Mathematical Methods for Economics: Integration of Functions

Discipline Courses-I
Semester-I
Paper II: Mathematical Methods for Economics: Preliminaries-I
Unit-IV
Lesson: Integration of Functions
Lesson Developer: Sanjeev Kumar
College/Department: Dyal Singh College, University of Delhi

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 Mathematical Methods for Economics: Integration of Functions

CONTENTS:

 1.0 Learning outcomes of the chapter

 1.1 Areas under curves

 Introduction
 Examples of area under curves
 Problem set and answers

 1.2 Indefinite integrals

 Introduction
 Basic rule of integration
 Some standard results of integration
 Some other results
 Examples of indefinite integral
 Problem set and answers

 1.3 Definite integral

 Introduction
 Steps of evaluating definite integral
 Some basic properties of definite integrals
 Examples of indefinite integral
 Problem set and answers

 1.4 Economic application of integration

 Introduction
 Economic application of integration with example

 References

1.0 LEARNING OUTCOMES OF THE CHAPTER

After completion of the present chapter, you should be able to;

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 Mathematical Methods for Economics: Integration of Functions

 Describe integration by using area under curve

 Evaluate an indefinite integral using an anti-derivative
 Describe an indefinite integral and its application
 Evaluate definite integrals and relationship between differentiation and integration
 Find the area between two curves by using definite integration.
 Understanding economic application of integration

1.1 AREA UNDER CURVES

 Introduction

There are two limiting processes of Calculus. First one is differentiation in which we
study about the tangent to the curve or rate of change in one variable due to change in
other variables. On the other hand, second one is integration, in which we study about the
area under curve integration can be defined as:

“Integration is the process of finding the function from it’s derivative and this function is
called the integral of the function”.

Basically, we use integration to find out area under a curve. We can also find the
area under curve by geometrically. However, concept of integration and differentiation do
not depend on geometry as analytically. A geometrical interpretation is used only to
understand intuitively.

Let y  f (x) be a
continuous and positive function
on the closed interval [a, b] in the
figure (1). We have to find the
area of given function on the
closed interval [a, b]. Now the
question is how do we compute
area (A) under the given graph.

Further, suppose A(x) is

the area that measures the area
under curve y  f (x) on the
closed interval [a, x]

It is clear from the given

figure (1) that;

A (a) = 0

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 Mathematical Methods for Economics: Integration of Functions

Because, there is no area from ‘a’ to ‘a’ and the total area can be defined as,

A= A(b)

Now, we suppose that ‘x’ increases by x amount. Then, A( x  x) is the area under
curve y  f (x) over the closed interval [a, x  x] , Hence, the required area is given by;

A( x  x)  A( x)

It is the area {A} under the curve y  f (x) over the closed interval [ x, x  x]
. Let,
 A be very small i.e. magnified and this area can not be exceed the area of rectangle with
edges x and f ( x  x) and cannot be lesser than area of the rectangle with edges x and
f(x). Hence, x  0 , then;

f (x)Dx £ A(x + Dx)- A(x) £ f (x + Dx)Dx

A( x  x)  A( x)
OR, f ( x)   f ( x  x)
x

If we take x  0 in the above equation then the interval [ x, x  x] shrinks to the
single point ‘x’ and the value f ( x  x) approaches f (x) . So, the function A ( x ) is
differentiable and it measures the area under the curve y  f (x) over the closed interval
[a, x] .Then, the derivative of the function is given by;

A '( x)  f ( x) {x  (a, b)}

This proves that the derivatives of the area function A ( x ) is a curve height function
{i.e. y = f (x)}

Now, suppose F (x) is another continuous function with the function y  f (x) as its
derivative;

Then, F ' ( x)  A '( x)  f ( x) x  (a, b)

d
Because,  A( x)  F ( x)  A '( x)  F '( x)  0
dx

It must also be true that,

A( x)  F ( x)  C {C is some constant}

If A(a) = 0, then

A (a) = F(a) +C = 0
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 Mathematical Methods for Economics: Integration of Functions

