Which of the following functions best describes this graph?

The values of two houses (in thousands of dollars)

Find

A) the nature of the function, linear or exponential, that can be used to model the value after x years

B) the actual function f(x) that can be used in each case

C) f(25) for each house. Is there a significant difference?

Solution

A) The oddball numbers give you a clue immediately that the value of house 1 will be best modeled by an exponential function.

The value of house 2 is increasing steadily at 9,000 per year, so is modeled by a linear function.

B) The ratio of values from a given year to the year before for house 1 is

... 294.58/286 = 1.03

A check for other years reveals the same ratio, so the exponential function can be written for house 1 as

... f(x) = 286·1.03^x . . . . . value of house 1

In part A we determined the year-to-year difference in value for house 2 is 9,000. That is the slope of the linear function. Then (in thousands), that function is

... f(x) = 286 +9x . . . . . value of house 2

C) After 25 years, the house values are (in thousands of dollars)

The value of house 1 has more than doubled in the same time that the value of house 2 has increased by about 79%. This is a significant difference.

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An exponential function will always outperform a linear function over a long enough time period.