APPM1004 — Revision Lectures 1

Revision Lecture # 19
Applications of Integration

Outcomes of this lecture

After studying this lecture and practising examples,

1.) given a demand price function and a supply price function, you will be able to:

ˆ find the point of equilibrium, and use the definite integral to evaluate

ˆ the consumers’ surplus and

ˆ the producers’ surplus.

2.) Given the marginal revenue function and the marginal cost function for a business, you
will be able to

ˆ determine the point at which the profitability of the business changes, and use the
definite integral to determine

ˆ the total profit over the profitable period of the business,

ˆ the total loss over the unprofitable period of the business,

ˆ the net profit/loss over a given period of time.

Pre-knowledge and Skills

You will need to be completely familiar with

1.) the concepts of demand, supply and equilibrium.

2.) finding the points of intersection of two graphs.

3.) the rules of integration from Lecture 15,16 and 17.

4.) evaluating a definite integral.

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Revision Lecture # 19
Applications of Integration

ˆ Consumers’ and Producers’ surplus.

Given a demand function, p = d(x) and a supply function p = s(x) where p is the unit
price of a commodity and x is the quantity supplied and/or demanded, then

◦ Equilibrium occurs at the intersection of the two graphs of p = d(x) and p = s(x).

◦ At the point of equilibrium, (x , p) = (xe , pe ), the amount demanded, xe is equal

to the amount supplied at the equilibrium price of pe .

◦ The Consumers’ Surplus is equal to the area between the demand curve d(x), and
the horizontal line given by y = pe , over the interval [ 0 , xe ].

Z xe
◦ Consumers’ Surplus = [ d(x) − pe ] dx where d(x) is the demand function,
0
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Revision Lecture # 19
Applications of Integration

◦ The Producers’ Surplus is equal to the area between the horizontal line given by
y = pe and the supply curve s(x), over the interval [ 0 , xe ].

Z xe
◦ producers’ surplus = [ pe − s(x) ] dx where s(x) is the supply function.
0

◦ General Notes:

* In the case that the table of integrals, substitution or parts are required to
integrate the price function, the terms under the integration sign must be
separated.
Z xe Z xe Z
CS = [ d(x) − pe ] dx = d(x) dx − pe dx
0 0
Z xe Z xe Z xe
PS = [ pe − s(x) ] dx = pe dx − s(x) dx
0 0 0

Z xe x e
* Since pe is a constant, pe dx = pe x = pe (xe ) − pe (0) = pe · xe .
0 0

* Take care when substituting zero into the integral of the price function, it
may not be zero!
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Revision Lecture # 19
Applications of Integration

ˆ Example 1
The demand and supply functions for a commodity are respectively,
108 15x
p(x) = and p(x) = ,
x+5 x+1
where p(x) is the unit price of the commodity in rands, and x is the quantity supplied
or demanded.
Calculate the consumers’ surplus and producers’ surplus for this commodity, rounded
to the nearest cent.

Step 1.

◦ Find the point of equilibrium by equating the demand price to the supply
price.
108 15x
=
x+5 x+1

⇒ 108(x + 1) = 15x(x + 5)

⇒ 108x + 108 = 15x2 + 75x

⇒ 15x2 + 75x − 108x − 108 = 0

⇒ 3(5x2 − 11x − 36) = 0

p
11 ± 112 − 4(5)(−36)
Using the quadratic formulax =
2(5)

⇒ x=4 and x = −1, 8

◦ Since x represents a quantity of a commodity, it cannot be negative.

◦ Therefore the equilibrim quantity is x = 4.

◦ Find the equilibrium price from either of the given price functions.
108
p(4) = = 12.
4+5
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Revision Lecture # 19
Applications of Integration

Step 2. Z 4
108
Evaluate: Consumers’ surplus = − 12 dx
0 (x + 5)

Z 4 Z 4 Z 4
108 108
− 12 dx = dx − 12 dx
0 (x + 5) (x + 5)
|0 {z 0
}
separate the terms

Using substitution with u = x + 5 and du = dx,


for the quotient term only, y

Z 4  4
108
= du − 12x
0 (u) 0
4
= 108 ln(u) − 12x
0
4
= 108 ln(x + 5) − 12x
0
   
= 108 ln(4 + 5) − 12(4) − 108 ln(0 + 5) − 12(0)

 
= 108 ln(9) − ln(5) − 12(4) + 0 = 15, 4809 . . .

