Lecture Notes On Mathematics For Business: International School of Business, UEH, Vietnam

Lecture notes on Mathematics for Business
Nguyen Thi Thu Van
International School of Business, UEH, Vietnam
March 21, 2022
International School of Business, UEH UEH, Vietnam March 21, 2022 1 / 185
Chapter R: Review for Basic Algebra
Outline of the chapter: In this chapter, we will review the most important topics
in algebra. Knowing algebra is a fundamental prerequisite to success in higher
mathematics. The topic includes
Expressions with one or more variables
Equations, inequalities of one or more variables
Linear/nonlinear equations, inequalities
Sketching linear equations/inequalities of 2 variables
Exponents
Radicals
Polynomials
Haeussler E., Paul R., and Wood R (2014). Introductory Mathematical Analysis for Business, Economics, and the Life
and Social Sciences (13th ed.). Pearson.
Chapter R: Review for Basic Algebra R.1. Algebraic expressions with one or more variables
Definition
An algebraic expression is simply a combination of letters, brackets and other
mathematical symbols such as +, −, ×, :, and so on. Letters used in algebraic
expressions represent variables/unknown.
Example
x
20 + x, , x + 2y , x 2 + 3(y − 5),
y
Algebra is a language, and you must be familiar with its rules to correctly
interpret algebraic statements. The following order of operations has been agreed
upon through centuries of usage: Brackets first (B) - Indices second (I) - Division
and Multiplication third (DM) - Addition and Subtraction fourth (AS). This is
sometimes remembered using the acronym BIDMAS!
Chapter R: Review for Basic Algebra R.1. Algebraic expressions with one or more variables
Mathematical expressions provide a precise way of representing calculations that

need to be worked out in many business models.
Example
A company has a policy to reimburse employees for use of their cars for travel: for
the first 50 miles they may be able to claim 90 cents a mile, but this could fall to
60 cents a mile thereafter. If the distance, x miles, is no more than 50 miles, then
travel expenses, E (in dollars), could be worked out using the formula E = 0.9x.
If x exceeds 50 miles, the employee can claim $0.9 a mile for the first 50 miles
but only $0.6 a mile for the last (x − 50) miles. The total amount is
E (x) = 0.9 × 50 + 0.6(x − 50).
Travel expenses can therefore be worked out using two separate expressions:
E = 0.9x when x is no more than 50 miles,
E = 15 + 0.6x when x exceeds 50 miles.
Chapter R: Review for Basic Algebra R.2. Equations, Inequalities of one or more variable
Definition
An equation is a mathematical statement that consists two equal algebraic
expressions, one on each side of an ’equals’ sign.
For example, 2x = 5, 2x = 3y are equations. Below are some equations/formulas

commonly used in economics:
Example
Net Income = Revenue – Expenses (net income equation)
Assets = Liabilities + Shareholder’s Equity (accounting equation) [Business

assets are items of value your business owns. Liabilities are debts you owe.
And, business equity is how much ownership you have in your business.]
Break-even Point = Fixed Costs / (Sales Price Per Unit – Variable Costs Per
Unit) [Use the break-even point formula to determine how many products
you need to sell during a period to break even.]
Chapter R: Review for Basic Algebra R.2. Equations, Inequalities of one or more variable
Definition
Inequality identifies two algebraic expressions are not equal by means of
the symbols like 6=, <, >, ≤, ≥.
For example, x < 2, x + 3y > 5.
Inequalities arise in business when, for instance, there is a budgetary

restriction on resource allocation.
Example
A firm’s Human Resources department has a budget of $25,000 to spend
on training and laptops. Training courses cost $700 and new laptops are
$1200.
(a) If the department trains E employees and buys L laptops, write down
an inequality for E and L.
(b) If 12 employees attend courses, how many laptops could be bought?

Chapter R: Review for Basic Algebra R.3. Linear, non-linear equations
Definition
A linear equation is of the form
a multiple of x + a multiple of y = a number
That is ax + by = c in which a, b, c are given, and x and y are variables.

For example, 2x + 3y = 1.
Equations that are not falling in the above form are called non-linear
equations. For example, 2x 2 + 1 = 2, x + y 3 = 4.
Chapter R: Review for Basic Algebra R.4. Linear/non-linear inequalities
Definition
Similar to linear equations, a linear inequality is of the form
a multiple of x + a multiple of y < a number (or >, ≤, ≥)
For example x + y > 2.
Chapter R: Review for Basic Algebra R.5. Sketching a linear equation/inequality of 2 variables
In general, to sketch a straight line from its mathematical equation, it is

sufficient to perform the following steps:
calculate the coordinates of any two distinct points lying on it by
simply choosing a numerical value for x and to substitute it into the
equation and then using the equation obtained to deduce the
corresponding value of y .
plot these two points on graph paper and use a ruler to draw the line
passing through them.
Noting that the easiest thing to choose a value of x (in terms of the
amount of arithmetic involved) is to put x = 0 and find y and then to put
y = 0 and find x.
Example
Sketch the line according to the equation 2x + 3y = 6.
Graphing linear inequalities is nearly similar to doing with linear equation.

The difference is that the solution to the inequality is not the drawn line
but the area of the coordinate plane that satisfies the inequality. So you
need to do as follows:
draw a line of equation. This line divides the coordinate plane into
two halves and is called boundary line. One side of the boundary line
contains all solutions to the inequality.
choose a test point not lying on the boundary line. If coordinates of

the test point satisfy the inequality then the solution set of the
inequality is the part which consisting the point, otherwise choose
other part as the solution set. The boundary line is dashed for > and
< and solid for ≥ and ≤.
The area shaded darkly in the figure is the set of all points (x, y ) satisfying
the inequality y ≤ x + 2
Chapter R: Review for Basic Algebra R.6. Exponents
Definition
Integer exponents. If n is a natural number, then an = a × a × a × · · · × a
where a appears as a factor n times.
am × an = am+n ; (am )n = am×n
Zero and negative exponents. If a is any nonzero real number, and if n is a

positive integer, then a−n = a1n
Example
3 −1 4
20 = 1;

4 = 3
Chapter R: Review for Basic Algebra R.7. Radicals
We have defined a1/n as the positive or principal nth root of a for

appropriate values of a and n. An alternative notation for a1/n uses
radicals.
Definition
If n is an even natural number and a > 0, or n is an odd natural number,
√
then a1/n = n a.
√
The symbol n is a radical sign, the number a is the radicand, and n is the
√ √
index of the radical. The familiar symbol a is used instead of 2 a.
Chapter R: Review for Basic Algebra R.8. Polynomials
Definition
A polynomial is a term or a finite sum of terms in which all variables have
whole number exponents, and no variables appear in denominators.
Example
x 3 + 8 : polynomial of degree 3
x 2 y + xy 4 : polynomial of degree 5
2x + 5 : polynomial of degree 1
8: polynomial of degree zero or also a constant
Chapter 1. Mathematics of Finance
Outline of the chapter: Today, businesses and individuals are faced with a
bewildering array of loan facilities and investment opportunities. In this
chapter, we explain how financial calculations are carried out to enable an
informed choice to be made between the various possibilities available.
This chapter includes the following features:

Percentages - Scale factors
Simple interest - Compound interest
Savings - Loans.
Investment appraisal
Chapter 1. Mathematics of Finance 1.1. Percentages
What is a percentage?
Percentage changes - scale factors
How to compute overall percentage changes
Applications of scale factors in macroeconomics
Index number
Adjust value data for inflation
The word percentage literally means per cent, i.e. per hundred or out of
100. It stands for a portion of a whole expressed as a number between 0
and 100 rather than as a fraction and it is represented by the symbol %
Example
20 students out of a total of 37 in the student list are female. What
percentage are female?
20
Answer. Our class has 37 × 100 ≈ 54.3% female students. [This does not
mean that there are more than 54 female students in the class.]
An investment rises from $2,500 to $3,375. So

3375−2500
The percentage increase of the investment is 2500 = 0.35 = 35%
new value 3,375 3,375−2,500

The scale factor is old value = 2,500 =1+ 2,500 = 1.35.
At the beginning of a year, the population of a small village is 8,400.

If the annual drop in population is 5%, the population at the end of
the year is
5 5
8400 − 8400 × = 8400(1 − ) = 8400 × 0.95 = 7980
100 100
How to compute overall percentage changes
To compute the overall percentage change over an entire period, we

simply multiply all the scale factors together on each corresponding
individual period. For instance,
If share prices rise by 32% during the first half of the year and rise by
a further 10% during the second half, the scale factor for the whole
32 10
year is (1 + 100 ) × (1 + 100 ) = 1.32 × 1.1 = 1.452 and therefore the
overall percentage change during the year is 45.2%.
If the price of a good rises by 5% in a year but then is reduced by
30% in a sale, the scale factor for the whole year is
5 30
(1 + 100 ) × (1 − 100 ) = 1.05 × 0.7 = 0.735. In this case, the price is
reduced by 26.5% over the entire period.
Applications of scale factors in macroeconomics
Macroeconomics is concerned with the analysis of economic theory and policy at

a national level. On this section, we focus on two applications of scale factors in
macroeconomics: index number and inflation.
Index number. Economic data often take the form of a time series, i.e., values
of economic indicators are available in a different equally space point in time,
such as annually, quarterly, monthly, and so on. We are interested in analyzing
the rise and fall of these indicators over time. In this case, index numbers enable
us to identify trends and relationships between data values in a time series.
When finding index numbers, a base year is chosen and the index of the base
value is 100 and the index number of the year of interest is calculated by
Index number = the scale factor from the base year × 100
Example
The table below shows the values of household spending (in billions of
dollars) during a 5-year period.
If 2011 is taken as the base year, the index number of 2011 is 100 and the
index number of the year 2012 is 723.7
697.2 × 100 = 103.8, which means the
value household spending in 2012 is 103.8 % of its value in 2011. In other
words, the household spending increased by 3.8 % during 2012.
The index number of each year w.r.t. the base year of 2011 are shown in
Table 3.2.
There are two other index numbers called Paasche index and Laspeyres
index which are to measure the variation of a bundle of goods over time.
Passche index is an index number for groups of data weighted by the
quantities used in the current year
Laspeyres index is an index number for groups of data which are
weighted by the quantities used in the base year.
Example
Table 3.6 below shows the number of each type bought in 2014 together
with the unit prices of each item in 2014 and 2015.
So, the Laspeyres index w.r.t. the base year of 2014 is
20 × 10 + 35 × 23 + 10 × 5
× 100 = 124.1
20 × 8 + 35 × 18 + 10 × 6
If the quantities bought in 2015 are those shown in Table 3.7 then the
current weighted index in 2015 (which is called the Passche index) is
17 × 10 + 38 × 23 + 12 × 5
× 100 = 129.9
20 × 8 + 35 × 18 + 10 × 6
Adjust value data for inflation is to find again the real data after
removing the effect of inflation. So what is the inflation?
Inflation is basically a rise in prices.
A more exact definition of inflation is a situation of a sustained

