THE STRAIGHT LINE AND

BUSINESS APPLICATIONS
SESSION 2
By Elvira Hernández Benito
SESSION PLANING
 The Straight Line explanation.
 Questions.
 Exercises and questions.

 5-minute break.

 Business Applications explanation.

 Questions.
 Exercises and questions.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
THE STRAIGHT LINE. TRANSLATIONS OF
LINEAR FUNCTIONS.
Definition: The straight line is the simplest mathematical function, but it is used to model a very wide range of concepts in economics

and business.

A straight line is uniquely defined by stating the slope (m) and vertical intercept (c).

The slope of a line is the slant, and it may be described as the rate of change in y (dependent variable) per unit change in x

(independent variable) and it may be measured between any two points on the line (x1, y1) and (x2, y2) like: m = (y2-y1)/(x2-x1).

The equation of a straight line defines the relationship that exists between the x and y coordinates for every point of the line. It may be

writen in several forms:

y = mx + c (where c=vertical intercept; m=slope; -c/m=horizontal intercept).

ax + by + d = 0 which may be rearranged in the previous format as y = -d/b + (-a/b)x.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
In mathematics, the vertical In mathematics, the slope of
intercept is referred to by the a line is referred to by the
letter c letter m

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
THE STRAIGHT LINE. TRANSLATIONS OF
LINEAR FUNCTIONS

Calculation: The equation of a line may be calculated when certain information is given, such as:

 Given slope=m and vertical intercept=c, the equation is the following: y = mx + c.

 Given slope=m and one point of the line (x1, y1), the equation is y-y1 = m (x-x1).

 Given two points of the line (x1, y1) and (x2, y2), we can calculate the slope as m=(y2-y1)/(x2-x1); so the equation is: y-
yi=m(x-xi) where i = 1 or 2.

 Translations of y = f(x): they can be vertical, replacing y by (y-c) or (y+c); or horizontal, replacing x by (x-c) or (x+c).

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
 The graph of the line whose
intercept = 2, slope = 1

1. Plot a point at intercept = 2

2. From the intercept draw a line 6

with slope = 1 by 5

4
(a) moving horizontally forward (1, 3)
3
by one unit and (0, 2)
2

(b) vertically upwards by one unit 1

0
3. Extend this line indefinitely in -1 0 1 2 3 4

either direction, as required.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
As an example of horizontal
translation:
1. parallel lines (a) y = x
y
(b) y = x + 10
25
(c) y = x - 5
20

15

10

5
x
0
-6 -4 -2 0 2 4 6 8 10 12 14
-5

-10

-15

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
EXERCISE
For each of the following lines:
a) y = 10 – 2,5x
b) y = -2,5 + 10x

Calculate:
i. The slopes and intercepts.
ii. The number of units by which y changes when x increases by a 1 unit.
iii. Plot the lines.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
SOLUTION (y = 10 – 2,5x)
i) m = -2,5
y(0) = 10
x(0) = 4

ii) y decreases by 2,5 units when x

increases by 1.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
SOLUTION (y = -2,5 + 10x)
i) m = 10
y(0) = -2,5
x(0) = 0,25

ii) y increases by 10 units when

x increases by 1.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
BUSINESS APLICATIONS: DEMAND, SUPPLY,
COST AND REVENUE.

Economics is a social science which studies how individuals within an economy make economic decisions on the

allocation, distribution and utilization of resources in order to satisfy their needs and wants. As a modern economy is
very complex with individuals making millions of possible economics decisions, we simplify that reality in the form
of mathematical models. And we shall refer to those mathematical models as economic models since the are used in
the context of economics.

And between a lot of the economics models which we will study we find that a simple mathematical function or
equation, the straight line, is used to model the following basic functions:

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
Demand and supply: demand and supply decisions by consumers, firms and the government determine the level of
economic activity within an economy. And these decisions are vital in business and consumer activity, so it is
important to posses mathematical tools to analyse them:

 Demand function: it is given by the equation P = a – bQ. It is a decreasing function because of the negative
relationship between price per unit and quantity.

