UNIT 1

REVIEW OF ALGEBRA
1. 1 INTRODUCTION
This unit deals with the review of some preliminary algebra. It is basically a revision of
concepts that the students are expected to know. The unit starts with functions and discusses
different types of functions like polynomial, rational, exponential and logarithmic functions.
Rules of exponents and logarithms are reviewed. Some of the functions in economics are also
discussed.
1.2 FUNCTION
A function is composed of a domain set, a range set, and a rule of correspondence that
assigns
exactly one element of the range to each element of the domain. The application of calculus

to practical problems depends on expressing physical quantities in terms of functions. The

value of one quantity may depend on the value of the second. For example, the demand for
coffee may depend on its market price; the supply of wheat may depend on the weather
condition in the country. These types of relations can be represented mathematically as
functions. Therefore, in order to use calculus we must understand the basic ideas of
functions.
Definitional function is a rule that assigns to each object in a set A one and only one object in
a set B. Note that a function is a special type of relation in which no two elements of the
relation have the same first coordinate. Let us take the following example:
Example1:Let set
A={0,1,2,3,4,5},
B={10,12,15,20.30,60},
C={0,2,5,8,10,15} and D={1,3,a,b,c}
Assume
R1={(0,10),(1,12),(2,12),(3,15),(3,20),(4,30),(5,60)}and R2={(0,1),(2,3),(5,a),(8,a),(10,b),
(15,c)}
Both R1 and R2 are relations. But R1 is not a function because one element of A is paired
with more than one element in B. On the other hand, R2 is a function because every element
in C is paired with only one element of D. Therefore, to be called as a function every element
of the domain must be mapped to one and only one element of the range.

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It is common to use a letter for the name of a function. For example, f, h, g, and other
symbolic representation like φ , ϕ etc. can be used.
If f is a function and y=f (x ), read, as y is equal to "f of x", then we say y is a function of x.
The variable x is called the independent variable (the domain of the function)
The variable y is called the dependent variable (the range of the function)
Hence a function can be written by using a mathematical formula.
Example2: y=2 x +5 , y=x 2+ 2 x +6 , etc.
Letter x and y are the independent and dependent variables respectively.
1.3 The Graph of a function
The graph of a function shows how two or more sets of data or variables are related to one
another. They clearly indicate information that may not be clear from verbal or algebraic
descriptions. Let us take the following general function y=f (x )
The graph of this function f consists of all points (x , y ) where x is in the domain of f and
y=f (x ). We indicate the independent variable x in the horizontal axis and the dependent
variable y on the vertical axis.
Example3: Let us see the graph of the function, y=x 2.
First construct a table for some values of x as follows
X -3 -2 -1 0 1 2 3
f(x) 9 4 1 0 1 4 9
If you plot the different points (x, y) on the x – y-axis you will get the following graph.

f(x) = x2

X
We can say that this graph is the graph of a function, because each vertical line that intersects
the graph intersects it in exactly one point. If some vertical lines intersect the graph in more
than one point that is not a graph of a function.
Example 2:

Figure1. The graph of the function f(x) = x2

2
X
Figure 2.
This is not a graph of a function because a given value of x has more than one value of y. To
be called as a graph of a function, each x in the domain must have a unique value of y in the
range.
Example4: Find the domain and range of the function
3
y=2 x −3
The domain of the function is the set of values of the independent variable for which a
function can be evaluated and the range is the set of all numbers produced by the function as
its independent variable takes on all values in its domain. Thus, the above function can be
evaluated for all numbers. The domain and the range are also the set of all real numbers.
Example5: Find the domain and range of the function
f ( x )= √ x−1
Since we cannot have a negative number inside the square root, the domain of this function is
all real numbers greater than or equal to 1. i.e. x ≥ 1. The range of this function is all real
numbers greater than or equal to zero.
Check Your Progress - 2
1. Find the domain and range of the following functions
2 x+ 1
a) f (x)=4 x +12 b) f (x)=3 x 2−5 x +25 c) f (x)=
x−2
1.4 Types of Functions
a) Constant Functions
A function of the form y=f ( x )=k , where k is any constant number, is called a constant
function. The value of y remains the same for any value of x. The graph of such kind of
function is a horizontal straight line.
Example6: f (x) =5, f(x) = ½.
b) Polynomial Functions
This is a function of the form f ( x )=a0 +a 1 x 1+ a2 x2 +…+ an x n
If a n ≠ 0 , n (the nonnegative integer) is called the degree of the polynomial function.
Depending on the value of the integer n we have different types of polynomial functions.
i) Constant function (n=0) - degree 0 Example 2: f (x)=5 , f (x )=1/2
ii) Linear function (n=1) - degree 1 Example 3: y=2 x +3

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iii) Quadratic function (n=2) – degree 2 Example 4: y=2 x 2 +3 x+5
iv) Cubic function (n=3) - degree 3 etc. Example 5: y=x 3 +3 x 2+ x+1
The powers of x are called the exponents.
c) Rational Functions
This is a function in which y is expressed as a ratio of two polynomial functions. Any
polynomial function is by itself a rational function.
P(x)
If P(x ) and Q(x ) are polynomials then R ( x )= is called a rational function.
Q( x )
2 x +1 5
Example 6. y=f ( x )= and y=f ( x )= are rational functions.
x−2 x −2
2
x +1 √2 x +1 are not rational functions because the denominator
Example 7. f ( x )= 1 and g ( x )=
x 3 x 2+3

in the first case and the numerator in the second case are not polynomial functions.
d) Non Algebraic Functions (Transcendental Functions)
Any function expressed in terms of polynomial and/or roots of polynomial is an algebraic
function. Other types of functions like exponential, logarithmic and trigonometric
functions are called non-algebraic or transcendental functions.
1.5 Exponential and Logarithmic Functions
In this section we will deal with the exponential and logarithmic functions. Their functional
form and different rules of both functions are discussed with illustrations.
1.5.1. Exponential functions
[Link]. Power Functions
A power function is a function of the form y=x a
Rules of Exponents: If m and n are positive integers and x & y are real numbers, then we
have the following rules of exponents:
1) x m . x n=x m +n Example x 2 . x 3=x 2+3=x 5
2) (x m )n=x mn Example (x 3)2 =x3.2 =x 6
3) ( x . y )m=x m . y m Example ( x . y )2=x 2 . y 2
m m 3 3
x x x x
4) ( ) = m Example ( ) = 3
y y y y

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 −m 1 −2 1
5) x = m
, (x ≠ 0) Example x = 2
x x
m 5
x m −n x 5−3 2
6) n =x ,(x ≠ 0) Example 3
= x =x
x y
n 2
7) x m =m√ x n Example x 3 =√3 x 2

[Link]. Exponential function

An exponential function is a function composed of constant base a and a variable exponent x .
That is,
x
y=a , Where a> 0
Note that an exponential function is basically different from a power function y=a x in which
the base x is the variable and the exponent a is the constant.
[Link]. The graph of exponential function
As usual we have to first list some chosen values of x with their corresponding values of y to
draw the graph of the exponential functions.
Example 8: Sketch the graph of the exponential function f ( x)=2x .
First construct a table for some values of x and y.
X -3 -2 -1 0 1 2 3
Y 1/8 1/4 ½ 1 2 4 8

Y
f(x) = 2x

(0,1)

Figure 3. The graph of the function f ( x)=2x .