increase in the general price level in an economy. Inflation means an
increase in the cost of living as the price of goods and services rise.
Example
The table below shows the price (in thousands of dollars) of an average
house in a certain town during a 5-year period. The price quoted is the
value of the house at the end of each year.
Use the annual rates of inflation given in Table 3.9 to adjust the prices to
those prevailing at the end of 1991 and compare the rise in both the
nominal and real values of house prices during this period?
Answer: Remember that 1991 is chosen as the base year. The real value
of the house
at the end of 1992 is 93,000 (the1.071
nominal value)
= 86, 835.
Thus the house has fallen in value by over $2000 compared with its
price in 1991 ( $ 89,000)
100,000
at the end of 1993 is 1.035×1.071 = 90, 213
106,000
at the end of 1994 is 1.023×1.035×1.071 = 93, 476
at the end of 1990 is 72, 000 × 1.107 = 79, 704
The table below shows the nominal values and adjusted values rounded to
the nearest thousand for comparison after taking inflation into account.
Chapter 1. Mathematics of Finance 1.2. Simple interest - Compound interest
Suppose that Peter invests P0 dollars into a bank with the annual interest
rate of r %. How much will he receive?
After t days (t < 365), Peter receives

t t
Pt = P0 + INT = P0 + P0 × r % × = P0 (1 + r % × )
365 365
Thus, after 1 year, he receives
P1 = P0 (1 + r %)
where INT is the interest paid direct to the investor and it is called
the simple interest.
However after 1 year, Peter still lets that amount in his account, so at
the end of the second year, he will receive
P2 = P0 (1 + r %) + r % × P0 (1 + r %) = P0 (1 + r %)2 .
The interest received in this case is called the compound interest,

which means interest earns on interest.
Recursively, after n years: Peter receives Pn = P0 (1 + r %)n .
Notations: P0 is called the present value and P1 , P2 , . . . , Pn are called the

future values of P0 after 1 year, 2 years, ..., n years, respectively.
Example
If $10,000 invested at 5% interest compounded annually then the amount
the investor receives
5
after 216 days is P216 days = 10, 000 + 10, 000 × 100 × 216
365 ≈ 10, 295.89
5 4

at the end of the fourth year is P4 = 10, 000 1 + 100 = $12, 155.06
It is worth noting that the interest are often compounded more frequently
than a year, so the periodic interest rates are required to be considered.
The following is the simple rule for periodic rates w.r.t. the annual rate
r %:
If the interest is compounded semiannually then
2×n
Pn = P0 1 + r 2% .
4×n
r%
If the interest is compounded quarterly then Pn = P0 1 + 4 .
More general,
if the interest is compounded m times per year then
m×n
r%
Pn = P0 1 + m .
However, r % is only nominal rate, because the interest rate that we
actually earn for a year if interest is compounded more than one time a
year is higher. This rate is called effective rate.
Indeed, suppose we invest $10 in a bank account and earn a return of 12 %

interest compounded semiannually. Then the compound interest earned after a
year is
2 " 2 #
12% 12%
10 1 + − 10 = 1+ − 1 × 10 = 0.1236 × 10.
2 2
This means that we actually earn 12.36 %.
Generally if r % is the nominal rate compounded

m m times per year then the
r%
corresponding effective rate is re = 1 + m − 1. It’s clear that when m = 1
then r = re .
If no other specification is stated, the interest rate is the nominal rate. In fact
there are many kinds of interest rates. The different types of interest rates,
including real, nominal, effective, and annual, are distinguished by key economic
factors, that can help individuals become smarter consumers and shrewder
investors. You’ll dig deeper this topic in financial courses.
Example
A principal of $10 is invested at 12% interest for 1 year. The future value
if the interest is compounded
annually =
semiannually =
quarterly =
monthly =
weekly =
After calculating the future values above, we will see that the future value
rises as the frequency of compounding rises.
If the interest is compounded in a smaller and smaller time periods (which

means m becomes very large) then the future value rises, however, after n
years, they appear to be approaching a fixed number
n×m " m/r % #n×r %
r% 1
Pn = lim P0 1 + = lim P0 1+ m = P0 e r %×n
m→∞ m m→∞
r%
In this case the interest is said to be compounded continuously.
Example
A principal of $2,000 is invested at 10% interest compounded continuously.
After how many days will the investment first exceed $2,100?
The number e is named after the Swiss mathematician Leonhard Euler and is
m x
e ≡ limm→∞ 1 + m1 . Euler then proved that limx→∞ 1 + x1 = e. Note that
m ∈ IN, x ∈ IR
To summarize, if the investment earns a return of r % compounded

periodically then after k periods the future value of P0 is calculated by
Pk = P0 (1 + rp %)k ,
where rp is the periodic interest rate.
If interest is compounded continuously then after n years, P0 becomes
Pn = P0 e r %×n
Chapter 1. Mathematics of Finance 1.3. Savings and loans
Recall that
A geometric sequence is a sequence of numbers a1 , a2 , . . . , an with a
an
constant ratio between consecutive terms r = an−1 . Thus
an = r × an−1 = r 2 × an−2 = · · · = r n−1 × a1 , n = 2, 3, . . .
Example: 21 , 41 , 18 , 16
1
is a geometric sequence.
The geometric series of the first n terms, by Newton binomial, is
n
X rn − 1
ai = a1 + r × a1 + r 2 × a1 + . . . r n−1 × a1 = a1
r −1
i=1
Newton binomial says that: when n ∈ IN and b be real number. Then

1 − b n = (1 − b)(1 + b + b 2 + · · · + b n−2 + b n−1 )
We’ll make use of the Newton binomial formula in the two important
activities in Finance, such as savings and loans.
In this section we focus on two applications of geometric series into

finance: savings and loans.
Savings: Imagine simply one decides to invest regularly an equal amount

of money into a bank account in order to meet some future financial
commitment. This is sometimes referred to as a sinking fund!
Suppose that each payment is made at the beginning of the periods and
every payment is an equal amount a. Then the accumulated amount, after
n periods, will be calculated by
(1 + r )n − 1
Vn = a(1 + r ) + a(1 + r )2 + · · · + a(1 + r )n = a(1 + r ) .
r
Caveat: A fixed amount of money has different values at a different point
in time, which refers to as the time value of money. Therefore, a golden
rule for financial mathematics is never compare or identify capitals
without transforming them into a common date.
Loans: one needs an amount of money right now and decides to borrow it
from a bank. The loan is promised to pay back by a series of repayments
(or, also called, an annuity) made at equal time intervals. Such an annuity
can be thought of as the opposite of a sinking fund!
Suppose that each repayment is made at the end of the periods, then the
actual value of a debt, after n repayments made, is
1 − (1 + r )−n
V0 = a(1 + r )−1 + a(1 + r )−2 + · · · + a(1 + r )−n = a ,
r
where a is the amount repaid equally at each period.
Example
[Savings] Peter saves $100 in a bank account at the beginning of
each month. The bank offers a return of 12% compounded monthly.
How much does Peter save after 12 months?
[Loans] Determine the monthly repayments needed to repay a

$100,000 loan which is paid back over 25 years when the interest rate
is 10% ?
Example
[Savings] Suppose $1,000 is placed in a savings account on the 1st of
December 2016 and, from then on, $50 is deposited in the account on
the first of the next months. If the interest is at 4.3% compounded
monthly, how much is in the account on 1 Jan., 2019?
[Loans] A debtor is to amortize an $18,000 car loan by making equal

repayments at the end of each month for 36 months. If the interest is
at 5% compounded monthly.
What is each monthly repayment?
Just after the 16th repayment, the debtor would like to pay off the rest
of loan by only three quarter repayments at the interest rate of 4.5%
compounded quarterly. What is each quarterly repayment?
Chapter 1. Mathematics of Finance 1.4. Investment appraisal
−k
Present value: P0 = Pk (1 + rp %) . Let’s recall that
Pk is the future value of P0 after k periods.
r % is the annual interest rate and thus, rp = mr in which m is the frequency

of compounding a year. In the backwards process, r % is referred to as the
discount rate [it’s customary to be used to calculate the present value of
promissory notes].
If interest is compounded continuously, P0 = Pn e −r %×n in which n is the years.
Example
Find the present value of $1,000 in 4 years’ time if the discount rate is 10%
compounded
semiannually and continuously ?
In Finance the discount rate is used in the concept of the Time value of money -
determining the present value of the future cash flows in the discounted cash flow
analysis, while an interest rate is a rate charged by a lender to a borrower for the
use of assets.
Present values are a useful way of appraising investment projects. Two

ways of assessing individual projects are based on Net Present Value
(NPV) and Internal Rate of Return (IRR).
NPV = the present value of revenue - the present value of the costs.
A project is considered worthwhile if the NPV is positive.