 Supply function: it is given by the equation P = c + dQ. It is an increasing function because of the positive
relationship between price per unit and quantity.

 Total revenue: it is what a firm receives when it sells output and it is given by the equation TR = P * Q. It is the
price per unit multiplied by the quantity sold.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
Total cost: firms incur costs when they employ inputs, such a capital and labour, in order to produce goods for saling in
markets. The total cost of producing a good normally consists of:

 Fixed costs (FC): costs that are fixed irrespective of the level of output (e.g., rent on premises)

 Variable costs (VC): costs which vary with the level of output.

 So, total cost is given by the equation TC = FC + VC being VC = kQ, where k is the cost of producing each unit.

Profit: it is the total revenue received less the total cost. It is represented by the Greek letter π (pi). Hence, profit

π = TR – TC.

And a company or firm is said to break even when total revenue is the same as total cost and hence profit is zero.

Then, when:

 TR>TC the company makes a profit. Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
 TR<TC the company makes a loss.
EXERCISE 1
The demand and supply functions for hotel accommodation per room during the low season
are given by the equation P=96–0,8Q and P=40+0,4Q, where Q is the number of bookings
and P is the Price in €.

a) Graph the demand and supply functions on the same diagram.

b) For each function (demand and supply):

i. Calculate the value of Q when P=0

ii. Calculate the Price when Q=0.

iii. How many booking will be demanded and supplied when the price is €60 per room?
Applied Business Mathematics
Elvira Hernández Benito
Academic Year 20-21
SO LU TI ON
a)

Q 0 20 40 60 80 100 120
P=96-0,8Q 96 80 64 48 32 16 0
P=40+0,4Q 40 48 56 64 72 80 88

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
b)

i)When P=0 then:

Qd = 120
Qs = -100
That means that when rooms are free 120 will be demanded, none will be supplied.

ii) When Q=0 then

Pd = 96
Ps = 40
That means that when the price is €96 no rooms will be demanded; and no rooms will be supplied until the price
reaches €40.

iii)When P=60
Qd = 45 rooms are demanded
Qs = 50 rooms are supplied

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
EXERCISE 2
A canteen has fixed costs of €1500 per week. Meals cost €5 each and are sold at a fixed price of €9
each.

a) Write down the equation for total costs and plot its graph for Q=0 to 10.

b) Calculate the cost of producing 100 meals per week.

c) Calculate the number of meals produced when total costs are €2300.

d) Write down the equation for the total revenue.

e) Calculate the number of meals sold when the total revenue is €3780.

f) Calculate the profit when 500 meals are sold per week.

g) Plot TC and TR graphs together and calculate Q at break-even point.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
SOLUTION
a) TC = 1500 + 5Q

First we build the table of values:

Q 0 2 4 6 8 10
TC =1500 + 5*Q 1500 1510 1520 1530 1540 1550

b) TC(100) = 1500 + 5*100

TC(100) = 2000€

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
c) TC = 2300€
2300 = 1500 + 5*Q
Q = (2300 – 1500) / 5
Q = 160 meals

d) TR = 9*Q

e) TR = 3780€
3780 = 9*Q
Q = 3780 / 9
Q = 420 meals

f) π = TR – TC
Q = 500 meals, then
TR = 4500€ TC = 4000€ π = 500€

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
g) TC = 1500 + 5Q
TR = 9Q Q 0 100 200 300 400 500
TC=1500+5Q 1500 2000 2500 3000 3500 4000
TR=9Q 0 900 1800 2700 3600 4500
Algebraically:
π = 0 when TC = TR

Then: 1500 + 5Q = 9Q
1500 = 4Q
Q = 375

For Q = 375 profit is 0.

For Q > 375 there is a profit.
For Q < 375 there is a loss.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21