Or C = -F(a), put this value in above equation

A( x)  F ( x)  C  F ( x)  F (a){when, F '( x)  f ( x)}

At , x  b, then, A( x)  F (b)  F (a)

In short, the method for finding the area under the curve y  f (x) and its domain
(a,b) or above the x –axis from xa to x  b has following steps;

 Find an arbitrary function F(x),that is continuous over the interval (a, b) such that

F ( x)  f ( x) x  (a, b) ------------------- (i)

 Then the required area of the function is given by

A( x)  F (b)  F (a) -------------------------------(ii)

What happens, if the function y  f ( x ) has negative value in [a, b]. At this
condition, the required area is A( x )  [ f ( b )  F ( a )] . Further, we know that, the area
of a region is always positive. So A( x ) is also positive.

Example 1:

Find the area under the straight line y  f(x) x over the interval [0,1]

Solution:

We have to find the shaded area

(A) in the given figure. According to above
equation (i) and (ii) given above, we must
find a function, that has x as its
derivative.

Then,

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 Mathematical Methods for Economics: Integration of Functions

x2
F ( x) 
2
 d 1
 ( ax )  anx  x ,here ,n  2 & a  
n n 1

 dx 2

x
F ( x)  2 x
2

Thus, the required area is given by;

A  F (1)  F (0)

1 1
=  0  , This answer is reasonable.
2 2
Example 2:

Compute the area under the parabola; y  f ( x )  x2 over the interval [a, b]

Solution:

We have estimated the shaded

area A in the given figure (3).
According to equation (i) and (ii)
given above, we have to find a
function, that has x as its derivative.

Let,

1
F ( x)  x 3
3
1
Then, F '( x)  f ( x)   3x 2  x 2
3

Thus, the required area is given by

1 1
A  F (b)  F (a)  b3  a 3
3 3
1
A  b3  a 3 
3

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 Mathematical Methods for Economics: Integration of Functions

Example 3:

Compute the area ‘A’ under the

straight line y  f ( x)  ax  b over the
interval  , 
Solution:

Let, the shaded area under the straight line

be given by ‘A’, then from equations (i) and
(ii) given above, we get;

1  d 
F ( x)  ax2  bx  (ax n )  anx n1  ax  b 
2  dx 

1
Then, F' ( x )  .2ax  b.1
2
= ax  b
So, the required area A is given by

A  F (b)  F (a)
A  F (  )  F ( )

1 2 1
= a  b  a 2  b
2 2
1
= a(  2   2 )  b(    )
2

=      a(    )  2b 
 2 

Example 4: Find the shaded area ‘A’ of the function y  f ( x)  e x /3  3 over the closed
interval [0, 3 ln 3]

Solution: First we have to find the function F ( x ), whose derivative is e x / 3  3

By using the results of equation (i) and (ii) given above, we take the function,

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 Mathematical Methods for Economics: Integration of Functions

 d x x
F ( x )  3e x / 3  3 x  ( e )  e 
 dx 

Then, F' ( x )  f ( x )  ex / 3  3

So, the required area A is given by,

A = - [F(b) – F(a)]

= (3eln3  3  3ln 3  3e

= - (9-9 ln 3-3) = 9 ln 3-6 (ignore –ve sign)

 A = 3.89 units

Problem Set

1. Find the area under the graph of polynomial y  f ( x )  x3 over the interval [0,1]

1 x x
2. Find the bounded area of the graph of function y  f ( x)  (e  e ) over the
2
interval (-1,1)

3. Find the area under straight line, y  f ( x)  cx  d over the interval [o,1]

4. Compute the area under the parabola y  4 x2 over the interval [o,1]

Answer of the Problem Set

1  1
1. Area (A) = 2. Area (A) = e  
4  e

1 4
3. Area (A)= (ab) 4. Area (A)=
2 3

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 Mathematical Methods for Economics: Integration of Functions

1.2 INDEFINITE INTEGRALS

 Introduction

The previous section of the present chapter discusses the problem of finding an anti-
derivative of the function f(x) i.e. a function F( x ) whose derivative is f ( x ).