IRR = the annual rate which, when applied to the initial outlay, yields
the same return as the project after the same number of years.
A project is considered worthwhile if the IRR is larger than market

rate.
It is often that if a decision is to be made between two different projects
then the one with higher NPV or IRR is the better choice. Of course, in
practice, other factors such as risk need to be taken into account before a
decision is made.
Example
A project requiring an initial outlay of $15,000 is guaranteed to produce a
return of $20,000 in 3 years’ time. Use the
Net Present Value
Internal Rate of Return

methods to decide whether this investment is worthwhile (i.e., the NPV is
positive) if the prevailing market rate is 5% compounded annually. Would
your decision be affected if the interest rate were 12%?
Caveat: the IRR method is sometimes an unreliable way of comparing

investment opportunities when there are significant differences between
the amounts involved. This is because the IRR method compares
percentages, and obviously a large percentage of a small sum could give a
smaller profit than a small percentage of a larger sum.
Example
Suppose that it is possible to invest in only one of two different projects.
Project A requires an initial outlay of $ 1,000 and yields $ 1,200 in four
years’ time. Project B requires an outlay of $ 30,000 and yields $ 35,000
after four years. Which of these projects would you choose to invest in
when the market rate is 3% compounded annually?
Chapter 2: Functions
Outline of the chapter: We will introduce linear functions, nonlinear

functions, and some functions used in Business.
Notice that at the end of this chapter, you must be able to:
determine independent/dependent variables of issues mostly arising in
Business,
represent relationship between quantities using
equations/inequalities/functions,
recognize possible properties of a quantity based on other quantities,
find the domain of a function and sketch a function,
know how to compute exactly or approximately related quantities,
finally know how to fit data points by regression model.
Chapter 2: Functions 2.1. Linear functions
Slopes and equations of lines

An important characteristic of a straight line is its slope, a number that
represents the “steepness” of the line.
Definition
The slope of a nonvertical line is defined as the vertical change (the “rise”) over
the horizontal change (the “run”) as one travels along the line. In symbols,
taking two different points (x1 , y1 ) and (x2 , y2 ) on the line, the slope is
change in y ∆y y2 − y1
m= = = where x1 6= x2 .
change in x ∆x x2 − x1
The slope of a horizontal line is 0 and the slope of a vertical line is undefined.
Note that using similar triangles, it can be shown that the slope of a line is
independent of the choice of points on the line. That is, the same slope will be
obtained for any choice of two different points on the line.
The standard equation of a straight line:
Ax + By = C withA, B, C ∈ IR
The slope-point equation of a straight line passing through (xA , yA ) :
y = m(x − xA ) + yA
The slope-intercept equation of a straight line:
y = mx + b
The least square lines

We use past data to find trends and to make tentative predictions about the
future. Assume that the data are related linearly, that is, if we plot pairs of data,
the resulting points will lie close to some line.
The least square line y = b1 + b0 x that gives the best fit to the data points
(x1 , y1 ), (x2 , y2 ), . . . , (xn , yn ) has slope b0 and y-intercept b1
P P P P P
n (xy ) − ( x)( y ) y − b0 x
b0 = P P ; b1 =
n (x 2 ) − ( x)2 n
Although the least squares line can always be found, it may not be a good model.
One measure of how well the original data fits a straight line is the correlation
coefficient developed by statistics pioneer Karl Pearson (1857—1936),
denoted by r , which can be calculated by the following formula.
P P P
n (xy ) − ( x) ( y )
r=p P P q p P P
n (x 2 ) − ( x)2 n (y 2 ) − ( y )2
Below are some scatterplots that correspond to values of r .
Note that if r is equal or close to zero, there is no linear correlation between the
data points (but some nonlinear function might provide an excellent fit for the
data).
Chapter 2: Functions 2.2. Nonlinear functions
In this section, we will introduce the following features:

What is a function?
Four ways to represent a function
Monotonic functions, symmetric functions, periodic functions
Special functions
Combinations of functions
Inverse functions
What is a function?
Functions are essential factors in modeling phenomena/issues in reality.

We construct/use functions to model relationship between quantities.
Example
Revenue of a certain good is variable, it depends on quality, price,
demand, or even advertising expenses, etc. In other words, revenue,
quality, price, expenses are related by a way or another.
So understanding of functions is very important! The aim of this section is

to state systematically briefly the definition of a function, the properties of
functions, the four ways of representing a function. Some functions used
in Business will also be introduced in this section.
Let X, Y be two sets (or also called, for example, two events in
probability). A function f : X → Y is a rule that assigns, to each element
x of X , at most one element y of Y , denoted f (x).
It is useful to think of function as a machine: putting x into the machine

f , out of the machine we get f (x). Thus, x is called independent
input/variable, while f (x) is dependent variable/output which depends on
the input x.
Domain: the set of all inputs x allowable is called the domain of function
f and denoted D. Mathematically speaking,
D = {x|f (x) is well defined}
Range: If D is the domain of f then the set of all outputs f (x) is called
the image/range of f and denoted R. Briefly,
R = {f (x)|x ∈ D}
From now on, if no other specification is stated, D and R mean the
domain and the range of function of interest, respectively.
Example
Which following rule is a function? If it’s a function, find the domain and
range.
(a) x and f are related by f (x) = x1 .
(b) x and f are related by (f (x))2 = x.

Four ways to represent a function
A function can be represented

by a formula (algebraically)
by a table (numerically)
by a graph (graphically) :
in words (verbally)
Notice that if a single function can be represented in all four ways, it’s
often useful to go from one representation to another to gain additional
insight into the function.
Example
Let C be the cost of mailing an envelope with weight w . The rule that the
US Postal Service used as of 2010 is as follows: The cost is 88 cents for
up to 1 oz, plus 17 cents for each additional ounce (or less).
The mailing cost can be given by a table as shown below
Write a general formula for the cost function and draw its graph.
Properties of function
Monotone: A function f is called increasing (resp. decreasing) on I ⊂ D
if, for all x1 , x2 ∈ I , x1 < x2 implies f (x1 ) ≤ f (x2 ) (resp. f (x1 ) ≥ f (x2 ))
For example, f (x) = 2x + 1 is increasing on IR and g (x) = x 2 is increasing

on (0, ∞) and decreasing on (−∞, 0).
Symmetry: A function is called symmetric about the y −axis if
f (−x) = f (x).
For example, g (x) = x 2 is symmetric about the y −axis.

Periodic functions: A function is called periodic with period of T > 0 if
f (x + T ) = f (x) for all x.
For example, trigonometric functions such as sine, cosine, tangent,

cotangent are periodic.
Special functions
Polynomial function of degree n:
f (x) = an x n + an−1 x n−1 + · · · + a1 x + a0 , where n is non-negative
integer and the coefficients a0 , a1 , . . . , an are constants and an 6= 0.
n = 0: Constant functions f (x) = c, i.e. the value of f is always c
whatever x is.
n = 1: Linear functions f (x) = ax + b
n = 2: Quadratic function f (x) = ax 2 + bx + c
Case-defined functions (or called also piece-wise functions): functions
defined by more than a formula over different intervals are called
case-defined functions, example the absolute-value function is the
case: 
x if x ≥ 0
|x| =
−x otherwise.
Suppose that 0 < a 6= 1.

Exponential function: f (x) = ax
Logarithmic functions: f (x) = loga x
Combinations of functions
For any functions f and g , we define the following operations:
Sum/Difference: (f ± g )(x) = f (x) ± g (x)
Product: (fg )(x) = f (x) × g (x)
Quotient: (f /g )(x) = gf (x)

(x) for g (x) 6= 0, i.e. we further restrict the
domain to exclude any value of x for which g (x) = 0.
Composition: f ◦ g (x) = f (g (x)) : the domain of f ◦ g is the set of

those x in the domain of g such that g (x) is in the domain of f .
Inverse: If g and f satisfy the fact that g ◦ f (x) = x and

f ◦ g (x) = x then g is called the inverse of f and denoted f −1 ≡ g .
Theorem
If g is one-to-one then its inverse exists and is unique!
A cryptograph is a coded message. The ability to code and decode messages is

useful because of the vast amount of information that is transmitted between
computers owned by companies, banks, governments and private users.
One method of protection from unauthorized viewers is to encode the information

using a mathematical function. This information can then be decoded only by
those who know the inverse of the encoding function.
Chapter 2: Functions 2.3. Functions used in Business
Supply and demand functions
Demand function: q = D(p) where p is referred to as the unit price of a

certain commodity if customer demands q units of the commodity.
Supply function: q = S(p) where p is referred to as the unit price of a

certain commodity at which the producer is willing to supply q units of the
commodity to the market.
In any competitive market, it is often that demand functions are decreasing, while
supply functions are increasing. However it is not always true for all markets, for
example, electricity market in Vietnam.
The law of supply and demand says that in a competitive market environment,
supply tends to equal demand, and when this occurs, the market is said to be in
equilibrium.
When the market is not in equilibrium, it has a shortage when demand exceeds
supply [D(x) > S(x)] and a surplus when supply exceeds demand [S(x) > D(x)].
[Equilibrium points in N-person games by John Nash, 1950]
John Forbes Nash Jr. (June 13, 1928 – May 23, 2015) was an American mathematician who is the only person to be awarded
both the Nobel Memorial Prize in Economic Sciences in Game theory in 1994 and the Abel Prize in 2015. The movie ‘A
beautiful mind’ is about Nash’s life.

Cost, revenue, profit functions

Total Cost = variable cost + fixed cost
variable cost, denoted c(x) which varies with output, is a function used
to express how production expenses will change at different output
levels (or number of units) x.
c(x) = x × p (the cost per unit)
fixed cost is costs which are independent of output

Revenue function denoted r (x) is a function used to express the
amount one receives after selling x units of a commodity.
r (x) = x × p (the selling price)
Profit function denoted p(x) is the interest received after selling x

units of a commodity.
p(x) = r (x) − total cost

Chapter 3. Differentiation
Outline of the chapter:

Limits
Continuity
Tangent and velocity problems
Derivative of a function
Rules of differentiation
Some applications of differentiation in Business
Rates of change - Relative rate of change
Elasticity
Marginal functions
Optimization in Business: Economic lot size, Economic order quantity,

Diminishing point of returns
Chapter 3. Differentiation 3.1. Limits
In mathematics, a limit is the value that a function (or sequence)

”approaches” as the input (or index) ”approaches” some value. Limits are
essential to calculus and are used to define continuity, derivatives, and
integrals.
Definition
Let f be a function defined in a neighborhood of a point a but not
necessarily at a. We say loosely that the limit of f when x goes to a is L,
and write limx→a f (x) = L if we can make f (x) arbitrarily close to L by
taking x sufficiently close but not equal to a.
Sometimes we also want to talk about limit from one side.

Definition
necessarily at a. We say that the limit of f when x goes to a on the right
(resp., on the left) is L, and write
limx→a+ f (x) = L (reps., limx→a− f (x) = L)
if we can make f (x) arbitrarily close to L by taking x sufficiently close but

bigger than a (reps., smaller than a ).
Theorem
limx→a f (x) exists if and only if limx→a+ f (x) and limx→a− f (x) exist and
are equal. In that case limx→a f (x) = limx→a+ f (x) = limx→a− f (x)
Consequently, if limx→a+ f (x) 6= limx→a− f (x) then limx→a f (x) does not
exist.
We also want to talk about infinity as limit.