Check Your Progress Exercise - 4
1. Simplify the power functions. a) y=x √ xb) y=x 2 √ x 5
5x
a
2. Simplify the exponential functions. a) y=a2 x (ax )b) y= 2x
a
1.5.2 Logarithmic Functions

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The inverse of an exponential function is called a logarithmic function. For a> 0 and a ≠ 1
x y
y=log a is equivalent to x=a
x
log a is read as "the logarithm of x to the base a."
The domain of the logarithmic function is the set of all positive real numbers and the range is
the set of all real numbers.
[Link]. The Natural logarithm
Corresponding to each positive number a there is a unique power b such that a=e b. The
power b is called the natural logarithm of a.
It is denoted by the symbol ln a (¿ log e a) : l = stands for "logarithm", and n for "natural".
b=ln a if and only if a=e b, Note that e lnx=x
[Link]. Common Logarithms
These are logarithms with base 10 and is denoted by log x=log 10 x , read as "the logarithm of
x to the base ten".Generally the exponential function y=a x ( a>1) tells us that for each
positive number y there corresponds a unique number x such that y=a x. x is called the
logarithm of y to the base a .
y x
x=log a if and only if y=a
In applied work because of the importance of the exponential function e x , natural logarithms
(logarithm with base e ) are frequently used.
[Link]. Properties of Logarithmic Functions
The properties of logarithmic functions will make the computation easier. The basic
properties are listed below. Let a be a number, a> 1, and let x and y be positive numbers.
[Link] a 1=0, Example: log 101=0
2. log a a=1Example: log 1010=log 2 2=1
3. log a xy =log a x + log a y Example:log 1010 x 100 =log 1010 +log 10100 =1+2=3.
y 5

4. log a x = y log a xExample: log log 22 =5 log log 22=5(1)=5

[Link]. The Graph of Logarithmic Function
As usual, we need to construct a table by carefully selecting values of x that will help us find
the logarithmic values. The graph of log a x ( for a>1) is shown below.

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X
As x increases, the value of y also increases. As x becomes closer and closer to zero, y gets
larger and larger negative values. Note that when x is equal to one y=log a x will be zero. (it
crosses the x – axis)
1.6 Functions and Curves in Economic Theory
Economics is an analytical study concerned with the relations that exist or can be assumed to
exist between quantities that are numerically measurable. In this section, we will review
some of the functions and curves in economics.
a) Demand and Supply functions
Demand function shows that quantity demanded of a commodity is a function of those factors
affecting demand like its own price, consumer’s income, tastes and preferences, number of
consumers, price of other related commodities, consumer’s expectation about future price etc.
DX = f(Px, T, I, N, Po, E)
Similarly supply function describes that quantity supplied of a commodity depends on factors
like price of the same commodity, price of inputs, technology, number of producers,
government policies, market organization, producers expectation about future price, price of
other goods, weather and so on.
SX = f (Px, Pi, T, G, N, Po, E, M, W)
The normal condition of the demand function is that the demand curve is a monotonic
decreasing one and that of supply curve is a monotonic increasing.
DX = f (Px), Ceteris paribus
Mathematically, Q dx = a – bPx (a, b > 0)
Sx = f(Px), ceteris paribus
Mathematically, Qsx = -c + dPx (c, d > 0)
Demand and supply interaction is presented in the figure below

D S

At equilibrium Qd = Qs

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 a – bPx = -c + dPx
a + c = bPx + dPx = Px (b + d)
a+ c
Px= Where Px = is equilibrium price
b+d
Substituting the equilibrium price into either the demand or supply equations we get