F' ( x )  f ( x )

Anti-derivative is an appropriate name. Usually in practice, we call F( x ) an

indefinite integral of f ( x ). It is denoted by the symbol  .

“If f(x) is the differential coefficient of function F ( x ),then F ( x ) is the integral

of f ( x )"

By symbolically, if
d
F ( x )  f ( x )
dx

Then,  f ( x )dx  F ( x )  C
Here ‘C’ is the constant term. We know that differentiation of constant term is zero.
If integral constant 'C' can take any value then the integral is called indefinite integral.

 Basic Rule of Integration

Power Rule: It is defined as;

1
 x dx  n  1 x C n  1 }
n n 1
{

x2
Example:  x dx  2  C
Exponential Rule: It is defined as;

 e dx  e C
x x

ax
And,  a dx  C {a 0&a 1 }
x

loge a

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 Mathematical Methods for Economics: Integration of Functions

e dx  e x  C
x
Examples:

1 ax
 e ax
dx  e C a  0
a
2x
  C
x
2 dx
loge 2

Logarithmic Rule: It is defined as;

1
 x  ln x  C
Example:

1
 t dt  ln t  C

 Some standard Results of Integration

 Constant multiple property

 af ( x )dx  a  f ( x )dx { a is the real constant}

 Integral of sum

  f ( x )  g( x )dx   f ( x )dx   g( x )dx

In general,

  a f ( x)  a
1 1 f ( x)  ......  an fn( x) dx  a1  f1 ( x)dx  a2  f 2 ( x)dx  ......  an  fn( x)dx
2 2

 Integral of Difference

 F ( x )  g( x )dx   f ( x )dx   g( x )dx

In general,

 [ a f ( x)  a
1 2 f ( x)  ......  an fn( x)]dx  a1  f1 ( x)dx  a2  f 2 ( x)dx  ..........  an  fn( x)dx

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 Mathematical Methods for Economics: Integration of Functions

 Integral of Multiplication

d
 f ( x) g ( x)dx  f ( x) g ( x)dx   [ dx
f ( x)  g(x)dx]dx

This property is also known as integration by part.

 Some other results

x 2
1
a 2

dx  log x  x 2  a 2  C 
x 2
1
a 2

dx  log x  x 2  a 2  C 
1 1  ( a  x) 
a 2
x 2
dx 
2a
log   C
 ( a  x) 

Example1:

( 5x  3 x 2  2 x  1 )dx
4
Find the integral

( 5x  3 x 2  2 x  1 )dx
4
Solution:

 5x dx   3x dx   2xdx   dx
4 2
=

= 5 x4 dx  3 x 2 dx  2 xdx   dx

x5 3.x3 x2
= 5  C1   C2  2  C3  x  C4
5 3 2

= x5  x3  x 2  x  C1  C2  C3  C4

=x
5
 x3  x 2  x  C C  C
1
 C2  C3  C4 

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 Mathematical Methods for Economics: Integration of Functions


( e   1 )dx
x
Example 2: Evaluate
x3
1
 (e   1)dx
x
Solution:
x3

 e dx   x dx   1dx
x 3
=

1
= e x  x 2  x  c
2
1
= ex   xc
2 x2

( x  1 )2  2 x 1 / 2
Example 3: Find the integral  x
dx

 ( x  1)2  2 x 1/2 
Solution:   x
dx


 x 2  2 x  1  2 x 1/2 
=  dx
 x1/2 

1
=  (x  2 x1/2  x 1/2  2 )dx
3/2

2 5/2 4 3/2
= x  x  2 x1/2  2ln x  c
5 3

x2
Example 4: Compute  x  1 dx

x2
Solution: Let,  x  1 dx

 x 2  1  1
= dx
 x  1 

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 Mathematical Methods for Economics: Integration of Functions