Definition
necessarily at a. We say that the limit of f when x goes to a is infinity,
and write
limx→a f (x) = ∞
if we can make f (x) arbitrarily big by taking x sufficiently close but not
equal to a.
Definition
If the values of the function f (x) approach a number L as x increases
without bound, we write
limx→∞ f (x) = L
Similarly, we write limx→−∞ f (x) = M when the functional values of f

approach a number M as x decreases without bound.
Theorem
If c ∈ R then the constant function f (x) ≡ c is often denoted c itself.
And we have
lim c = c and lim x = a
x→a x→a
It’d be worth introducing one of the important theorems of Euler:
1 x

1
lim (1 + x) x = e and lim 1+ =e
x→0 x→∞ x
The number e is named after the Swiss mathematician Leonhard Euler

m
and is limm→∞ 1 + m1 .
Limit Laws
Theorem
If limx→a f (x) and limx→a g (x) exist then
(a) limx→a [f (x) + g (x)] = limx→a f (x) + limx→a g (x)
(b) limx→a f (x)g (x) = [limx→a f (x)][limx→a g (x)]
(c) limx→a gf (x)

(x) =
limx→a f (x)
limx→a g (x) if limx→a g (x) 6= 0.
The laws are still valid with the process x → ∞ instead of x → a.
Corollary
Let n be a positive integer. If limx→a f (x) exists then
(a) limx→a cf (x) = c limx→a f (x)
(b) limx→a x n = an
(c) limx→a (f (x))n = (limx→a f (x))n
√ √
(d) limx→a n x = n a
In the above formula if n is even we assume that a > 0
p p
(e) limx→a n f (x) = limx→a n f (a)
In the above formula if n is even we assume that limx→a f (x) > 0.
Below are some remarks that are worth noting:

the limit of function f when x → a can be thought of as the limiting
value of f as x is very close to a, that is,
lim f (x) = L ⇔ f (x) ≈ L as x ≈a

x→a
the limit of function if exists must be unique.
Finally in reality nothing is exactly one hundred percent, so limits are

essential and you should know how to compute/use them proficiently!
Chapter 3. Differentiation 3.2. Continuity
In mathematics, a continuous function is a function that does not have

any abrupt changes in value. More precisely,
Definition
f is said to be continuous at a if limx→a f (x) = f (a)
which also means that sufficiently small changes in the input of a

continuous function result in arbitrarily small changes in its output. A
function that is not continuous is called a discontinuous function.
Economists speak quite often about the continuity and discontinuity of

economic functions/relationships.
Example
Suppose that a salesperson receives a salary according to a contract that
establishes a relationship between pay and the level of sales made by the
salesperson. In particular, suppose that the contract stipulates that the
salesperson’s monthly salary will be composed of three parts:
(i) a basic amount of $800,
(ii) a commission of 10%,
(iii) a lump-sum bonus of $500 if the salesperson’s sales for the month
reach or exceed $20,000.
From this description, one can see that her salary will jump by $500 if the
critical level of $20,000 worth of sales is achieved. This implies a
discontinuity in her salary schedule.
The definition of continuity of functions at a point is also extended to an

interval as follows.
Definition
A function f is continuous on an interval [a, b) if it is continuous at every
point in the interval and limx→a+ f (x) = f (a).
A function f is continuous on an interval (a, b] if it is continuous at every

point in the interval and limx→b− f (x) = f (b).
Accordingly, a function f is continuous on an interval [a, b] if it is

continuous at every point in the interval and limx→a+ f (x) = f (a) and
limx→b− f (x) = f (b).
Intuitively, a continuous function at a is a function that its graph has no
holes at a or is not broken into two pieces at a.
One often says that a picture is worth more than thousand words. So in
order to understand the concepts of continuity, let do the example below.
Example
Let f be given by the graph in the figure below. Which intervals is f
continuous on?
Example
Suppose the long-distance rate for a telephone call from Hazleton,
Pennsylvania to Los Angeles, California, is $0.08 for the first minute or
fraction thereof and $0.04 for each additional minute or fraction thereof. If
y = f (t) is a function that indicates the total charge y for a call of t
minutes duration then
Formulate the charge function
Sketch the graph of f for 0 < t ≤ 3 21
Determine the values of t at which discontinuity occurs.
Chapter 3. Differentiation 3.3. Tangent and Velocity Problems
Recall that a linear function f (x) = mx + b changes at a constant rate m

w.r.t. x, that is, the rate of change of f (x) is the slope or the steepness of
the line y = mx + b.
However if a function f (x) is not linear, the rate of change is not a

constant but varies with x. In particular, when x = c, the rate is given by
the steepness of the graph of f (x) at the point P(c, f (c)), which can be
measured by the slope of the tangent line to the graph at P.
Tangent problem. Find the slope of a tangent line at P(c, f (c)) on the
curve C of equation y = f (x).
Strategy: consider a point Q(c + h, f (c + h)) nearby P (Q 6= P). The

slope of the secant line PQ is the difference quotient:
rise change in f f (c + h) − f (c)
mPQ = = =
run change in x h
Observe that if we let Q approach P by letting c + h approach c then the

pink lines PQ approach the blue line at P. In other words, the blue line is
considered as the limiting line of the pink lines. As a result, the slope of
the tangent line at P can be calculated as
f (c + h) − f (c)
m = lim mPQ = lim
Q→P h→0 h
Velocity problem. If an object is moving along a straight line according

to an equation s = f (t), where s is the displacement of the object from
the origin at time t, then the average velocity denoted va of the object
moving in the time interval from time a to time a + h is the following
difference quotient
displacement f (a + h) − f (a)
va = =
elapsed time h
If we consider the movement of the object in a shorter and shorter time

interval, the average velocity becomes the instantaneous velocity
f (a + h) − f (a)
v (a) = limh→0
h
Note that we are not concerned with the direction in which the movement
occurs, but displacement and velocity. The speed of the movement is
|velocity |.
Chapter 3. Differentiation 3.4. Derivative
Both problems lead to finding limit

f (a + h) − f (a) f (a + ∆x) − f (a)
lim = lim .
h→0 h ∆x→0 ∆x
This limit arises actually not only in geometry and physics but in many
other practical situations, so it is given a special name: DERIVATIVE!
Definition
The derivative of a function at the number a, denoted by f 0 (a) (followed
by Newton’s notation) which is read ’f dashed of a‘ or denoted by
df
dx (x = a) (followed by Leibnitz’s), is
f (a + ∆x) − f (a) ∆f df
f 0 (a) = lim = lim = (x = a)
∆x→0 ∆x ∆x→0 ∆x dx
if the limit exists and, in this case, f is said to be derivable (or also called
differentiable) at a.
Note that
f must be absolutely defined at a and about a if f 0 (a) exists
If f is derivable at every point in an interval (a, b) then f is said to be

derivable on (a, b)
If a number a is replaced by a variable x, the derivative of f is also a

function in terms of x that is also called a derived function!
It is easy to deduce from the definition of the derivative that

If f 0 > 0 on a certain interval then the curve of f rises from the left to
the right of the interval and thus the function is said to be increasing.
If f 0 < 0, the curve of f drops and the function is decreasing.
Example
Observe that the graph of f drops on (−∞, 0) (so f 0 < 0 on this interval)
and rises on (0, +∞) (so on this interval f 0 < 0).
The point at which x = 0 is called the turning point!
Noting that not all functions are derivable. For example, function is not
continuous at a point then it is not derivable at that point, that is, the
graph at this point is broken into two pieces or has a hole.
Even continuous functions that whose graph has a sharp corner are also
not derivable.
Chapter 3. Differentiation 3.5. Rules of Differentiation
Theorem
If f and g are derivable and c is a constant then
(f ± g )0 = f 0 ± g 0
(fg )0 = f 0 g + fg 0
f 0 g −fg 0
( gf )0 = g2
(cf )0 = cf 0
Theorem (Chain rule)

If f and g are derivable then
(f (g (x)))0 = f 0 (g (x))g 0 (x)
Example
Given two functions f , g whose graphs are shown below. Let
u(x) = f (g (x)), v (x) = g (f (x)), and w (x) = g (g (x))
Find u 0 (1), v 0 (1), and w 0 (1).
The second order is defined by f 00 (x) = (f 0 (x))0 . Moreover, the sign of f 00

enables us to identify the behavior of the function f . Precisely,
If f 00 > 0 on a certain interval then the curve of f bends upwards on
that interval and the function is said to be convex.
If f 00 < 0, the curve of f bends upwards and the function is said to be

concave.
The point at which the function changes the concavity is called the point
of inflection.
Chapter 3. Differentiation 3.6. Some applications of differentiation in Business
You may wonder what on earth differentiation has to do with economics?

In fact we cannot get very far with economic theory without making use of
calculus. In this section, we focus on the five applications:
Rate of change - Relative rate of change - Percentage rate of change
Elasticity
Marginal analysis
Optimization in Business
Rate of change
The rate of change of f (x) at x is defined by f 0 (x).
Example
An efficiency study of the morning shift [from 8:00 a.m. til 12:00 noon] at
a certain factory indicates that an average worker arriving on the job at
8:00 a.m. will have produced Q(t) = −t 3 + 8t 2 + 15t units t hours later.
At what time is the worker performing most efficiently? and least
efficiently?
Relative rate of change
In many practical situations, the rate of change of a quantity f is not as

significant as its relative rate of change, which is defined as change in f
size of f .
Example
A yearly rate of change of 500 individuals in a city whose total populations is 5
500
million yields a negligible relative (per capita) rate of change of 5,000,000 = 0.0001
or 0.01%, while the same rate of change in a town of 2,000 would yield a relative
500
rate of change 2,000 = 0.25 or 25%, which has enormous impact on the town.
∆f
The relative rate of change in f = f and the corresponding percentage rate of
change in f = 100f ∆f .
Elasticity
We are known that demand, in general, is a decreasing function, that is,

an increase in the unit price of a commodity will result in decreased
demand. However, the sensitivity or responsiveness of demand to a change
in price varies from one product to another.
For instance, the demand for products such as soap, flashlight batteries, or
salt will not be much affected by a small percentage change in unit price,
while a comparable percentage change in the price of airline tickets or
home loans can affect demand dramatically.
Economists use a quantity called elasticity of demand to measure the

sensitivity of the change.
Elasticity is defined, supposed that q is a demand function in terms of unit price

p (q0 = q(p0 )), by
∆q
percentage rate of change in demand q × 100 p ∆q
E (p) = = ∆p
= ×
percentage rate of change in price p × 100 q ∆p
Therefore,
p0 ∆q p0 dq p
E (p0 ) = × lim = × (p = p0 ) ≡ × q 0 (p = p0 ).
q0 ∆p→0 ∆p q0 dp q
Demand is said to be
elastic if |E | > 1 ⇒ the percentage decrease in demand is greater than the
percentage increase in price that caused it, and thus, demand is relatively
sensitive to changes in price
inelastic if |E | < 1 ⇒ demand is relatively insensitive to changes in price
unit elastic if |E | = 1
The relationship between revenue and price is shown below. Note that the
revenue curve is rising where demand is inelastic, falling where demand is
elastic, and has a horizontal tangent line where the demand is of unit
elasticity.
Example
The manager of a bookstore determines that when a certain new
paperback novel is priced at p dollars per copy, the daily demand will be
√
q = 300 − p 2 copies, where 0 ≤ p ≤ 300
(a) Determine where the demand is elastic, inelastic, and of unit elasticity
with respect to price.
(b) Interpret the results of part (a) in terms of the behavior of total
revenue as a function of price.
Marginal functions
Suppose C (q) is the total cost of producing q units of a particular commodity. If
q0 units are currently being produced, then the derivative
C (q0 + ∆q) − C (q0 )
C 0 (q0 ) = lim
∆q
∆q→0
is the marginal cost of producing q0 units. In addition, the average cost of a unit
of product if q0 units are produced is AC (q0 ) = C (q0 +∆q)−C
∆q
(q0 )
This deduces, as ∆q = 1, that

