Business Mathematics

Chapter 2: Differential Calculus and

Applications

Dr. Nguyen Ngoc Phan

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

The derivative

Average rate of change

For y = f (x), the average rate of change from x = a to
x = a + h is
f (a + h) − f (a)
, h ̸= 0
h

If we have two points A(x1; y1), B(x2; y2)

Secant line AB has the slope mAB = y2-y1/x2-x1
If B moves along the curve to A, secant AB is getting closer and closer
to the budget at A. In other words, slope of secant mAB approaches
slope m of tangent at A.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

The derivative

Average rate of change

For y = f (x), the average rate of change from x = a to
x = a + h is
f (a + h) − f (a)
, h ̸= 0
h

Instantaneous rate of change

For y = f (x), the instantaneous rate of change at x = a is

f (a + h) − f (a)
lim
h→0 h
if the limit exists.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Slope of a graph and tangent line
Given y = f (x), the slope of the graph at the point (a, f (a))
is given by
f (a + h) − f (a)
lim
h→0 h
if the limit exists.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

The derivative
For y = f (x), we define the derivative of f at x, denoted
f ′ (x), by
f (x + h) − f (x)
f ′ (x) = lim
h→0 h
if the limit exists. If f ′ (x) exists for each x in the open interval
(a, b), then f is said to be differentiable over (a, b).

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Interpretations of the derivative
Slope of the tangent line. For each x in the domain of f ′ ,
f ′ (x) is the slope of the line tangent to the graph of f at
the point (x, f (x)).
Instantaneous rate of change. For each x in the domain
of f ′ , f ′ (x) is the (instantaneous) rate of change of
y = f (x) with respect to x.
Velocity. If f (x) is the position of a moving object at
time x, then v = f ′ (x) is the velocity of the object at
that time.

dy df
If y = f (x), then y ′ , f ′ (x), , and all represent the
dx dx
derivative of f at x.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Example. A company’s total sales (in millions
√ of dollars) t
months from now are given by S(t) = t + 2. Find and
interpret S(25) and S ′ (25). Use these results to estimate the
total sales after 26 months.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Rules for Differentiation

Constant function rule: If y = f (x) = C , then f ′ (x) = 0

Power rule
d n
x = nx n−1
dx
Constant multiple property
d
(kf (x)) = kf ′ (x)
dx
Sum and difference property
d
[f (x) ± g (x)] = f ′ (x) ± g ′ (x)
dx

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Marginal Analysis in Economics and Business

Marginal Cost, Revenue, and Profit

If x is the number of units of a product produced in some time
interval, then
total cost = C (x)
marginal cost = C ′ (x)
total revenue = R(x)
marginal revenue = R ′ (x)
total profit = P(x) = R(x) − C (x)
marginal profit = P ′ (x) = R ′ (x) − C ′ (x)
Marginal cost (or revenue or profit) is the instantaneous rate
of change of cost (or revenue or profit) relative to production
at a given production level.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Marginal cost: MC(x) = C(x+1) - C(x): cost to produce one more unit once x
units have been produced.

Example. A company manufactures fuel tanks for cars. The

total weekly cost (in dollars) of producing x tanks is given by

C (x) = 10, 000 + 90x − 0.05x 2

1 Find the marginal cost function.

2 Find the marginal cost at a production level of 500 tanks
per week.
3 Interpret the results of part (2).
4 Find the exact cost of producing the 501st item.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Marginal cost and Exact cost
If C (x) is the total cost of producing x items, then the
marginal cost function approximates the exact cost of
producing the x + 1 st item

C ′ (x) ≈ C (x + 1) − C (x).

