1. The first row in figure 1.1 that has a 1 as its output requires that x=0, y=1, z=0. If x=0 then ~x=1. So for this row in the truth table ~x=1, y=1, ~z=1, so anding them together results in 1. ~x y ~z will only be 1 for this combination of inputs.
The other two and terms work similarly.
These terms that generate 1 for the required rows are ored together so that the function will output 1 if and only if one of the row selecting and terms has detected its correct combination of inputs.
2. For n input variables, the truth table will have 2n rows. Since there are two choices for the output value for each of these 2n rows, the number of combinations is 2(2n).
--Mark
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