Economic applications exercises

Ecuation systems
1.- A businessman has three machines that are used in the manufacture of four different
products. To fully use the machines, they will be in operation 8 hours a day. The
number of hours that each machine is used in the production of each of the four products
is given by

Product 1 Product 2 Product 3 Product 4

Machine 1 1 2 1 2
Machine 2 2 0 1 1
Machine 3 1 2 3 0

For example, in the production of one unit of product 1, machine 1 is used for 1 hour,
machine 2 is used for 2 hours, and machine 3 is used for 1 hour. Find the number of
units that must be produced of each of the 4 products in a full 8-hour day.
Solution: Let x i be the number of units of product i that must be produced during the 8
hours with i = 1, 2, 3 and 4.

1 x 1 : It is the number of daily hours that machine 1 is used in the manufacture of

product 1.
2 x 2 : It is the number of daily hours that machine 1 is used in the manufacture of
product 2.
1 x 3 : It is the number of daily hours that machine 1 is used in the manufacture of
product 3.
2 x 4 : It is the number of daily hours that machine 1 is used in the manufacture of
product 4.

Since machine 1 must be used 8 hours a day, then we have to

Proceeding in a similar way for machines 2 and 3 we obtain the following systems of

linear equations

Applying Gauss-Jordan elimination we arrive at the equivalent system

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Where from,

Each x i is non-negative because it represents the number of units manufactured of

product i each day, therefore x i < 0 does not make sense.

If we assume that a complete number of units are produced, then x i must also be an
integer so that all x i , are non-negative x 4 must be an integer less than or equal to 2, and
therefore the possible solutions are

x1 x2 x3 x4
Solution 1 4 2 0 0
Solution 2 3 1 1 1
Solution 3 2 0 2 2

For example, solution 1 means that in one day for the machines to be fully used, 4 units
of product 1, 2 of product 2 and none of products 3 and 4 must be produced.

To solve a problem that involves systems of linear equations, the following must be
taken into account:

1. Understand the problem.

2. Determine the known data.
3. Name the unknowns appropriately according to what is requested.
4. Establish the existing relationships between the known data and the unknowns.
5. Determine the system of linear equations associated with the relationships in 4.
6. Solve the system of linear equations resulting in 5.
7. Verify that the answers obtained agree with the problem.
8. Interpret the result if possible.

2.-

Traffic flow analysis.

Suppose we have a network of one-way streets in a city. We want to analyze the traffic
flow on each of the streets. The direction of traffic on each of the streets is given in the
following figure.

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Counters have been placed in several places, and the average number of cars that pass by
each of them in the period of 1 hour also appears in the figure. Variables
They represent the number of cars per hour that pass from intersection A to intersection
B, from intersection B to intersection C, etc.

We first determine the possible values of each x i . Assuming there are no stops in
traffic, the number of cars arriving at an intersection must equal the number of cars
leaving the intersection. Based on this assumption we obtain the following system.

(traffic flow at intersection A).

(traffic flow at intersection B).
(traffic flow at intersection C).
(traffic flow at intersection F).
(traffic flow at intersection E).
(traffic flow at intersection D).

Applying the Gauss-Jordan method we arrive at the equivalent system

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Since the x i are the number of cars per hour from one intersection to another, negative
values for the x i are not allowed, since since the streets are in one direction, a negative
value of x i is interpreted as the number of cars that they go in the opposite direction.
With this restriction we have
, that is to say, . Likewise, , that is to say,
.
Now suppose that the street that goes from D to E is going to be under repair, so traffic
in this space is required to be minimal. This brings us to x 7 = 50. Therefore x 2 = 500
and x 5 = 0. Conversely, if x 5 = 0, we have x 7 = 50, then, if we close the road between
C and D we will have the minimum possible traffic between D and E. The flows
and They are not uniquely determined. If the entire distance from D to F
were under repair, we would require that was minimal, that is, zero. In this case x 1 =
50, x 3 = 750 and x 4 = 650.

3.-
Input-Output Leontief Models.
Suppose an economic system has n distinct industries , each of which has
input needs (raw materials, facilities) and an output (finished products). The input
coefficient d ij measures the amount of input that the jth industry requires from the ith
industry to produce one unit: The collection of input coefficients is given by the
following n x n matrix. Units are measured in “dollar amounts.”

Supplier
User

This matrix is called input – output matrix. To understand how to use this matrix,
imagine that the elements of They are given in dollars. For example, if d 12 = 0.41,
then $0.41 of the value of industry 1's product must be used to produce one dollar's
worth of industry 2's product. The total amount spent by the jth industry to produce a
dollar's worth of output is given by the sum of the elements in the jth column.
Therefore, for this model to work, the values of d ij must be such that and the

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sum of the elements in any column must be less than or equal to 1.
The closed Leontief model can be applied to n industries and its basic properties are:
1. The matrix D has components d ij , where
2. The sum of the components of any column is 1.
3. The equilibrium condition is satisfied, that is, that expenses due to consumption are

equal to income due to sales.

4.-
Suppose that a simple economy has three industries that are dependent on each other,
but do not depend on external industries (the closed Leontief model holds).

The industries are: agriculture, construction and clothing. The fraction of each product
that each industry consumes is given by:

Agriculture Construction Clothing

Agriculture

Consumption Construction

Locker room

Production
The d ij component denotes the fraction of goods produced by people working in
industry j and consumed by people working in industry i .

