BBA 114: Business Mathematics &

Statistics

Exponential and Logarithmic Functions

Before that …

Let revise the quadratic functions

Revision question on quadratic function
A company produce a single product under the following cost situation;
Total cost , C in Quantity Produced
GHS000 and sold in hundreds
3 2
13 3
29 4

Assuming the cost function of the company is quadratic and that the product
is sold at a selling price of GHS43 per unit.
Required
(a) Derive the cost function of the company, in terms of quantity produced
and sold.
(b) Derive the profit function of the company in terms of quantity produced
and sold.
(c) How many units of the products must be produce and sold to maximise the
company profit and hence find the maximum profit of the company.
Exponential and Logarithmic Functions

• Exponential Functions
• Logarithmic Functions
• Application of Exponential and
Logarithmic functions to business
Exponential Function - definition
• Exponential function is defined by
f ( x)  b x (b  0, b  1)
with base b and exponent x.

Can you give examples???

• The domain of f is the set of all real numbers while
the range is the set of all positive real
numbers

• Exponential function when graphed shows

…
Exponential Functions - graph

y
4
f(x) = 2x

f(x) = (1/2)x

x
–2 2
Examples – Exponential Graph
• Sketch the graph of the exponential function f(x) = 2x.
Solution
• Now, consider a few values for x:
x –5 –4 –3 –2 –1 0 1 2 3 4 5
y 1/32 1/16 1/8 1/4 1/2 1 2 4 8 16 32

• Note that 2x approaches zero as x decreases without bound:

– There is a horizontal asymptote at y = 0.
• Furthermore, 2x increases without bound when x increases
without bound.
• Thus, the range of f is the interval (0, ).
 Examples – Exponential Graph
• Finally, sketch the graph:

y
4
f(x) = 2x

x
–2 2
 Examples
• Sketch the graph of the exponential function
f(x) = (1/2)x.
Solution
• Now, consider a few values for x:
x –5 –4 –3 –2 –1 0 1 2 3 4 5
y 32 16 8 4 2 1 1/2 1/4 1/8 1/16 1/32

• Note that (1/2)x increases without bound when x

decreases without bound.
• Furthermore, (1/2)x approaches zero as x increases
without bound: there is a horizontal asymptote at y = 0.
• As before, the range of f is the interval (0, ).
 Examples
• Finally, sketch the graph:

y
4

f(x) = (1/2)x

x
–2 2
 Examples
• Note the symmetry between the two functions
sketched so far; that is

y
4
f(x) = 2x

f(x) = (1/2)x

x
From the two graphs
The exponential function y = bx (b > 0, b ≠ 1) has
the following properties:
1. Its domain is (– , ).
2. Its range is (0, ).
3. Its graph passes through the point (0, 1)
4. It is continuous on (– , ).
5. It is increasing on (– , ) if b > 1 and decreasing
on (– , ) if b < 1.
Exponential Function - Rules
Let a and b be positive numbers and let x
and y be real numbers. Then,
1.
b x  b y  b x y
bx
2.  b x y

by
b 
x y
3.  b xy

 ab 
x
 a xb x
4.
x
a ax
   x
5. b b
 Examples
• Let f(x) = 22x – 1. Find the value of x for which
f(x) = 16.
Solution
• We want to solve the equation
2x – 1 4
2 = 16 = 2
• But this equation holds if and only if
2x – 1 = 4
giving x = 5/2 .
 Exponential function with base e
• Consider the expression
x
x  1
1  
 x
1 2

10
(
2.59374246
• as x gets increasingly
1
+
larger. As we can see from
100 2.704813829
1 the table, the values
/ approach a number whose
x
1000 2.716923932
)
approximation is 2.718
^
10000 2.718145927
x

1000000 2.718280469
 Exponential function with base e
x
• Leonard Euler first demonstrated that  1
1  
 x
will approach a fixed constant call “e”.

Exponential functions to the base e, where

e is an irrational number whose value is
2.7182818…, play an important role in
both theoretical and applied business
problems.
It can be shown that
m
 1
e  lim  1  
m
 m
 Examples
• Sketch the graph of the exponential function
f(x) = ex.
Solution
• Since ex > 0 it follows that the graph of y = ex is
similar to the graph of y = 2x.
• Consider a few values for x:
x –3 –2 –1 0 1 2 3
y 0.05 0.14 0.37 1 2.72 7.39 20.09
 Examples
Sketching the graph:

y
5 f(x) = ex

x
–3 –1 1 3
 Examples
• Sketch the graph of the exponential function
f(x) = e–x.
Solution
• Since e–x > 0 it follows that 0 < 1/e < 1 and so
f(x) = e–x = 1/ex = (1/e)x is an exponential
function with base less than 1.
• Therefore, it has a graph similar to that of y =
(1/2)x. Consider a few values for x:
x –3 –2 –1 0 1 2 3
y 20.09 7.39 2.72 1 0.37 0.14 0.05
 Examples
• Sketching the graph:

y
5

1
f(x) = e–x
x
Logarithmic Functions

y y = ex y=x

y = ln x

1
x
1
 Logarithmic Function
• The function defined by
f ( x )  log b x (b  0, b  1)

is called the logarithmic function with base

b.
• If x = by then, y = logbx
 Examples
• Solve log3x = 4 for x:
Solution
• By definition, log3x = 4 implies x = 34 = 81.
 Examples
• Solve log164 = x for x:
Solution
• log164 = x is equivalent to 4 = 16x = (42)x = 42x,
or 41 = 42x, 2x  1
from which we deduce that x  1
2
Properties of Logarithmic Functions

