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Differentiation

This document provides an overview of differentiation and integration concepts. It defines differentiation as the process of finding the rate of change of a function, denoted by dy/dx. Integration is defined as the reverse process of differentiation, where an integral calculates the area under a curve or function to find the total or accumulated value. Examples provided include using integration to find total cost or revenue functions from marginal cost or revenue, and calculating consumer and producer surplus using demand and supply functions.

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62 views16 pages

Differentiation

This document provides an overview of differentiation and integration concepts. It defines differentiation as the process of finding the rate of change of a function, denoted by dy/dx. Integration is defined as the reverse process of differentiation, where an integral calculates the area under a curve or function to find the total or accumulated value. Examples provided include using integration to find total cost or revenue functions from marginal cost or revenue, and calculating consumer and producer surplus using demand and supply functions.

Uploaded by

sachuvsudevnair
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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DIFFERENTIATION

• Let ‘y’ be a continuous function of ‘x’.


• A small change in the value of ‘x’is called an increment in
the value of ‘x’ and is denoted by dx or ▲x. This change
in ‘x’ will produce a corresponding change in ‘y’ and it is
denoted by dy or ▲y. Such change may be positive or
negative.

• Given y =f(x), we find the rate of change , which is dy/dx

• General notation: y = f(x) = xn, then dy/dx = nx(n-1)

Functions 1
DIFFERENTIATION
• Let p be the price and q the quantity
demanded. Then the demand curve is q =
f(p)
• Total revenue is denoted by R and R = pq
• The elasticity of a function y = f(x) at the
point x is the rate of proportional change in
‘y’ per unit proportional change in ‘x’.

Functions 2
DIFFERENTIATION
This rate is termed as the elasticity of the function
y = f(x) at the point x and is denoted by Ey/Ex.

• Elasticity of demand is denoted by


• = -(p/q)(dq/dp)

• Marginal revenue is defined as dR/dQ.


R = PQ
dR/dQ = P(1) + Q dR/dQ = P[ 1 + (Q/P) (dP/dQ)]

Functions 3
OPTIMISATION
To find our the maxima and minima of a function of one variable;

Particulars Maximum Minimum


Necessary Condition dy/dx = 0 dy/dx = 0

Sufficient Condition d2y/dx2 = 0 d2y/dx2 = 0

Decision If d2y/dx2 < 0, then that value If d2y/dx2 > 0, then that value
of x got by dy/dx =0, of x got by dy/dx =0,
maximizes the function minimises the function
y=f(x) y=f(x)
Revenue and
Profit
Cost Functions
• Total Cost = Variable cost +fixed cost
C = f(x) or f(x) + b,
where b is the fixed cost
• Average Cost = TC / Output
= C/x or TC / x
• Average Variable Cost = Variable Cost / output
= f(x)/x
• Average Fixed Cost = Fixed Cost /Output
= b/x
• Marginal Cost = d(TC)/dx
Revenue
• Defining total, average and marginal revenue
Total Revenue = Price /unit x Quantity sold
TR =P×Q

Average Revenue = Total Revenue / Quantity


AR = TR / Q

Marginal Revenue(MR) = d(TR) / dQ


Profit
• Profit = Total Revenue –Total Cost
= ( P x Q ) – ( TFC + TVC )
= ( P x Q ) – ( TFC + Q( VC / Unit))
or
Profit = ( P x Q ) – ( C x Q), where
P = Price per unit, C = Cost per unit
Q = Quantity purchased / sold
INTEGRATION

• Let ‘y’ be a continuous function of ‘x’.


• Integration is the process of summation. Mathematically
it is the reverse process of differentiation.
• Given dy/dx, By integration we find ‘y’.

• Y = ∫f(x)dx.

• General notation: y = f(x) = xn,


then ∫f(x)dx = ∫ xn dx = x(n+1)/ (n+1)

Functions 9
APPLICATION OF INTEGRATION

1.To find the total cost function, when


marginal cost is given:
TC (C ) = ∫(MC)dx + k
Average cost (AC) = TC/x
APPLICATION OF INTEGRATION

2.To find the total revenue function and


the demand function, when marginal
revenue is given:
TR (R ) = ∫(MR)dx + k
Since R = px,
P = R/x which is the
demand function
APPLICATION OF INTEGRATION

3.To find maximum profit, when MC and


MR are given:
By Equating MC & MR, we can find the
output that maximises total profits.
x
TP (Profit ) = 0∫ (MR-MC)dx
Consumer Surplus
• A demand function represents the relation
between quantity and price.
• Let ‘xo’ be the quantity bought for the price
‘yo’. The consumers who are willing to pay
more than the market price gain from the
fact that the price is only ‘yo.. This is called
Consumer Surplus.
• Consumer Surplus = 0∫xo f(x)dx - xoyo
Functions 13
Consumer Surplus
y

Functions 14
Producers Surplus
• A supply function represents the amount of a
commodity that can be supplied at a price.
• Let ‘yo’ be the market price and ‘xo’ be the
corresponding supply quantity. Those producers
who are willing to supply the commodity below
the market price gain from the fact that the price
is ‘yo.. This is called Producers Surplus.
• Producers Surplus = xoyo - 0∫xo f(x)dx

Functions 15
Producers Surplus
y

Functions 16

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