
q p
q
p
a a

=

Example:

( ) 64 2 2 2 2 2 2 2 2 2
6 2 3
2
3
= = = =



3) ( )
p p p
b a b a =

Example:

( ) 1728 27 64 3 4 3 4
3 3 3
= = =

4)
p
p
p
b
a
b
a
=
|
.
|

\
|


Example:
3

3704 . 2
27
64
3
4
3
4
3
3
3
= = =
|
.
|

\
|


5)
q p
q
p
a
a
a

=


Example:

25 5 5
5
5
2 2 4
2
4
= = =



6)
p p
a a =
1


Example:

3 81 81
4 4
1
= =

7)
q
p q
p
a a =

Example:

27 81 81
4 3
4
3
= =

8)
p
p
a
a
1
=

Example:

0046 . 0
216
1
6
1
6
3
3
= = =

9) a a =
1



Example:

4 4
1
=

10) 1
0
= a


4
Example:

1 10
0
=

11) 1 1 =
p




Example:

1 1
6
=


Other Examples:

1)

( )
3
3
2
3
3
3
2
3
3 6
3 3
2
3
6
3 3
2
4
3
3
2
b
a
b a b a
b a
b a
b a
b a
= = =

|
.
|

\
|

2)

( )
3
4
3
4
0
3
2
3
2
3
2
3
2
3
2
3
2
3
2
6
4
3
2
3
2
6
1
4
y y x
y x
y x
y x
y
x
y x
= =
=

=
|
|
.
|

\
|

2.4 Fractions:

A fraction is a ratio of the form
y
x
where y is different from zero and x and y are both whole
numbers. X is known as numerator and y is the denominator. Ratios
11
6
,
11
3
,
3
12
are examples of
such fractions.


Addition or subtraction of factors:

5

i. If the denominator is common for the fractions, add the numerators and divide by the
common denominator to obtain the results.






Examples:

21
23
21
7 16
21
7
21
16
=
+
= +

21
9
21
7 16
21
7
21
16
=

=

ii. If the denominator is not common, then a procedure is followed to obtain common
denominator. First, note that multiplying the numerator and denominator by the same
non-zero number does not change the value of the fraction. Second, usual procedure of
obtaining the common denominator is to multiply the numerator and the denominator by
the ratio of the least common multiple (l.c.m) and the denominator of each fraction.

Example:

4
11
6
5
+

In this case, 12 is the l.c.m.

, 2 6 12 = then
12
10
2 6
2 5
6
5
=

=
, 3 4 12 = then
12
33
3 4
3 11
4
11
=

=

Therefore,
12
43
12
33 10
12
33
12
10
4
11
6
5
=
+
= + = +


Example:


12
11
18
21
6
8
+

L.C.M =36

6
36 6 6 = then,
36
48
6 6
6 8
6
8
=

=

36 2 18 = then,
36
42
2 18
2 21
18
21
=

=

36 3 12 = then,
36
33
3 12
3 11
12
11
=

=

Therefore,
36
57
36
33 42 48
36
33
36
42
36
48
12
11
18
21
6
8
=
+
= + = +


Multiplication and Division involving fractions:

The product of any two fractions is obtained by the ratio of the product of the two numerators and
the product of two denominators.

Example:

( )
22
18
2 11
3 6
2
3
11
6
18
77
6 3
11 7
6
11
3
7

=


When dividing a fraction by another fraction, take the reciprocal of the second fraction and
multiply it by the first fraction, following the previous procedure.

Example:

( )
( ) ( )
3
20
3 1
2 10
3
2
1
10
2
3
10
21
20
3 7
5 4
3
5
7
4
5
3
7
4
63
10
9 7
5 2
9
5
7
2
5
9
7
2
=

= =

= =


Mixed Fraction:


The sum of whole number and fraction less than one.

7

Example:

3
14
3
2 12
3
2
3
12
1 3
1 2
3 1
3 4
3
2
1
4
3
2
4
3
2
4 =
+
= + =

= + = + =

Problem: Express
7
3
2 as ratio.

Decimals: A number that involves three parts is usually known as a decimal number. The three
parts are

i. Whole number
ii. Decimal point and
iii. Numbers whose denominators are 10, or some powers of 10.

Example:

13.127

Here 13 is the whole number.

. is the decimal point.

The number after decimal are respectively 1 in tenths |
.
|

\
|
10
1
digit, 2 in hundredths |
.
|

\
|
100
1

digit and 7 in thousands |
.
|

\
|
1000
1
digit.

Thus,

13.127 =13
( ) ( )
007 . 0 02 . 0 1 . 0 3 10
1000
1
7
100
1
2
10
1
1 1 3 10 1
1000
7
100
2
10
1
+ + + + =
+ + + + = + + +


Operations with decimals:

Addition or subtraction: These operations are carried out after aligning the numbers in their
appropriate positions.

Example: 164.21+121.3719
=164.21


5819 . 285
3719 . 121 +


Problem: Simplify 90.03-107.4271
8




Multiplication:

First, obtain the product of two numbers ignoring the decimal points. Count the total number of
positions after the decimal points in both the numbers. Place the decimal point in the product
number after the total number of positions counting from right to left.



Example:

2.12 006 . 0

Step 1. 1272 6 212 =

Step 2. Total Number of positions 5 3 2 = + =

Step 3. 0.01272



Problem: Simplify 6.37 0712 . 4


Division: To divide a decimal by another, such as 62.744 , 24 . 1 or 744 . 62 24 . 1 ,

First move the decimal point in the divisor to the right until the divisor becomes an integer, then
move the decimal point in the dividend the same number of places;

4 . 6274 124
This procedure determines the correct position of the decimal point in the quotient (as shown).
The division can then proceed as follows:


6 . 50
4 . 6274 124
620
744
744

Conversion from a given decimal to an equivalent fraction is straightforward. Since each place
value is a power of ten, every decimal can be converted easily to an divided by a power of ten.
For example,


9

1000
612
612 . 0
100
917
17 . 9
10
841
1 . 84
=
=
=



The last example can be reduced to lowest terms by dividing the numerator and denominator by
4, which is their greatest common factor. Thus,


250
153
4 1000
4 612
1000
612
612 . 0 =

= = (In lowest terms)

Any fraction can be converted to an equivalent decimal. Since the fraction
b
a
means b a , we
can divide the numerator of a fraction by its denominator to convert the fraction to a decimal. For
example, to convert
8
3
to a decimal, divide 3 by 8 as follows.



