L E S S O N

2
Simple Differentiation
STRUCTURE
2.1 Learning Objectives
2.2 Introduction
2.3 Derivative as Instantaneous Rate of Change
2.4 Standard Forms of Differentiation
2.5 Applications Based on Derivation as Instantaneous Rate of Change
2.6 Successive Differentiation
2.7 Applications Based on Successive Differentiation
2.8 Maxima and Minima
2.9 Applications in Business and Economics
2.10 Summary
2.11 Answers to In-Text Questions
2.12 Self-Assessment Questions
2.13 Suggested Readings

2.1 Learning Objectives

u To know the meaning of Limits and Functions.
u To understand the facts of limits.
u To understand the types of limits.
u To understand the methods of limits.
u To understand the properties of limits and functions.
u To know the meaning of continuity of limits.
u To know the application of limits and continuity in business and economics.

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2.2 Introduction Notes

The term ‘calculus’ means method of calculation. This meaning does

not have much relevance in the practical use of the term in relation to
differentiation. Calculus is classified as differential and integral. Differential
calculus is related with average rate of change.
It is one of the important branch of mathematics. It is becoming more and
more important since its evolution. Although an idea was evolved about
it far back as Greek antiquity. But the credit for the development of the
subject goes to the mathematician and philosopher Gothfried W. Leibniz
(1646-1716) and to mathematician and physicist Isac Newton (1642-1727).
They made the most significant contributions to the development of the
mathematical system of calculus simultaneously and independently.
Initially it was applied to various problems of physical sciences only but
now it has been commonly applied in the study of commerce and economics.
Various aspect of economics as price elasticity of demand and supply,
marginal function, firm’s equalibrium under different market conditions,
laws of returns etc. involve applications of differential calculus. Similarly,
it has applications at the macro level as multiplier and accelerator.
It also has various applications in commerce. But the applications in
economics as such can not be separated rigidly because of close linkage
between two disciplines. Although some specific applications include
inventory control, measurement of rate of growth, optimum operating
level etc.
Meaning of Differentiation
As mentioned above, differential calculus is related with average rate of
change. The method involved is known as differentiation and the result
obtained is known as derivative or differential coefficient.
Practically derivative can be defined as the ratio of change in the value
of function to change in the value of independent variable where the
change in the latter is tending towards zero. Technically, if y = f(x), then
∆y
lim is the derivative of y with respect to x where
∆x → 0 ∆x
Dy denotes change in y
Dx denotes change in x

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Notes dy
This derivative is often denoted by or f(x) or y1.
dx
Therefore, derivation is the rate of change in the value of function when
limit of change in the value of independent variable is tending towards
zero.
On the basis of above interpretation, the steps involved in differentiation
are described below:
(i) Introduces certain change Dx (delta x) in the independent variable
x and find the corresponding change in the value of function.
Technically, if y = f(x), then introducing Dx change in x and Dy
change in y.
y + Dy = f (x + Dx)

Dy = (x + Dx) – y
= f (x + Dx) – f(x)
(ii) Divide both side of Dx giving the ratio of change in value of function
to change in the value of independent variable. The same is also
known as average rate of change.

= (
∆y f x + ∆x ) − f ( x )
Therefore
∆x ∆x

(iii) Lastly take its limit when Dx ® 0. This limit must exist for the
derivative.