• The logarithmic function

y = logbx(b > 0, b ≠ 1)
has the following properties:
1. Its domain is (0, ).
2. Its range is (– , ).
3. Its graph passes through the point (1, 0).
4. It is continuous on (0, ).
5. It is increasing on (0, ) if b > 1
and decreasing on (0, ) if b < 1.
 Logarithmic Notation

log x = log10 x Common logarithm

ln x = loge x Natural logarithm
 Laws of Logarithms
• If m and n are positive numbers, then
1.
log b mn  logb m  logb n
m
2. log b  log b m  log b n
n
3. log b m n  n logb m

log b 1  0
4.
log b b  1
5.
 Examples
• Use the properties of logarithms to solve the
equation for x:
log 3 ( x  1)  log3 ( x  1)  1
x 1
log 3 1 Law 2
x 1
x 1 1 Definition of
3 3 logarithms
x 1
x  1  3( x  1)

x  1  3x  3

4  2x
x2
 Examples
• Expand and simplify the expression:
x2 x2  1 x 2 ( x 2  1)1/2
ln  ln
e x
ex
 ln x 2  ln( x 2  1)1/2  ln e x
1
 2 ln x  ln( x 2  1)  x ln e
2
1
 2 ln x  ln( x 2  1)  x
2
 Examples
• Use the properties of logarithms to solve the
equation for x:log x  log(2 x  1)  log 6
log x  log(2 x  1)  log 6  0
x (2 x  1)
log 0 Laws 1 and 2
6
x (2 x  1) Definition of
 100  1
6 logarithms

x (2 x  1)  6
2 x2  x  6  0
(2 x  3)( x  2)  0 3
x is out of
2
x2 the domain of log x,
so it is discarded.
 Example
• Sketch the graph of the function y = ln x.
Solution
• We first sketch the graph of y = ex.
y y = ex y=x
 The required graph is
the mirror image of the
graph of y = ex with
respect to the line y = x:
y = ln x

1
x
1
 Properties Relating
Exponential and Logarithmic Functions

• Properties relating ex and ln x:

eln x = x (x > 0)
ln ex = x (for any real number x)
 Examples
• Solve the equation 2ex + 2 = 5.
Solution
5
e x 2   2.5
2

ln e x  2  ln 2.5
( x  2) ln e  ln 2.5
x  2  ln 2.5
x  2  ln 2.5
x  1.08
 Examples
• Solve the equation 5 ln x + 3 = 0.
Solution

5ln x  3
3
ln x    0.6
5

eln x  e 0.6
x  e 0.6
x  0.55
Application of exponential and logarithmic function
in business

1. Interest theory
2. Population growth
Interest theory
• Main areas of interest theory to cover includes
1. Simple Interest
2. Compounding interest
3. Continuous compounding

• Simple Interest
This is a basis of computing interest where the interest
earned over a period of time is proportional to the length
of the period of the investment.
Under this basis, interest earned on investment is not
reinvestment hence, interest on investment does not earn
any interest
Interest theory
• Simple Interest
• Thus, the AV on investment under simple interest is
linear with i being the linear constant and is given as;
AV = P(1+rt)

Example
A person invested GHS2,000 for 3 years at simple
interest. The rate of interest is 8% per annum.
Write the amount function for this investment
What are the interest earn for years 1 and 2?
What is the accumulated amount at the end of year 3?
Interest theory
• Simple Interest

• Money doubles in 10 years at a simple interest

rate of i per annum. Determine i.

• John deposits GHS100 at a simple interest rate

of i per annum. At the end of 10 years, he has
GHS150 in his account. Kweku deposits GHS200
at a simple interest rate of 2i per annum. How
much is in her account at the end of 20 years?
Interest theory
Compound Interest
This is a basis of computing interest where the interest earned
grows exponentially with the length of the time of the investment.

Under this basis, interest earned on investment is reinvested

hence, interest on investment does earn interest subsequently.

It is given by
Interest theory
Compound Interest

Example
What is the accumulated value of GHS1,537 at the end of 8 years
at an annual interest rate of 7%?

GHS10,250 accumulates to GHS23,237 in 13 years. What is the

annual interest rate?

How long does it take money to double if it is compounded at an

annual interest rate of 5%?
 
 Examples - Compound Interest

How much money will you have if you invest GHS4000 in a bank for
sixty years at an annual interest rate of 9%, compounded monthly?

