midterm-revision-midterm-revision-practice

lOMoARcPSD|17112249
Midterm-revision - Midterm-revision -practice
Math for business (Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh)
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lOMoARcPSD|17112249
1 MATH FOR BUSINESS TA: VŨ THỊ THU TRANG
Chapter 1:
Linear Equations
1. Supply and Demand analysis
*Demand function: P= aQd + b
*Supply function: P= aQs + b
*At equilibrium point: Qd = Qs
Given P = aQd + b (1)
P = cQs + d (2)
At equilibrium point, we have Pe = PD = Ps
Qe = Qd= Qs
*Tax: Find the equilibrium price and quantity if the government imposes a
tax of $t on each good.
=> The new supply function is: Ps – t= cQS + d
 Ps = cQS + d + t
+ Tax is paid by customer và supplier:
• Customer pay = P (at new equi’ point) – P (at old equi’ point)
• Supplier pay = tax – customer pay
• Tax revenue = tax per unit x Q’ (number of goods sold with tax)
= tax x Q (at new equi’ point)
*Note: Khi ề cho 2 sản phẩm với demand và supply của mỗi sản phẩm thì
PD1 = PS1 và PD2 = PS2
Example: The demand and supply functions of a good are given by
P = −4Qd + 120

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1
P = 𝑄𝑠+29
3
where P, Qd and Qs denote the price, quantity demanded and quantity
supplied respectively.
(a) Calculate the equilibrium price and quantity.
(b) Calculate the new equilibrium price and quantity after the imposition of a
fixed tax of $13 per good. Who pays the tax?
---
(a) In equilibrium, Qd = Qs = Q, so
P = −4Q + 120
1
P = 𝑄+29
3
1
Hence, −4Q + 120 = 𝑄+29
3
=> Q= 21
1
P= .21+ 29= 36
3
The equilibrium quantity is Q = 21 and the equilibrium price is P = 36.
(b) After the imposition of a $13 of tax per good, the supply function
becomes
P – 13 = 13𝑄𝑠+29
 P = 13𝑄𝑠+42
The demand equation remains unchanged, so, in equilibrium, Qd = Qs = Q
P = −4Q + 120
P = 13𝑄+42
Hence, −4Q + 120 = 13𝑄+42
The equilibrium quantity is Q = 18 and the equilibrium price is P = 48.
*Tax is paid by customer và supplier:
• Customer pay = 48 – 36= 12
• Supplier pay = 13 – 12= 1
Therefore, the consumer pays an additional $12. The remaining $1 of the tax
is paid by the firm.

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*Sketch the line:
Step 1: lập bảng giá trị (table of values), lấy ít nhất 2 giá trị cho mỗi phương
trình, trong ó nên lấy 1 giá trị tại equilibrium point (intersection) ể dễ nhìn
hình và làm các câu kế tiếp.
Step 2: Vẽ hình (chú ý: lần lượt kí hiệu Q, P cho x-axis & y-axis, kí hiệu S và
D cho các ường thẳng tương ứng ã vẽ, lấy giao iểm E tại equilibrium
point)
2. Different types of goods

- Normal good (hàng hoá thông thường) is a good for which, other things
equal, an increase in income leads to an increase in demand or a decrease in
income leads to a decrease in demand (food, drink, clothing, household
appliances,…)
- Inferior good (hàng hoá thứ cấp) is a good whose demand decreases as
income increases (instant noodles, bus rides,…).
- Substitutable goods (hàng hoá thay thế): two goods for which an increase in
the price of one leads to an increase in the demand for the other (Coca Cola
and Pepsi, sandwiches and hamburgers, butter and margarine,…).

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- Complementary goods (hàng hoá bổ sung): two goods for which an increase
in the price of one leads to a decrease in the demand for the other (petrol and
cars, movies and popcorn, mobile phones and simcards,…).
Chapter 2:
Non-Linear Equations
1. Sketch the graph
Parabol: y= ax2+bx+c
- Step 1: Determine the basic shape.
if a > 0: the graph has a U shape
if a < 0: an inverted U shape
- Step 2: y=0 => x1, x2