( x  1 )( x  1 )  1
=  ( x  1)
dx

1
=  ( x  1 )dx   ( x  1 ) dx

x2
=  x  log x  1  c
2

dx
Example5: Evaluate  xc  xd

dx
Solution: Let,  xc  xd

xc  xd )
= dx
( x  c  x  d )( x  c  x  d

xc  xd )
=  ( x  c )  ( x  d ) dx

1 1
=
(c  d )
 ( x  c )1 / 2 dx 
(c  d )
 ( x  d )1 / 2 dx

1 2 1 2
 ( x  c)3/2  ( x  d )3/2  c
(c  d ) 3 cd 3
2 1
 ( x  c)3/2  ( x  d )3/2   c
3 (c  d )

 ( 6 x  9 ) dx
8
Example 6: Find the integration

Solution: By using substitution method,

Let y  6x  9

1
Then, dy  6 dx or dx  dy
6

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 Mathematical Methods for Economics: Integration of Functions

1
 ( 6 x  9 ) dx  6  y dy
8 8
So, we get,

1 y9
= c
6 9

Now putting the value; y  6 x  9 ,then

1
 (6 x  9) dx  54 (6 x  9) C
8 9

 x2
Example 7: Evaluate  4  x 2 dx
 x2  x2  4  4
Solution: Let,  x 2  4 dx =  4  x2 dx
1
=  1dx  4  4  x2
dx

1 2 x
= x  4. log   c (by the formulae)
2 2  2  x 

2  x
= x  log  c
 2  x 

x e
2 2x
Example 8: Evaluate

Solution: Let, I   x 2e2x dx

By using the formulae for integration by part,

d 
I  x 2  e2 x dx    x 2  e2 x dx  dx
 dx 

e2 x 2 x.e2 x
 x2  dx
2 2

1 2 2x
= x e   xe 2 x dx
2

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 Mathematical Methods for Economics: Integration of Functions

1 2 2x  d 
= x e   x  e2 x dx    .x  e2 x dx  dx
2   dx 

1 2 2 x  xe 2 x e2 x 
= x e 
 2   1. 2 dx 
2  

1 2 2x  1 x 1 2x 
= x e   xe  e   c
2 2 4 

1 2 2x 1 2x 1 2x
= x e  xe  e  c
2 2 4

1 2x  2 1
= e x  x    c
2  2

1
Example 9: Find  4x 2
9
dx

1 1
Solution:  4x 2
9
dx =  ( 2 x  3 )( 2 x  3 ) dx
1 A B
Now, let;   ................(i )
(2 x  3)(2 x  3) (2 x  3) (2 x  3)

2 Ax  3 A  2 Bx  3 B
=
4 x2  9
2 x( A  B )  3( A  B )
=
4 x2  9
Now compare both sides of the equation; 2 x( A  B )  3( a  B )  1

Hence 2( A  B )  0 or A=-B and 3(A-B)=1 or B=-1/6 and A=1/6, now by equation (i)

1 1 dx 1 dx
 dx    
4x 2 9
6 2x  3 6 2x  3
1 1
 ln 2 x  3  ln 2 x  3  C
12 12
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 Mathematical Methods for Economics: Integration of Functions

Example 10: Calculate Q(L), where Q’(L) = 6L1/3 and Q(0) = 0

18 4 / 3
6 L dL  L c
1/ 3
Solution: Q(L) =
4
Given L=0, then Q(0)= 0+C or C=0

Then; Q(L) = 18/4L4/3

Problem Set

1. Find the integrals of the following:

A
( 4 x  9 x 2  2 x  2 )dx r
3
(i) (ii) 5/2
dr

 (3t  2t  et )dt x
2
(iii) (iv) x dx

1
 ( ax  b ) dx  a(   1 ) ( ax  b ) c
  1
2. Prove that,

1 x
3. Find the integration (i)  x 2
dx (ii)  2x 2
3
dx

4. Calculate (i) x x 2  1 dx , x  0 (ii)  x 3 x  2 dx

5. If the marginal cost of producing x units for a manufacture product is MC=C’=2x+4

then find total cost function C(x). Given, fixed cost = 40

1
 2(e  e x )dx
x
6. Evaluate

7. Given, f " ( t )  1 / t 2  t 3  2 t  0 and f(1)  0, f' (1)  1/4 then find f(t).

8. Prove that,

2
t at  b .dt = 2
( 3at  2b )( at  b )3 / 2  c
15a

 log x dx  x e dx
5 x
9. Find the integration (i) (ii)