= lim (
∆y f x + ∆x ) − f ( x )
Therefore lim
∆x → 0 ∆x ∆x → 0 ∆x

= lim (
dy f x + ∆x ) − f ( x )
or
dx ∆x → 0 ∆x

The same is the derivative of y with respect to x. The derivative obtained

by following steps is known as derivative by first principle.
Example: If y = xn, find its derivative by first principle.
Solution: Given y = x n.
Then y + Dy = (x + Dx) n (introducing change)
Dy = (x + Dx) n – xy
= (x + Dx) n – xn

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 n n ( n − 1) n − 2 2  Notes
= n −1
 x + nx ∆x + x ∆x .... + ∆x n  − x n
 2 

(Apply binomial distribution)

n ( n − 1)
= nx n −1∆x + x n − 2 ∆x 2 .... + ∆x n (simplifying)
2

Dividing both sides by Dx

n ( n − 1) n − 2 2
nx n −1∆x + x ∆x .... + ∆x n
∆y 2
=
∆x ∆x

n ( n − 1)
= nx n −1 + x n − 2 ∆x 2 .... + ∆x n
2

Taking its limit when ∆ x → 0.

∆y  n ( n − 1) n − 2 
lim = lim  nx n −1 + x ∆x.... + ∆x n 
∆x → 0 ∆x
∆x → 0
 2 
dy
or = nxn–1.
dx

2.3 Derivative as Instantaneous Rate of Change

This derivative is defined both mathematically and geometrically. According
to mathematical interpretation, derivative is used both as velocity of the
function and instantaneous rate of change. In physical sciences, it is used
as velocity of the function giving rate of movement. In commerce and
economics, derivative is used as instantaneous rate of change.
Instantaneous rate of change denotes the rate of change in the value of
function at a particular value of independent variable. Derivative gives
the same as it is the rate of change in y when limit of rate of change
in x is tending towards zero which amounts to a particular value of x.
Therefore, derivative gives the rate of change in the value of function at
a given value of independent variable. This rate may be constant or vary
with the value of independent variable. It will be constant if derivative
does not involve independent variable, otherwise it will vary.

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Notes P
Example: The demand function of a commodity is x = 20 – . Find
2
the rate of change in quantity demanded.
P
Solution: Given x = 20 –
2
P + ∆P
then x + Dx = 20 –
2
∆P
Dx = −
2
Dividing both sides by DP and taking its limit when DP ® 0
∆x −1
lim =
P→0 ∆P 2
dx 1
or = – which is constant at all prices.
dp 2
Example: The total cost of producing x units of a commodity is TC(x) =
x3 + 100. Show that rate of change in total cost is varying at all levels.
Solution: Given TC(x) = x2 + 100.
Introducing Dx change in x
TC(x) + DTC(x) = (x + Dx) 2 + 100
DTC(x) = (x + Dx)2 + 100 – (x2 + 100)
= x2 + Dx2 + 2xDx + 100 – x2 – 100
= + 2xDx.
Dividing both sides by Dx
∆TC ( x )
= Dx + 2x
∆x

Taking its limit when ∆x → 0

∆TC ( x )
lim = 2x
∆x → 0 ∆x

dTC ( x )
or = 2x
∆x

which implies it is changing at all values of x.

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2.4 Standard Forms of Differentiation Notes

There are some standard forms of differentiation which can be used for
obtaining the derivatives of the functions appearing in different forms.
All these standard forms are based on the first principle of differentiation.
(Proofs have been omitted). These are applicable to all forms of functions
as such. These are as follows:

dy
1. If y = c (a constant) = 0
dx
dy c.d f ( x)
2. If y = c . f(x) =
dx dx

dy c.d f ( x)
3. If y = f(x) ± g(x) = (Summation form)
dx dx

dy d f ( x) d g ( x)
4. If y = f(x) . g(x) = + (Product form)
dx dx dx
f ( x)
dy d g ( x) d f ( x)
5. If y = g ( x ) = f ( x) + g ( x) (Quotient form)
dx dx dx

d f ( x) d g ( x)
g ( x) − f ( x)
dy dx dx (Chain rule)
6. If y = f(u) and u = g(x) =
dx g ( x)
2

7. Implicit Functions: Functions are also classified as explicit and implicit

function. Explicit functions are characterized as those where one
variable can be expressed as a function of another variable only
as y = f(x). Otherwise it is taken as implicit function as f(x, y) =
0. For example, y = x2 + 2x + 4 is an explicit function whereas x2
+ 2xy + y2 = 0 is an implicit function. The derivative of implicit
function is obtained using chain rule. For example derivative of y2
with respect to x can be obtained assuming u = y2, then
du du dy
= .
dx dy dx