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𝑏 ∆
- Step 3: Đỉnh I (− ;− ); ∆= 𝑏2 − 4𝑎𝑐
2𝑎 4𝑎
- Step 4: Determine the intercept. This is obtained by substituting x = 0

into the function, which gives y = c.
2. Revenue, cost and profit
Total revenue: TR = PxQ (tổng doanh thu)
Total cost = Fixed costs + total variable costs (tổng chi phí)
TC = FC + TVC = FC + (VC)Q
𝑻𝑪 𝑭𝑪+𝑽𝑪(𝑸) 𝑭𝑪
=> Average cost: AC = = = + VC
𝑸 𝑸 𝑸
Profit = Total revenue – total cost
π = TR − TC
o Make a profit of a units: π = a
o Make a loss of a units: π = -a
o Breaks even: π = 0
o Maximise profit: πmax when 𝜋′=0 𝑎𝑛𝑑 𝜋′′<0.
Example: If fixed costs are 4, variable costs per unit are 1 and the demand
function is P = 10 − 2Q
obtain an expression for π in terms of Q.
(a) For what values of Q does the firm break even?
(b) What is the maximum profit?
---
TC = 4 + Q
TR = PQ = 10Q – 2Q2
𝜋= 𝑇𝑅−𝑇𝐶 =10𝑄−2𝑄2−4−𝑄=−2𝑄2+9𝑄−4
(a) The firm breaks even when 𝜋=0=> −2𝑄2+9𝑄−4=0

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1
Therefore, Q = 4 and 𝑄=
2
(b) Profit maximises when 𝜋′=0 𝑎𝑛𝑑 𝜋′′ <0.
𝜋′= −4𝑄 + 9 𝑎𝑛𝑑 𝜋′′= −4 < 0
9 9 49
𝜋′= 0 => 𝑄= 94 => 𝜋= −2 𝑥 ( )2 +9𝑥 −4= =6.125
4 4 8
Therefore, the maximum profit is 6.125
3. Indices and logarithms

- Production function: Q = f(K,L)
- The production function is said to be homogenous if 𝑓(𝜆𝐾,𝜆𝐿)=𝜆𝑛𝑓(𝐾,𝐿)
• n < 1, the function is said to display decreasing returns to scale.
• n = 1, the function is said to display constant returns to scale.
• n > 1, the function is said to display increasing returns to scale.
- Cobb–Douglas production functions: Q = AKαLβ → homogeneous of
degree α + β (n= α + β)
Example: Show that the following production functions are homogeneous

and comment on their returns to scale:
(a) Q = 7KL2
(b) Q = 50K1/4L3/4
---
(a) f(K,L) = 7KL2 𝑓(𝜆𝐾,𝜆𝐿)= 7(𝜆𝐾)(𝜆𝐿)2=7𝜆𝐾𝜆2𝐿2=𝜆37𝐾𝐿2=𝜆3𝑓(𝐾,𝐿)

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=> Increasing returns to scale because n = 3 > 1

(b) f(K,L) = 50K1/4L3/4
𝑓(𝜆𝐾,𝜆𝐿)=50(𝜆𝐾)1/4(𝜆𝐿)3/4=𝜆 50𝐾 1/4𝐿 3/4=𝜆𝑓(𝜆𝐾,𝜆𝐿)
=> Constant returns to scale because n = 1
Chapter 3:
Mathematics of Finance
I. Percentage
1. Percentages
|𝑥2−𝑥1|
- Percentage: x 100%
𝑥1
• x2 – x1 > 0 → Increase
• x2 – x1 < 0 → Decrease
- Scale Factor (hệ số tỉ lệ)

𝑁𝑒𝑤 𝑣𝑎𝑙𝑢𝑒
SF = = 1 ± r%
Old value
- The new value:
Đề bài bắt tính Increase Decrease

Gia trị trước khi có r% Đề cho ÷ SF (SF= 1+r) Đề cho ÷ SF (SF= 1-r)
Gia trị sau khi có r% Đề cho x SF (SF = 1+r) Đề cho x SF (SF = 1-r)
Example:
(a) The value of a good rises by 13% in a year. If it was worth $6.5 million at
the beginning of the year, find its value at the end of the year.
(b) The GNP of a country has increased by 63% over the past 5 years and is
now $124 billion. What was the GNP 5 years ago?