⇒ CS = R15, 48 rounded to the nearest cent.

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Revision Lecture # 19
Applications of Integration

Step 3.

Z 4
15x
Evaluate Producers’ surplus = 12 − dx
0 x+1

Z 4 Z 4 Z 4
15x x
12 − dx = 12 dx − 15 dx
0 x+1 0 x+1
|0 {z }
separate the terms

The second term requires N0. 11 from the Table of Integrals

Z
x x b
dx = − 2 · ln |ax + b| + c
ax + b a a
with a = 1 and b = 1
Z 4  4  4
x x 1
⇒ 15 dx = 15 − · ln |x + 1| = 15 x − ln |x + 1|
0 x+1 1 12 0 0

Z 4 Z 4  4  4
15x
∴ 12 dx − dx = 12x − 15 x − ln |x + 1|
0 0 x+1 0 0
 4
= 12x − 15x + 15 ln |x + 1|
0
   
= 12(4) − 15(4) + 15 ln |5| − 12(0) − 15(0) + 15 ln |1|

= 12, 1415 . . . − 0 (ln(1) = 0)

⇒ P S = R12, 14 rounded to the nearest cent.

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Revision Lecture # 19
Applications of Integration - Profit and Loss

ˆ Profit and loss.

◦ Profit = Revenue - Cost therefore,

given a marginal revenue function, R0 (t), and a marginal cost function, C 0 (t),

P 0 (t) = R0 (t) − C 0 (t).

and

◦ R0 (t) > C 0 (t) ⇒ P 0 (t) > 0 ⇒ total profit, P (t), is increasing.

◦ R0 (t) < C 0 (t) ⇒ P 0 (t) < 0 ⇒ total profit, P (t), is decreasing.

◦ The definite integral of [ R0 (t) − C 0 (t) ] gives the exact change in total profit.
Z t1 Z t1
0 0
R (t) − C (t) dt = P 0 (t) dx
t0 t0

t1
= P (t)
t0

= P (t1 ) − P (t0 ) = ∆P

= Total change in profit as t = t0 increases to t = t1 .

◦ If ∆P > 0 a profit has been made.

◦ If ∆P < 0 a loss has been made.

◦ Net Profit/Loss = Total profit - Total loss

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Revision Lecture # 19
Applications of Integration - Profit and Loss

ˆ Break Even and Profitability

◦ A business is unprofitable if R0 (t) < C 0 (t) and profitable if R0 (t) > C 0 (t).

◦ If an unprofitable business becomes profitable, this occurs at a point where

R0 (t) = C 0 (t) known as the ”break even” point.

◦ If a profitable business becomes unprofitable the point at which R0 (t) decreases

to equal C 0 (t) is not a break-even point.

◦ In the graph below, there is a break-even point at t = b because R0 (t) < C 0 (t) for
t < b ; R0 (b) = C 0 (b) and R0 (t) > C 0 (t) for t > b .

ˆ R0 (t) < C 0 (t) on [ a , b ],

Z b
∴ [R0 (t) − C 0 (t)] dt = the total loss made from t = a to t = b.
a

ˆ R0 (t) > C 0 (t) on [ b , c ],

Z c
∴ [R0 (t) − C 0 (t)] dt = the total profit made from t = b to t = c.
b

ˆ Profit − Loss = Net Profit/Loss.

Z c
∴ [R0 (t) − C 0 (t)] dt represents the net profit/loss made from t = a to t = c.
a
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Revision Lecture # 19
Applications of Integration - Profit and Loss

ˆ Example 3
Given the marginal revenue and marginal cost functions,

R0 (t) = t + 3t1/2 and C 0 (t) = t1/2 + 8,

in thousands of rands per month, where t is the number of months since the start of
business, then

1. calculate the net profit during the first year of business using the definite integral,

2. find when the business breaks even ie. the point at P 0 (t) changes from nega-
tive(loss) to positive(profit),

3. calculate the total loss over the non-profitable months of the business,

4. and calculate the profit over the profitable months of the business during the first
year.