10. Find the general form of the function f(x), whose third derivative is x and also given
f"(0 )  f '(0 )  f (0 )  0
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 Mathematical Methods for Economics: Integration of Functions

1 2x  1
11. Evaluate, (i) x 2
 a2
dx (ii)  ( x  1 )( x  2 )( x  3 )

Answers of Problem Set

1. (i) x4  3 x3  x 2  2 x  c
2A
(ii)  c
3r 3/2

(iii) t 3  t 2  et  c
2 5/2
(iv) x c
5

3. (i) 2[ x  2ln( x  2]  C

1
(ii) ln(2 x 2  3]  C
4

1
4. (i) ln( x 2  1)3/2  C
3

3
(iv) ( x  2 )4 / 3 ( 2 x  3 )  c
14

5. C( x )  x 2  4 x  40

1 x x 1 5
6. (e e ) 7. t t  log t
2 20

9. (i) x log x  x  c

(ii) x5ex  5x4 5ex  20 x3ex  60 x2ex  120 xex  120ex  c

1 4
10. x
24
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 Mathematical Methods for Economics: Integration of Functions

1 xa 1 3 7
11. (i) log c (ii)   
2a xa 12( x  a ) 5( x  2 ) 4( x  3 )

1.3 THE DEFINITE INTEGRAL

 Introduction

Let F( x ) be a continuous function over the interval [a, b] and it has a derivative
f(x) i.e.F' ( x )  f ( x )x ( a ,b ). Then the difference, F(b)-F(a), is called the definite
integral of function f ( x ) over the interval [a, b]. In the first section of the present
chapter, this difference, F(b)-F(a), does not depend on indefinite integrals. On the other
hand, definite integral of f(x) depends only on the function f(x) and its interval [a, b].
Definite integral can be written as;

b
 f ( x)dx  F ( x) ba  F ( x) a  F (b)  F (a)
b
a

where, F' ( x )  f ( x )x ( a ,b ) and the number ‘b’ and ‘a’ are the upper and
lower limits respectively.

 Steps of Evaluating Definite Integral

I  a f ( x )dx
b
Let

 first, find the indefinite integral,  f ( x )dx  F ( x )  c

 Substitute, x = b upper limit in this integral, i.e. F(b) +C
 Substitute, x = a lower limit in this integral i.e. F(a)+C
 Subtract, second {F(b)+c} from third {F(a)+C}

 a f ( x )dx  F ( x ) ba  F ( x ) ba  F ( b )  F ( a )
b


b
Example 1: Find, x dx
a

I  a x dx
b
Solution: Let

b
x2
I c
2 a

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 Mathematical Methods for Economics: Integration of Functions

 b2   a2 
=
2  c 
 2  c 
   

 b2 a 2  1 2 2
=
 2  2   2 (b  a )
 
 Some Basic Properties of Definite Integral

a F ( x )dx  b f ( x )dx

b a


c1, c2 [a, b]

b c1 c2 b
 a
f ( x)dx   f ( x)dx   f ( x)dx   f ( x)dx
b c1 c2

F( a )  F( a )  0
a
 a
f ( x)dx  0
b b b
 a
f ( x)dx   f ( y)dy   f ( z )dz
a a

 f ( x )dx 0 f ( x  a )dx

a a

0

 f ( x )dx 20 f ( x )dx

a a

a

d a( t )
  f ( x )dx  f ' ( t )  f { b( t )}.b' ( t )  f { a( t )}.a' ( t )
dt b( t )
 Every continuous function is integrable, if this function has an anti-derivative i.e.
F' ( x )  f ( x ), x ( a ,b )

1
 ( 2 x  x )dx
1
Example 2: Find
0

1
I  1 ( 2 x  )dx
2
Solution: Let
x
2
2 x2
=  log x
2 1

2
= x 2  log x 1

= [4 + log2]-[1+0]