C 0 (q0 ) ≈ C (q0 + 1) − C (q0 )
in which
the right hand side is the cost of increasing the level of production by one
unit, from q0 to q0 + 1
the left hand side approximates the additional cost incurred when the level
of production is increased by one unit, from q0 to q0 + 1.
The geometric relationship between the marginal cost and the additional
cost are shown in the figure below.
Example
Unit of output Total cost (in dollars) Marginal cost (in dollars)
1 5 5
2 9 4
3 12 3
4 16 4
5 21 5
6 29 8
Observe that the marginal cost curve decreases sharply with smaller
output and reaches a minimum. As production is expanded to a higher
level, it begins to rise at a rapid rate.
In general, if the level of production is increased by ∆q then
C (q0 + ∆q) − C (q0 ) ≈ C 0 (q0 ) × ∆q
In other words,
change in total cost ≈ marginal cost × change in output
Example
Suppose the total cost in dollars of manufacturing q units of a certain
commodity is C (q) = 3q 2 + 5q + 10. If the current level of production is
40 units, estimate how the total cost will change if 40.5 units are produced.
The derivative formula applies not only to cost, but also for other
economic quantities, such as revenue, profit, and so on.
Marginal cost is important in the business decision-making process, for

example, when the management needs to decide whether to increase
production or not.
Marginal revenue increases whenever the revenue received from
producing one additional unit of a good grows faster (or shrinks more
slowly) than its marginal cost of production.
Increasing marginal revenue is a sign that the company is producing

too little relative to consumer demand, and there are profit
opportunities if production expands.
Example
A company manufactures toy soldiers. After some production, it costs the
company $5 in materials and labor to create its 100th toy soldier. That
100th toy soldier sells for $15. Profit for this toy is $10.
Now, suppose the 101st toy soldier also costs $5, but this time can sell for
$17. The profit for the 101st toy soldier, $12, is greater than the profit for
the 100th toy soldier. This is an example of increasing marginal revenue.
Optimization in Business
In addition, we can use derivatives to optimize economic quantities.

[First order derivative] If f 0 (a) = 0 and f 0 changes sign around a, a is
an extreme point.
[Second order derivative] If f 0 (a) = 0 then

if f 00 (a) > 0 then f attains a minimum value at a
if f 00 (a) < 0 then f attains a maximum value at a
Two general principles of marginal analysis.

[Maximum profit criterion] The profit P(q) = R(q) − C (q) is
maximized at a level of production q where marginal revenue equals
marginal cost and the rate of change of marginal cost exceeds the
rate of change of marginal revenue; that is, where
R 0 (q) = C 0 (q) and R 00 (q) < C 00 (q)
[Minimal average cost] Average cost is minimized at the level of

production where average cost equals marginal cost; that is, when
AC (q) = C 0 (q)
Economic lot size
Suppose that a company manufactures a constant number of units of a product

per year and that the product can be manufactured in several batches of equal
size throughout the year.
On the one hand, if the company were to manufacture one large batch every year,
it would minimize setup costs but incur high warehouse costs. On the other hand,
if it were to make many small batches, this would increase setup costs.
Calculus can be used to find the number that should be manufactured in each
batch in order to minimize the total cost. This number is called the economic
lot size.
Figure below shows several possibilities for a product having an annual demand of
12,000 units.
The first graph shows the results if all 12,000 units are made in one batch
per year. In this case an average of 6000 units will be held in a warehouse.
If 3000 units are made in each batch, four batches will be made at equal
time intervals during the year, and the average number of units in the
warehouse falls to only 1500.
If 1000 units are made in each of twelve batches, an average of 500 units
will be in the warehouse.
To solve the problem, we need to consider the variable q number of units in each
batch. In addition, we have the following constants:
k is cost of storing one unit of the product for one year;
f is fixed setup cost to manufacture the product;
g is cost of manufacturing a single unit of the product;
M is total number of units produced annually.
So the total production cost is
That is, the sum of the manufacturing and storage costs

M q fM kq
TC (q) = (f + gq) ×
+k × = + gM +
q 2 q 2
q
and the lot size that minimizes total costs is q = 2fM
k .
For example. A paint company has a steady annual demand for 24,500
cans of automobile primer. The comptroller for the company says that it
costs $ 2 to store one can of paint for 1 year and $ 500 to set up the plant
for the production of the primer.
Find the number of cans of primer that should be produced in each batch,
as well as the number of batches per year, in order to minimize total
production costs.
Economic order quantity

We can extend our previous discussion to the problem of reordering an item that is
used at a constant rate throughout the year. Here, the company using a product
must decide how often to order and how many units to request each time an order
is placed; that is, it must identify the economic order quantity. In this case, q is
the number of units to order each time. We also have the following constants:
k is cost of storing one unit for one year;
f is fixed cost to place an order;
M is total units needed per year.
q
fM kq 2fM
So the cost is storage cost + reorder cost is q + 2 and then q = k .
For example. A large pharmacy has an annual need for 480 units of a certain
antibiotic. It costs $3 to store one unit for one year. The fixed cost of placing an
order (clerical time, mailing, and so on) amounts to $31. Find the number of units
to order each time, and how many times a year the antibiotic should be ordered.
Diminishing marginal productivity
The production function Q is simply defined as a function of labour L and

capital K . Moreover, in the short run the input K can be assumed to be
fixed, so Q is then only a function of one input L.
Marginal production of labour:

dQ
MQL = .
dL
When the values of MQL decline with increasing L, the production
function illustrates the law of diminishing marginal productivity
(sometimes called the law of diminishing returns).
The diminishing marginal productivity states that the increase in output

due to a 1-unit increase in labour will eventually decline.
In other words, once the size of the workforce has reached a certain
threshold level, the marginal product of labour will get smaller. It’s kind of
like the more you eat egg rolls, the less you enjoy them.
Example
√
Q = 300 L − 4L.
Chapter 4. Partial Differentiation

Functions of several variables
Unconstrained/constrained optimization
Partial elasticity and marginal functions
Chapter 4. Partial Differentiation 4.1. Functions of several variables
Most relationships in economics involve more than one variable. For

instance, the demand for a good depends not only on its own price but
also on the price of substitute and complementary goods, incomes of
consumers, advertising expenditure and so on. Likewise, the output from a
production process depends on a variety of inputs, including land, capital
and labor.
Note that
Substitutes are products/services in different forms that have the same
functionality. For example, butter and margarine are substitute goods.
Complementary goods/services is an item used in conjunction with another

good/service. Usually the complementary good has little to no value when
consumed alone, but when combined with another goods/services, it adds to
the overall value of the offering. For example, an iPhone and apps with it
are complementary products.
To analyze general economic behavior we must extend the concept of a function

of one variable, and particularly the differential calculus, to functions of several
variables.
Definition
A function, f , of n variables is a rule that assigns to each incoming tuple of
numbers, (x1 , x2 , . . . , xn ), a uniquely defined outgoing number, z. In symbols we
write this as z = f (x1 , x2 , . . . , xn ).
Domain of a function of n variables is defined by

{(x1 , x2 , . . . , xn )|f (x1 , x2 , . . . , xn ) is well defined}
a subset of IR × IR × · · · × IR ≡ IRn called the n dimensional space. In particular, if
n = 2 then it is a two dimensional space or a real plane.
Graph of a function involving two variables is a surface in three

dimensional space. It is necessary to bear in mind that the graph of
function of one variable is a curve in xy −plane.
To help you have a feeling of what is the graph of a function of two

variables, let us analyze how to sketch the graph of the following functions.
Example
Graph of the function f (x, y ) = x 2 + y 2 (D is the whole xy − plane)
Example
Graph of the equation x 2 + y 2 + z 2 = 1. In fact, we can write z as a
function in terms of x and y and hence D is a unit disk centered at (0, 0)
on the xy −plane.
Unisphere: mặt cầu
Recall that given a function of one variable, f 0 (x) represents the rate of
change of the function as x changes. For functions of several variables,
what do we do if we only want one of the variables to change, or if we
want more than one of them to change?
Only one variable to change:

Definition
First-order partial derivative w.r.t. x: x change, y constant
∂f f (x0 +∆x,y0 )−f (x0 ,y0 )
∂x (x0 , y0 ) ≡ fx (x0 , y0 ) = lim∆x→0 ∆x
First-order partial derivative w.r.t. y :

∂f f (x0 ,y0 +∆y )−f (x0 ,y0 )
∂y (x0 , y0 ) ≡ fy (x0 , y0 ) = lim∆y →0 ∆y
∂f
Accordingly to compute for example ∂x , we need only to differentiate
mathematical expressions with respect to x and let all remaining letters in
the mathematical expressions constants in disguise. It is the same for
other variables.
Similarly, we want to study higher order derivatives. Below is the definition

of second order partial derivatives.
∂2f
Second-order partial derivative w.r.t. x: ∂x 2
≡ fxx = (fx )x
∂2f
Second-order partial derivative w.r.t. y : ∂y 2
≡ fyy = (fy )y
∂2f
Second-order partial derivative w.r.t. x and y : ∂x∂y ≡ fxy = (fy )x
∂2f
Second-order partial derivative w.r.t. y and x: ∂x∂y ≡ fyx = (fx )y
Note that in general (fx )y 6= (fy )x . According to Weierstrass theorem,

