NON-LINEAR TOTAL REVENUE AND TOTAL

PROFIT FUNCTIONS. BREAK-EVEN POINTS.

CUBICAL AND POLYNOMIAL FUNCTIONS.

SESSION 8

By Elvira Hernández Benito

SESSION PLANING
 Follow the Non-Linear Total Revenue and Total Profit explanations, as well as Break-Even
Points ones.
 Read carefully every step of solving process.
 Do the exercise proposed and send it in detail to the professor by mail (it will worth 1,50
points of Assignment grade).

 Follow the brief explanation about Cubic Functions.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
QUADRATIC FUNCTIONS IN ECONOMICS.
BREAK-EVEN POINTS
Examples of these are the Total Revenue functions, frequently represented by maximum type
quadratics which pass through the origin, in the form of:

TR = aQ – bQ2

  This function usually presents a turning point (a maxium in this case) which represents the “maximum
revenue” and lies halfway between the roots of the quadratic function (that is, the points where TR
function intercects the x-axis).

Break-Even points: in this case there are two points in which TR = TC, that is, when the profit is zero.
Applied Business Mathematics
Elvira Hernández Benito
Academic Year 20-21
EXAMPLES
1. The demand function for i-Pod cases in a local shop is P = 240 – 0.5Q where €P is the price per unit
and Q is the quantity (number) demanded:

a) Write down the equation of total revenue.

TR = P*Q
TR = (240 – 0,5Q) * Q

then TR = 240Q – 0,5Q2

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
b) Plot the total revenue function:

- First we build a table of values, from Q=0 to Q=480

Q 0 40 80 120 160 200 240 280 320 360 400 440 480
TR 0 8800 16000 21600 25600 28000 28800 28000 25600 21600 16000 8800 0

- We represent then into a graph:

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
c) From the graph estimate,
i) the number of i-Pod cases that must be sold to maximise
From the table, we can see that the value of Q which makes the maximum TR is:
Q = 240 units
For that value: TR = 28800€

ii) the range of Q for which total revenue is positive

Again from the table we can see that the values for what the TR is positive are:
From Q=0 to Q=480

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
iii) the number of i-Pod cases that must be sold to make a total revenue $10,000
• 
We know that TR = 240Q – 0,5Q2 and TR = 10000

then 10000 = 240Q – 0,5Q2

Solving the equation:

0,5Q2 – 240Q + 10000 = 0

using the “minus b” formula:

 
Q
Q =

what we also can see graphically.

 
Q

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
2. The total cost function is TC = 15000 + 4Q

a) Plot the total revenue and total cost function on the same diagram: now include values for TC too:

Q 0 40 80 120 160 200 240 280 320 360 400 440 480 520
TR 0 8800 16000 21600 25600 28000 28800 28000 25600 21600 16000 8800 0 -10400
TC 15000 15160 15320 15480 15640 15800 15960 16120 16280 16440 16600 16760 16920 17080
Plotting the graph:

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
From the diagram state the range of values for Q for which the company is making

(i) Breaks even: that is when TR = TC

240Q - 0,5Q2 = 15000 + 4Q

solving the equation using the “minus b” formula we obtain the 2 BREAK-EVEN POINTS:
Q = 75,7

Q = 396,3

(ii) a profit: this takes place when TR>TC

and that occurs when 75,7<Q< 396,3

(iii) a loss: this occurs when TR<TC

that means, when Q<75,7 and when Q>396,30
Applied Business Mathematics
Elvira Hernández Benito
Academic Year 20-21
b) Calculate and plot the profit function. From the graph estimate (i) the maximum profit (ii) a profit of
zero.
Q 0 40 80 120 160 200 240 280 320 360 400 440 480 520
Given values as ever: TR 0 8800 16000 21600 25600 28000 28800 28000 25600 21600 16000 8800 0 -10400
TC 15000 15160 15320 15480 15640 15800 15960 16120 16280 16440 16600 16760 16920 17080
Profit -15000 -6360 680 6120 9960 12200 12840 11880 9320 5160 -600 -7960 -16920 -27480

And plotting the graph:

Maximum profit:
Q = 240 aprox.

Profit = 0, when
Q = 75,7
Q = 396,3

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
EXERCISE TO SOLVE AND SEND
A firm´s total cost function is given by the equation TC = 200+3Q, while the demand function is given by
the equation P = 107-2Q.
 
a) Write down the equation of the total revenue function.
b) Graph the total revenue function for 0 < Q < 60. Hence, estimate the output, Q, and total revenue
when total revenue is maximum.
c) Plot the total cost function on the diagram in b). Estimate the Break-Even Point from the graph.
Confirm your answer algebraically.
d) State the values of Q for which the company makes a profit.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21
CUBIC FUNCTIONS
A cubic function is expressed by a cubic equation which has the general form: 
ax3 + bx2 + cx + d = 0
 where “a”, “b”, “c” and “d” are constants.
 
There is no easy general formula for solving a cubic equation, but approximate solutions may be
found graphically by plotting the graph and finding the points or intersection with the axes (easier with
Excel).
 
Cubic equations are continuous curves which may have: 
a) One root to three roots.
b) No turning point or two turning point.

Applied Business Mathematics

Elvira Hernández Benito
Academic Year 20-21