Application of Linear Functions in Economics

Topics: Supply and demand, Slope, Linear function Pages: 3 (627 words) Published: September 8, 2013
Application of linear functions in Economics (or) Application of straight lines in Economics

The linear function is one in which ‘y’ is the first degree expression in ‘x’, i.e., y = ax + b. The graph of this function is a straight line. The co-efficient of x represents the slope of the line. If a > 0, then the lines are upward sloping, and if a < 0, then the lines are downward sloping Let us explain certain linear equations used in Economics and business.

1. Linear cost curves

The total cost curve is rising to the right as the cost of production increases with the output Q of commodity X.

Example

If TC = 12x + 6, AC = 12 + 6 , MC = 12. x

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 rises, and decreases when price falls. The supply curve rises upwards from left to right. The slope of the supply curve is positive. Example: Q = 3P – 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., Qd = f(P). The demand curve slopes downwards from left to right. Hence, the slope of the demand curve is negative. For example: D = 10 – 3p.

With the help of the linear demand function, we can estimate the demand for a commodity at various levels of prices.

5. Market equilibrium

Market...
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