(fx )y (x0 , y0 ) = (fy )x (x0 , y0 ) if the first order partial derivatives are
continuous at (x0 , y0 ). In the scope of this course, we will consider
functions that satisfy (fx )y = (fy )x .
All variables to change: • If x changes a small amount ∆x and y changes a small

amount ∆y , the net change in z = f (x, y ) is
∂f ∂f
× ∆x +
∆z ≈ × ∆y
∂x ∂y
which is called the small increments formula. The differential form of the small
increments formula states that
∂f ∂f
dz = × dx + × dy
∂x ∂y
• If z = f (x, y ) is a constant, then dz = 0. At this stage, after rearrangement, we
have that
∂z
dy
= − ∂x
∂z
dx ∂y
This formula is called the implicit differentiation and is a useful tool to compute
the derivative of an implicit function.
Example
Write the tangent line to the curve according to the equation x 3 + y 3 = 6xy at
the point (3.3) ?
Tangent plane.
Normal vector at a point (x0 , y0 ) on a surface z = f (x, y ) is
(fx (x0 , y0 ), fy (x0 , y0 ), −1)
Equation for the tangent plane to the surface at (x0 , y0 ) is

fx (x0 , y0 )(x − x0 ) + fy (x0 , y0 )(y − y0 ) − 1 × (z − z0 ) = 0
Intuitively, if the tangent plane is parallel to the xy −plane then the partial
derivatives fx (x0 , y0 ) = fy (x0 , y0 ) = 0.
Chapter 4. Partial Differentiation 4.2. Unconstrained optimization
Similarly optimization problem of real functions of several variables can be

extended from that of one variable. Let’s look at the three particular
surfaces:
Example
Graph of the function f (x, y ) = x 2 + y 2 has the shape of a paraboloid
opened upwards.
(x = 0, y = 0) is called a minimum of f . Note that the tangent plane to

the surface at the minimum point is the xy −plane and the surface is
convex, which means it holds water in itself.
Example
Graph of the function f (x, y ) = −x 2 − y 2 has the shape of a paraboloid
opened downwards
(x = 0, y = 0) is called the maximum of f . Note that the tangent plane to

the surface at the maximum point is the xy −plane and the surface is
concave, which means it pours water.
Example
Graph of the function f (x, y ) = x 2 − y 2 has the shape of a hyperbolic
paraboloid
(x = 0, y = 0) is called the saddle point or minimax point of f . This

surface is neither convex nor concave at (0, 0).
Steps to solve the unconstrained problem Min/Max z = f (x, y )

[Fermat’s necessary condition] Find the candidates (x0 , y0 ) of the function f
by solving the simultaneous system fx = fy = 0 candidate = critical point
[Sufficient condition investigating the concavity of the function] Classify the

candidates as minimum or maximum or saddle points by determine
∆ = fxx (x0 , y0 ) × fyy (x0 , y0 ) − fxy2 (x0 , y0 ). If
∆ < 0 then (x0 , y0 ) is the saddle point.
∆ > 0 then (x0 , y0 ) is the local minimum if fxx (x0 , y0 ) > 0 and is the
local maximum if fxx (x0 , y0 ) < 0. [Note that if ∆ does not consist of
(x0 , y0 ) then minimum/maximum obtained will be global]
∆ = 0 then no conclusion is stated yet. To get further information, we
have to consider δ = f (x, y ) − f (x0 , y0 ). If
δ ≤ 0 for all x, y then (x0 , y0 ) is a maximum
δ ≥ 0 for all x, y then (x0 , y0 ) is a minimum
Otherwise, (x0 , y0 ) is a saddle point.

Chapter 4. Partial Differentiation 4.3. Partial elasticity and marginal functions
Our aim in this section is to study several applications of partial

differentiation in economics that have been considered in the case of
functions of one variable, such as
Elasticity of demand
Substitute commodities and Complementary commodities
Marginal utility and marginal production and so on.
Elasticity. Suppose that demand function Q = f (P, PA , I ) in which P is

the price of a certain good, PA is the price of an alternative good, and I is
the income of consumers. So
P ∂Q P
The price elasticity of demand is EP = Q × ∂P ≡ Q × QP
PA ∂Q PA
The cross-price elasticity of demand is EPA = Q × ∂PA ≡ Q × QPA
I ∂Q I
The income elasticity of demand is EI = Q × ∂I ≡ Q × QI
Example
Given the demand function Q = 100 − 2P + PA + 0.1I where the price of
a certain good P = 10, the price of an alternative good PA = 12, and the
income of consumers I = 1000, find
price elasticity of demand
cross-price elasticity of demand
income elasticity of demand
Substitute/complementary commodities. It’s worth recalling that two

commodities are said to be substitute commodities if an increase in the demand
for either results in a decrease in demand for the other. Substitute commodities
are competitive, like butter and margarine.
On the other hand, two commodities are said to be complementary commodities

if a decrease in the demand of either results in a decrease in the demand of the
other. An example is provided by digital cameras and recording disks. If
consumers buy fewer digital cameras, they will likely buy fewer recording disks,
too.
Suppose D 1 (p1 , p2 ) units of the first commodity and D 2 (p1 , p2 ) of the second are
demanded when the unit prices of the commodities are p1 and p2 , respectively. It
is reasonable to expect demand to decrease with increasing price, so Dp11 < 0 and
Dp22 < 0.
For substitute commodities, the demand for each commodity increases with
respect to the price of the other, so Dp12 > 0 and Dp21 > 0.
However, for complementary commodities, the demand for each decreases with
respect to the price of the other, and Dp12 < 0 and Dp21 < 0.
Example
Suppose the demand function for flour in a certain community is given by
10
D 1 (p1 , p2 ) = 500 + − 5p2 ,
p1 + 2
while the corresponding demand for bread is given by
7
D 2 (p1 , p2 ) = 400 + − 2p1 ,
p2 + 3
where p1 is the dollar price of a pound of flour and p2 is the price of a loaf of
bread. Determine whether flour and bread are substitute or complementary
commodities or neither.
Utility. Consumers are faced with a choice of how many items of various goods to
buy and has a preference between options available. To analyze the behavior of
consumers quantitatively, we associate with each set of options a number, U,
called utility, which indicates the level of satisfaction.
Accordingly suppose that there are two goods, G1 and G2 , and that the consumer
buys x1 items of G1 and x2 items of G2 . The variable U is then a function of x1
and x2 , which we write as U = U(x1 , x2 )
Example
If U(3, 7) = 20 and U(4, 5) = 25 then the consumer derives greater satisfaction
from buying four items of G1 and five items of G2 than from buying three items
of G1 and seven items of G2 .
Suppose that utility is a function of two variables x1 and x2 and if x1

changes changes by a small ∆x1 and x2 changes changes by a small ∆x2 ,
then the net change in U can be found from the the small increments
formula:
∆U ≡ Ux1 ∆x1 + Ux2 ∆x2
Example
1/4 3/4
Given the utility function U(x1 , x2 ) = x1 x2 . Determine the values of
marginal utilities Ux1 and Ux2 when x1 = 100, x2 = 200. Hence estimate
the change in utility when x1 decreases from 100 to 99 and x1 increases
from 200 to 201.
Marginal rate of commodity substitution (MRCS) is the amount by which

one input needs to increase to maintain a constant value of utility when the other
U
input decreases by 1 unit: MRCS = Uxx1
2
Example
√ √
Given the utility function U = x1 x2 find a general expression for MRCS in
terms of x1 and x2 . Calculate the particular value of MRCS for the indifference
curve that passes through (300, 500). Hence estimate the increase in x2 required
to maintain the current level of utility when x1 decreases by 3 units.
Production. The output, Q, of any production process depends on a

variety of inputs, known as factors of production. These comprise land,
capital, labor and enterprise.
For simplicity we restrict our attention to capital and labor. Capital, K ,

denotes all man-made aids to production such as buildings, tools and plant
machinery. Labor, L, denotes all paid work in the production process. The
dependence of Q on K and L may be written
Q = f (K , L)
which is called the production function.

Example
If Q = 100K 1/3 L1/2 then the inputs K = 27 and L = 100 lead to an
output
Q = 100(27)1/3 (100)1/2 = 100(3)(10) = 3000
Production functions can be studied in a similar way to utility functions.

∂f ∂f
So we also have ∆Q ≈ ∂K × ∆K + ∂L × ∆L
Marginal rate of technical substitution (MRTS) is the amount by

which capital needs to rise to maintain a constant level of output when
labour decreases by 1 unit: MRTS = QQKL .
Example
√
Given Q = 2LK + L. Estimate the increase in capital needed to maintain
the current level of output given a 1-unit decrease in labour.
Homogeneous function. A production function f (K , L) is said to be homogeneous

of degree n if, for any number λ,
f (λK , λL) = λn f (K , L)
A production function is then said to display decreasing returns to scale, constant

returns to scale or increasing returns to scale, depending on whether n < 1, n = 1
or n > 1, respectively. One useful result concerning homogeneous functions is
known as Euler’s formula, which states that
∂f ∂f
K +L = nf (K , L)
∂K ∂L
The special case n = 1 is worthy of note because the right-hand side of the
formula is then simply f (K , L), which is equal to the output, Q.
Euler’s formula for homogeneous production functions of degree 1 states that if

each input factor is paid an amount equal to its marginal product then each term
on the left-hand side gives the total bill for that factor.
The Cobb—Douglas production function given by Q = AK α × Lβ , in

which A, α, β are positive constants, is an homogeneous function of degree
α + β.
The Cobb-Douglas production function is based on the empirical study of

the American manufacturing industry made by Cobb-Douglas. It is widely
used to represent the technological relationship between only two inputs,
labour and capital.
Chapter 5. Integration

Indefinite integration
Definite integration
Applications in Business
Consumer’s surplus
Producer’s surplus
Continuous money flow
Chapter 5. Integration 5.1. Indefinite integration
Definition
If F 0 (x) = f (x) for all x in an interval I then we say that F (x) is an
anti-derivative of f (x) on I .
Theorem
If F is an anti-derivative of f then all other anti-derivative have the form
F (x) + C where C is a real number.
Chapter 5. Integration 5.1. Indefinite integration
Definition
If the function f has an anti-derivative then the integral of f denoted by
R R
f or f (x)dx is the collection of all anti-derivatives of f .
If F is an anti-derivative of f then the integral of f is often written as