For example means that the clothing industry consumes of total agricultural
production.

Suppose that the income of the agriculture, construction and clothing industry is
and respectively. Determine the income of each sector of the economy.

Solution:

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This system is equivalent to the system

Using Gauss-Jordan elimination we can solve this system

The system corresponding to this last matrix is

doing , t is a non-negative real.

So any solution it is of the form Therefore there are infinite solutions,
however the income of the agriculture, construction and clothing industry is in the ratio
4:3:4.

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5.-
An investor tells his stockbroker that all his shares are in three companies Delta, Hilton
and McDonald's and that two days ago their value fell $350 but yesterday it increased
$600. The broker remembers that two days ago Delta's stock fell by $1 per share and
Hilton's by $1.50, but that McDonald's' stock price rose by $0.50. Also remember that
yesterday Delta's stock price went up $1.50 per share, Hilton's went down another $0.5
per share, and McDonald's went up $1.0 per share. Show that the broker does not have
enough information to calculate the number of shares the investor owns in each
company, but that if he says he has 200 shares in McDonald's, the broker can calculate
the number of shares he has in Delta and Hilton.

Solution:

Let x D be the number of shares in Delta company.

x H the number of shares in the Hilton company.

x M the number of shares in the McDonald's company.

By applying the Gauss-Jordan method we can solve the system

The stockbroker does not have enough information to determine the number of shares
that the investor has in each company, since the system has more unknowns than
equations.

The system corresponding to the last matrix is

If it is known that the investor has 200 shares in McDonald's, i.e. then the

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solution of the system is

6. A traveler who just returned from Europe spent $30 a day in England, $20 a day in
France, and $20 a day in Spain for lodging. On food he spent $20 a day in
England, $30 a day in France and $20 a day in Spain. Their additional expenses
were $10 a day in each country. The traveler's records indicate that he spent a total
of $340 on lodging, $320 on food, and $140 on incidentals during his trip to these
three countries. Calculate the number of days the traveler spent in each country or
show that the records must be incorrect because the amounts spent are not
compatible with each other.

7. To control a certain plant disease, three chemicals are used in the following
proportions: 10 units of chemical A, 12 units of chemical B, and 8 units of chemical
C. Brands X, Y and Z are commercial atomizers sold on the market. One gallon of
brand X contains chemicals A, B and C, in the amount of 1, 2 and 1 units
respectively. One gallon of brand Y contains the chemicals in the amount of 2, 1
and 3 units respectively; and a gallon of brand Z contains them in the amount of 3,
2 and 1 units respectively. How much of each brand should be used to fumigate the
plant with the exact amounts of chemicals required to control the disease?

8. The following diagram reproduces a one-way street network with traffic flowing in
the indicated directions. The number of cars is given as the average number of cars
per hour. Assuming that the flow arriving at an intersection is equal to the flow
leaving it, construct a mathematical model of the traffic flow. If the street that goes
from C to A were under repair, what would be the minimum traffic that could be
allowed? How could this minimum be obtained?

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9. A transportation firm owns three different types of trucks, A, B, and C. The trucks
are equipped to transport 2 classes of heavy machinery. The number of machines
of each class that each truck can transport is

Trucks

Type A Type B
Type C
Class 1 2 1 1
Machines
Class 2 0 1 2

The firm secures an order for 32 class 1 machines and 10 class 2 machines. Find the
number of trucks of each type required to fulfill the order, assuming that each truck
must be fully loaded and the exact number of machines ordered is the one that must
be shipped. If the operation of each type of truck has the same cost for the firm,
what is the most economical solution?

10. Suppose that a simple economy has four industries: agriculture, construction,
clothing, and transportation, and that the conditions of the closed Leontief model
are satisfied. The inputs and outputs are given by the following matrix.

Agriculture Construction Locker room Transport

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 Agriculture

Construction

Locker room

Transport

Assume that income to the agriculture, construction, clothing, and transportation

industries is and
respectively. Assume that the equilibrium condition is met, and determine the income
of each sector of the economy.

11. A refinery produces gasoline with and without sulfur. Each ton of sulfur-free
gasoline requires 5 minutes in the mixing plant and 4 in the refining plant. For its
part, each ton of gasoline with sulfur requires 4 minutes in the mixing plant and 2 in
the refining plant. If the blending plant has 3 hours available and the refining plant
has 2, how many tons of each gasoline must be produced so that the plants are used
to the maximum?
12. An industrialist produces two types of plastic: regular and special. Each ton of
regular plastic needs 2 hours in plant A and 5 in plant B; Each ton of special plastic
needs 2 hours in plant A and 3 in plant B. If plant A has 8 hours a day available
and plant B 15 hours a day, how many tons of each type of plastic can be
manufactured daily so that the plants operate at full capacity?

13. A dietician is preparing a diet that consists of foods A, B, and C. Each ounce of
food A contains 2 units of protein, 3 units of fat, and 4 units of carbohydrates.
Each ounce of food B contains 3 units of protein, 2 units of fat, and 1 unit of
carbohydrate. Each ounce of food C contains 3 units of protein, 3 units of fat and 2
units of carbohydrates. If the diet must provide exactly 25 units of protein, 24 units
of fat, and 21 units of carbohydrates, how many ounces of each meal are needed?

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