Business Mathematics

HOW WE USE MATHEMATICS IN BUSINESS?

Key Points:

 Linear Equations
 Quadratic Equation
 Matrices
 Sequence and Series
 Simple and compound Interest
 Profit maximization

Linear Equation
An algebraic equation express in one or more than one variable with maximum power of each variable is
one is called Linear Equation.

Forms of Linear Equation

 Point Slope Form
 Standard Form
 Point Intercept Form

Point Slope Form:

The form of linear equation in which we find out the rate of change between two points and its
Mathematical form is, y-b = m (x-a) where m is slope a and b is the first quadrant

Y-axis
(x,y)

m= slope

(a,b)

X-axis
Example: Paul wants to advertise his business by ad in the newspaper and the newspaper
charges $10 for first two lines of text and $3 for each additional line of text so find out the
cost of 10 lines in a newspaper.

Data:

Independent Variable = a = 2$

Dependent Variable = b = $10

Slope = $3

x = 10 lines

Required: cost = y = ?

In point slope form linear equation y-b = m (x-a)

y - 10 = 3 (10 - 2)

y = RPS. 34

Point Intercept Form:

The equation is that: y = mx + b

Let, y = -3x + 5

( point y – intercept )

Example: The jazz company has a monthly cellular plan where a customer pays a flat monthly fee and
then per minute fee. If a customer uses 360 minutes, the monthly cost will be $38. If a customer uses
800 minutes, the monthly cost will be $ 60, how much will be monthly cost if a customer uses 1,200
minutes.
Data:

Let, x = number of minutes

y = total monthly cost

two point which find out that are, (360 , 38) and (80 , 60)
As we know that
y = mx + b
Slope = m = (y2 – y1) ÷ (x2 – x1)
y = 0.05x + b
So, m = (60-38) ÷ (800-360)
60 = 0.05(800) + b
m = 1÷20
b = 20
m = 0.05 per minute
so, y = 0.05x + 20 is a y-intercept form of linear equation

y = 0.05(1200) + 20

y = 60 + 20

y = $80

If a customer used 1,200 minutes, total monthly cost will be $80

Standard Form of Linear Equation:

The standard form of linear equation is, ax + by + c = 0

Example: A company makes phone covers. They sell each cover for $12. If x= the number of
phone covers produced and sold, what is the revenue Equation? The cost to make $2 each with
one time start cost of $5,200, what is the cost equation? Find the profit P, (P = R – C) when the
company sells 1,200 covers?

R = 12x revenue equation

C = 2x + 5,200 cost equation

P = (12x) – (2x + 5,200)

P = 10x – 5,200

P = 10(1200) – 5,200

P = 12,000 – 5,200
Profit = 6,800

Find the number of covers thy need to sell to break even,

R=C

12x = 2x + 5,200

10x = 5,200

x = 5,200/10

they need to sell 520 covers.

Business Applications:

 Calculating profit margin and break-even point

 Calculating mileage rates
 For cost minimizing and prediction of profit
 It also used to find out population growth, exponential decay and
compound interest etc.
 Staff scheduling
 Product mix planning
 Truck routing
 Financial portfolios
 Corporate restructuring etc

Quadratic Equation:
An equation in one or more variable with maximum power of variables (s) as two is called quadratic
equation.

Standard form of quadratic equation is, ax2 + by + c = 0

Example: Market equilibrium supply

Price E

Demand
E shows the equilibrium point of the market.

P = q2 + 100 supply

P = -20q + 2,500 demand

Equilibrium point:

Q=S

q2 + 100 = -20q + 2,500

q2 + 20q + 2,400 = 0

by factorizing method,

(q + 60) (q – 40) = 0

q = -60 and 40

but the quantity for market equilibrium is 40 and price is,

P = 40 2 + 100

P = 1,700

Business Applications:

 Quadratic is used to model situation and relationships in business.

 For maximizing the profit by increasing the demand
 It also use in agriculture for rating the amounts of stock
 It is helpful for prediction of supply and demand
 Military and Law enforcement Quadratic equation is often used to describe
the motion of objects that fly through the air.

Activities:

1. The revenue of the company is given by the equation R = x (1000 – 4x),

where R is the revenue of the company in dollars when thy sell x units of a
 product. How many units of the product should they sell to make a revenue
of $60,000?
2.

Matrix
Matrix is a way of expressing two way classified set of information relating to any business or real life
problem the collected information usually presented in rectangular form containing rows and columns.

Example:

Decision Making without probabilities:

 Maximax (optimistic)
 Maximin (conservative or pessimistic)

Payoff Table: Decision Table

Economy states of nature or outcomes
ALTERNATIVES GROWING STABLE DECLINING
Bonds 40 45 5
Stocks 70 30 -13
Mutual Funds 53 45 -5
Payoffs

Decision alternatives

Maximax Approach (optimistic)

Maximizes the maximum payoff (Best 0f Best)

ALTERNATIVES GROWING STABLE DECLINING Best
Bonds 40 45 5 45
Stocks 70 30 -13 70
Mutual Funds 53 45 -5 53
DECISION: Invest in stock
Maximin Approach

Maximizes the minimum payoff (Best of Worst)

ALTERNATIVES GROWING STABLE DECLINING Worst
Bonds 40 45 5 5
Stocks 70 30 -13 -13
Mutual Funds 53 45 -5 -5
DECISION: Invest in bonds

In matrix we use the data in the form of rows and columns, for profit maximization we also use the
Cramer’s Rule.

Business Applications:

 It is used for determine the most profitable combination of ingredients in a

product
 It is also used for making the surveys and most important for representing
the data’s like population of people etc.
 It is used in health care business for presenting reports
 Used in rating of wages and salaries of workers.
 Used for data input and output
 Matrix also used heavily in generating charts and graphs to demonstrate
the results of business decision and forecast.
 Helping for the solution of business problems
 Used for data entry

Sequence
Arrangement of numbers and symbols in a specific order

Series
When addition sign is used in sequence then it becomes series

Sequence and series is used to calculate the annuities and annuities can be used,

1. To accumulate funds(e.g when you make regular deposits in a saving account)

2. To pay out funds (e.g when you receive regular payments from a pension plan after you retire)
 Example: Suppose $1,500 is deposited at the end of each ear for the next 6 years in an account
paying 8% interest compounded annually. Find the future value of this annuity. In other words, how
much will be in the account at the end of 6 year?

1 2 3 4 5 6

$1500 $1500 $1500 $1500 $1500

A = P (1 + I ) n

= 1500 (1 + 0.8)5

= 1500 (1.08)5

= $2203.91

Total = 1500 (1.08)5 + 1500 (1.08)4 + 1500 (1.08)3 + 1500 (1.08)2 + 1500 (1.08)1 + 1500

= 1500 (1+(1.08)1 + (1.08)2 + (1.08)3 + (1.08)4 + (1.08)5)

= 1500((1.08)6 – 1) /.08
1 + x + x2 + x3……………………+ xn-1 = xn -1/x - 1
= $ 11,0003.89

For the future value, S =R [(1+i)n-1] /i

R is the payment at the end of each year

i is the interest rate per period

n is the number of periods

so, R = 1500 ( (1.08)6 – 1 ) / .08

R = $ 8799.90

Business Applications:

 Sequence and series is helpful for business routines and practical works for
arranging the data.
 Helpful for predicting age rate and future growth of business
 Banks also use this process for calculating interest rates
 For the payment of loans
 Used for financial market rates or future prediction
 In geometric progression each factor is working as independently so,
radioactive atoms work on this base.
 Series also used in the system of weather forecasting.
 Sequence and series used age and population data valuation.

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