Application of Linear Functions in Economics

Thus, with the help of the linear cost function, we can estimate the cost for various levels of output. 2. Linear Revenue curves Revenue is the amount of money derived from the sale of a product. It depends upon the price and quantity sold. Thus, given the market price of a commodity, we can estimate the revenue of a firm for various levels of output. 3. Supply curve The supply function is used to specify the amount of a particular commodity available in the market at various prices. In general, supply increases when price ices, and decreases when price falls.

The supply curve rises upwards from left to right. The slope of the supply curve is positive. Example: Q = UP – 3. With the help of linear supply function, we can estimate the supply of a commodity at various levels of prices. 4. Demand curve The quantity demanded of a commodity is a function of its price, I. E. , Sq = f(P). The demand curve slopes downwards from left to right. Hence, the slope of the demand curve is negative. For example: D ? 10 – up. With the help of the linear demand function, we can estimate the demand for a .

Market equilibrium Market equilibrium is said to occur at the point (price) at which the quantity demanded is equal to the quantity supplied. Thus the equilibrium price and the equilibrium quantity correspond to the co- ordinates of the point of intersection of the demand and supply curves. Hence, we can say that, the linear demand and the supply functions are very much helpful to the entrepreneurs to fix the price at an appropriate level or to produce the output at a reasonable level. 6. Profit and loss Profit is the excess revenue over the cost of production. Notion of a firm is P(x) = R(x) – C(x). Loss is the excess of cost of production over the revenue. Function of a firm of L(x)= C(x) – R(x). With the help of total revenue and ETC curves, we can estimate the level of profit or loss at various levels of output. The loss The profit 7. Break – even point Break-even point of output level occurs when the sale proceeds I. E. , total revenue, are Just equal to the cost of production. There will be no profit or loss. If the company’s sale is less than the break-even sales, the company will be irking on loss.

On the other hand, if the company’s sale is more than the break- even sales, the company will be working on profit. Thus, the break-even analysis helps the producers in estimating the profit for any given volume of sales. Impact of changes in prices and costs, on profit of the firms, can also be analyses with the help of break-even technique. From the above analysis, we can very well understand that the linear functions I. E. The straight lines are widely applied in the field of Economics and business.