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Lecture Notes 5

This document provides an overview of differential calculus and its applications in business studies. It introduces the concepts of the first and second derivative, and how to use derivatives to find the maximum and minimum values of functions. Examples are provided to demonstrate how to calculate derivatives using formulas like the product rule, quotient rule, and chain rule. The key applications discussed are using derivatives to determine the production quantity that maximizes total revenue for a business.

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Joey Deprince
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73 views

Lecture Notes 5

This document provides an overview of differential calculus and its applications in business studies. It introduces the concepts of the first and second derivative, and how to use derivatives to find the maximum and minimum values of functions. Examples are provided to demonstrate how to calculate derivatives using formulas like the product rule, quotient rule, and chain rule. The key applications discussed are using derivatives to determine the production quantity that maximizes total revenue for a business.

Uploaded by

Joey Deprince
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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BB202 BUSINESS MATHEMATICS

LECTURE 5
CALCULUS AND ITS APPLICATION IN BUSINESS STUDIES

51

Introduction to Differential Calculus

5-1-1

First Derivative

The major use of differential calculus is to maximize profit or


minimize cost in a companys operation.
The main objective of differential calculus is to compute the
gradient of a line or curve and the rate of change of a variable
with respect to the other.
The gradient of a linear function ( straight line ) is the same at
every point of the line. The gradient is given by

m in the

expression y mx c .
However, gradients at every point of a curve are different at
different point of the curve. A curve can be a quadratic
function, cubic function or quartic function.
To find the gradient at a specific point of a curve, we need to
differentiate the function of the curve. Another name for the
process is to find the derivative of the curve.
Basic formula for differentiation is given below:

If y ax n

then

dy
nax n1
dx

If there are many terms in the function combined with addition


or subtraction, we need to differentiate each term and combine
them later.

If y f1 ( x ) f 2 ( x) ...... f n ( x )

then

dy dy
dy
dy

f1 ( x )
f 2 ( x) ......
f n ( x)
dx dx
dx
dx

Example 1:
Find the gradient of the curve y 3x 2 at the point of x 1 .

Example 2:
Find the gradient of the curve y 2e 3 x at the point of x 2 .

Example 3:
Find the gradient of the curve y 2 x 2 3 x 5 at the point of x 3 .

5-1-2Second derivative
In the application of business and economics, the differential
calculus is often used to find the value

x of the function when

the derivative of the function is equal to zero. That is the point


where its gradient is equal to zero and it corresponds to a
relative maximum point, relative minimum point or point of
inflexion. The relative maximum point and the relative
minimum points are called points of extrema.
To determine if a point with gradient equal to zero is a
maximum point, minimum point or point of inflexion, we need
to find the second derivative of the function.
If the second derivative is a negative value, it means the
gradient of the curve is reducing with respect to the distance
from the origin. The change leads to the maximum point. On
the contrary, if the second derivative is a positive value, it
means the gradient of the curve is increasing with respect to
the distance from the origin. The change leads to the minimum
d2y
point. Second derivative is denoted as
or f ' ' ( x) .
dx 2

Example 4:
1
3

A profit function is expressed as c ( x ) x 3 4 x 4 where

x is in

tens of units and c ( x) is in hundred of dollars. Find the


maximum value of production.
Solution
To find the point of extrema, we need to differentiate the
function and let it equals to zero:
c ' ( x) x 2 4

For c' ( x ) 0,

x2 4 0

x 2 or 2.

Now we need to determine the nature of the point of extrema:


c ' ' ( x ) 2 x

For x = - 2, c ' ' (2) 4


For x =

2, c ' ' ( 2) 4

It is a minimum point.
It is a maximum point.

We are looking for a maximum point for a profit function.


This occurs when x = 2 ( 20 units )
1
3

If x = 2, c (2) ( 2) 3 ( 4)(2) 4
=

28
3

= 9.34 ( 934 )

Profitability Analysis
Example 5:
The demand function of a product is given as f ( x ) 1.3 x 10.4 .
Find the quantity of product to be manufactured which
maximizes total revenue. (x is in 100 units and y is in RM1000
units).
Solution
The revenue function is
Total revenue = Price * Quantity
R(x) = (-1.3x + 10.4)*(100x)
R(x) = -1300x2 + 1040x
To find the points of extrema, we need to differentiate the
revenue function and let it equal to zero so that the
corresponding x value can be evaluated.
R(x) = -2600x + 10,400
To let R ' ( x) 0 ,

-2600x + 10,400 = 0

x 4 ( 400 units )

But we are not sure if x 4 is a relative maximum or minimum


point.
To determine the nature of the point of extrema, we need to
perform second derivative on the revenue function:
R(4) = -2600

Since R(x) < 0, it is justified that x 4 is a relative maximum


point. That means x = 400 units gives the maximum revenue
throughout the function.
To find the maximum revenue, substitute quantity = 400 into
the revenue function:
R ( 4) 1.3( 4) 2 10.4( 4)

= 20.8
= RM 20,800
5.2

Product Rule
If f(x) = g(x)h(x),
where g(x) and h(x) exist, then
f(x) = h(x)g(x) + g(x)h(x)

Example 6:
Find the first derivative of these functions below:

5.3

(a)

f(x) = 2x(3x2 2)

(b)

f(x) = (x + 3)(4x2 + 2x)

(c)

y = (x2 + 3x 2)(2x2 x 3)

(d)

y = 2xe4x

Division Rule
If y = f(x) = g(x) / h(x), where g(x) and
h(x) exist, then
f(x) = h(x)g(x) g(x)h(x)
[h(x)]2

Example 7:
Differentiate these functions with respect to x:

5.4

(a)

y = (3x 2) / (4x + 1)

(b)

y = 4 / x2

(c)

y = (8x2 2x + 1) / (x2 5x)

(d)

y = e4x / (1 + e2x)

Chain Rule
If y = f(u), where u = g(x), then
y(x) = dy/dx = (dy/du)(du/dx)

Example 8:
Determine the dy/dx:
(a)

(b)

y = (1 + x)4
y = (3 + x3)4

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