Similar statements can be made for total revenue functions

and total profit functions.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Example. The total cost of producing x bicycles is given by
the cost function

C (x) = 10, 000 + 150x − 0.2x 2

1 Find the exact cost of producing the 121st bicycle.

2 Use marginal cost to approximate the cost of producing
the 121st bicycle.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Marginal average cost,revenue, and profit
If x is the number of units of a product produced in some time
interval, then
C (x)
average cost = C (x) =
x
′
marginal average cost = C (x)
average revenue, marginal average revenue, average
profit, and marginal average profit are defined similarly.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Example. A small machine shop manufactures drill bits used in
the petroleum industry. The manager estimates that the total
daily cost (in dollars) of producing x bits is

C (x) = 1, 000 + 25x − 0.1x 2

′
1 Find C (10) and C (10). Interpret these quantities.
2 Use the results in part (a) to estimate the average cost
per bit at a production level of 11 bits per day.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

The Number e
 n
1
e = lim 1 + = lim (1 + s)1/s
n→∞ n s→0

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

The Number e
 n
1
e = lim 1 + = lim (1 + s)1/s
n→∞ n s→0

Continuous compound interest formula

If a principal P is invested at an annual rate r (expressed as a
decimal) compounded continuously, then the amount A in the
account at the end of t years is given by

A = Pe rt

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Example. If $10,000 is invested at 6% compounded
continuously, what amount will be in the account after 2
years? How much interest will be earned?

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Example. If $10,000 is invested at 6% compounded
continuously, what amount will be in the account after 2
years? How much interest will be earned?
Example. How long will it take an investment of $6,000 to
grow to $10,000 if it is invested at 5% compounded
continuously?

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Differentiation Formulae
d x
e = ex
dx
d 1
ln x =
dx x
d x
b = b x ln b for b > 0, b ̸= 1
dx
d 1 1
logb x = ·
dx ln b x
d
sin x = cos x
dx
d
cos x = − sin x
dx

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Product rule
d
f (x)g (x) = f ′ (x)g (x) + f (x)g ′ (x)
dx
Quotient rule
d f (x) f ′ (x)g (x) − f (x)g ′ (x)
=
dx g (x) g 2 (x)

Chain rule
d
f [g (x)] = f ′ [g (x)]g ′ (x)
dx
General power rule
d
[f (x)]n = n[f (x)]n−1 f ′ (x)
dx

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Implicit Differentiation

Example. Given

f (x, y ) = x 2 + y 2 − 25 = 0

find y ′ and the slope of the graph at x = 3.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Implicit Differentiation

Example. Given

f (x, y ) = x 2 + y 2 − 25 = 0

find y ′ and the slope of the graph at x = 3.

Example. Find x ′ for x = x(t) defined implicitly by

t ln x = xe t − 1

and evaluate x ′ at (t, x) = (0, 1).

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Definition
f ′ (x)
The relative rate of change of a function f (x) is
f (x)
Let the price p and demand x for a product be related by
a price–demand equation of the form x = f (p). Then the
elasticity of demand at price p, denoted by E (p), is

relative rate of change of demand pf ′ (p)

E (p) = − =−
relative rate of change of price f (p)

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Example. The price p and the demand x for a product are
related by the price–demand equation

x + 500p = 10, 000

Find the elasticity of demand, E (p), and interpret each of the

following:
1 E (4)
2 E (16)
3 E (10)

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

 E (p) Demand Interpretation Revenue
Demand is not sen-
A price increase will
< 1 Inelastic sitive to changes in
increase revenue
price
Demand is sensitive A price increase will
> 1 Elastic
to changes in price decrease revenue
A percentage
change in price
= 1 Unit produces the same
percentage change
in demand

As R(p) = xp = f (p)p, then R ′ (p) = f (p)[1 − E (p)].

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Example. A manufacturer of sunglasses currently sells one
type for $15 a pair. The price p and the demand x for these
glasses are related by

x = f (p) = 9, 500 − 250p

If the current price is increased, will revenue increase or

decrease?