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Notes On this basis, the rule is that all terms involving y will be first
dy
differentiated with respect to y and multiply it by . After this
dx
dy
solve it for . The same is the derivative of implicit function.
dx
8. Parametric Functions: Two functions are taken as parametric functions
if they have common independent variable as y = f(t) and x = f(t).
This common independent variable is known as parametric. Then
dy
dy dt
=
dx dx
dt
9. Inverse Functions: Two functions are taken as inverse if the independent
variable of one function becomes the dependent variable of the other
and vice versa. For example, if y = f(x), then x = f ¢(y). Then
dy dx
. = 1
dx dy

dy 1
or =
dx dx
dy

Derivative of Algebraic Functions

Algebraic functions are defined as those functions where quantities are
related by mathematic operations such as +, –, ¸, power and square root
only. For example, if
x2 − 4
y = x 2 + 100, y = etc.
x+2

The rule of differentiation of algebraic functions is multiply the power

of x in the base and reduce the power by one. It is based on the first
principle. So, if
dy
y = x n, = nxn–1
dx
as proved by first principle earlier.
All the standard forms stated above are applicable as such.

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Notes
x +1 + x −1 dy x
Example: If y = , prove that = 1 +
x +1 − x −1 dx x2 − 1

x +1 + x −1
Solution: Given y =
x +1 − x −1

x +1 + x −1 x +1 + x −1
= ×
x +1 − x −1 x +1 − x −1
(Rationalising the denominator)

x + 1 + x − 1 + 2 . x2 − 1
=
x +1− x +1

2x + 2 . x2 − 1
=
2

y = x + x2 − 1
dy 1 2
( x − 1) . 2 x
−1/ 2
= 1+
dx 2
x
= 1 +
2
x −1

Example: If y =
x
, prove that
dy
=
(
−a a + a 2 − x 2 )
a − a2 − x2 dx x2 ( a2 − x2 )
x
Solution: Given y =
a − a2 − x2

x a + a2 − x2
= . (Rationalisation)
a − a2 − x2 a + a2 − x2

x a + a 2 − x2
=  
a2 − a2 + x2

a + a2 − x2
y =
x

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Notes
dy
=
(
x . a a + a2 − x2 − a + a2 − x2 ) ( ) dxdx
dx x3
(Quotient form)
1
x .  ( a2 − x2 )
2
−1/ 2 
− 2 x  − a + a2 − x2

( )
=
x2
− x2
− a − a2 − x2
2 2
= a −x
x2

− x2 − a . a2 − x2 − a2 + x2
=
x2 . a2 − x2

−a  a + a 2 − x 2 
=  
x2 . a2 − x2

t2 −1 t2 −1
Example: Given x = a . , y = at 2
t2 +1 t +1
dy t 4 + 2t 2 − 1
Show that =
dx 2t

t2 −1
Solution: Given x = a
t2 +1

dx
=
  2
1
a  2 
 t − 1 
−1/ 2
( t 2 + 1) 2t − ( t 2 − 1) 2t 
dt  2  t + 1 ( t 2 + 1) 
2

 

 1/ 2 
= a  t 2 − 1  . 2t 2 
2

 t + 1 
 ( t 2 + 1) 
2at
=
(t − 1) . ( t 2 + 1)
2 1/ 2 3/ 2

Similarly
dy
=

a . t. 1  t 2 − 1 
2 −1/ 2

.
(t 2
+ 1) 2t − ( t 2 − 1) 2t
+

t2 −1 
dt  2  t +1 (t + 1) t2 +1 
2 2

 

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Notes
2at 2 t2 −1
= +a.
(t − 1) (t + 1)
1/ 2 3/ 2
2 2 t2 +1

