HOLIDAY HOMEWORK 2021-

22

APPLICATION OF
MATRICES IN BUSINESS
AND ECONOMICS
MADE BY:
-ANSHIKA GARG (12 H1)
CONTENT

Application Of
Application Of
Introduction Matrix Addition
Multiplication
And Subtraction

Application Of
Leontief’s Input
System Of Bibliography
Output Model
Linear Equation
 INTRODUCTION
What is a Matrix?
 A matrix is a two-dimensional arrangement of numbers in rows and columns
enclosed by a pair of square brackets ([ ]), in the form shown below.

The above figure shows an m × n matrix of m rows and n columns.

 Matrices are used to describe linear equations, keep track of the coefficients of
linear transformations and to record data that depend on multiple parameters. They
can be added, multiplied, and decomposed in various ways, which also makes
them a key concept in the field of linear algebra.
But first, let’s discuss how various situations in business and
economics can be represented using matrices. This can be done
using the following examples.

1.1Annual productions of two branches selling three types of items may be

represented as follows:

Branch Item A Item B Item C

I    

II      
1.2.Number of staff in the office can be represented as follows:

  Peon
  Clerk
  Typist
  Head Clerk
Office
Superintend
  ent
1.3The unit cost of transportation of an item from each of the three factories to
each of the four warehouses can be represented as follows:

  Warehouse
Factory W1 W2 W3 W4
I
     
II        

III        
 Applications of Matrix Addition and
Subtraction
 The applications of addition and subtraction of matrices can be illustrated through
the following examples:
 
Illustration 1 - The quarterly sales of Jute, Cotton and Yarn for the year 2002 and
2003 are given below. Year 2002
QI Q2 Q3 Q4

Jute 20 25 22 20

10 20 18 10 
A= Cotton
Yarn
 
15 20 15 15 

Year 2003
QI Q2 Q3 Q4

Jute
Cotton
B= Yarn
A+B = + =
Applications of Matrix Multiplication
 
It is important to note that two matrices can be multiplied if and only if the
number of columns of the first matrix equals the number of rows of the
second. The resultant matrix will have the number of rows equal to the first
matrix and number of columns equal to that of the second matrix.
 
In other words,
 A matrix of the order [a x b] can only be multiplied with a matrix of order [b
x c]
 The resultant matrix will be of the order [a x c]
The application of multiplication of matrices can be illustrated through the following
examples.
 
Illustration 3 – Ram,
Shyam and Mohan purchased biscuits of different brands P, Q and R. Ram
purchased 10 packets of P, 7 packets of Q and 3 packets of R. Shyam purchased 4 packets
of P, 8 packets of Q and 10 packets of R. Mohan purchased 4 packets of P, 7 packets of Q
and 8 packets of R. If brand P costs Rs 4, Q costs Rs 5 and R costs Rs 6 each, then using
matrix operation, find the amount of money spent by these persons individually.
 
Solution –
Let Q be the matrix denoting the quantity of each brand of biscuit bought by P, Q and R and
let C be the matrix showing the cost of each brand of biscuit.
P Q R
RAM

SHYAM
A=
MOHAN
 P

B= Q

Since number of columns of first matrix should be equal to the number of rows
of the second matrix for multiplication to be possible, the above matrices shall
be multiplied in the following order.

AX B =
X
 =

Amount spent by Ram, Shyam and Mohan is Rs 99, Rs 116 and Rs 99 respectively.
 
 
• Illustration 4- A firm
produces three products A, B and C requiring the mix of three
materials P, Q and R. The requirement (per unit) of each product for each material is as
follows.
P Q R

A
M = B
C

• Using matrix notations, find

(i) The total requirement of each material if the firm produces 100 units of each product.
(ii)The per unit cost of production of each product if the per unit cost of materials P, Q
and R is Rs 5, Rs 10 and Rs 5 respectively.
(iii) The total cost of production if the firm produces 200 units of each product.
 SOLUTION - :

The total requirement of each material if the firm produces 100 units of each
product can be calculated using the matrix multiplication given below.
P Q R
 2 3 1
A B C
[ 100 100 100 ] =
[4 2 5 P
2 4 2 ] Q
= [ 800 900 800]
R

Let the per unit cost of materials P, Q and R be represented by the 3×1 matrix as
under  1 5 1

[ ]
P 2 10 1
C=Q 4 5 1
R
• With the help of matrix multiplication, the per unit cost of production of each
product would be calculated as under

 2 3 1  1 5 1 A  1 45 1
AC =
[ 4
2
2
4
5
2 ][ 2
4
10
5
1
1 ] B
C
[ 2
4
65
60
1
1 ]
• The total cost of production if the firm produces 200 units of each product would
be given as

 1 45 1
[200 200 200] = [ 2
4
65
60
1
1 ] = [34,000]

Hence, the total cost of production will be Rs. 34,000.