375 . 0
000 . 3 8
24
60
56
40
40

Changing Fractions to Decimals: To change a fraction to a decimal, simply do what the
operation says. In other words,
20
13
means 13 divided by 20. So do just that (insert decimal points
and zeros accordingly):

65 . 0
65 . 0
00 . 13 20 = 625 . 0
625 . 0
000 . 5 8
8
5
= =

Changing Decimals to Fractions: To change a decimal to a fraction,

1. Move the decimal point two places to the right
2. Put that number over 100
3. Reduce if necessary.

10
4
3
100
75
75 . 0
20
1
100
5
05 . 0
20
13
100
65
65 . 0
= =
= =
= =




Read it: 8 . 0

Write it:
10
8


Reduce it:
5
4



Finding Percent of a Number: To determine percent of a number, change the percent to a
fraction or decimal (whichever is easier for you) and multiply. Remember, the word of means
multiply.

What is 20% of 80?


100
1600
80
100
20
=

or

16 00 . 16 80 20 . 0 = =

What is 12% of 50?

6
100
600
50
100
12
= =

or

6 00 . 6 50 12 . 0 = =

What is
2
1
% of 18?

100
9
200
18
18
200
1
18
100
2 / 1
= = =

or
11

09 . 0 18 005 . 0 =

Changing from Decimals to Percents: To change decimals to percents,

1. Move the decimal point two places to the right.
2. Insert a percent sign.
0.75=75% 0.05=5%



Changing from Fractions to Percents: To change a fraction to a percent,

1. Multiply by 100
2. Insert a percent sign.

% 40
5
200
100
5
2
:
5
2
% 50
2
100
100
2
1
:
2
1
= =
= =


Changing from Percents to Fractions: To change percents top fractions,

1. Divide the percent by 100
2. Eliminate the percent sign
3. Reduce if necessary
60%=
5
3
100
60
=
100
13
% 13 =

Percentages less than 1:

% 1 . 0 001 . 0
100
1 . 0
= =

002 . 0
100
2 . 0
% 2 . 0 = =

Other Applications of Percent: Turn the question word -for word into an equation. For
what substitute the letter x; for is substitute an equal sign; for of substitute a multiplication
sign. Change percents to decimals or fractions, whichever you find easier. Then solve the
equation.


18 is what percent of 90?

12

x
x
x
x
=
=
=
=
% 20
5
1
90
18
) 90 ( 18








10 is 50% of what number?


x
x
x
=
=
=
20
50 . 0
10
) ( 50 . 0 10


What is 15% of 60?

9
10
90
60
100
15
= = = x

or

0.15(60)=9

Finding Percentage Increase or Percentage Decrease: To find the percentage change (increase
or decrease), use this formula:









What is the percentage decrease of a $500 item on sale for $400?

Change: 500-400=100



Change
100 = Percentage Change

Starting point
13













What is the percentage increase of Jons salary if it went from $150 a week to $200 a week?

Change: 200-150=50















References to Handout 1

1. Mathematics for Business and Economics by Robert H. Nicholson, McGraw-Hill, 1986
2. Introductory Algebra by Alan Wise, Harcourt Brace Jovanovich, 1986















Change
100 = 100
500
100

Starting point

= % 20 100
5
1
= decrease


Change
100 = 100
150
50


Starting point

%
3
1
33 100
3
1
= = increase
14
Week 1. Review of Basic Mathematics

Problem Set 1

1) Evaluate the following:

(a)
36
) 060 , 1 (
64 . 1 779 +

(b) 0 ( )
400
) 36 . 0 )( 64 . 0 (
575 . 2 64 .

(c) ) 4 6 )( 4 18 (
3 2
+

2) Simplify the following:

(a) |
.
|

\
|
|
.
|

\
|

2
1
2
1
4
3
3
2
x x
(b) ( ) ( ) | |
5
3
1
0
8 7



3) Factor the following.

a) 40 13
2
+ x x
b) 49 16
2
x

4) Simplify the following:

a)
8
7
5
4
1
6
3
2
42 + +
b) An investor bought 125 shares of stock at a price of $
16
5
79 a share.
i) What was the cost of the stock?
ii) If this represents
5
3
of the total amount of investment, find the total
amount of investment.
c) Complete the following blanks with correct answers





Decimal Fraction Percent
15
----
3
1

----
0.1875 ---- ----
---- ---- 72

d) If a technology stock price has increased from $146 per share to $267
during 1998, find the percent increase in share price.






































QNT 130 Lecture Notes
16
Week 2


y= f (x) is defined as a function of x if for one or more values of x, there
corresponds one and only one value of y. The expression f(x) does not mean f times x
. Instead, f (x) is another symbol for the variable y. Here f represents a particular rule by
which x is converted into y.

In y= f (x), the set of values of x is called the domain of the function and the set
corresponding to the y values is known as the range of the function. x, y are respectively
known as independent and dependent variables in the context of the relation y =f (x).




y= f(x)






Example 1: y= x
2
is a function.



y= x
2






Example 2: y
2
=x is not a function.

If we solve for y, y= x

Therefore, for a given value x, there are two values for y.



y
2
=x


y=\x

Range


y
1
Domain
x
1

x
2

Range

16
Domain
4
-4

Range

y
1
=+\x
y
2
=-\x
Domain


x


Domain

16


17


y
2
=16


y=\16=4

Example 3. x
2
+y
2
=k
2
is not a function.(circle)

y
2
=k
2
-x
2
, y=
2 2
x k
For a given x, we have two values of y.

Graphically, find if the following are functions are not.


Y Y

Y
1
Y = X
2

Y = mX + c




X X
Yes Yes



Y Y

Y=X
3


X
2
+ Y
2
= 16


X (0,0) X


NO NO






Range

-4
4


(0,0)

18

Y





Y= f(X)




X

YES


Note: Vertical Line Test: For a given value of x, find y by drawing a vertical line
at x. If you find more than one value of y, then it is not a function.


WORKING WITH THE FUNCTION NOTATION

Evaluating functions given by a formula can involve algebraic simplification, as the
following example shows. Similarly, solving for the input, or independent variable,
involves solving an equation algebraically.

