Mathematical Economics

Aji Raditya
(week_01)
 PERATURAN MENTERI PENDIDIKAN DAN KEBUDAYAAN
REPUBLIK INDONESIA

NOMOR 49 TAHUN 2014

TENTANG STANDAR NASIONAL PENDIDIKAN TINGGI

Pasal 15 ayat 2
Satu sks setara dengan 160 (seratus enam puluh) menit kegiatan
belajar per minggu per semester.

Pasal 16 ayat 1
Satu sks pada bentuk pembelajaran kuliah, responsi dan tutorial,
mencakup:
a. kegiatan belajar dengan tatap muka 50 (lima puluh) menit per
minggu per semester;
b. kegiatan belajar dengan penugasan terstruktur 50 (lima puluh)
menit per minggu per semester; dan
c. kegiatan belajar mandiri 60 (enam puluh) menit per minggu
per semester.
 Mathematical Economics
- Lines and Functions
- Differentiation (one variable)
- Partial Differentiation (two variable)
- Linear Programing
Mathematical Terminology
In Algebra:
 Lines
At the end of this section you should be able to:
 Define the slope and intercept of a straight
line and plot its graph
 Understand what 'the equation of a line'
means
 Plot any straight line given the linear
equation in the form 𝑦 = 𝑚𝑥 + 𝑐 or 𝑎𝑥 +
𝑏𝑦 + 𝑑 = 0.
 Properties of Lines
Δ𝑦 𝑦2 −𝑦1
a) Slope (𝑚 = = )
Δ𝑥 𝑥2 −𝑥1
b) Intercept (line crosses y-
axis)
Slope
Determine slope
for each line.
1. The plotted points lie on a straight line. Measure
the slope and vertical intercept.
a) Plot the points (-1,7),(0,6), (1,5), (3,3), (5,1) and
(7,-1).
b) Plot the points (-2,0), (0,2), (2,4), (4,6), and (5,1).

2. Measure the point where each line cuts the

horizontal axis.
a) Slope = 2, y-intercept = 0
b) Slope = -1, y-intercept = 2
 Equation of Line
The formula which calculates the y-coordinate for
any given x-value on the line is called The
Equation Of The Line.

The Equation Of The Line has the general form

𝑦 = 𝑚𝑥 + 𝑐
where m is the symbol representing slope and c is
the symbol representing the intercept on the
y-axis.
Graph Line
1. graph a straight line from its equation
𝑦 = 𝑚𝑥 + 𝑐

2. graph a straight line from its equation

𝑎𝑥 + 𝑏𝑦 + 𝑑 = 0
Example
1. Plot line that has the equation y = 2x – 1

2. Plot line that has the equation 4x + 2y -8 = 0

Exercises
Plot the following lines given the equation below :
(a) y = x+ 2
(b) x= 10 – 2y
(c) 5x +y + 4 = 0
(d) x = 5y
More on Straight Line
1. The equation of a line given slope and a
point on the line
2. The equation of a line given two points

Ex:
1. Deduce the equation and plot the graph of
the line having a slope of 1.7 and passes
through the point (2,5).
2. Deduce the equation and plot the graph of
the line passes through the point (2,4) and
(6,1).
Exercises
1. Deduce the equation and plot the graph of
the line having a slope of 1 and passes
through the point (2, 4).
2. Deduce the equation and plot the graph of
the line passes through the point (2, 4) and
(8, 16).
Application in Economics and
Business
 Application in Economics and
Business
Demand, Supply, Cost and Revenue
Demand function Q=f(P) or P=g(Q) can be
modelled by the simple linear equation.
This equation describes the
law of demand, a basic
economic hypothesis which
states that there is a negative
relationship between quantity
demanded and price, that is,
when the price of a good
increases, the quantity
demanded will decrease, all
other variables remaining
constant.
Example
The demand function is given by the equation
P= 100 - 0.5Q.
(a) State and give a verbal description of the
slope and intercepts.
(b) What is the quantity demanded when P = 5?
(c) Plot the demand function P = 100 - 0.5Q for
0 < Q < 200.
(d) Find an expression for the demand function
in the form Q = f (P) and graph it.
Supply Function
The simplest model for
the supply function is
written as Q = f(P).

A minus quantity is not

economically meaningful;
therefore, many
economic textbooks
only illustrate the supply
function in the positive
quadrant only.
This describes the law of
supply, a basic economic
hypothesis which states
that there is a positive
relationship between
quantity supplied and
price, that is,
when the price of a good
increases, the quantity
supplied will also
increase, all other
variables remaining
constant.
Example:
The supply function is given by P = 10 + 0.5 Q.

(a) State and verbally describe the slope and

intercepts.
(b) Plot the supply function, P = 10 + 0.5 Q for
0 < Q < 100.
Cost Function

The total cost of producing a

good will normally consist of:

(i) Fixed costs, FC: costs that

are fixed irrespective of the
level of output, e.g. rent on
premises.

(ii)Variable costs, VC: costs

which vary with the level of
output, e.g. each extra unit
of a good produced will
require additional units of
raw materials, labour, etc.
Example
A firm has fixed production costs of £10 and
variable production costs of £2 per unit
produced.
(a) Write down the equation of the total cost
function.
(b) Graph the total cost function.
Revenue
A firm receives revenue when it sells output. The
total revenue, TR, received is the price of the
good, P, multiplied by the number of units sold,
Q, that is, TR = P.Q.

Total revenue may be modeled by a straight line

if the price of each unit sold is the same, that
is, each firm is a price-taker, denoted by a
horizontal demand function.
Example
Suppose that each chicken snack box is sold for
£3.50 irrespective of the number of units sold.
(a) Write down the equation of the total
revenue function.
(b) Graph the total revenue function.
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