• Illustration 5 - Mr. X went to a market to purchase 3 kg of sugar, 10 kg of wheat and 1 kg of salt. In a
shop near to Mr. X’s residence, these commodities are priced at Rs 20, Rs 10 and Rs 8 per kg whereas in
the local market these commodities are priced at Rs 15, Rs 8 and Rs 6 per kg respectively. If the cost of
traveling to local market is Rs 25, find the net savings of Mr. X, using matrix multiplication method.

• Solution –
Let matrices Q and P represent quantity and price. Then
Sugar Wheat Salt
Quantity Matrix = Q = [ 3 10 1]
Sugar

Price Matrix = P = Wheat

Salt

Therefore, Total Price = Q × P= [ 3 10 1] = [ 168 131 ]

Now,
Cost of purchasing from shop = Rs 168 and
Cost of purchasing from local market = Rs 131 + Rs 25 (Cost of travel) = Rs 156
 
Hence, net savings to Mr. X from purchasing through Local Market
= 168 – 156 = Rs 12
 APPLICATION OF SYSTEM OF
LINEAR EQUATION
The following examples can be used to illustrate the common methods of solving systems of linear
equations that result from applied business and economic problems.
Illustration 6 – Mr. X invested a par of his investment in 10% bond A and a part in 15% bond B. His
interest income during the first year is Rs 4,000. If he invests 20% more in 10% bond A and 10 % more
in 15% bond B, his income during the second year increases by Rs 500. Find his initial investment and
the new investment in bonds A and B using matrix method. 
Solution –
Let initial investment be x in 10% bond A and y in 15% bond B. Then, according to given information,
we have

Expressing the above equations in matrix form, we obtain

 A X B

This can be written in the form AX = B or X = A-1­ B 

Since | A | = -2 ≠ 0, A-1 exists and the solution can be given by:
X = A-1B

Hence x = Rs 10,000, y = Rs 20,000, and new investments would be Rs 12,000 and Rs 22,000 respectively.
Illustration 7 – An automobile company uses three types of steel s1, s2 and s3 for
producing three types of cars c1, c2 and c3. The steel requirement (in tons) for each
type of car is given below:
Determine the number of cars of each type which can be produced using 29, 13
and 16 tons of steel of the three types respectively.

Cars
  c1 c2 c3
   

s1 2 3 4

Steel s2 1 1 2

3 2 1
s3
Solution –
Let x, y and z denote the number of cars that can be produced of each type. Then we have

The above information can be represented using the matrix method, as under

The above equation can be solved using Gauss Jordan elimination method. By applying the operation R1 ↔ R2
the given system is equivalent to.

 
• Now applying R2 → R2 – 2R1 and R3 → R3 – 3R1, the above system is equivalent to

• Applying R3 → R3 + R2 the above system is equivalent to

Therefore, z = 4. Substituting y = 3 and z = 4 in (1), we get x = 2. Hence the solution is

x = 2, y = 3 and z = 4
 
Illustration 8 –­ A company produces three products everyday. Their total production on a certain day is 45 tons. It is
found that the production of the third product exceeds the production of the first product by 8 tons while the total
combined production of the first and third product is twice that of the second product. Determine the production
level of each product using Cramer’s rule.
 
Solution –
Let the production level of the three products be x, y and z respectively. Therefore, we will have the following
equations

Therefore, we have, using (1), (2) and (3)

Which gives us

Since ∆ ≠ 0, there is a unique solution

Therefore,
.
Hence, the production levels of the products are as follows:
First product - 11 tons
Second product - 15 tons
Third product - 19 tons
The Leontief Input-Output Model
• The Leontief Input-Output Model discusses the interdependence of industries on each other. Based
on the assumption that each industry in the economy has two types of demands: external demand
(from outside the system) and internal demand (demand placed on one industry by another in the
same system), the Leontief model represents the economy as a system of linear equations. The
Leontief model was invented in the 30’s by Professor Wassily Leontief who was awarded the
Nobel Prize in Economics in 1973 for his effort.
• There are two types of Leontief models, i.e. Closed and Open.
• Closed Input-Output Model
• Consider an economy consisting of n interdependent industries (or sectors) S1,…,Sn. That means
that each industry consumes some of the goods produced by the other industries, including itself
(for example, a power-generating plant uses some of its own power for production). We say that
such an economy is closed if it satisfies its own needs; that is, no goods leave or enter the system.
Let mij be the number of units produced by industry Si and necessary to produce one unit of
industry Sj. If pk is  the production level of industry Sk, then mij pj represents the number of units
produced by industry Si  and consumed by industry Sj . Then the total number of units produced by
industry Si is given by:
+p2mi2+…+p1mi1pnmin.
In order to have a balanced economy, the total production of each industry must be equal to its total
consumption. This gives the linear systemIn order to have a balanced economy, the total production of each
industry must be equal to its total consumption. This gives the linear system