EVALUATING A FUNCTION

A formula like f(x)=
x
x
+
+
5
1
2
is a rule that tells us what the function f does with its input
value. In the formula, the letter x is placeholder for the input value. Thus, to evaluate f(x),
we replace each occurrence of x in the formula with the value of the input.

Example1: Let g(x)=
x
x
+
+
5
1
2
. Evaluate the following expressions. Some of your answers
will contain a, a constant.

(a) g(3) (b) g(-1) (c) g(a)

(d) g(a-2) (e) g(a)-2 (f) g(a)-g(2)

Solution (a) To evaluate g(3), replace every x in the formula with 3.


19
g(3)= 25 . 1
8
10
3 5
1 3
2
= =
+
+

(b) To evaluate g(-1), replace every x in the formula with (-1).


g(-1)= 50 . 0
4
2
) 1 ( 5
1 ) 1 (
2
= =
+
+

(c) To evaluate g(a), replace every x in the formula with a.


g(a)=
a
a
+
+
5
1
2

(d) To evaluate g(a-2), replace every x in the formula with (a-2).


g(a-2)=
a
a a
a
a a
a
a
+
+
=
+
+ +
=
+
+
3
5 4
2 5
1 4 4
) 2 ( 5
1 ) 2 (
2 2 2


(e) To evaluate g(a)-2, first evaluate g(a) (as we did in part (c)), then
subtract 2:


g(a)-2=
a
a a
a
a a
a
a
a
a
a
a
a
a
a
a
+

=
+
+
=
+
+

+
+
=
+
+
-
+
+
=
+
+
5
9 2
5
2 10 1
5
2 10
5
1
5
5
1
2
5
1
2
5
1
2 2 2 2 2


(f) To evaluate g(a)-g(2), subtract g(2) from g(a):
g(2)=
7
5
2 5
1 2
2
=
+
+

From part c, g(a)=
a
a
+
+
5
1
2
. Thus,

g(a)-g(2)=
) 5 ( 7
18 5 7
) 5 ( 7
) 5 ( 5 ) 1 ( 7
7
5
5
1
2 2 2
a
a a
a
a a
a
a
+

=
+
+ +
=
+
+











20
Graphing Functions

1. a. Point method: Graph 2x+3y=6

Solution: Solve for y.

x y 2 6 3 = or
3
2 6 x
y

=
Therefore, x y
3
2
2 =
x
x y
3
2
2 =
3 0
2
3
2

1
3
4

0 2
-1
3
8

-2
3
10

-3 4






0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
-4 -3 -2 -1 0 1 2 3 4
X
21

b. Intercept method

In the function, 2x+3y=6,

If x=0, 3y=6, and so, y=
3
6
=2 (y-intercept)

If y=0, 2x=6, and so, y=
2
6
=3 (x-intercept)
The straight line is obtained by joining the two points (0,2) and (3,0).

If x=1, y=4/3 (one extra point)






















0
0.5
1
1.5
2
2.5
0 1 2 3 4
X
22

Example: Graph the function 4x+5y-20=0

2. Graph x y = Absolute value of x.

x y
3 3
2 2
1 1
0 0
-1 1
-2 2
-3 3






















3
2
1
0
-1
-2
-3
0
0.5
1
1.5
2
2.5
3
3.5
-4 -2 0 2 4
X
Series1
23
3.Graph y=x
2

x y
3 9
2 4
1 1
0 0
-1 1
-2 4
-3 9

























0
2
4
6
8
10
-4 -2 0 2 4
X
24
4. Graph the function y=2
x
( the exponential function)

x y
3 8
2 4
1 2
0 1
-1
2
1

-2
4
1

-3
8
1






















0
1
2
3
4
5
6
7
8
9
-4 -2 0 2 4
X
25
5. Graph the following exponential growth function
Rt
o
e P P =

where R= exponential growth rate
t=time period
P= the value of the function at time t.
P
o
= Value of P at t=0.

You are given

P
o
=8, e~2.71828, R=0.02

t P
0 8
3 8.5
6 9.0
8 9.39





Example:

In 1985 the population of the United States was 234 million and the exponential growth
rate was 0.8% per year. What will be the population in the year 2000?

Solution:

At t=0 (1985), the population was P
o
=234 million. Here R=0.008, therefore, the
exponential equation is 234 e
0.008t
.

In the year 2000, we have t=15
. 8 . 263 ) 1275 . 1 ( 234 234
) 15 ( 008 . 0
2000
million e P = = =

7.8
8
8.2
8.4
8.6
8.8
9
9.2
9.4
9.6
0 2 4 6 8 10
X
26
Example: The cost of a first class postage stamp was 3 in 1932 and the exponential
growth rate was 3.8% per year. What will be the cost of a first class stamp in year 2000.

Linear Functions and Applications in Business and Economics

Definition: A function with a constant rate of change, is known as a linear function.

In y=b
0
+ b
1
x , b
1
is called the slope of the linear function and it measures the change in
the value of the dependent variable y as a result of one unit change in the value of the
independent variable x. b
o
is known as the y-intercept and measures the value of y when
x=0.

Note the following:

A horizontal line has zero slope.
A vertical line has no slope or its slope is undefined.
A line rising from left to right has positive slope.
A line falling from left to right has a negative slope.


Examples: Q=50-2P+0.6Y is called a demand function where Q=quantity demanded of a
product, P is the price in $ of the product and Y is the family income in thousands of
dollars.

i) Draw the demand curve(graphical relationship between Q and P for fixed Y)
for Y=50 at price levels of P=0,5,10,15 and 20.
ii) Repeat the above for Y=100 and for the same price levels on the same graph.
iii) Comment on the demand curve in ii) in relation to the demand curve in i)


















27
Solution

i)
P Y Q
0 50 80
5 50 70
10 50 60
15 50 50
20 50 40



p

(II)
20 (I)


15

10

5



0 20 40 60 80 100 110 q



ii)
P Y Q
0 100 110
5 100 100
10 100 90
15 100 80
20 100 70


iii) It is evident from the graph that the demand curve in ii) is to the right of demand
curve in i). This is due to increase in income. This is known as shift in demand curve.

