Chapter 5: Linear Functions

Q.NO.1 Write the general form of a linear function involving five independent variables.

Q.NO.2 Assume that the salesperson in Example 1 has a salary goal of $800 per week.If product B is
not available one week, how many units of product A must be sold to meet the salary goal? If product
A is unavailable, how many units must be sold of product B ?

Q.NO.3 Assume in Example 1 that the salesperson receives a bonus when combined sales from the
two products exceed 80 units. The bonus is $ 2.50 per unit for each unit over 80. With this incentive
program, the salary function must be described by two different linear functions. What are they, and
when are they valid?

Q.NO.4 For example 4, how many units must be produced and sold in order to (a) earn a profit of
$1.5 million, and (b) earn zero profit (break even)?

Q.NO.5 A manufacturer of microcomputers produces three different models.The following table

summarises wholesale prices, material cost per unit, and labour cost per unit. Annual fixed costs are $
25 million.

Microcomputer
Model 1 Model 2 Model 3

Wholesale price/unit $500 $1,000 $1,500

Material Cost/unit 175 400 750
Labor cost/unit 100 150 225

(a)Determine a joint revenue function for sales of the three different microcomputer models.
(b)Determine the annual total cost function for manufacturing the three models.
(c)Determine the profit function for sales of the three models .
(d)What is the annual profit if the firm sells 20,000, 40,000 and 10,000 units, respectively, of the three
models?

Q.NO.6 For example 5, the board of directors has voted on the following planting program for the
coming year: 1,000 acres will be planted at farm 1, 1,600 at farm 2 and 1,550 at farm 3.
(a)What are the expected profits for the program ?
(b)A summer drought has resulted in the revenue yields per acre being reduced by 20, 30, and 10
percent, respectively,at the three farms. What is the profit expected from the previously mentioned
planting program?

Q.NO.7 Automobile Leasing A car leasing agency purchases new cars each year for use in the
agency.The cars cost $15,000 new.They are used For 3 years, after which they are sold for $4500. the
owner of the agency estimates that the variable cost of operating the cars, exclusive of gasoline, are
$0.18 per mile. Cars are leased for a flat fee of $0.33 per mile(gasoline not included).
(a) Formulate the total revenue function associated with renting one of the cause a total of x miles
over a 3 year period.
(b)Formulate The total cost function associated with renting a car for a total of x miles over 3 years.
(c) Formulate the profit function.
(d)What is profit if a car is leased for 60 thousand miles over 3 year period?
(e)What mileage is required in order to earn zero profit for 3 years?

Q.NO.8 A company produces a product which it sells for $55 per unit. each unit costs the firm $ 23 e
in variable expenses, and fixed costs on an annual basis are $400,000. If x equals the number of units
produced and sold during the year:
(a)Formulate the linear cost function.
(b) Formulate the linear total revenue function.
(c)Formulate the linear profit function.
(d)What does annual profit equal if 10,000 units are produced and sold during the year?
(e)What level of output is required in order to earn zero profit ?

Q.NO.9 A gas station sells regular gasoline and unleaded premium .The price per gallon charged by
the station is $1.299 for unleaded regular and $1.379 for unleaded premium.If x1 equals the number of
gallons sold of regular and x2 the number of gallons sold of premium:
(a)Formulate the revenue function from selling x1 and x2 gallons,respectively,of the two grades.
(c)Formulate the total profit function.
(d)What is total profit expected to equal if the station sells 100,000 gallons of unleaded regular and
40,000 of unleaded premium.