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(c) Sales rise from 115 000 to 123 050 in a year. Find the annual percentage
rise.
---
13
(a) The rise in value is 6.5 x = 0.845
100
The value at the end of the year is 6.5 + 0.845 = 7.345
(*) Or we can use scale factors:
𝑥 13
= 1+ 100 =1+ 0.13= 1.13  x = 7345
6.5
Therefore, the value of an investment at the end of the year is 7345
124
(b) The GNP 5 years ago is: 63 =76
1+
100
(c) The annual percentage rise is

𝑥
115,000(1+ )=123050 =>𝑥=7%
100
- Overall Scale = SF1 x SF2 x ... x SFn
Example: Find the single percentage increase or decrease equivalent to

(a) an increase of 30% followed by an increase of 40%.
(b) a decrease of 30% followed by a decrease of 40%.
(c) an increase of 10% followed by a decrease of 50%.
---
(a) (1 + 0.3)(1 + 0.4) = 1.82, which corresponds to an 82% increase.
(b) (1 – 0.3)(1 – 0.4) = 0.42, which corresponds to a 58% decrease (nếu áp
án nhỏ hơn 1 thì lấy 1 trừ i áp án ể tính ược % giảm).
(c) (1 + 0.1)(1 – 0.5) = 0.55, which corresponds to a 45% decrease.
2. Application
2.1. Index numbers
Index number = scale factor from base year x 100

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𝑟𝑒𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑖𝑛 𝑜𝑛 𝑠𝑒𝑟𝑣𝑎𝑡𝑖𝑜𝑛 𝑦𝑒𝑎𝑟

= x100
𝑣𝑎𝑙𝑢𝑒 𝑖𝑛 𝑏𝑎𝑠𝑒 𝑦𝑒𝑎𝑟
=> SF = Index number : 100
Example: Table shows the values of household spending (in billions of

dollars) during a 5-year period. Calculate the index numbers when 2010 is
taken as the base year and give a brief interpretation.
- Index number in base year = 100
- The value in n year = [(Index n)/100] x The value in base year

𝐼𝑛𝑑𝑒𝑥 𝑥 𝑆𝐹 𝑥 𝑣𝑎𝑙𝑢𝑒 𝑥
- = =
𝐼𝑛𝑑𝑒𝑥 𝑦 SF y value y
2.2 Inflation
SF = 1 + Inflation(%)
- Nominal data: raw data without adjusted base on inflation....
- Real data: has been adjusted with inflation

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*Calculate real value/ adjusted value:
Forward Base year Backward
Nominal x Overall Scale Nominal Nominal : Overall Scale
*Note:
- Nếu ề cho bài toán ngược (yêu cầu tìm nominal value) thì làm ngược lại
- Năm bắt ầu lạm phát real value = Nominal
+ Sau lạm phát: real < nominal
+ Trước lạm phát: real > nominal
Example: Table shows the average annual salary (in thousands of dollars) of
employees in a small firm, together with the annual rate of inflation for that year.
Adjust these salaries to the prices prevailing at the end of 2001 and so give the
real values of the employees’ salaries at constant ‘2001 prices’.

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II. Compound Interest
QUY ƯỚC:
• P: Principle value
• S: Future value
• r%: interest rate per year
• n: number of years
• k: the number of periods per year
o Annually: k = 1
o Quarterly: k = 4
o Monthly: k = 12
o Weekly: k = 52
o Daily: k = 365
1. Simple Interest: (the amount of interest received is the same for all years.)
S = P(1 + nr%)
2. Compound interest: ( “interest on the interest” – tiền lãi sau mỗi chu kì sẽ
ược cộng vào dồn vào vốn ể tiếp tục tính lãi)
S = P (1 + r%) n
=> At the beginning of the period, deposit $P with the interest rate is r% (per
year), compounded k. After nth year, the future value is:
𝒓% kn
S = P (1 + )
𝒌
3. Continuous compound interest
S = Per%n
n: tính theo năm
4. APR, EAR

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𝐴𝑃𝑅=𝑟𝑝𝑒𝑟∗𝑚
m: the number of times the interest is compounded during the year
𝒓
EIR/AER = (1 + )k – 1 = (1+𝑟𝑝𝑒𝑟)𝑚−1
𝒌
= ern – 1 (continuos compound interest)