Example: Determine the demand function for the price quantity data in the following
table Q=f(P).


28
P in $s 0 5 10 15 20 25 30 35 40
Q in 000s 80 70 60 50 40 30 20 10 0



Linear Consumption Function:

For the consumption function Y C
4
3
10 + = , where C stands for consumption expenditure
in thousands of dollars, Y stands for disposable income in thousand of dollars, the slope
4
3
is the marginal propensity to consume (MPC) and the intercept $10,000 is known as
subsistence level of consumption expenditure. Find i) the consumption expenditure at
Y=20, Y=60 and ii) find the break even level of income.

Solution:

C






10




0
20 60 Y


C= Y
4
3
10+
at Y=20, C= . 25 15 10 ) 20 (
4
3
10 = + = + (A dissaving of $5,000)

at Y=60, C== . 55 45 10 ) 60 (
4
3
10 = + = + (A positive saving of $5,000)
ii) For a breakeven income, i.e. C=Y, we have = Y Y = +
4
3
10 or Y
4
1
10 = or Y=40.
Linear Cost and Revenue Functions

29
Suppose that the fixed cost of production for a commodity is 10 dollars. The variable cost
is 2 dollars per unit and the commodity sells for $4 per unit. Find the breakeven quantity.
Also find the loss or gain for the company at production levels of 3 and 7 units pf output.

Q R C
2 8 14
4 16 18
6 24 22
8 32 26

R
C&R 25
C
20

15

10

5


0
2 4 6 8 Q

Note C=10+2Q
R=4Q
To find the break-even level,

4Q=10+2Q (i.e. set R=C) Solving, Q=5.

At Q=3, R=12 and C=16 loss of $4

At Q=7, R=28 and C=24 gain of $4












30

WEEK 2
PROBLEM SET II

1. Determine which one of the following is a function? Explain why or why
not?

a)

Domain Range
3 14
6 16
8 20
10 24

b)

Domain Range
3 7
4 11
4 15
4 12

c) y=6x-14
d) y<x
2
+4

2. Given the function f(x)=2x+1 Find:
i.
a. f(2)
b. f(-1)
c. f(0)
ii. Given the function f(x)=x/(1-x) find

a. f(0)
b. f(1)
c. f(1-x)
iii. If f(x
1
,x
2
)= 5 x
1
+ 6x
2
+15, find

f(4,3)
f(0,1)
f(0,0)

3.Graph the following functions.

i) y= x
2
+2x
ii) y=3x-1
31
iii) A freshman student has invested $10,000.00 on August 1,1998 at 10%
rate of interest compounded continuously. Determine the total value
(Principal +Interest) of this investment by August 1,2002.

4. Q=-10+20P-2R is an example of supply function, where Q is the quantity supplied of a
product, P is the price in $ of the product and R is the interest rate in percentage terms.

i) Draw the supply curve ( graphical relationship between Q and P for a fixed R)
for R=5, at price levels of P=2,4,6 and 8.
ii) Repeat the above for R=7 and for the same price levels n the same graph.
iii) Comment on the supply curve in ii) in relation to the supply curve in i).

5. Suppose the fixed cost of production for a commodity is $45,000. The variable cost is
60% of the selling price of $15.00 per unit. Find the break-even quantity.

6. Using the following functions, complete the values in the table.

P=600-2Q
C(Q)=8000+200Q

Q Revenue Total Cost MR MC
0
50
100
150
200
250
300


MR: Marginal Revenue MC: Marginal Cost















32
LECTURE NOTES
WEEK 3

Two equation models in Business:

i) Market Equilibrium: Consider the following demand and supply functions:

Q
D
=f(P
D
) and Q
S
=g(P
S
)

Here, the subscript D stands for the demand for the product by the consumers and the
subscript S stands for the supply of the product by the producers. Q is quantity and P is
the price.

Definition: Market equilibrium is a point where quantity demanded and quantity supplied
are equal. Obviously at this equilibrium, the demand and supply price is equal. Therefore
we can denote the equilibrium point by (P,Q) where P
D
=P
S
=P and Q
D
=Q
S
=Q. By solving
the demand and supply functions simultaneously, we obtain the market equilibrium.

P




P*






0
Q* Q

Graphical Representation of Market Equilibrium

Example: The demand for automobiles is given as a linear function, P=32000-25Q and
the linear supply function as P=11000+45Q.

Note: At equilibrium, P
D
=P
S
=P, Q
D
=Q
S
=Q and the price P, and the quantity Q are
determined simultaneously.

Solution: Solving the demand and supply equations simultaneously,

P=32000-25Q
P=11000+45Q
33
Subtracting 0=21000-70Q or 21000=70Q or . 300
70
21000
= = Q
Substituting Q=300 in any one of demand or supply equations, we have P=32000-
25(300)=32000-7500=24500.

Example:
a. If the demand for a brand of shoes is linear and of the form P
D
=84-0.14Q
D
and
the linear supply function has the form P
S
=18+0.02Q
S
, find the equilibrium price
and quantity for the firms shoes P
D
and P
S
are measured in dollars and Q
D
and
Q
S
designate number of pairs of shoes.
b. If the demand function shifts to P
D
=96-0.14Q
D
find the new equilibrium price and
quantity. Describe the change in demand by comparing the two demand
functions.
ii) Further Consideration of Break-Even Analysis:

Another application of solving two linear equations in two variables is Break-Even
Analysis. Here we determine the quantity that corresponds to the equality of total cost
and total revenue. Once quantity is determined, the total cost which will be equal to total
revenue can also be determined. Note that in case of non-linear revenue and cost
functions, there may be more than one breakeven point.

Example:

A firms plans to sell the standard family size box for $2.40. Production estimates have
shown that the variable cost of producing one unit of product is $2.16. Fixed costs of
production are $3600. What is the breakeven volume of sales?

The total revenue function TR is linear and of the form

TR=(P)(Q)= 2.40Q

The total cost function TC is

TC=F+VQ= 3600+2.16Q, where V stands for the unit variable cost.