Investment A earns a nominal rate of interest of 12% compounded

monthly whereas Investment B earns a nominal rate of interest of 12.2%
compounded semiannually. Which investment will you select if you
wish to earn more interest?
?
Continuous Compound Interest
As interest is compounded more frequently, we can
apply the exponential function
 

k rt
 1  
 P  1   
 k  
Call it “e”
Continuous Compound Interest

Note that here the exponent is “ rt ”,

NOT “ mt ” as in the earlier formula.
 Example - Continuous Compounding Interest
If you invest GHS500 at an annual interest rate
of 10% compounded continuously, calculate
the final amount you will have in the account
after five years. When will your investment
doubles in value?
 Obj… Take Away
• A company has won a mineral concession at Cape three
point in the Western Region of Ghana. There are limited
mineral reserves at the extraction location. The current
rate of extraction is 45 million tonnes of minerals a year,
with all mined material being used up by manufacturing
industry. This extraction rate is expected to increase at 3%
per annum. Total estimated reserves are 1,200 million
tonnes. When will the minerals be expected to run out if
the 3% growth rate continues?

• 20 years B. 21 years C. 22 years D. 23 years

Effective Interest Rate – the actual annual interest rate that takes into account the
effects of compounding.
Compounding n times per year:

Continuous compounding:

Which is better, to receive 9.5% (annual rate) continuously compounded or 10% (annual rate)
compounded 4 times per year?
Continuous compounding Compounding 4 times per year
𝑟 𝑒 = 𝑒𝑟 − 1
𝑟 𝑒= 𝑒 0.095 − 1
𝑟 𝑒=0.1074=10.74 %
Present Value – the initial principal invested at a specific rate and time that will
grow to a predetermined value.
Compounding n times per year:

Continuous compounding:

How much money do you have to put in the bank at 12% annual interest for five years (a)
compounded 6 times per year and (b) compounded continuously to end up with $2,000?

Compounding 6 times per year Continuous compounding

P
𝑃=2000 𝑒− 0.12∙ 5
 Example

What rate of interest (a) compounded monthly and (b) continuous compounding is required to
triple an investment in five years?

𝐶𝑜𝑚𝑝𝑜𝑢𝑛𝑑𝑒𝑑 𝑀𝑜𝑛𝑡h𝑙𝑦 𝐶𝑜𝑛𝑡𝑖𝑛𝑢𝑜𝑢𝑠𝐶𝑜𝑚𝑝𝑜𝑢𝑛𝑑𝑒𝑑

( )
𝑛 ∙𝑡
𝑟
𝐴= 𝑃 ∙ 1+
𝑛
𝐴= 𝑃 𝑒𝑟 ∙𝑡
3 𝑃 = 𝑃 𝑒𝑟 ∙ 5
3 𝑃 = 𝑃 ∙ ( 1+
12 )
12∙5
𝑟
3 =𝑒 𝑟 ∙ 5
𝑙𝑛 3=𝑙𝑛𝑒𝑟 ∙5
3 =( 1 +
12 )
60
𝑟
𝑙𝑛 3=5 𝑟
𝑟
𝑙𝑛 3
√ 3 =1 +
60 𝑟=
12 5
𝑟 =0.2197=21.97 %
12 √ 3=12+𝑟
60

12 √ 3 −12=𝑟
60

𝑟 =0.2217=22.17 %
 Applied Example: Assembly Time
• A Company produces a single product for the
Ghanaian market. The training department determines
that after completing the basic training program, a
new, previously inexperienced employee will be able
to assemble Q (t )  50  30e 0.5t

quantity of products per day, where t months after the

employee starts work on the assembly line.
a. How many units can a new employee assemble per day after
basic training?
b. How many units can an employee with three month of
experience assemble per day?
c. A worker produces 80 units per day, how long has this
worker been working?
 Applied Example: Production
• Owing to continuous improvements in technology
and efficiency in production, an empirical study
found that, the quantity demanded of a factory’s
output of a product Q in relation to the price (p) is
determined by the function;

• If the factory is willing to supply 80 units of the

products, determine equilibrium price of the
product?
 Applied Example: Growth of Population
• The population in a particular geographical
area grows according to
Q (t )  Q0e kt

where Q0 denotes the population initially

present, k is a constant determined by the
strain population under consideration, and t is
the elapsed time measured in years.
• Suppose a country currently have a
population of 1 million but grows to 3 million
in two years later. Estimate the population in
the country after four years
 Applied Example: Depreciation
• An office equipment was purchased for GHS20,000 and
is assumed to be depreciated at 10% per annum on it
purchase value. Assuming the equipment is
depreciated using the reducing balance method
• Write an equation that relate the value (V) of the
equipment to the life (t) in years, of the machine.
• Using the equation in (i), what is the value of the
equipment after 8 years of usage.
• When will the machine value reach 10% of it initial
cost?
 End of
Chapter