III. GEOMETRIC SERIES
- Arithmetic progression: cấp số cộng
- Geometric series : cấp số nhân
Example: 1000, -100, 10, -1,...
a, ar, ar2, ar3,...
- A geometric ratio (công bội) is the ratio between two numbers in a geometric
sequence. >>>r = an+1/an
Example: 1000, -100, 10, -1,...→ Ratio: -1/10
a, ar, ar2, ar3,... → Ratio: r

- Sum of geometric series:
𝑟𝑛 − 1
𝑎( )
𝑟−1
- Savings (tiết kiệm)/Future value → sinking fund
+ At the beginning of the periods (thường sử dụng trong hầu hết các bài tập)
𝑛
(1+𝑖) −1
𝑉𝑛=A(1 + 𝑖)
𝑖
𝑟% 𝑘𝑛
𝑟% (1+ ) −1
Or =𝐴(1+
𝑘
) 𝑘
𝑟%
𝑘
+ At the end of the periods:
𝑛
(1+𝑖) −1
𝑉𝑛= A
𝑖
𝑟%
(1+ )𝑘𝑛 −1
𝑘
Or =𝐴 𝑟%
𝑘

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*Note: These above fomulas can only be used if the number of period which
interest compounded same as the number of deposit times. (eg: saving $A at
the beginning/end of each month vs. compounded monthly...)
- Nếu tiền gửi vô ầu mỗi năm nhưng compounded khác annually thì phải tìm
AER rồi mới sử dụng công thức
Example: An individual saves $1000 in a bank account at the beginning of

each year. The bank offers a return of 8% compounded annually.
(a) Determine the amount saved after 10 years.
(b) After how many years does the amount saved first exceed $20 000?
---
𝑟% 𝑘𝑛 8 10
𝑟% (1+ 𝑘 ) −1 8 (1+100) −1
(a) 𝑉𝑛=𝐴(1+
𝑘
) 𝑟% =1000(1+
100
) 8 =
𝑘 100
15645.49
𝑟% 𝑘𝑛 8 10
𝑟% (1+ 𝑘 ) −1 8 (1+100) −1
(b) 𝑉𝑛=𝐴(1+
𝑘
) 𝑟% =1000(1+
100
) 8 =20000
𝑘 100
=>𝑛=11.81 =>12 𝑦𝑒𝑎𝑟𝑠
- Loans (nợ)/Present value → annuity

+ At the end of the periods: Deposit $A at the beginning of each period with
a return of r% compounded annually/monthly.... After n year, the total
amount saved will be: (thường sử dụng trong hầu hết các bài tập)
−𝑛
1−(1+𝑖)
𝑉0= A 𝑖
𝑟% −𝑘𝑛
1−(1+ )
𝑘
Or =𝐴 𝑟%
𝑘
+ At the beginning of the periods

−𝑛
1−(1+𝑖)
𝑉0= A(1 + i)
𝑖

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𝑟% −𝑘𝑛
𝑟% 1−(1+ 𝑘
)
Or = 𝐴(1+ ) 𝑟%
𝑘
𝑘
- Trường hợp ề cho r% compounded monthly/quarterly/ semi-annually

.... Vs monthly/ quarterly/semi-annual repayment, r% (i) → r% /k và n
→ nk, m→ mk.
- Annual repayment $A needed at the end of each period to repay a $L loan
which is paid back after n year (trả hết nợ sau n năm) when the interest is
r% compounded annually
(1 + 𝑟%)𝑛 − 1
L(1 + r%)n −A =0
r%
Example: A person requests an immediate bank overdraft of $2000. The

bank generously agrees to this but insists that it should be repaid by 12
monthly instalments and charges 1% interest every month on the outstanding
debt. Determine the monthly repayment.
1 −12
1−(1+𝑟%)−𝑛 1−(1+100)
𝑉0=𝐴 => 𝐴 1 =2000 =>𝐴=177.7
𝑟%
100
*Một số công thức khác liên quan:
- Interest tháng ầu= (số tiền gửi vào) x (lãi suất)
- Principal (vốn)= Payment - interest
- Ending balance = beginning balance – pricipal
- Finance charge (tổng interest) = tổng payment – số tiền ban ầu
- After m year, the amount of loan still owed (sau m năm vẫn còn nợ):
(1 + 𝑟%)𝑚 − 1
L’= L(1 + r%)m −A
r%
Ex: paid back the loan after 3 year. After 2 year, the remaining loan is....
*Note:

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- Nếu ề cho r% compounded annually nhưng hỏi monthly repayment

thì A=12x với x là monthly repayment.
IV. Investment Appraisal
𝑟 𝑡
- Future value: 𝑆=𝑃(1+ )
100
𝑟𝑡
𝑆=𝑃𝑒 100
𝑟
- Present value: P=𝑆(1 + )−𝑡
100
−𝑟𝑡
P=S𝑒 100
- Net present value (NPV) (giá trị ròng)

𝒓
𝑁𝑃𝑉= PV- P0 =𝑺(𝟏 + )−𝒕 − 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
𝟏𝟎𝟎
NPV > 0: worth to invest (PV > P0) => acceptable
NPV = 0: neutral
NPV < 0: not worth to invest (PV < P0)
If there are 2 projects, pick project with higher NPV
Example
(1): A firm needs to choose between two projects, A and B. Project A
involves an initial outlay of $13 500 and yields $18 000 in 2 years’ time.
Project B requires an outlay of $9000 and yields $13 000 after 2 years. Which
of these projects would you advise the firm to invest in if the annual market
rate of interest is 7%?
---
Project A:
𝑁𝑃𝑉=𝑆(1+𝑟%)−𝑡 −𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑜𝑢𝑡𝑙𝑎𝑦 = 18000 (1+7%)−2 − 13500= 2221.9
Project B:
𝑁𝑃𝑉=𝑆(1+𝑟%)−𝑡 −𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑜𝑢𝑡𝑙𝑎𝑦 = 13000 (1+7%)−2 − 9000= 2354.7
NPV of project B is greater than NPV of project A => choose project B.

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(2) A firm has a choice of spending $10 000 today on one of two projects.
The revenue obtained from these projects is listed in the table. Assuming that
the discount rate is 15% compounded annually, which of these two projects
would you advise the company to invest in?
Project A:
𝑁𝑃𝑉=𝑆(1+𝑟100)−𝑡−𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑜𝑢𝑡𝑙𝑎𝑦
=2000(1+15%)−1+2000(1+15%)−2+3000(1+15%)−3+3000(1+15%)−4+3000
(1+15%)−5−10000 = −1569.24
Project B:
𝑁𝑃𝑉=𝑆(1+𝑟%)−𝑡 −𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑜𝑢𝑡𝑙𝑎𝑦
= 1000(1+15%)−1 +1000(1+15%)−2 +2000(1+15%)−3+6000(1+15%)−4
+4000(1+15%)−5 −10000 = −1640
Because net present values of two project are negative, neither of the project
is to be recommended.
- Internal rate of return (IRR) (tỉ suất sinh lời nội bộ)
𝑰𝑹𝑹 −𝑡
𝑁𝑃𝑉= 0= 𝑆(1+ ) − 𝑖𝑛𝑖𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
𝟏𝟎𝟎
P0 = C1(1+rIRR)-1+ C2(1+rIRR)-2+⋯+ Cn(1+rIRR)-n
If rIRR > rmarket : worth to invest
If rIRR < rmarket : not worth to invest
Example: A project requires an initial investment of $12 000. It has a
guaranteed return of $8000 at the end of year 1 and a return of $2000 each
year at the end of years 2, 3 and 4. Estimate the IRR to the nearest

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percentage. Would you recommend that someone invests in this project if the
prevailing market rate is 8% compounded annually?
---
𝐼𝑅𝑅 −1 𝐼𝑅𝑅 −2 𝐼𝑅𝑅 𝐼𝑅𝑅
8000(1+ ) +2000(1+ ) +2000(1+ )−3+2000(1+ )−4−12000=0
100 100 100 100
=>𝐼𝑅𝑅=8.9%
IRR exceeds the market rate => to be recommended.
Chapter 4:
Differentation
1. The derivative of a function
Find the slope of the straight line passing through A (x1, y1); B (x2, y2)
y= ax + b
Slope (gradient) = Δy/Δx= (y2−y1) /(x2−x1)
⇒ b = y2 − ax2 or b = y1 − ax1
2. Marginal function
- Marginal Revenue (MR)
𝑑(𝑇𝑅)
MR =
𝑄
∆(𝑇𝑅 ) ≅ 𝑀𝑅 × ∆𝑄
- Marginal Cost (MC)
𝑑(𝑇𝐶)
MC =
𝑄
∆(𝑇𝐶 ) ≅ 𝑀𝐶 × ∆𝑄
3. Elasticity
- The price elasticity of demand:

