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Applications of Derivation

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Sugandhi SAAD
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8 views4 pages

Applications of Derivation

Uploaded by

Sugandhi SAAD
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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APPLICATIONS OF DERIVATION / DERIVATIVES

Marginal concept is concerned with variation of y on the margin. That is, it is the variation on
y corresponding to a very small variation in x, where x is the independent variable and y is the
dependent variable.
Δ𝑦
Suppose ∆x ix a small variation in x and ∆y is the corresponding variation in y. Then Δ𝑥 when
∆x is very small is the marginal value of y with respect to x. for example, if ‘C’ stands for total
dC d𝑦
cost and ‘x’ stands for the quantity produce, then will represent the marginal cost. can
dx dx
also be considered as the rate of change of y with respect to x. for example, if we take y as the
d𝑦
total utility and x as the consumption then will represent the rate of change in total utility
d𝑥
(y) if consumption (x) changes by small amount.
Application in Economics
1. Marginal Cost (MC)
Marginal cost is the change in the total cost for each additional unit of production.
d𝐶
MC = Δ𝑥 where ‘C’ is the total cost and x is the quantity of production.

2. Marginal Revenue (MR)


Marginal Revenue is the change in the Total Revenue for each additional unit of sales.
d𝑅
MR = d𝑥 where ‘R’ is the total revenue and x is the quantity of sales.
3. Marginal Productivity (MP)
Marginal productivity is the change in the total productivity for each additional unit of
output.
d𝑃
MP = d𝐿 where P is the output and L is the input
4. Marginal Utility (MU)
Marginal Utility is the change in the total utility for each additional unit of the
commodity purchased.
d𝑈
MU = d𝑥 where ‘U’ is utility and ‘x’ is the quantity of commodity purchased.
5. Marginal Rate of Substitution (MRS)
Marginal rate of substitution is the rate at which the consumer is prepared to exchange
one commodity for another. Marginal rate of substitution of x for y is the slope of units
of y to be given up in the exchange for an additional unit of x.
6. Elasticity
Elasticity of the function f(x) at the point x is defined as the rate of proportionate change
in f(x) per unit proportionate change in x.
Price Elasticity of Demand – price elasticity of demand is the proportionate change in
quantity demanded to proportionate change in price.
proportionate change in quantity demanded
Price Elasticity of Demand = proportionate change in price

Marginal quantity demanded


Price elasticity of demand = Average quantity demanded
dq p
Price elasticity of demand = - dp ÷ q
Where, q is the demand and p is the price
Price Elasticity of Supply – The relative change in supply in response ti a relative
change in price is elasticity of supply.
p dq
Price Elasticity of supply = - q dp

7. Maximum and Minimum of Functions


Maximum - a function f(x) is said to be maximum at x = a if f(x) increases up to x = a
and begins to decrease from x = a.
Minimum – a function f(x) is said to be minimum at x = b id f(x) decreased up to x =b
and begins to increase from x = b
Conditions for Maxima and Minima
A function f(x) is said to be maximum at x = a, if,
fꞌ (a) is zero and

fꞌꞌ(a) is negative.
A function f(x) is said to be minimum at x = b, if,
fꞌ(b) is zero and
fꞌꞌ(b) is positive

Maximum and Minimum Values of a Function


If a function is maximum at x = a and minimum at x = b then Maximum value of the function
is f(a) and minimum value of the function is f(b)
To find maximum and minimum of functions, following are the steps.
1. Find fꞌ(x) and fꞌꞌ(x)
2. Take fꞌ(x) as zero
3. Solve the equation fꞌ(x) = 0. Then we may get one or more values of x
4. Put one by one all these values in fꞌꞌ(x)
5. For the values of x which make fꞌꞌ(x) negative, function is maximum.
For the values of x which make fꞌꞌ(x) positive, function is minimum.
6. To find the maximum and minimum values of the function, substitute the respective
values of x in f(x).

NUMERICALS
1. Cost function of a firm is given by C = x (x2 – 2). Find Marginal Cost when the
production is 2 units.
Total Cost = C = x (x2 – 2) = x3 – 2x
dC d
Marginal Cost = MC = d𝑥 = d𝑥(x3 – 2x) = 2x2 – 2
2. Total revenue function of a firm is given by R = 21x – x2. Find the marginal revenue
when 10 units are sold
Total Revenue TR = 21x – x2
d𝑇𝑅
Marginal Revenue = = 21 – 2x
d𝑥
When 10 units are sold, x = 10
Marginal Revenue = 21 – 2x = 21 – (2*10) = 21 – 20 = 1

3. The demand function of a monopolist is p = 15 – 2x and the cost function is


C(x) = x2+2x. find the (1) Marginal Cost (2) Marginal Revenue (3) Equilibrium output
(4) Equilibrium prices (5) Average cost when the output is 4 units

1. Cost function = C = x2 + 2x
dC
Marginal Cost = d𝑥 = 2x + 2

2. Total Revenue TR = quantity * price = xp


Total Revenue = x (15 – 2x) = 15x – 2x2
d𝑇𝑅
MR = = 15 – 4x
d𝑥

3. At equilibrium, MC = MR
MC = 2x + 2
MR = 15 – 4x
2x + 2 = 15 – 4x
2x + 4x = 15 – 2
6x = 13
x = 13/6
equilibrium output = 13/6 units

4. P = 15 – 2x
Substituting x = 13/6
P = 15 – 2*(13/6)
13 45−13 32
P = 15 – (13/3) = 15 − = =
3 3 3
32
Equilibrium price = Rs.
3

C(x) 𝑥 2 + 2x
5. Average Cost = = =𝑥+2
x x

27
4. Find the elasticity of demand for the demand function q = 𝑃3
27
q = 𝑃3 = 27 p-3
𝑑𝑞 −81
= (27*-3) P-4 =
𝑑𝑝 𝑃4
𝑝 𝑑𝑞
Elasticity of demand = - 𝑞 𝑑𝑝
𝑃 −81 𝑃×𝑃 3 −81
Elasticity of demand = - 27 × = ×
𝑃4 27 𝑃4
𝑝3

= 3 units

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