Breakeven quantity Q
E
is established by equating total revenue and total cost functions
and solving for Q
E
. Thus,


TR=TC

2.40Q=3600+2.16Q

2.40Q-2.16Q=3600

34
15000
24 . 0
3600
16 . 2 40 . 2
3600
= =

=
E
Q

All the intermediate steps are shown to demonstrate the relation between fixed cost,
product price, and variable cost per unit of output. Revenue and cost corresponding to
this quantity can be found by substituting Q
E
into either the total revenue or total cost
function as the dollar figures are equal. This is computed below using the total revenue
function.

Total Cost= total revenue=(Price) (Quantity)

TC=TR=2.40 Q
E
=(2.40)(15000)=$36,000.

This analysis has determined that the firm will earn a profit after the sale of the first
15,000 boxes. Total revenue and total cost at 15,000 boxes will be each equal to $36,000
and losses will be incurred at quantities below 15,000 boxes. These results apply unless
changes occur in the price and cost data.

The following exercises will give additional practice in computing both demand and
supply equilibrium and break-even points.

iii) Inventory Cost Functions and Economic Order of Quantity(EOQ):

Some Useful Definitions:

Inventory: This refers to idle goods or materials that are held by a company for future
use.

Examples: Finished goods, raw materials and parts, work in progress and supplies.

The reason why organizations maintain inventory is that it is not exactly possible to
predict uncertain demand, production times and sales levels. Maintaining inventory is
convenient to do business, but it involves substantial costs. There are two important costs
associated with maintaining inventory. One is holding cost and the other is ordering cost.
Holding cost refers to the costs associated with maintaining an inventory investment,
such as insurance, taxes and cost of capital locked-up in this inventory. This cost can e
expressed as a percentage of the inventory investment or as a cost per unit. It is also
referred to as carrying cost.

Ordering Cost: This is a fixed cost associated with preparing and placing an order. To
derive the EOQ model, we first start with total cost of inventory.





35
Inventory Models



Total Inventory Cost= Holding Cost(CARRYING COST)+ORDERING COST

Assumptions

1) Constant Demand
2) No shortages were allowed.

Notation

1)Order Quantity Q for a time period of length T
2)Average inventory level is Q/2 during this cycle period

q









q/2


0
T 2T 3T

T: Length of time required to deplete Q items

3) I= Annual holding cost rate (percentage)
4)C= Unit cost of the inventory item
5) C
h
=Annual cost of holding one unit in inventory
C
h
= I*C ( sometimes C
h
is given directly)

Example:

C=$8 I=25% C
h
=8*(0.25)=$2

Annual Holding Cost: (Q/2)*C
h
.

6) D= Annual demand for the product 104,000
36
7) C
0
=Fixed cost of placing an order ($32)
8) N=Number of orders per year N=D/Q

Annual Ordering Cost=(D/Q)* C
0


Total Annual Cost= T C (Q)=(1/2)Q C
h
+(D/Q) C
0

To find the economic order quantity, EOQ:

Using the above example, we find

TC=
Q
Q
Q
Q 000 , 328 , 3
) 32 (
000 , 104
) 2 (
2
+ = +
Annual Holding, ordering and total costs for various values of order quantities, Q
Annual Cost
Order Quantity Holding Ordering Total
5000 $5000 $666 $5666
4000 4000 832 4832
3000 3000 1109 4109
2000 2000 1664 3664
1824 1824 1824.56 3648.56
1000 1000 3328 4328
Note: From the above table, it is obvious that at Q=1824 the total cost is a minimum and
at this level of Q, the holding ad ordering costs are equal to each other. Therefore this is
the desired level of order quantity and known as Economic Order Quantity (EOQ).


This finding is also illustrated by the graph below.

Cost ($)

Annual Total Cost
6000



4000
Annual Inventory Holding

2000 Annual Ordering Cost




0 Q*
1000 2000 3000 4000 5000 6000 Order Quantity (Q)
37

Both from the table and the graph, it is evident that at the desired level of order quantity,
the annual holding cost equals annual ordering cost.


Therefore
0
2
C
Q
D
C
Q
h
=

Multiplying by 2Q on both sides, we obtain

0
2
2DC C Q
h
=


h
h
C
DC
Q
and
C
DC
Q
0
0 2
2
2
+ =
=



This is the Economic Order Quantity and written as EOQ=Q*=+
h
C
DC
0
2
. Using this
formula, we obtain

1. Q*=
1824
2
32 ) 000 , 104 ( 2
=

Knowing Q*, we find the following aspects related to inventory management.

2. Average inventory level: Q*/2=1824/2=912.




3. Number of orders per year 57
1824
000 , 104
*
= = =
Q
D
N
4. Cycle time in days: days
N
3 . 6
57
360 360
= =
i.e. One order every 6.3 days. Here, 360 is given as the number of working days in a year.

Note: Cycle time is the length of time between placing of two consecutive orders.

38
5. Reorder point: The inventory position at which a new order should be placed. By
inventory position we mean the inventory on hand plus the inventory on order.

R=L*daily demand, where L stands for the time between placing an order and its
receipt in the inventory system, known as the lead-time. If L=2 days in the above
example, the reorder point R= 578
360
000 , 104
2 ~


Example: Suppose R&B beverage company has a soft-drink product that has a constant
annual demand rate, 3600 cases. A case of the soft drink costs R&B $3. Ordering costs
are $20 per order and holding costs are 25% of the value of the inventory. If there are 250
working days per year and 5 days of lead-time, find the following.

a) EOQ
b) Number of orders per year
c) Cycle time in days
d) Reorder point
e) Annual holding cost
f) Annual ordering cost
g) Total Annual cost

Example:

(Economic Order Quantity) Let the quantity Q, when purchased in each order minimize
the total cost T incurred in obtaining and storing material for a certain time period to
fulfill a given rate of demand for the material during the time period. The material
demanded is 10,000 units per year; the cost price of material is $1 per unit; the cost of
replenishing the stock of the material per order, regardless of the size Q of the order, is
$25; and the cost of storing the material is 12.5% per year of the value of the average
inventory (Q/2) on hand.

a) Show that
16
000 , 250
000 , 10
Q
Q
T + + =
b) Find the economic order quantity and the total cost T corresponding to that value
of Q.
c) Find the total cost when each order is placed for 2500 units.