lOMoARcPSD|17112249
𝑃1+𝑃2
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑑𝑒𝑚𝑎𝑛𝑑 𝑃 𝑑𝑄 𝑃 ∆𝑄 2 ∆𝑄
E=
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
= 𝑄 x 𝑑𝑃 = 𝑄 x ∆𝑃 = 𝑄1+𝑄2 x
∆𝑃
2
- The price elasticity of demand:
𝑃1+𝑃2
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑠𝑢𝑝𝑝𝑙𝑦 𝑃 𝑑𝑄 𝑃 ∆𝑄 2 ∆𝑄
E=
𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
= 𝑄 x 𝑑𝑃 = 𝑄 x ∆𝑃 = 𝑄1+𝑄2 x
∆𝑃
2
| E | < 1: inelastic
= 1: unit elastic
>1: elastic
4. Finding and classifying stationary points of a function, f(x)
- Step 1: Solve the equation f ′( x ) = 0 to fi nd the stationary points, x = a .
- Step 2:
If f ′′( a ) > 0 then the function has a minimum at x = a
f ′′( a ) < 0 then the function has a maximum at x = a
f ′′( a ) = 0 then the point cannot be classifi ed using the available
information.
*Note:
- To minimize AC: MC= AC
- To maximize profit: MR=MC
- To maximize average product of labour (APL= Q/L): MPL= APL

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1 MATH FOR BUSINESS TA: VŨ THỊ THU TRANG

*At equilibrium point: Qd = Qs

Given P = aQd + b (1)

At equilibrium point, we have Pe = PD = Ps

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2 MATH FOR BUSINESS TA: VŨ THỊ THU TRANG

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3 MATH FOR BUSINESS TA: VŨ THỊ THU TRANG

*Sketch the line:

2. Different types of goods

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4 MATH FOR BUSINESS TA: VŨ THỊ THU TRANG

- Step 1: Determine the basic shape.

if a > 0: the graph has a U shape

if a < 0: an inverted U shape

- Step 2: y=0 => x1, x2

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5 MATH FOR BUSINESS TA: VŨ THỊ THU TRANG

- Step 4: Determine the intercept. This is obtained by substituting x = 0

2. Revenue, cost and profit

Total revenue: TR = PxQ (tổng doanh thu)

Profit = Total revenue – total cost

o Make a profit of a units: π = a

o Make a loss of a units: π = -a

o Maximise profit: πmax when 𝜋′=0 𝑎𝑛𝑑 𝜋′′<0.

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6 MATH FOR BUSINESS TA: VŨ THỊ THU TRANG

3. Indices and logarithms

Example: Show that the following production functions are homogeneous

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7 MATH FOR BUSINESS TA: VŨ THỊ THU TRANG

=> Increasing returns to scale because n = 3 > 1

=> Constant returns to scale because n = 1

- Scale Factor (hệ số tỉ lệ)

- The new value:

Đề bài bắt tính Increase Decrease

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8 MATH FOR BUSINESS TA: VŨ THỊ THU TRANG

(c) The annual percentage rise is

- Overall Scale = SF1 x SF2 x ... x SFn

Example: Find the single percentage increase or decrease equivalent to

2.1. Index numbers

Index number = scale factor from base year x 100

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9 MATH FOR BUSINESS TA: VŨ THỊ THU TRANG

𝑟𝑒𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 𝑖𝑛 𝑜𝑛 𝑠𝑒𝑟𝑣𝑎𝑡𝑖𝑜𝑛 𝑦𝑒𝑎𝑟

=> SF = Index number : 100

Example: Table shows the values of household spending (in billions of

- Index number in base year = 100

- The value in n year = [(Index n)/100] x The value in base year

- Nominal data: raw data without adjusted base on inflation....

- Real data: has been adjusted with inflation

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10 MATH FOR BUSINESS TA: VŨ THỊ THU TRANG

*Calculate real value/ adjusted value:

Forward Base year Backward

Nominal x Overall Scale Nominal Nominal : Overall Scale

- Năm bắt ầu lạm phát real value = Nominal

+ Sau lạm phát: real < nominal

+ Trước lạm phát: real > nominal