= 3 + log 2

Example 3: Find the area of the parabola x2  4 by between x  axis and its
ordinate at x3
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 Mathematical Methods for Economics: Integration of Functions


3
Solution: The required area = ydx
0

x2  x2 
  y  
3
= dx
 4b 
0
4b
3
1  x3 
=
4b  3  0

1  27  9
  0 
4b  3  4b


4
Example 4: find
1
x  2 dx

Solution: Let

x  2 If x  2
x2 
 ( x  2 ) If x  2
4 2 4
Then  1
x-2 dx   ( x  2)dx   ( x  2)dx {By property of Integration)
1 2

2 4
  x2   x2 
=   2x    2x
 2 1  2 2

 4   1   16   4 
=   2  4     2  2      2  8    2  4  
        

3 5
= 2  0  2. 
2 2
Example 5: Find the area between the regions of parabola y  x2 and straight line y x
over the interval [-1,1]or ( x, y )x 2
 y  x

Solution: Given y  x2 and y x i.e.

yx or y  x
The required Area

= Area OAB + Area OCD

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 Mathematical Methods for Economics: Integration of Functions

= 2 *Area OAB

(Because, curve is symmetrical about the y axis)

2   xdx   x 2 dx 
1 1
=
 0 0 

 x2 1 x3 1 
= 2  
 2 0 3 0 

 1  1 
= 2   0     0  = 2/3 square units
 2  3 

 K  Qt

T
Example 6: Evaluate  e dt , where T> 0 and K and Q are positive constants.
0
T 

K
  T e
T Qt
Solution: Let W(T) = dt
O

K T
=
T O
eQt dt

T
K  e Qt 
T  Q  O
=

K
= (eQT )  (e ) 
TQ 

W(T) =
K
1  eQT 
TQ

Example 7: Find the area included between the two parabola i.e. y2  4 x and x2  4 y

Solution: Given, y 2  4 x & x2  4 y

Solving both, we get;

 x2 
   4x
4

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 Mathematical Methods for Economics: Integration of Functions

Or, x( x
3
 64 )  0

So, x  0&4

The required area = Area OBCD

4 x2 
   4 x   dx  y 2
 4 x & y  x 2 / 4
O
 4

4
 x3 / 2 x3 
= 2  
 3 / 2 12  0
= 5.3 square unit.

d x 4 2

 e du
2
Example 8: Find
dx x
Solution: By the direct property of integration, we get;

d b( x )
 f ( x )dx
dx a( x )
= f ( b( x )b' ( x )  f a( x )a' ( x )

d x 4 2

 e du
2
Then,
dx x

e ( x  2 x  e x .1
2
)2 2
=

=
2

e x 2 xe x  1
2

Problem Set

1. Find the definite integral for the following:

 t  t 2 dt
3y

1 2 3

3
(i)
1
e x dx (ii) (iii)
1
dy
0
10

d x 2 d u  v2 d u 1
2. Find, (i)  t dt
dx 0
(vi)
du u
e dv (iii)
du  u
x4  1
dx

3. Find the area of line y  4x between x  axis and the ordinate x  4

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 Mathematical Methods for Economics: Integration of Functions

4. Find the area intercepted between the line 3 x  2 y  12 and the parable

3 2
y x
4
5. Find the area between the parabolas; y 2  4ax and x 2  4ay, a  0

6. Prove that

f ( x)dx  2 f ( x)dx, If f ( 2a  x )  f ( x )
2a a
0 0

=0 If f ( 2a  x )   f ( x )
7. Evaluate

1 3000
I  f ( t )dt
1
(i)  (t 
0
t  4 t )dt (ii)
2000 1000
3000000
Given F ( t )  4000  t 
t
1 b
8. Prove that F ( t* )   f ( t )dt
ba a
If f (t ) is continuous function over the interval [a,b] and t*  ( a ,b )
H int : Put F( t )   f ( x )dx
t

Answers of Problem Set

e2  1 4 39
1. (i) (ii) (iii)
e 3 10
1
2. (i) x2 (ii) 2e
u 2
(iii)
2 u4  1
3. 32 sq. units

4. 27 sq. units

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 Mathematical Methods for Economics: Integration of Functions

16 3
5. a sq. units
3
13
7. (i) (ii) I  352
12
1.4 ECONOMIC APPLICATION OF INTEGRATION

 Introduction

Integration has an important role in economics. The present section shows the role
of integration in economics by illustrating some important examples.