ELASTICITY

Price Elasticity of demand is calculated in the following table, using the definition



39
P
Q
Q
P
P
P
Q
Q
E
P
A
A
=
A

A
= *


Where Q=400-4P. First we use the demand equation to produce the demand schedule:


P in $ Q in Units Point Elasticity =

-4*(P/Q)
90 40 -9.00
70 120 -2.33
50 200 -1.0
30 280 -0.43
10 360 -0.11


Interpretation:

At P=90, a 1% increase in price will result in a 9% decrease in quantity demanded.

At P=70, a 1% increase in price will result in a 2.33% decrease in quantity demanded.

At P=50, a 1% increase in price will result in a 1% decrease in quantity demanded.

To show 4 =
A
A
P
Q
, consider Q=400-4P,

Then
2 2
1 1
4 400
4 400
P Q
P Q
=
=


4
) ( 4
2 1
2 1
2 1 2 1
=
A
A
=

=
P
Q
P P
Q Q
P P Q Q


Note: -4 can also be seen directly as the slope of the linear demand function, Q=400-4P.


Example: Calculate the price elasticity of demand if Q=500(10-P) for each of the
following values of P: i)P=2 ii)P=5 iii)P=6.

Note:

i)The sign of elasticity indicates the type( negative or positive) of relationship between
the dependent and independent variables.

40
ii) Elasticity can also be computed with respect to a variety of independent variables such
as income, interest rate and prices of other goods.

iii) If the numerical value of elasticity is greater than unity, the demand is said to be
elastic. That means one percent increase in price will result in more than one percent
decrease in quantity demanded.

iv) If the numerical value of elasticity is equal to unity, the demand is said to be unit
elastic. That means, a one percent increase in price will result in one percent decrease in
the quantity demanded.

v) And if the numerical value of elasticity is less than unity, the demand is said to be
inelastic. That means, a one percent increase in price will result in less than one percent
decrease in quantity demanded.


Example: Q=5000-500P

) 500 ( =
Q
P
E
P



P Q E
P

2 4000
) 500 (
4000
2
=-0.25
Inelastic
5 2500
) 500 (
2500
5
=-1
Unit elastic
6 2000
) 500 (
2000
6
=-1.5
Elastic


REFERENCES

1.Mathematics for Business and Economics by Robert H. Nicholson, McGraw Hill,
1986.

2. An introduction to Management Sciences by Anderson, Sweeney, Williams, Eighth
edition, West Publishing, 1994.






41


Week # 4 QNT 130 Lecture Notes


Optimization:

This is to obtain the most desirable point. For example the output level where the profit is
maximum, a given production levels at which cost is minimum.

I. Models of cost, revenue and profit maximization. Many business decisions are based on
marginal analysis. For example, should an additional machine be purchased for
maximization of profit or an additional dollar can be spent in order to maximize sales?

In order to understand the role of marginal analysis in optimization, we revisit the
concepts of marginal cost and marginal revenue introduced on page 15 of week # 2
lecture notes.

Example 1 Demand Function: P =50 2.50 Q
Revenue Function: R ( Q)=Q. P =50 Q-2.5
2
Q
Total Cost Function: Q Q C 25 25 ) ( + =

Using these functions, the problem is to find the output level Q at which profit is
maximum.

a) Algebraic Method: We follow the profit maximization rule which, states that a firms
profit is maximum at an output level where . MR MC= This is because, the firm
continues to produce as long as . MR MC< When , MR MC > its profit starts declining.
Therefore, the firms profit is maximum when . MR MC= We find below the MC and
the MR of the above cost and revenue functions.

Q Q C 25 25 ) ( + =
Q Q Q Q Q C Q Q C Now
Q Q Q Q C
A = A + + = A +
A + + = A +
25 25 25 ) ( 25 25 ) ( ) ( ,
) ( 25 25 ) (


Dividing by , Q A

25
) ( ) (
=
A
A +
Q
Q C Q Q C


For a small , Q A the left hand side is MCand therefore MC=25

Similarly,
2
5 . 2 50 ) ( Q Q Q R =
2
) ( 5 . 2 ) ( 50 ) ( Q Q Q Q Q Q R A + A + = A +
) 5 . 2 50 ( ) ( 5 . 2 ) ( 50 ) ( ) (
2 2
Q Q Q Q Q Q Q R Q Q R A + A + = A +
42
= 5 . 2 50 50 A + Q Q
2 2
) ( 2 Q Q Q Q A + A + ` -
2
5 . 2 50 Q Q +

2 2 2
5 . 2 ) ( 5 . 2 5 5 . 2 50 Q Q Q Q Q Q + A A A =

Now dividing throughout by Q A

Q
Q Q Q Q
Q
Q R Q Q R
A
A A A
=
A
A +
2
) ( 5 . 2 5 50 ) ( ) (


Q Q Q A = 5 . 2 5 50

For small Q A approaching zero, the left-hand side is MR and the right hand side becomes
Q 5 50
Thus, Q MR 5 50 =
Now applying the profit maximization rule, we obtain

MR MC =
, 5 50 25 Q = solving for Q, we obtain 5 = Q

The profit function ) ( ) ( ) ( Q C Q R Q = H
) 25 25 ( 5 . 2 50
2
Q Q Q + =
Q Q Q 25 25 5 . 2 50
2
=
25 5 . 2 25
2
= Q Q

At, 5 = Q

25 ) 5 ( 5 . 2 ) 5 ( 25 ) 5 (
2
= H
25 5 . 62 125 =
5 . 37 = is the value of maximum profit.

b) Trial and Error Method: referring to the completed table on page 15 of week # 2 lecture
notes, we find that the profit is maximum at an output level of 5 = Q .
We illustrate the profit maximization principle graphically below.


