Chap 1- Cost- Revenue - profit

I- Cost.
In this lesson the cost C(x) varies as a function of x where x is the produced
quantity.
Ex: C(x) = 1 + e2x is the function that represents the total cost, C(x) is expressed in
thousands of dollars. Where x in the produced quantity expressed in hundreds of
items where 0 < x < 9.
1. Calculate the total cost for a production of 120 items.
x = 120/100 = 1.2
C (5) = 1+e2.4 = 12.023 (thousands of $)
The total cost of 120 items is 12023 dollars.
2. Calculate the number of produced items knowing that the total cost is 4000
dollars.
C(x) = 4000/1000 = 4
C(x) = 4 => 1 + e2x = 4 => e2x = 3 => ln(e2x) = ln 3 => 2x = ln 3 => x =0.55 (hundreds of
items)
The cost is 1800 dollars for 55 items.

II- Fixed cost Vs variable cost.

a) Fixed cost: it is not related to the produced quantity (x).
Fixed cost = total cost (when x = 0)
Cf = Ct (0)
b) Variable cost: related to the produced quantity.
c) Total cost = fixed cost + variable cost
C(x) = Cf + Cv(x)

III- Average cost.

Average cost refer to the per-unit cost of production (the cost of each unit), it is
calculated by dividing the total cost of
production by the number of produced items.
C(x)
C̅ (x) = x
 Ex1: Let C(x) = x +3 – e-x is the total cost expressed in thousands of dollars where
x is the number of produced objects, expressed in hundreds.
1. Express C̅ (x) the average cost in terms of x.
𝐶(𝑥) 𝑥+3−𝑒 −𝑥
C̅ (x) = =
𝑥 𝑥
2. Calculate C̅ (2) then interpret the obtained value.
2+3−𝑒 −2
C̅ (2) = = 2.432 (in thousands of dollars)
2
Interpretation: for a production of 200 items the cost of each item is 2432 dollars.

Ex2: Let C̅ (x) = 2x + e-2x+1 is the average cost expressed in millions of L.L.
x is the number of produced items expressed in hundreds of items.
1) Express the total cost in terms of x.
C(x) = C̅ (x) × x = x (2x + e-2x+1) =2x2 + xe-2x+1
2) For what produced quantity is the average cost minimal? What is the the
minimal average cost.
C̅ (x) is minimal for (𝐶̅ (𝑥))′ = 0
(𝐶̅ (𝑥))′ = 2 -2 e-2x+1 = 0 => -2e-2x+1 =-2 => e-2x+1 =1 =>ln(e-2x+1) = ln1
 -2x+1 = 0 => x = 0.5 (in hundreds of items) Important
 Average cost is minimum for a production of 500 items.

IV- Marginal cost:

Marginal cost is the addition to the total cost for producing one additional unit.
MC(x) = Ct’(x)

Ex: Let C(x) = x +3 – e-x is the total cost expressed in thousands of dollars where x
is the number of produced objects, expressed in hundreds.
1. Express MC(x) the marginal cost in terms of x.
MC(x) = C’(x) = 1 + e-x
2. Calculate MC (1) then interpret the obtained value.
MC (1) = 1 + e-1 = 1.367 (in thousands of dollars)
Interpretation: 1367 dollars is the addition to the total cost for producing one additional
unit.
V- Revenue:
𝐮𝐧𝐢𝐭 𝐩𝐫𝐢𝐜𝐞 ×𝐬𝐨𝐥𝐝 𝐪𝐮𝐚𝐧𝐭𝐢𝐭𝐲 ×𝐮𝐧𝐢𝐭 𝐨𝐟 𝐱
R(x) = (Where sold quantity = p% × x)
𝐮𝐧𝐢𝐭 𝐨𝐟 𝐑(𝐱)
➢ If R(x) = C(x) then no gain no loss (Break-even point)
➢ If R(x) > C(x) then there is gain
➢ If R(x) < C(x) then there is loss
VI- Profit:
P(x) = R(x) – C(x)
➢ If P(x) = 0 then no gain no loss (Break-even point)
➢ If P(x) > 0 then there is gain
➢ If P(x) < 0 then there is loss

Chap 2- Demand and supply

I- Demand: is the quantity of a good that consumer are willing and able to
purchase.
 The Demand quantity (D(x)) is related to the unit price of the item (x). in
standard cases when x increases D(x) decreases.
 The relationship between price and quantity demanded is also called the
demand curve.
supply: is the quantity of a good that is available to consumers.
 The supply quantity (S(x)) is related to the unit price of the item (x). in
standard cases when x increases s(x) increases.
 The relationship between price and supplied quantity is also called the
supply curve.
II- Equilibrium point
It is at the point where the amount of goods
offered for a price equals the amount of goods
desired for the same price. This intersection of
the supply and the demand functions is called Equilibrium
the point of market equilibrium, or equilibrium quantity

point. The price at this point is referred to as the

equilibrium price.
D(x) = S(x).
III- Elasticity of demand:
𝐷′(𝑥)
a- e(x) = -x 𝐷(𝑥)

b- Interpretation: for a price P = P0, when the price increases by 1% the demand
decreases by e %.

IV- Revenue:
R(x) = x D(x) (R(x): revenue, D(x): Demand, x: unit price)