then the above system can be written as AP = P, where

A is called the input-output matrix.
We are then looking for a vector P satisfying AP = P and with non-negative components, at least one of which is
positive
Illustration 9 - Suppose that the economy of a certain region depends on three industries: service, electricity and oil
production. Monitoring the operations of these three industries over a period of one year, we were able to come up with
the following observations:
1.      To produce 1 unit worth of service, the service industry must consume 0.3 units of its own production, 0.3 units
of electricity and 0.3 units of oil to run its operations.
2.      To produce 1 unit of electricity, the power-generating plant must buy 0.4 units of service, 0.1 units of its own
production, and 0.5 units of oil.
3.      Finally, the oil production company requires 0.3 units of service, 0.6 units of electricity and 0.2 units of its own
production to produce 1 unit of oil. 
Find the production level of each of these industries in order to satisfy the external and the internal demands assuming
that the above model is closed, that is, no goods leave or enter the system.
Solution
Consider the following variables:
1.      p1= production level for the service industry
2.      p2= production level for the power-generating plant (electricity)
3.      p3= production level for the oil production company
Since the model is closed, the total consumption of each industry must equal its total production. This gives the following
linear system:
The input-output matrix is

and the above system can be written as (A-I)P = 0. Note that this homogeneous system has infinitely many
solutions (and consequently a nontrivial solution) since each column in the coefficient matrix sums to  The
augmented matrix of this homogeneous system is
which can be reduced to

To solve the system, we let p3 = t (a parameter), then the general solution is

and as we mentioned above, the values of the variables in this system must be nonnegative in order for the
model to make sense. In other words, t ≥ 0.  Taking t=100 for example would give the solution 
 Open Input-Output Model

• The first Leontief model treats the case where no goods leave or enter the economy, but in reality this does
not happen very often. Usually, a certain economy has to satisfy an outside demand, for example, from
bodies like the government agencies. In this case, let di be the demand from the ith outside industry, pi, and
mij be as in the closed model above, then

for each i. This gives the following linear system (written in a matrix form):

where P  and A are as above and

is the demand vector.

• One way to solve this linear system is

• Of course, we require here that the matrix I-A be invertible, which might not be always the case.
If, in addition, (I-A)-1 has nonnegative entries, then the components of the vector P are
nonnegative and therefore they are acceptable as solutions for this model. We say in this case that
the matrix A is productive.
Illustration 10 - Consider an open economy with three industries: coal-mining operation, electricity-generating plant
and an auto-manufacturing plant. To produce Re 1 of coal, the mining operation must purchase Re 0.1 of its own
production, Rs 0.30 of electricity and Re 0.1 worth of automobile for its transportation. To produce Re 1 of electricity,
it takes Rs 0.25 of coal, Rs 0.4 of electricity and Rs 0.15 of automobile. Finally, to produce Re 1 worth of automobile,
the auto-manufacturing plant must purchase Rs 0.2 of coal, Rs 0.5 of electricity and consume Rs 0.1 of automobile.
Assume also that during a period of one week, the economy has an exterior demand of Rs 50,000 worth of coal, Rs
75,000 worth of electricity, and Rs 1,25,000 worth of autos. Find the production level of each of the three industries
in that period of one week in order to exactly satisfy both the internal and the external demands.
Solution
The input-output matrix of this economy is

and the demand vector is

Now, using the equation

Where

Using the Gauss Jordan elimination technique, we find that

Which gives

So, the total output of the coal-mining operation must be Rs 229921.59, the total output for the electricity-
generating plant is Rs 437795.27 and the total output for the auto-manufacturing plant is Rs 237401.57.
 • 
• Business Mathematics’ by S. K.
Singh and J. K. Singh, Brijwasi
Book Distributors and Publishers
BIBLIOGRAPHY
• ‘Mathematics for Business
Studies’ by Dr. J. K. Thukral,
Mayur Paperbacks
 THANK YOU
BY ANSHIKA GARG(12-
H1)