Application to Economics

Guided Notes for this lecture

Setting up mathematical models for business models is an important skill to be able to determine what factors influence the product sales. In order to begin setting up accurate models we need to make sure we are all on the same page about the terminology and how we talk about these factors mathematically . We start by considering what a cost functions represents in these discussions.

Next we will look at revenue as a function and discuss what that means in this context.m.

Now that we have definitions and understanding of cost and revenue we can talk about the most frequently used model in business, profit!

With our understanding of the key functions of economics (business), we can now start to look at how we can analyze these models mathematically in order to understand what they tell us at any given moment in time.

Another important model that we will consider is the model of depreciation, which is helpful to model the value of an asset over time.

In the bigger context of the free market, we must also consider external factors that could impact our models. The two key mechanisms that we need to understand as the ideas and interactions of supply and demand.

Putting the previous ideas into practice, we can start to determine information mathematically from our supply and demand models that will help us make decisions within the market.

At the end of this section you should be able to answer the following questions:

1. What are the key parts and ideas about cost, revenue, and profit?
2. What do the various parts of the supply and demand model tell us matheamtically and practically?
3. What role does quantity play in each of the types of models above?

Check Your Understanding
You should try these problems before reviewing the solutions to these non-graded practice problems.