ˆ Solution and Answers

Z 12
1. Net Profit/Loss during the first year = R0 (t) − C 0 (t) dt ( t = months).
0
Z 12 Z 12
0 0
R (t) − C (t) dt = t + 2t1/2 − 8 dt
0 0
 12
1 2 4 3/2
= t + t − 8t
2 3 0
   
1 2 4 3/2 1 2 4 3/2
= (12) + (12) − 8(12) − (0) + (0) − 8(0)
2 3 2 3

= 31, 4256258 . . . thousand rands.

= A net profit of R 31 425, 62 rounded to the nearest cent,

−−−−−−−−−−−−−−−−−−−−→
was made during the first year of business.
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Applications of Integration - Profit and Loss

2. Break even occurs at a point t = t0 , when a loss is made for t < t0 and a profit
is made when t > t0 .
ie. P 0 (t0 ) = 0 ; P 0 (t) < 0 for t < t0 and P 0 (t) > 0 for t > t0 .

P 0 (t) = R0 (t) − C 0 (t) = 0

⇒ t + 2t1/2 − 8 = 0

⇒ (t1/2 + 4)(t1/2 − 2) = 0

⇒ t1/2 = −4 or t1/2 = 2


t1/2
Discard negative result   =−4

∴ t0 = 4

Test the sign of P 0 (t) for t < 4 and t > 4

◦ P 0 (3) = (3) + 2(3)1/2 − 8 = −1, 5 . . . < 0. There was a loss for t < 4.
◦ P 0 (5) = 5 + 3(5)1/2 − 8 = 1, 4 . . . > 0. There was a profit for t > 4.
◦ Break even occurred −
four
−−−−months
−−−−→ after the start of business.
3. The non-profitable months of the first year range from t = 0 to t = 4.
Z 4 Z 4
0 0
R (t) − C (t) dt = t + 2t1/2 − 8 dt
0 0
 4
1 2 4 3/2
= t − t − 8t
2 3 0
   
1 2 4 3/2 1 2 4 3/2
= (4) + (4) − 8(4) − (0) + (0) − 8(0)
2 3 2 3

= −13, 333 . . . thousand rands

Loss = |−13 333, 33 . . .| thousand rands
A loss of R13 333, 33 was made during the first four months.
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Revision Lecture # 19
Applications of Integration - Profit and Loss

4. The profitable months of the first year range from t = 4 to t = 12 .

Z 12 Z 12
0 0
R (t) − C (t) dt = t + 2t1/2 − 8 dt
4 4
 12
1 2 4 3/2
= t − t − 8t
2 3 4
   
1 2 4 3/2 1 2 4 3/2
= (12) + (12) − 8(12) − (4) + (4) − 8(4)
2 3 2 3

= (31, 4256258 . . .) − (−13, 333 . . .)

= 44, 758959 . . . thousand rands
A profit of R44 758, 96 rounded to the nearest cent,
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was made during the last eight months of the first year.

ˆ Verifying: Net Profit = Profit − Loss = R44 758, 96 − R13 333, 33 = R 31 425, 62.
APPM1004 — Revision Lectures 12

Revision Lecture # 19
Exercises

1. Given the demand function for a product,

p(x) = 36 − x2 ,

and the supply function for the product,

p(x) = 5x,

where p(x) is the price of the product (in rands per unit) and x in the number of units
of the product. Calculate (rounded to the nearest cent) the consumers’ and producers’
surplus.

2. Given the marginal cost function,

C 0 (x) = 5x rands per unit,

and the marginal revenue function,

R0 (x) = 6x − 7 rands per unit,

where x ≥ 0 is the number of units of the product that are produced and sold.
Determine when C 0 (x) ≥ R0 (x) and hence calculate the corresponding loss.

3. Given the marginal cost function,

C 0 (x) = 3x + 24 rands per unit,

and the marginal revenue function,

3
R0 (x) = 18x − x2 rands per unit,
2

where x ≥ 0 is the number of units of the product that are produced and sold.
Determine when R0 (x) ≥ C 0 (x) and hence calculate the corresponding profit.