1) The document discusses demand, supply, and total revenue functions in economics. It states that demand and supply functions relate price (p) to quantity demanded (D) and supplied (S) as p = g(D) and p = g(S), where traditionally price is the dependent variable.
2) It provides examples of linear and quadratic demand functions like p = 3 + 5D and p = 7D + D2. Similarly for supply functions like p = 3 + 2S and p = 4S + S2.
3) Total revenue is defined as price times quantity (R = pD). The document works through an example problem to derive the total revenue function from a given demand function
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Lecture 2 Functions in Economics I.pdf
1. Functions in Economics
1) Demand function:
Let p denotes the price of a good and D its demand.
The word demand function means we should expect that
the demand D is a function of price p and written as D = f(p). This
is mathematical convention, but in actual economics ( since days
of Marshall) price p is considered as a function of the demand D
and still called the demand function and write it as p = g (D).
e.g. 1) p = 3 + 5D
2) p = 7D + 𝐷2 are the demand functions.
2. Functions in Economics Contd…
2) Supply function:
Let p denotes the price of a good and S its Supply.
The word supply function means we should expect that the supply S is a
function of price p and written as S = f(p). This is mathematical convention, but in
actual economics ( since days of Marshall) price p is considered as a function of
the supply S and still called the Supply function and write it as p = g (S).
e.g. 1) p = 3 + 2S
2) p = 4S + 𝑆2 are the supply functions.
3. Functions in Economics Contd…
3) Total Revenue Function (R):
Total Revenue = (Price ) X ( Demand quantity)
i.e. Total Revenue Function is the product of Price ‘p’ and Demand ‘D’.
i.e. R = pD.
Ex.: The demand function of a commodity is given by p = 18 + D - 𝐷2
. Find the total
revenue function and also find the total revenue when D = 2.
Soln.: here The demand function is p = 18 + D - 𝐷2 Total Revenue Function R = p X D
= (18 + D- 𝐷2)D
= 18D + 𝐷2- 𝐷3