Z
f (x)dx = F (x) + C
where C is any real number.
Please never drop out the number C in the result without stating any
reason!
Chapter 5. Integration 5.2. Definite integration
Area between curves. Consider the region S that lies between the curves
y = f (x) and y = g (x) and limited by the vertical lines x = a and x = b,
where f (x) and g (x) are continuous functions such that f (x) ≥ g (x) for
all x ∈ [a, b]
y
y = f(x)
y = g(x)
The area of the indicated region can be calculated by performing the

following steps (Rectangular Approximation Method, or RAM for short).
1. We first divide up [a, b] into n subintervals of equal length by n + 1
points
x0 = a < x1 < x2 < · · · < xn = b
2. Set
b−a
:= ∆x, ∀i = 1, 2, . . . , n
xi − xi−1 =
n
3. We take any point xi∗ ∈ [xi−1 , xi ], ∀i = 1, . . . , n
4. Area of a rectangle of width ∆x and height f (xi∗ ) − g (xi∗ ) is
(f (xi∗ ) − g (xi∗ )) ∆x
5. Total areas of rectangles = ni=1 (f (xi∗ ) − g (xi∗ )) ∆x
P
which is called a Riemann sum

6. Exact area
Rb
= limn→∞ ni=1 (f (xi∗ ) − g (xi∗ )) ∆x = a (f (x) − g (x)) dx
P
Theorem (Fundamental theorem of Calculus)

If f is continuous on [a, b] and F is an anti-derivative of f then
Z b
f (x)dx = F (x)|ba = F (b) − F (a)
a
The theorem says the integral of the rate of change is the amount of
change.
Example
R1
Let compute the integral 0 x 2 dx by both the Riemann sum and the
Fundamental theorem, and then compare results obtained.
Chapter 5. Integration 5.3. Applications in Business
Consumers’ surplus.
Given a demand function P = f (Q).
At Q = Q0 the price P = P0 . The total amount of money spent on Q0

goods is then Q0 P0 , which is given by the area of the rectangle OABC.
Now, P0 is the price that consumers are prepared to pay for the last unit
that they buy, which is the Q0 th good. For quantities up to Q0 they would
actually be willing to pay the higher price given by the demand curve.
The shaded area BCD therefore represents the benefit to the consumer of
paying the fixed price of P0 and is called the consumer’s surplus, CS. The
value of CS can be found by observing that
Z Q0
area BCD = area OABD − area OABC = f (Q)dQ − P0 × Q0
0
Producers’ surplus.
Given a supply function P = g (Q).

At Q = Q0 the price P = P0 . Assuming that all goods are sold, the
total amount of money received is then Q0 P0 , which is given by the
area of the rectangle OABC.
Now, P0 is the price at which the producer is prepared to supply the
last unit, which is the Q0 th good. For quantities up to Q0 they would
actually be willing to accept the lower price given by the supply curve.
The shaded area BCD therefore represents the benefit to the producer
of selling at the fixed price of P0 and is called the producer’s surplus,
PS. The value of PS is found by observing that
RQ
area BCD = area OABC −− area OABD = P0 × Q0 − 0 0 g (Q)dQ
Continuous money flow
In an earlier chapter we looked at the concepts of present value and future value
when a lump sum of money is deposited in an account and allowed to accumulate
interest. In some situations, however, money flows into and out of an account
almost continuously over a period of time. Examples include income in a store,
bank receipts and payments, and highway tolls. Although the flow of money in
such cases is not exactly continuous, it can be treated as though it were
continuous, with useful results.
In this section, we introduce the following features:
Total money flow.
Present value of money flow.
Accumulated amount of money flow.
Total money flow
Let the continuous function f (t) represent the rate of flow of money per unit of
time. If t is in years and f (t) is in dollars per year, the area under f (t) between
two points in time gives the total dollar flow over the given time interval. More
precisely,
Z T
Total money flow = f (t)dt.
0
This “total money flow” does not take into account the interest the money could
earn after it is received. It is simply the total income.
Example
The income from a soda machine (in dollars per year) is growing
exponentially. When the machine was first installed, it was producing
income at a rate of $1000 per year. By the end of the first year, it was
producing income at a rate of $1020.20 per year.
Find the total income produced by the machine during its first 3 years of
operation.
Present value of money flow

As mentioned earlier, an amount of money that can be deposited today at a
specified interest rate to yield a given sum in the future is called the present value
of this future sum. The future sum may be called the future value or final amount.
If f (t) represent the rate of the continuous flow at an interest rate r compounded
continuously for T years, the present value of a continuous money flow is
Xn Z T
−rti
P = lim [f (ti )∆t] e = f (t) × e −rt dt
n→∞ 0
i=1
Example
A company expects its rate of annual income during the next three years
to be given by f (t) = 75, 000t, 0 ≤ t ≤ 3. What is the present value of
this income over the 3-year period, assuming an annual interest rate of 8%
compounded continuously?
Accumulated amount of money flow

If f (t) is the rate of money flow at an interest rate r at time t, the
accumulated amount of money flow at time T is
Z T
A = e rT f (t)e −rt dt.
0
This amount includes interest received on the money after it comes in.
[Recall that total money flow does not take the interest into account.]
Example
If money is flowing continuously at a constant rate of $2000 per year over
5 years at 6% interest compounded continuously. Find
a. The total money flow over the 5-year period.
b. The accumulated amount of money flow, compounded continuously,

at time T = 5.
Chapter 6. Matrices

What is a matrix?
Basic matrix operations
Matrix inverse
Cramer’s rule
Chapter 6. Matrices 6.1. What is a matrix?
A rectangular table consisting of m rows and n columns

 
a11 a12 . . . a1n
 a21 a22 . . . a2n 
 
A= . 
 .
.


am1 am2 . . . amn
is called a matrix of order m × n.
Rows of a matrix are horizontal, columns of a matrix are vertical.
Notation. Am×n = [aij ], i = 1, . . . , m, j = 1, . . . , n in which aij is called

the ij entry.
Chapter 6. Matrices 6.1. What is a matrix?
In particular,
If m = 1 then A is also called row vector.
If n = 1 then A is called column vector.
If m = n then the matrix is said to be square and in this case, we call
A is the square matrix of order n.
Identity matrix of order n: aii = 1 for i = 1, . . . , n and aij = 0 for

i 6= j, i, j = 1, . . . , n
 
1 0 ... 0
0 1 . . . 0
 
In = 
 ..

.


0 0 ... 1
Chapter 6. Matrices 6.2. Matrix Operations
Equality. Let A and B be two matrices of order m × n.
A = B ⇔ aij = bij
Addition. Let A and B be two matrices of order m × n
A + B = [aij + bij ]
Subtraction. Let A and B be two matrices of order m × n
A − B = [aij − bij ]
Scalar Multiplication. Let k be a real number and A be a matrix of order m × n
k A = [k aij ]
Transposition. Let A = (aij ) be a matrix of order m × n. The transposition of A

denoted by AT is defined by symbolically AT = (aji ), that means the first row of
AT is the first column of A, the second row of AT is the second column of A, and
so on.
Scalar product. Given a = (a1 a2 . . . an ) and b = (b1 b2 . . . bn ). The

scalar product of a and b is defined by
n
X
ha, bi = ab T = a1 b1 + a2 b2 + · · · + an bn = ai bi
i=1
Example
a = (1 3 5), b = (−1 0 4) ⇒ ab T = 1 × (−1) + 3 × 0 + 5 × 4 = 19
Recall that the product of 2 vectors perpendicular to each other is 0.

Example
a = (1 0), b = (0 1) ⇒ ab T = 0
Matrix Multiplication. Let A be a matrix of order m × n and B be a

matrix of n × p. The product of A and B is
AB = [cij ],
Pn
where cij = k=1 aik bkj
We can multiply two matrices only when the number of columns in the
first matrix is equal to the number of rows in the second matrix.
Example
" #" #
4 2 −1 −3
=
1 5 2 4
" #
4 × (−1) + 2 × 2 4 × (−3) + 2 × 4
1 × (−1) + 5 × 2 1 × (−3) + 5 × 4
International School of Business, UEH
"
UEH, Vietnam
# March 21, 2022 163 / 185
We have that
" #" # " #
1 0 a11 a12 a11 a12
=
0 1 a21 a22 a21 a22
and
" #" # " #
a11 a12 1 0 a11 a12
=
a21 a22 0 1 a21 a22
In general AI = A = IA
Example
A firm orders 12, 30 and 25 items of goods G1, G2 and G3. The cost of
each item of G1, G2 and G3 is $8, $30 and $15, respectively.
(a) Write down suitable price and quantity vectors, and use matrix
multiplication to work out the total cost of the order.
(b) Write down the new price vector when the cost of G1 rises by 20%,
the cost of G2 falls by 10% and the cost of G3 is unaltered. Use
matrix multiplication to work out the new cost of the order and hence
find the overall percentage change in total cost.
Example
A chain of sports shops, A, B and C , sells T-shirts, trainers and tennis racquets.
The weekly sales and profit per item are shown in the tables below:
The 3 × 3 matrices formed from the sales and profit tables are denoted by S and
P, respectively.
(a) If SP T is denoted by A, find the element a11 and give a brief interpretation
of this number.
(b) If S T P is denoted by B, find the element b33 and give a brief interpretation
of this number.
Chapter 6. Matrices 6.3. Inverse Matrix
Consider a system of linear equations:




 a11 x1 + a12 x2 + · · · + a1n xn = b1


a21 x1 + a22 x2 + · · · + a2n xn

= b2
..



 .

+ am2 x2 + · · · + amn xn

a
m1 x1 = bm
⇔
    
a11 a12 ... a1n x1 b1
 a21 a22 ... a2n  x2   b2 
    
 . .=  .  ⇔ AX = B
 . .  . 
 . .  . 
am1 am2 ... amn xn bm
Note that the equation ax = b has a solution x = a−1 b if a 6= 0. In the above

matrix equation, we would like to have something like this. So we define an
inverse matrix A−1 .
Let A be a matrix of order n × n. If there exists a matrix B such that
AB = I = BA
then A is said to be invertible and B is called the inverse matrix of A,

denoted by A−1 .
Example
# " " #
1 2 −2 1
Let a matrix A = . Verify that is the inverse of A.
3 4 3/2 −1/2
How to find an inverse matrix?