Q=a−b ( b+a+cd )= ab+ ad−ab−bc

b +d
=
ad−bc ad−bc
b+ d
=
b +d
ad −bc
Q= is equilibrium quantity.
b+ d
Note that the demand and supply equations or curves can be non-linear.
b) Production Function
Production function refers to the relationship (physical) between inputs and factors services
and outputs. It can be presented in different ways. One way is mathematical equation.
Two types of production function:
Short run production function
Q=f (x 1 , x 2 / x 3 … x n )
Where Q is the output and x 1 … . x n is inputs. In this case, the inputs x 3 … . x nare held constant.
Hence, a change in output is due to the change in x 1 and x 2 (the variable inputs).
Long run production function
Long run is a period of production sufficient to change all types of inputs. Hence, output
changes due to a change in all types of inputs.
Q=f ( x 1 , x 2 , x 3 … x n ) , x 1 … . x nAre all variable in this case.
c) Cost Function
This is a name given to the relationship between outputs and costs.
The total cost C of producing and a marketing x unit of a product depends upon the number of
units (x). So the function relating C and x is called Cost-function and is written as C = C (x).
The total cost of producing x units of the product consists of two parts
(i) Fixed Cost
(ii) Variable Cost i.e. C (x) = F + V (x)
Fixed Cost: The fixed cost consists of all types of costs that do not change with the level of
production. For example, the rent of the premises, the insurance, taxes, etc.
Variable Cost: The variable cost is the sum of all costs that are dependent on the level of
production. For example, the cost of material, labor cost, cost of packaging, etc.
C = c(x), where C is total cost, x is output

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Example 1:C (x)=4 x 2 +20 x+ 40. The total cost is a quadratic function of output x. For
instance if the level of output x is 10 units then total cost is equal to
2
4 (10) +20(10)+40=400 +200+40=640 birr .
In the short run costs are divided in to fixed and variable costs. In the above example the
fixed cost is 40 (which do not depend on the level of output) and the variable cost is 600.
Hence the total cost is the sum of fixed and variable costs. i.e. 600 + 40 = 640.
d) Revenue Function
The demand for a good x is represented by the two inverse functions x = f(p) where the
demand for a commodity x is expressed by its price and p = f(x) where p is a function of x.
The two are inverse functions. When the demand is x and the price is p, the product R=p . x
is called the total revenue.
Therefore R=p . f ( p)=x . f (x) is the total revenue function.
Example 2: The demand for a firm's product is 120 – P.
i) What is the revenue function?
R(x )= p . x =p (120 – p), since x=120 – p
2
¿ 120 p – p Revenue as a function of price Or
R(x )= p . x =(120 – x )x , since p = 120 – x from the demand equation
2
¿ 120 x – x , revenue as a function of demand
ii) What is the total revenue if x=100 units
2 2
R ( x )=120 x – x =120 (100 )−( 100) =2000 birr .
e) Profit Functions
It is the difference between the total revenue function and the total cost function of a firm.
Profit ( π ) =R (Q )−C (Q)Where R(Q) is the revenue function
C(Q) is the total cost function
Example 3: Suppose the firm has the following revenue and total cost functions
2
C ( Q ) =3 Q +Q+500
2
R(Q)=200 Q – Q
Find the profit function:

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π ( Q )=R( Q )−C ( Q )
π ( Q )=200 Q−Q 2 −( 3 Q 2 +10 Q +500 )
π ( Q )=200 Q−Q 2 −3 Q 2−10 Q −500
π ( Q )=−4 Q 2 +190 Q−500 is the profit function
Other types of functions in economics are: Utility, Production transformation, Consumption
and saving function etc.
f) Break-Even Point
Break-even-point is that value of x (number of units of the product sold) for which there is no
profit or loss. Such that at Break-Even point P ( x )=0
Or R ( x )−C ( x )=0i . e . R ( x ) =C ( x ) .
Example: A Company produced a product with Rs 18000 as fixed costs. The variable cost is
estimated to be 30% of the total revenue when it is sold at a rate of Rs. 20 per unit. Find the
total revenue, total cost and profit functions.
Solution: (i) Here, price per unit (p) = Rs. 20
Total Revenue R(x )= p . x =20. x where x is the number of units sold.
30 30
(ii) Cost function C ( x )=18000+ R ( x )=18000+ .20 x =18000+6 x .
100 100
(iii) Profit function P ( x )=R ( x )−C ( x )=20 x−18000−6 x=14 x−18000.

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