Q.NO.10 A piece of machinery is purchased for $ 80000. Accountants have decided to use a straight
line depreciation method with the machine being fully depreciated after 6 years. Letting V equals the
book value of the machine and t the age of the machine, determine the function V=f(t). (Assume no
salvage value)

Q.NO.11 Straight Line Depreciation with Salvage Value Many assets have a resale, or salvage, value
even after they have served the purposes for which they were originally purchased. in such cases, the
allocated cost over the life of the asset is the difference between the Purchase cost and the Salvage
value. The cost allocated each time period is the allocated cost divided by two useful life. Example 6,
suppose that it is estimated that the truck ( which cost $ 20000) can be resold for $ 2500 at the end of 5
years. the total cost to be allocated over the five year period is the Purchase cost less the resale value
or $20,000-$2500=$17,500.
In exercise 1 that the machine will have a Salvage value of $ 7500 at the end of 6 years. Determine the
function V=f(t) for this situation.

Q.NO.12 A piece of machinery is purchased for $300,000. have decide a straight line depreciation
method with the machine being fully depreciated after 8 years. Letting V equal the book value off the
machine and the age of the machine, determine the function V=f(t). Assume there is no salvage value.

Q.NO.13 Assume in exercise 3 that the machine can be resold after 8 years for $ 28,000. Determine
the function V=f(t).
Q.NO.14 A company purchases cars for use by executives.The purchase cost this year is $25,000. if
Accountants use straight line depreciation, determine the function with describe the book value V as a
function of the age of the car t.

Q.NO.15 A firm sells a product for $45 per unit. variable cost per unit are $33 and fixed costs equal
$450,000. how many units must be sold in order to break even?

Q.NO.16 An enterprising college student has decided to purchase a local car wash business. the
Purchase cost is $150,000. car washes will be priced at $5.50 and variable cost per car
(soap,water,labor,etc.) is expected to equal $1.50.How many cars must be washed in order to recover
the $150,000 purchase price?

Q.NO.17 A charitable organization is planning a raffle to raise $10,000. Five hundred chances will be
sold on a new car.The car will cost the organization $15,000. How much should each ticket cost if the
organization wishes to net a profit of $10,000 ?

Q.NO.18 A publisher has a fixed cost of $250,000 associated with the production of a college
mathematics book.The contribution to profit and fixed cost from the sale of each book is $6.25.
(a)Determine the number of books which must be sold in order to break even.
(b)What is the expected profit if 50,000 books are sold ?

Q.NO.19 A local university football team has added a national power to next year’s schedule.The
other team has agreed to play the game for a guaranteed fee of $100,000 plus 25 percent of the gate
receipts. Assume the ticket price is $12.
(a)Determine the number of tickets which must be sold to recover the $100,000 guarantee.
(b)If college officials hope to net a profit of $240,000 from the game, how many tickets must be sold ?
(c)If a sellout of 50,000 fans is assured, what ticket price would allow the university to earn the
desired profit of $240,000?
(d)Again assuming a sell out , what would total profit equal if the $12 price is charged?

Q.NO.20 Make or Buy Decision Assume that a manufacturer can purchase a needed component from
supplier at a cost of $9.50 per unit, or it can invest $60,000 in equipment and produce the item at a
cost of $7.00 per unit.
(a)Determine the quantity for which total costs are equal for the make and buy alternatives.
(b)What is the minimum cost alternative if 15,000 units are required?What is the minimum cost ?
(c)If the number of units required of the component is close to the break even quantity,what factors
might influence the final decision to make or buy?

Q.NO.21 A local civic arena is negotiating a contract with a touring ice-skating show,Icey Blades.
Icey Blades charges a flat fee of $60,000 per night plus 40 percent of the gate receipts. The civic arena
plans to charge one price for all seats, $12.50 per ticket.
(a)Determine the number of tickets which must be sold each night in order to break even.
(b)If the civic arena has a goal of clearing $15,000 each night , how many tickets must be sold ?
(c)What would nightly profit equal if average attendance is 7,500 per night ?
Q.NO.22 In the previous exercise, assume that past experience with this show indicates that average
attendance should be equal 7,500 persons.
(a)What ticket price would allow the civic arena to break even ?
(b)What ticket price would allow them to earn a profit of $ 15,000?