Note: The profit maximizing price is obtained by substituting the optimal Q into
. 5 . 2 50 Q P =
Thus 5 . 37 5 . 12 50 ) 5 ( 5 . 2 50 = = = P
It is just a coincidence that price and profit are equal to 37.5






43







R

C
C




25
R


0 5 Q


MR
MC 50




25
MC

MR

0 5 Q




Example: A product has a demand function Q P 40 2000 = and a cost function
. 400 3000 ) ( Q Q C + = Find the profit maximizing price and quantity. Find the maximum profit.
To solve by trial and error method use , 15 = Q 20 and . 25

Below we solve it by algebraic method:

Q Q C 400 3000 ) ( + =
) ( 400 3000 ) ( Q Q Q Q C A + + = A +
Q Q Q Q C Q Q C 400 3000 ) ( 400 3000 ) ( ) ( A + + = A +
= Q Q Q 400 400 400 A +

44
Now dividing both the sides by Q A we get,

= =
A
A +
400
) ( ) (
Q
Q C Q Q C
Marginal Cost
Similarly,
2
400 2000 ) 40 2000 ( ) ( Q Q Q Q PQ Q R = = =
2
) ( 40 ) ( 2000 ) ( Q Q Q Q Q Q R A + A + = A +

Now,
40 2000 2000 ) ( ) ( A + = A + Q Q Q R Q Q R {
2 2
) ( 2 Q Q Q Q A + A + }-
) 40 _ 2000 (
2
Q Q

2
2 2
) ( 40 80 2000
) 40 2000 ( ) ( 40 80 2000
Q Q Q Q
Q Q Q Q Q Q
A A A =
A A A =


Now dividing by Q A on both sides,

Q Q
Q
Q R Q Q R
A =
A
A +
40 80 2000
) ( ) (


For small MR Q, A Q 80 2000 =

Setting MC MR= for profit maximization,
20 80 / 1600 80 400 2000
400 80 2000
= = =
=
Q Q
Q


Profit maximizing price 1200 ) 20 ( 40 2000 40 2000 = = = Q P
Profit Function ), (Q H
) 400 3000 ( ) 40Q - (2000Q C(Q) - R(Q) (Q)
2
Q + = = H
Q Q Q 400 3000 40 2000
2
=
= 3000 40 1600
2
Q Q

At , 20 = Q

3000 ) 20 ( 40 ) 20 ( 1600 ) 20 (
2
= H

13000
3000 16000 32000
=
=



Constrained Optimization:

In this process of decision making in business, optimization generally involves constraints. For
example firms maximize profit subject to resource constraints. Similarly, firms maximize return
on portfolio of investments subject to cash and other asset constraints.
45

A commonly used model of constrained optimization deals with linear objective function, linear
constraints involving non-negative variables. This is known as linear programming model.
Although there are many methods of solutions, we consider below graphical method involving
two variables.




Some useful definitions:

Constraint: An equation or inequality that rules out certain combinations of decision variables as
feasible solutions.

Objective Function: All linear programs have a linear objective function that is to be either
maximized or minimized. In many linear programming problems, the objective function will be
used to measure the profit or cost of a particular solution.

Solution: Any set of values for the variables.

Optimal Solution: A feasible solution that maximizes or minimizes the value of the objective
function.

Non-negativity Constraints: A set of constraints that requires all variables to be nonnegative.

Mathematical Model: A representation of a problem where the objective and all constraint
conditions are described by mathematical expressions.

Linear Program: A mathematical model with a linear objective function, a set of linear
constraints, and nonnegative variables.

Feasible Solution: A solution that satisfies all the constraints.

Feasible Region: The set of all feasible solutions

Slack variable: A variable added to the left-hand side of a less than or equal to constraint to
convert the constraint into an equality. The value of this variable can usually be interpreted as the
amount of unused resource.

Standard form: A linear program in which all the constraints are written as equalities. The
optimal solution of the standard form of a linear program is the same as the optimal solution of
the original formulation of the linear program.

Redundant Constraint: A constraint that does not affect the feasible region. If a constraint is
redundant, it can be removed from the problem without affecting the feasible region.

Extreme Point: Graphically speaking, extreme points are the feasible solution points occurring at
the vertices or corners of the feasible region. With two-variable problems, extreme points are
determined by the intersection of the constraint lines.

46
Surplus Variable: A variable subtracted from the left-hand side of a greater than or equal to
constraint to convert the constraint into an equality. The value of this variable can usually be
interpreted as the amount over and above some required minimum level.

Alternative Optimal solutions: The case in which, more than one solution provides the
maximum / minimum value for the objective function.

Infeasibility: The solution in which there is no solution to the linear programming problem that
satisfies all the constraints.

Unbounded: If the value of the objective function can be made indefinitely large in a
maximization linear programming problem or indefinitely small in a minimization problem
without violating any of the constraints, the problem is said to be unbounded.


Linear Programming:

Solution by graphical method:

Step 1: Show the constraint equations graphically and identify the feasible region.

Step 2: Find the corner points (extreme points) of the feasible region.

Step 3: Find the value of the objective function at each one of the corner points and identify the
optimum solution.

A simple Maximization Problem:

Par, Inc., is a small manufacturer of golf equipment and supplies whose management has decided
to move into the market for medium and high-price golf bags. Pars distributor is enthusiastic
about the new product line and has agreed to buy all the golf bags Par produces over the next 3
months.

After a thorough investigation of the steps involved in manufacturing a golf bag, management has
determined that each golf bag produced will require the following operations:

1. Cutting and dyeing the material
2. Sewing
3. Finishing (inserting umbrella holder, club separators, etc.)
4. Inspection and packaging

The following are the production requirements per golf bag.


Production Time
(Hours)
Product Cutting & Dyeing Sewing Finishing Inspection and Packaging
Standard bag 7/10 1/2 1 1/10
Deluxe bag 1 5/6 2/3 1/4
Available Resources 630 600 708 135
47



The accounting department estimated a profit contribution of $10 per every standard bag and $ 9
for every deluxe bag produced.

Solution:

Using the information given, we form below a mathematical model for the Par Inc. problem.
(Linear programming model)

Max
2 1
9 10 x x +

Subject to (s.t.)

630 1
10
7
2 1
s + x x Cutting and dyeing (C & D)

600
6
5
2
1
2 1
s + x x Sewing (S)

708
3
2
1
2 1
s + x x Finishing (F)

135
4
1
10
1
2 1
s + x x Inspection and packaging (I & P)

0
2 , 1
> x x






















48


Step 1:

2
X


1200


1000

F
800
S

600

5
400
4
3
200 Feasible Region
1 C & D 1 & P

0 200 400 600 800 1000 1200 1400
1
X

Number of Standard Bags




Step 2:

To find the extreme points (corner points) of the feasible region 1, 2, 3, 4, and 5, we illustrate
below the procedure of finding the corner point 3, which is the intersection of the constraint
equation C & D and F.