1. Write an augmented matrix consisting of A on the left side and the
identity matrix on the right side
 
a11 a12 . . . a1n | 1 0 . . . 0
a21 a22 . . . a2n | 0 1 . . . 0
 
 . 
 .
 .


an1 an2 . . . ann | 0 0 . . . 1
2. Then we attempt to transform the augmented matrix by row
equivalent operations called Gaussian elimination method to one of
the form  
1 0 . . . 0 | b11 b12 . . . b1n
0 1 . . . 0 | b21 b22 . . . b2n 
 
. 
.
.


0 0 ... 1 | bn1 bn2 . . . bnn
Gaussian elimination method
1. Interchange any two rows

 
3x + 4y = −5 x + 2y = 1
⇔
x + 2y = 1 3x + 4y = −5
2. Multiply each entry in a row by the same nonzero constant

 
x + 2y = 1 2x + 4y = 2
⇔
3x + 4y = −5 3x + 4y = −5
3. 
Add a nonzero multiple ofone row to another row.
x + 2y = 1 x + 2y = 1
⇔
3x + 4y = −5 0x − 2y = −8
Example



x + 3y + 2z =9

x − y + 3z = 16


3x − 4y + 2z

= 28
How to check a matrix invertible or not? one of the ways is finding its
determinant. If the determinant of a matrix is non-zero then the matrix is
invertible.
Matrix of order 2 × 2

a b
= ad − cb

c d
Matrix of 3 × 3:
a11 a12 a13

a21 a22 a23 =

a31 a32 a33

a
22 a23
a a23 a
21 a22

21
a11 - a12 + a13
a32 a33 a31 a33 a31 a32
The n × n order Determinants

Now the determinant of matrix of order n × n is defined inductively as
follows
For a square matrix A = [aij ]. The cofactor Aij of an element aij is
Aij = (−1)i+j Mij ,
where Mij is the determinant of the matrix formed by deleting the ith
row and the jth column of A.
The determinant of A of n × n is defined by

n
X
|A| = aij Aij ,
j=1
where i ∈ 1, n.
Steps to find determinant of a square matrix

For any square matrix A of order n × n(n > 1), we define the determinant
of A, denoted |A|, as follows:
1. Choose any row or column
2. Multiply each element in that row or column by its cofactor and add
the results
Note that
The determinant of a 1 × 1 matrix is simply the element of the matrix.
The value of a determinant will be the same no matter which row or column
is chosen.
Chapter 6. Matrices 6.4. Cramer’s rule
Solving systems of linear equations using determinants

Cramer’s rule for 2 × 2 systems
The solution of the system


a x + b y = c
1 1 1
a x + b y = c
2 2 2
Dx Dy
is given by x = ;y=
D D

a b1 c b a c
1 1 1 1 1
where D = ; Dx = Dy = ; and D 6= 0
a2 b2 c2 b2 a2 c2
Cramer’s rule for 3 × 3 systems
The solution of the system


 a x + b1 y + c1 z = d1
 1


a2 x + b2 y + c2 z = d2


a3 x + b3 y + c3 z = d3

Dx Dy Dz
is given by x = ;y= ;z=
D D D

a1 b1 c1 d1 b1 c1 a1 d1 c1

where D = a2 b2 c2 ; Dx = d2 b2 c2 Dy = a2 d2 c2 ;

a3 b3 c3 d3 b3 c3 a3 d3 c3

a1 b1 d1

Dz = a2 b2 d2 ; and D 6= 0

a3 b3 d3
As for n × n systems, we do the same. Cramer’s rule in general case

gives
D1 D2 Dn
x1 = , x2 = , . . . , xn =
D D D
provided that D 6= 0.
Chapter 7. Linear Programming
Outline of the chapter: In this chapter, we will introduce basically linear

programmings and methods for solving them.
What is a linear programming
Standard form of a linear programming
Geometric method for solving a linear programming of 2 variables
Simplex method for solving a linear programming
Chapter 7. Linear Programming 7.1. What is a linear programming?
Example
A manufacturer produces three models of bicycles. The time (in hours)
required for assembling, painting, and packaging each model is as follows:
The total time available for assembling, painting, and packaging is 36

hours, 60 hours and 66 hours, respectively. The profit per unit for each
model is $3 (Model A), $4 (Model B), and $5 (Model C). How many of
each type should be produced to obtain a maximum profit?
Chapter 7. Linear Programming 7.2. Standard form of a linear programming
Standard form of a linear programming
A linear programming is a problem to maximize or minimize a linear

function Z = c1 x1 + c2 x2 + · · · + cn xn subject to the following conditions



 a11 x1 + a12 x2 + · · · + a1n xn ≤ b1


a21 x1 + a22 x2 + · · · + a2n xn

≤ b2
..



 .

a x + a x + · · · + a x ≤ b

m1 1 m2 2 mn n m
where aij are constants, bi are non-negative constants, cj are constants for
all 1 ≤ i ≤ m, 1 ≤ j ≤ n, and x1 , x2 , . . . , xn ≥ 0.
Chapter 7. Linear Programming 7.3. Geometric method
Geometric method for linear programming of 2 variables
Sketch the constraint set on the xy plane.
Compare the value of Z at corners of the constraint set: the biggest

value is the optimal value of the max problem and the smallest value
is the optimal value of the min problem.
Example



x +y ≤2

max Z = 5x + 4y subject to 2x + 3y ≤ 6


x, y ≥ 0.

Chapter 7. Linear Programming 7.4. Simplex method for max problem
Consider, for instance, the max problem of the function

Z = c1 x1 + c2 x2 + c3 x3 subject to



 a11 x1 + a12 x2 + a13 x3 ≤ b1


≤ b2

 a x + a22 x2 + a23 x3
 21 1


a31 x1 + a32 x2 + a33 x3 ≤ b3


a41 x1 + a42 x2 + a43 x3 ≤ b4






x1 , x2 , x3 ≥ 0.

Note that b1 , b2 , b3 and b4 are supposed to be non-negative constants.
In 1947, George B. Dantzig created a simplex algorithm to solve linear programmings for planning and decision-making in
large-scale enterprises. The algorithm’s success led to a vast array of specializations and generalizations that have dominated
practical operations research for half a century later.
The latter system can be written as Z − c1 x1 − c2 x2 − c3 x3 = 0 subject to




a11 x1 + a12 x2 + a13 x3 +s1 = b1



a x + a x + a x
21 1 22 2 23 3 +s2 = b2


a31 x1 + a32 x2 + a33 x3 +s3 = b3


a41 x1 + a42 x2 + a43 x3

+s4 = b4 ,
where s1 , s2 , s3 and s4 are non-negative and called the slack variables. So
now we have a departing simplex table as follows.
Steps to find the optimal solution of the max problem:

S1. If all indicators are non-negative then STOP and Z has a maximum
with the current list of basic variables.
S2. If there is any negative indicator then choose a column w.r.t. the
biggest negative indicator as a pivot column.
S3. Divide each entry in R by the corresponding positive entry (Z and

negative entry are not included) in the pivot column and choose a
pivot row which has the smallest positive quotient.
S4. Create a new simplex table in which the common entry of the pivot
column and the pivot row above is transformed into 1 and other
entries in the pivot column zeros by using the elementary row
operations [executing with pivot row only!]
S5. Turn back to S1.

To be continued ...

Lecture Notes On Mathematics For Business: International School of Business, UEH, Vietnam

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Lecture Notes On Mathematics For Business: International School of Business, UEH, Vietnam

Uploaded by

Copyright:

Available Formats

Lecture notes on Mathematics for Business

Nguyen Thi Thu Van

International School of Business, UEH, Vietnam

March 21, 2022

Expressions with one or more variables

Equations, inequalities of one or more variables

Linear/nonlinear equations, inequalities

Sketching linear equations/inequalities of 2 variables

and Social Sciences (13th ed.). Pearson.

Mathematical expressions provide a precise way of representing calculations that

E = 0.9x when x is no more than 50 miles,

E = 15 + 0.6x when x exceeds 50 miles.

For example, 2x = 5, 2x = 3y are equations. Below are some equations/formulas

Assets = Liabilities + Shareholder’s Equity (accounting equation) [Business

For example, x < 2, x + 3y > 5.

Inequalities arise in business when, for instance, there is a budgetary

(b) If 12 employees attend courses, how many laptops could be bought?

a multiple of x + a multiple of y = a number

That is ax + by = c in which a, b, c are given, and x and y are variables.

a multiple of x + a multiple of y < a number (or >, ≤, ≥)

For example x + y > 2.

In general, to sketch a straight line from its mathematical equation, it is

Graphing linear inequalities is nearly similar to doing with linear equation.

choose a test point not lying on the boundary line. If coordinates of

am × an = am+n ; (am )n = am×n

Zero and negative exponents. If a is any nonzero real number, and if n is a

We have defined a1/n as the positive or principal nth root of a for

8: polynomial of degree zero or also a constant

This chapter includes the following features:

Simple interest - Compound interest

Percentage changes - scale factors

How to compute overall percentage changes

Applications of scale factors in macroeconomics

Adjust value data for inflation

An investment rises from $2,500 to $3,375. So

new value 3,375 3,375−2,500

At the beginning of a year, the population of a small village is 8,400.

How to compute overall percentage changes

To compute the overall percentage change over an entire period, we

Applications of scale factors in macroeconomics

Macroeconomics is concerned with the analysis of economic theory and policy at

So, the Laspeyres index w.r.t. the base year of 2014 is

A more exact definition of inflation is a situation of a sustained

at the end of 1990 is 72, 000 × 1.107 = 79, 704

After t days (t < 365), Peter receives

Thus, after 1 year, he receives

The interest received in this case is called the compound interest,

Notations: P0 is called the present value and P1 , P2 , . . . , Pn are called the

Indeed, suppose we invest $10 in a bank account and earn a return of 12 %

This means that we actually earn 12.36 %.

Generally if r % is the nominal rate compounded

If the interest is compounded in a smaller and smaller time periods (which

In this case the interest is said to be compounded continuously.

To summarize, if the investment earns a return of r % compounded

where rp is the periodic interest rate.

If interest is compounded continuously then after n years, P0 becomes

an = r × an−1 = r 2 × an−2 = · · · = r n−1 × a1 , n = 2, 3, . . .

Newton binomial says that: when n ∈ IN and b be real number. Then

In this section we focus on two applications of geometric series into

Savings: Imagine simply one decides to invest regularly an equal amount

[Loans] Determine the monthly repayments needed to repay a

[Loans] A debtor is to amortize an $18,000 car loan by making equal

r % is the annual interest rate and thus, rp = mr in which m is the frequency