Q.NO.23 Equipment Selection A firm has two equipment alternatives it can choose from in
producing a new product. One automated piece of equipment costs $ 125,000 and produces items at a
cost of $5.25 per unit.
(a)What volume of output makes the two pieces of equipment equally costly ?
(b)If 80,000 units are to be produced , which piece of equipment is less costly?What is the minimum
cost ?

Q.NO.24 Robotics A manufacturer is interested in introducing the robotics technology into one of its
production processes.The process is one which would provide a “hostile environment” for humans.To
be more specific, the process involves exposure to extremely high temperatures as well as to
potentially toxic fumes.Two robots which appear to have the capabilities for executing the functions of
the production process have been identified.There appear to be no significant differences in the speeds
at which the two models work. One robot costs $180,000 and has estimated maintenance costs of $100
per hour of operation. The second type of robot costs $250,000 with maintenance costs estimated at
$80 per hour of operation.
(a)At which level of operation (total production hours) are the two robots equally costly?What is the
associated cost ?
(b)Define the levels of operation for which each robot would be the less costly.

Q.NO.25 Computer Software Development A firm has a computer which it uses for a variety of
purposes.One of the major costs associated with the computer is software development (writing
computer programs).The vice president for information systems wants to evaluate whether it is less
costly to have his own programming staff or to have programs developed by a software development
firm. The costs of both options are a function of the number of lines of code (program statements).
The vice president estimates that in-house development costs $1.50 per line of code. In addition,
annual overhead costs for supporting the programmers equal $30,000. Software developed outside the
firm costs, on average, $2.25 per line of code.
(a)How many lines of code per year make costs of the two options equal ?
(b)If programming needs are estimated at 30,000 lines per year, what are the costs of the two options?
(c)In part b what would the in-house cost per line of code have to equal for the two options to be
equally costly?

Q.NO.26 Sensitivity Analysis Because the parameters (constants) used in mathematical models are
frequently estimates, actual results may differ from those projected by the mathematical analysis.To
account for some of the uncertainties which may exist in a problem, analysts often conduct sensitivity
analysis .The objective is to assess how much a solution might change if there are changes in model
parameters.
Assuming the previous exercise that software development costs by outside firms might actually
fluctuate by 20 percent from the $2.25 per line estimate.
(a)Recompute the break-even point if costs are 20 percent higher or lower and compare your result
with the original answer.
 (b)Along with the uncertainty in part a,in-house variable costs might increase by as much as 30
percent because of a new union contract. Determine the combined effects of these uncertainties.

Q.NO.27 Video Games A leading manufacturer of video games is about to introduce four new games.
The accompanying table summarizes price and cost data. Combined fixed costs equal $500,000. A
marketing research study predicts that for each unit sold of Black Hole , 1.5 units of Haley's Comet, 3
units of Astervoids , and 4 units of PacPerson will be sold.
(a) How many product mix units must be sold to break even ?
(b) How does this translate into sales of individual games ?

Game

PacPerson Astervoids Haley’sComet BlackHole

ellingPrice $50 $45 $30 $20

ariableCost/Unit 20 15 10 10

Q.NO.28 A company produces three products which sell in a ratio of 4 units of product 2 and 2 units
of product 3 for each unit sold of product 1. The following table summarizes price and cost data for
the three products. If fixed costs are estimated at $2.8 million, determine the number of units of each
product needed to break even.

Product
1 2 3

Selling price $40 $32 $55

Variable cost/price 20 24 46

Q.NO.29 A company is considering the purchase of a piece of equipment to be used to manufacture a

new product. Four machines are being considered. The following table summarizes the purchase cost
of each machine and associated variable cost of production if the machine is used to produce the new
product. Determine the ranges of output over which each machine would be the least costly
alternative. Sketch the four cost functions.

Purchase Cost Variable Cost/unit

Machine 1 $80,000 $10.00

Machine 2 120,000 9.00
Machine 3 200,000 7.50
Machine 4 300,000 5.50