C & D 630 1
10
7
2 1
= + x x
F 708
3
2
1
2 1
= + x x

To solve, consider,

7 1
10

(C & D) : 900 630

7
10
7
10
2 1
= = x x
F : 708
3
2
2 1
= + x x

49

Adding 192
21
16
2
= x

252
16
21
192
2
= = x

Substituting 252
2
= x in F, We get

540 168 708
708 252
3
2
1
1
= =
= +
x
x


(540, 252) is corner point 3. Similarly other corner points of the feasible region can be obtained
and they are shown in step 3.

Step 3:

Extreme Point (Corner Point)
Profit =
2 1
9 10 x x +
1. (0,0) 10 (0) + 9 (0)=0
2. (708, 0) 10 (708) + 9 (0) =7080
3. (540, 252) 10 (540) + 9(252) =7668
4. (300, 420) 10 (300) + 9 (420) = 6780
5. (0, 540) 10 (0) + 9 (540) = 4860

It is clear from the above table that Par. Inc. maximizes its profit by producing 540 standard golf
bags and 252 deluxe bags. The maximum profit value is $7668.00. The profit (540, 252) at which
maximum profit is realized, known as optimum point.

Note 1: The sewing constraint: 600
6
5
2
1
2 1
s + x x is a redundant constraint.
Note 2: At the optimum point, the following table presents the values of the slack variables.

Constraint Hours required
For 540
1
= x and 252
2
= x
Hours
Available
Unused
Hours
(slack)
Cutting & dyeing 7/10 (540) + 1 (252) =630 630 0
Sewing 1/2 (540) + 5/6 (252) = 480 600 120
Finishing 1 (540) + 2/3 (252) = 708 708 0
Inspection & packaging 1/10 (540) + (252) =117 135 18


A Simple Minimization Problem:

M & D chemicals produces two products that are sold as raw material to companies
manufacturing bath soaps and laundry detergents. Based on an analysis of current inventory
levels and potential demand for the coming month, M & Ds management has specified that the
50
combined production for product 1 and 2 must total at least 350 gallons. Separately, a major
customers order for 125 gallons of product 1 must also be satisfied. Product 1 requires 2 hours of
processing time per gallon while product 2 requires 1 hour of processing time per gallon, and for
the coming month, 600 hours of processing time are available. M & Ds objective is to satisfy the
above requirements at a minimum total production cost. Production costs are $2 per gallon for
product 1 and $ 3 per gallon for product 2.

To find the minimum cost production schedule, we will formulate M & D chemicals problem as a
linear program. Following a procedure similar to the one used for Par Inc., we first define the
decision variables and the objective function for the problem.

Let =
1
x number of gallons of product 1 produced

2
x = Number of gallons of product 2 produced

Since the production costs are $2 per gallon for product 1 and $3 per gallon for product 2, the
objective function which corresponds to the minimization of the total production costs can be
written as

Min
2 1
3 2 x x +

Next consideration the constraints placed on the M & D Chemicals problem. To satisfy the major
customers demand for 125 gallons of product 1, we know
1
x must be at least 125. Thus, we write
the constraint as
125 1
1
> x

Since the combined production for both products must total at least 350 gallons, we can write the
constraint as
350 1 1
2 1
> + x x

Finally, since the limitation on available processing time is 600 hours, we include the constraint

600 2 2
2 1
s + x x


After adding the non-negativity constraints (
1
x ,
2
x 0 > ), we have the following linear program
for the M & D Chemicals problem:

Min
2 2
3 2 x x +
s.t.

1
1x 125 > Demand for product 1 (In gallons)
350 1 1
2 1
> + x x Total Production (In gallons)
` 600 1 2
2 1
s + x x Processing time (In hours)

1
x ,
2
x 0 > Non-negative Constrained



51




Step 1:

2
X
Gallons of
2
x
Product 2 Processing
time
600 125
1
= x

500

400
2 1
1 1 x x +
=350 B
300 600 1 2
2 1
= + x x
Production
200 C

100
A


0 100 200 300 400 500 600
1
X
Gallons of Product 1








Step 2:

A (250, 100), B (125, 300), and C (125, 225) are the corner points of the feasible region ( shaded
area) and they are obtained by solving the intersecting lines (constraint equations).


Step 3:

Extreme point Total cost
A (250, 100) 2 (250) + 3 (100) = 800
B (125, 300) 2 (125) + 3 (300) = 1150
C (125,225) 2 (125) + 3 (225) = 925


It is obvious that point A is optimum and the minimum cost is 800.
52

Note: At the optimum point (
1
x =250,
2
x =100) the values of the surplus variables/slack variables
are shown below.


Constraint Value of Surplus or Slack Variables
Demand for product 1
125
1
= s
Total production
0
2
= s
Processing time
0
3
= s




Problems:

1. Consider the following linear programming problem:

Max
2 1
3 3 x x +

s.t.


2 1
4 2 x x + 12 s
4 6
1
+ x
2
x 24 s
0 ,
2 1
> x x

a. Find the optimal solution
b. If the objective function is changed to
, 2 1
6 2 x x + what will the optimal solution be?
c. How many extreme points are there? What are the values of
1
x and
2
x at each extreme
point?

2. Consider the following linear program:

Min
2 1
2 2 x x +

s.t.

0
3 1 1
13 1 3
12 3 1
2 , 1
2 1
2 1
2 1
>
=
> +
s +
x x
x x
x x
x x


a. show the feasible region
b. What are the extreme points of the feasible region?
c. Find the optimal solution using the graphical solution procedure.

Special Cases:
53

1. Consider the following linear program:

Max
2 1
2 1 x x

s.t.


0
3 1 1
3 3 4
2 , 1
1
2 1
>
s
s +
x x
x x
x x


a. Graph the feasible region for the problem.
b. Is the feasible region unbounded? Explain.
c. Find the optimal solution.
d. Does an unbounded feasible region imply that the optimal solution to the linear program
will be unbounded?


2. Does the following linear program involves infeasibility, unbounded, and / or alternative
optimal solution? Explain.
Max
2 1
8 4 x x +

s.t.


0
8 1 1
10 2 2
2 , 1
2 1
2 1
>
> +
s +
x x
x x
x x



Reference: An Introduction to Management Science, by Anderson, Sweeney, and Williams,
eighth edition, West Publishing Co., New York