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

First Derivative and Graphs

Increasing and Decreasing Functions, and Local Extrema

For the interval (a, b), if f ′ > 0, then f is increasing, and if
f ′ < 0, then f is decreasing.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

First Derivative and Graphs

Increasing and Decreasing Functions, and Local Extrema

For the interval (a, b), if f ′ > 0, then f is increasing, and if
f ′ < 0, then f is decreasing.
A real number x in the domain of f such that f ′ (x) = 0 or
f ′ (x) does not exist is called a critical number of f .

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

First Derivative and Graphs

Increasing and Decreasing Functions, and Local Extrema

For the interval (a, b), if f ′ > 0, then f is increasing, and if
f ′ < 0, then f is decreasing.
A real number x in the domain of f such that f ′ (x) = 0 or
f ′ (x) does not exist is called a critical number of f .
We call f (c) a local maximum if there exists an interval (m, n)
containing c such that f (x) ≤ f (c) for all x ∈ (m, n).

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

First Derivative and Graphs

Increasing and Decreasing Functions, and Local Extrema

For the interval (a, b), if f ′ > 0, then f is increasing, and if
f ′ < 0, then f is decreasing.
A real number x in the domain of f such that f ′ (x) = 0 or
f ′ (x) does not exist is called a critical number of f .
We call f (c) a local maximum if there exists an interval (m, n)
containing c such that f (x) ≤ f (c) for all x ∈ (m, n).
The value f (c) is called a local minimum if there exists an
interval (m, n) containing c such that f (x) ≥ f (c) for all
x ∈ (m, n).

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

First Derivative and Graphs

Increasing and Decreasing Functions, and Local Extrema

For the interval (a, b), if f ′ > 0, then f is increasing, and if
f ′ < 0, then f is decreasing.
A real number x in the domain of f such that f ′ (x) = 0 or
f ′ (x) does not exist is called a critical number of f .
We call f (c) a local maximum if there exists an interval (m, n)
containing c such that f (x) ≤ f (c) for all x ∈ (m, n).
The value f (c) is called a local minimum if there exists an
interval (m, n) containing c such that f (x) ≥ f (c) for all
x ∈ (m, n).
The value f (c) is called a local extremum if it is either a local
maximum or a local minimum.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Local Extrema and Critical Numbers
If f (c) is a local extremum of the function f , then c is a
critical number of f .
Suppose that c is a critical number of a continuous function f
1 If f ′ changes from positive to negative at c, then f has a
local maximum at c.
2 If f ′ changes from negative to positive at c, then f has a
local minimum at c.
3 If f ′ is positive to the left and right of c, or negative to
the left and right of c, then f has no local maximum or
minimum at c.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Concavity
The graph of a function f is concave upward on the interval
(a, b) if f ′ (x) is increasing on (a, b), and is concave downward
on the interval (a, b) if f ′ (x) is decreasing on (a, b).

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Concavity
The graph of a function f is concave upward on the interval
(a, b) if f ′ (x) is increasing on (a, b), and is concave downward
on the interval (a, b) if f ′ (x) is decreasing on (a, b).
Geometrically, the graph is concave upward on (a, b) if it lies
above its tangent lines in (a, b), and is concave downward on
(a, b) if it lies below its tangent lines in (a, b).

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Second Derivative
For y = f (x), the second derivative of f , provided that it
exists, is
d ′
f ′′ (x) = f (x)
dx
Other notations for f ′′ (x) are

d 2y
or y ′′
dx 2

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Concavity and Inflection Points
For the interval (a, b), if f ′′ (x) > 0, then f is concave upward,
and if f ′′ (x) < 0, then f is concave downward.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Concavity and Inflection Points
For the interval (a, b), if f ′′ (x) > 0, then f is concave upward,
and if f ′′ (x) < 0, then f is concave downward.
An inflection point is a point on the graph of a function where
the function is continuous and the concavity changes.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Testing for inflection points
Suppose that f (x) is continuous on (a, b).
1 Find c ∈ (a, b) so that f ′′ (c) = 0.
2 If f ′′ changes sign at c, then (c, f (c)) is an inflection
point of f . If f ′′ does not change sign at c, then there is
no inflection point at x = c.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Testing for inflection points
Suppose that f (x) is continuous on (a, b).
1 Find c ∈ (a, b) so that f ′′ (c) = 0.
2 If f ′′ changes sign at c, then (c, f (c)) is an inflection
point of f . If f ′′ does not change sign at c, then there is
no inflection point at x = c.