Important Results of Integration in Economics

 If f ( r ) is the function of individuals income over the interval [a, b], then the no. of
individuals with incomes in [a, b]


b
=n f ( r )dr
a

 r  earning 
b
 Total income of individuals = n rf ( r )dr
a

 The mean income of the individuals is given by

 r f ( r )dr
b

a
m=
 f ( r )dr
b

Example 1: If the income distribution of population over interval [a, b] is given by,
f ( r )  Ar 5 / 2 {A is a positive constant}, then determine mean income in the
given group.

 
b
b b  2  2 3/2
 f (r )dr   Ar 5/2
Solution: Let dr  A   r 3/2   A a 3/2  b
a a
 3 a 3

 rf ( r )dr  a Ar.r 5 / 2 dr
b b
And
a

 r 3 / 2 dr  2 Aa 1 / 2  b1 / 2 
b
=A
a

So, the mean income of the group is given by

2 A( a 1 / 2  b 1 / 2 ) ( a 1 / 2  b 1 / 2 )
m= = 3 3 / 2
2 / 3 A( a 3 / 2  b 3 / 2 ) (a  b 3 / 2 )
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 Mathematical Methods for Economics: Integration of Functions

Now, suppose b is very large then b-1/2 and b-3/2 close to zero, then m3a

Then, the mean income of the group is 3a.

Economic Application of Integration


There are several other economic applications of integration. Some results are
given below;
 Total cost (TC)
TC   MC (Q)dQ

Here; MC  Marginal cost, Q  output

 Total Revenue (TR)

TR=  MR( Q )dQ , Here, MR  Marginal Revenue

 Consumer surplus (CS) and producer surplus (PS): These can be also
calculated by using definite integral. Consumer surplus is given by;
x
CS   f ( x)dx  p  x
o

Here, f ( x )  demand of x commodity, P Price of x commodity

And, producer surplus is given by,
x
PS  x  p   f ( x)dx
o

 The present discounted value is given by;


T
PDV =
o
f ( t )ert dt

 The future discounted value is given by;

( T t )

T
FDV =
o
f ( t )er dt
 The discounted value at time is given by;


T
DV =
t S
f ( t )er ( t s )dt

Example 2: Find total cost function from the given marginal cost function;
MC  f '(q)  2  3q1/2  5 / q 1/2 , Given; f(1) = 11

q3/2 q1/2
Solution:  F (q)   f '(q)dq   (2  3q1/2  5q 1/2 )dq  2q  3.  5. c
3/ 2 1/ 2

TC  2q  2q3 / 2  c
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 Mathematical Methods for Economics: Integration of Functions

 When q=1 then 11 = 2 + 2 + c, Then, c=7

 Total cost function F(q) = 22 + 3q3/2 + 10 q1/2+ 7

  
Example 3: If the marginal revenue function is given; Pm=    ,
(x   )
2


  
Then, show that P=     is the demand law
(x   ) 

dR
Solution:  R  P.x and MR=
dx
  
 R   MR.dx      dx
 (x   )
2


( x   )1
 R    x  A
1

 R  P.x    x  A,
(x )
We know that if output x=0 then revenue is also zero. Then A = 

 x
R  P x    x    x
(x   ) (x   )


OR, P  , Hence proved.
x

Example 4: If marginal revenue (MR) = 16  q 2 , find the maximum total revenue, also
find the total, average revenue demand.

