An Introduction To Business Decision Modelling

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An Introduction To Business Decision Modelling

• Chen Zhimin(???)
• School of Management
• Shenzhen University
• Office ???2403
• Tel [phone](O) 13902972552(Mobile)
• Email chenzm_at_szu.edu.cn

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1. The Structure of Linear Models

• The general expression for a straight line
• yabx
• y and x dependent /independent variables of
  interest
• a and b constants, coefficients, parameters
• a Intercept--- yab(0)a
• b Slope (Gradient)
• bthe change in y/unit change in
  x
• ?y/ ?x

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• Example y32x
• Intercept a3
• Slope b?y/ ?x2
• Shifts of a straight line
• Changes in the intercept
• y72x
• y-22x
• Changes in the slope
• y35x
• y31x

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• Two fundamental types of shifts of straight line
• Parallel shift changes in the intercept
• Pivotal shift changes in the slope

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Break Even Analysis

• A company/firm
• Make a single product
• Capacity 150
• Price 20
• Fixed cost 500
• Variable cost 15
• Find Break-Even Point

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• Production Potential
• 0-150 units
• Revenue Consideration
• Total Revenue(TR)
• TRpq
• p ----selling price/unit
• q ----quantity sold
• Example TR020q (comparison with yabx)
• Average Revenue(AR)
• ARTR/qpq/qp

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• Marginal Revenue(MR)
• MR(the changes in TR)/(a unit changes in q)
• ?TR/ ?q
• Cost Considerations
• Fixed Cost(FC)
• Irrespective of how many units of output are
  produced annual rental charges, management
  cost,..
• Total Variable Cost(TVC)
• TVCVCq
• VC variable cost per unit labour/material
  payment

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• Total Cost(TC)
• TCFixed Cost Total Variable Cost
• FCVCq
• Example TC50015q
• (compared with yabx)
• Average Cost(AV)
• AVTC/q
• Marginal Cost(MC)
• MC ?TC/ ?q

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• Break Even Analysis
• Diagram 1.4
• System of linear equations
• TR020q
• TC50015q
• TRTC (Break Even)
• Break Even Solution
• To scan Table 1.2
• To read Diagram 1.4
• To solve the system of linear simultaneous
  equations

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• The rule to write the system of linear equations
• The unknowns have been written in a specific ,
  consistent order in each equation
• All terms involving unknowns have been taken to
  the Left Hand Side (LHS) of each equation
• All constants are taken to the Right Hand Side
  (RHS) of each equation
• The coefficients of each unknown are carefully
  identified in each equations, including 0 and 1

1TR0TC-20q0 0TR1TC-15q500 1TR-1TC- 0q0
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