Example. Given

f (x) = 3x 4 − 16x 3 + 24x 2 − 9

State all the pertinent information and sketch the graph of f .

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Absolute Maxima and Minima
If f (c) ≥ f (x) for all x in the domain of f , then f (c) is called
the absolute maximum of f . If f (c) ≤ f (x) for all x in the
domain of f, then f (c) is called the absolute minimum of f .
An absolute maximum or absolute minimum is called an
absolute extremum.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Absolute Maxima and Minima
If f (c) ≥ f (x) for all x in the domain of f , then f (c) is called
the absolute maximum of f . If f (c) ≤ f (x) for all x in the
domain of f, then f (c) is called the absolute minimum of f .
An absolute maximum or absolute minimum is called an
absolute extremum.
A function f that is continuous on a closed interval [a, b] has
both an absolute maximum and an absolute minimum on that
interval.
Absolute extrema must occur at critical numbers or at
endpoints.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Second-derivative test for local extrema
Let c be a critical number of f (x) such that f ′ (c) = 0. If the
second derivative f ′′ (c) > 0, then f (c) is a local minimum. If
f ′′ (c) < 0, then f (c) is a local maximum.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Second-derivative test for local extrema
Let c be a critical number of f (x) such that f ′ (c) = 0. If the
second derivative f ′′ (c) > 0, then f (c) is a local minimum. If
f ′′ (c) < 0, then f (c) is a local maximum.

Second-derivative test for absolute extrema on an interval

Let f be continuous on an interval I from a to b with only one
critical number c in (a, b).
If f ′ (c) = 0 and f ′′ (c) > 0, then f (c) is the absolute
minimum of f on I .
If f ′ (c) = 0 and f ′′ (c) < 0, then f (c) is the absolute
maximum of f on I .

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Optimization

Now we can use calculus to solve optimization problems,

problems that involve finding the absolute maximum or the
absolute minimum of a function. Note that the statement of
the problem does not usually include the function to be
optimized. Often, it is your responsibility to find the function
and then to find the relevant absolute extremum.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Example. A homeowner has $320 to spend on building a fence
around a rectangular garden. Three sides of the fence will be
constructed with wire fencing at a cost of $2 per linear foot.
The fourth side will be constructed with wood fencing at a
cost of $6 per linear foot. Find the dimensions and the area of
the largest garden that can be enclosed with $320 worth of
fencing.

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Example. A store has been selling 200 TVs a week at $350
each. A market survey indicates that for each $10 rebate
offered to buyers, the number of TVs sold will increase by 20 a
week. Find the demand function and the revenue function.
How large a rebate should the store offer to maximize its
revenue?

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Example. A pig weighing 200 pounds gains 5 pounds per day
and costs 45 cents a day to keep. The market price for pigs is
65 cents per pound, but is falling 1 cent per day. When should
the pig be sold?

Dr. Nguyen Ngoc Phan Differential Calculus and Applications

Example. A pig weighing 200 pounds gains 5 pounds per day
and costs 45 cents a day to keep. The market price for pigs is
65 cents per pound, but is falling 1 cent per day. When should
the pig be sold?
Example. Reconsider the pig problem, but now take into
account the fact that the growth rate of the pig is not
constant. Assume that the pig is young, so that the growth
rate is increasing, and the growth rate of the pig is
proportional to its weight. When should we sell the pig for
maximum profit?

Dr. Nguyen Ngoc Phan Differential Calculus and Applications