Solution: When TR is maximum, then MR= 0

16  q 2  0  q  4

4
4 4  q3  128
TR   MR dq   (16  q )dq  16q   
2
0 0
 3 0 3

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 Mathematical Methods for Economics: Integration of Functions

x3
Total Revenue (TR) =  ( 16  x )dx  16 x  3  c
2
when x  0 then c  0

TR q2
Average Revenue (AR) =  16 
q 3

Then, Demand (AR) =P = 16  q 2 / 3

Example 5: If marginal propensity to consume (MPC) function is given as follows;

dc
 0.5  0.001 y , then find total consumption function. Given at income zero, c is 0.02.
dy

dc 0.001 2
Solution: C   .dy   ( 0.5  0.001 y  0.5 y  y A
dy 2

At  y  0, then, C = 0.2, Hence, A = 0.2

C  0.5 y  0.0005 y 2  0.2

Example 6: The sales of a product is depicted by a function S(t) = 100e -0.5t, where t is
number of years since the launching of the product, find

a) The total sales in the first three years

b) The sales in forth year &
c) The total sales in the future

S( 3 )  0 100e0.5 t dt  155.40
3
Solution: a)

b) S( 4 )  S( 3 ),

S4  3 100e0.5 t dt  17.6
4

e)

S(  )  0 100 e0.5 t dt  200

Example 7: If the demand function is;

P  30  2 x  x2 and the demand is 3, what
will be the consumer surplus (CS)?

Solution: Given, P  30  2 x  x2 30

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 Mathematical Methods for Economics: Integration of Functions

For x  3, then p = 20
3
 CS = 
0
(30  2 x  x 2 )dx  P  x

3
 2 x2 x3 
=
30 x  2  3   3  20
 0
= 90-9-9-60=12 units

Example 8: The demand and supply laws are Pd  (6  x)2 and Ps=14+x respectively. Find
the consumer surplus (CS), If;

(i) The demand and price are determined under perfect competition and;

(ii) The demand and price are determined under monopoly and the supply function is
identified with marginal cost function.

Solution: (i) CS under perfect competition: at the equi8librium

( 6  x )2  14  x  x  2

Then, P=14+x=16

CS  0 ( 36  12 x  x 2 )dx  16  2  56 / 3
2

(ii) CS under monopoly;

TR = Pd x  ( 36  12 x  x 2 )x  36 x  12 x 2  x3

 MR  36  24 x  3 x2
And supply price: Ps = 14  x , supply function Ps=MC

To maximization of profit we know that,

MR=MC

36  24 x  3 x2  14  x
i.e. x  1, or,7.33

At x  1, then, Pd=25

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 Mathematical Methods for Economics: Integration of Functions

1 16
 Hence, CS   (36  12 x  x 2 )dx  25 x)  unit
0 3

Similarly, we obtain CS at x  7.33

Example 9: Obtain the producer surplus, when the demand and supply function is given;

D  20  4 x and S  4  4 x

Solution: At equilibrium condition,

Demand(D) = Supply (S)

20  4 x  4  4 x
or ,8 x  16
then; x  2
and , P  4  8  12

And, P=4+8=12

Then, producer surplus (PS)

2
 P  x   (4  4 x)dx  24  [4 x  2 x 2 ]02
0

 24  16  8units

Problem Set

1. If the inverse demand function of commodity Q is given; P = 3q-1/2 and presently 100
units are being sold, then find the consumer surplus.

Ans. 30

2. Let interest rate will vary and represent by r(t). What is the present value of a flow
of income P(t) from t=a to t=b using this variable interest rate?

b 
 r ( s ) ds
Ans. e a
P(t )dt
a

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 Mathematical Methods for Economics: Integration of Functions

REFRENCES

 Allen, R.G.D, Mathematical Analysis for Economists, London: Macmillan and Co. Ltd

 Chiang, Alpha C., Fundamental Methods of Mathematical Economics, New York: McGraw Hill

 Carl P. Simon and Lawrence Blume, Mathematics for Economists, London: W .W. Norton & Co.

 Knut Sydsaeter and Peter J. Hammond, Mathematics for Economic Analysis, Prentice Hall

 Michael Hoy, John Livernois, Chris Mckenna, Ray Rees, Thantsis Stengos, Mathematics for
Economists, Addison-Wesley Publishers Ltd.

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