2at 2 + a ( t 2 − 1)( t 2 + 1)
=
(t − 1) (t + 1)
2 1/ 2 2 3/ 2

2at 2 + at 4 − a
=
(t − 1) (t + 1)
2 1/ 2 2 3/ 2

dy dy dx
= /
dx dt dt

2at 2 + at 4 − a
(t − 1) (t + 1)
2 1/ 2 2 3/ 2

=
2at
(t − 1) (t + 1)
2 1/ 2 2 3/ 2

at 4 + 2at 2 − a
=
2at

t 4 + 2t 2 − 1
=
2t
dy
Example: Given x2y + xy2 = 10, find .
dx
Solution: Differentiating implicitly both sides,
dy dy
x2 . + y . 2x + x . 2y . + y2 = 0
dx dx
dy
Simplifying for
dx
dy 2
–  2 xy + y 
2
 x + 2 xy  =
dx 

dy −  2 xy + y 2 
=
dx x 2 + 2 xy

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Notes Derivative of Exponential Function

Another type of non-algebraic function used in business and economics
is exponential functions. These functions redefined as those where
independent variable appears as power of some constant base. For example,
y = 10x of y = ex likewise. These functions are classified as natural and
other exponential functions. If the base of e (basis of natural log system
having an approximate value of 2.7183), the function is known as natural
exponential, otherwise other exponential function. Such functions are
often used to denote continuous growth.
Derivative of natural exponential functions is based on the rule if,
dy
y = ex, then = e x.
dx
It can be proved by first principle (proof ignored). Derivative of the other
exponential function can be obtained easily with the help of logarithmic
differentiation which is explained in the next section. Standard forms are
applicable as such as exemplified below:
Example: Differentiate y = xn eax + b with respect to x.
Solution: Given y = xn eax + b . a + eax + b nxn–1
= x n–1 eax + b [ax + n]
Example: Differentiate the following with respect to x.
2
ex 2x
+ e− x
(i) y = x ex (ii) y = (iii) y = e
x

1
(vi) y = 10ex–x/50 (v) y = (x + 2) e x + 2
Solution:
(i) y = x . ex
dy de x dx
= x . + ex .
dx dx dx
= x . ex + ex
= ex [x + 1]
2
x
(ii) y = e
x

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de x 2 dx
2
Notes
dy − ex .
= x . dx 2 dx
dx x
2 2
x x
= x . e . 22x − e
x
2
x
= e 2  2 x 2 − 1
x

x2
(iii) y = e + e–x
dy d 2x d (−x)
= e 2x
. + e− x .
dx dx dx

1 1
( 2 x ) 2 .2 − e− x
−
= e 2x
.
2
2
x
= e 2  2 x 2 − 1
x

(iv) y = 10 xe–x/50

dy = 10  x. de dx 
− x / 50
 + e − x / 50 . 
dx  dx dx 

= 10  xe − x / 50 − 1 + e − x / 50 
 50 

= 10e–x/50  − x + 1
 50 

1
(v) y = (x + 2) e x + 2
1

= (x + 2) de + e x + 2 . (
dy x+2 1
d x + 2)

dx dx dx
1 1
−1
= (x + 2) e x+2
. +e x+2

( x + 2)
2

1
 1 
= e x + 2  − + 1
 x+2 

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Notes 1
 x +1 
= e x + 2  
 x + 2
Derivative of Logarithmic Functions
Logarithmic Functions are also used for denoting functions used in business
and economics. Such functions are defined as those whose independent
variable appears with log ratio as y = log ax or y = log10x likewise. Such
functions are also classified as natural logarithmic functions, common
logarithmic functions and other logarithmic functions based on the base of
log. In case of natural log, base is e [a constant with approximate value
of 2.7183] as y = logax also denoted by y = lnx. But if base of log is 10,
it is known as common log as y = log10x also denoted by logx. If base
of log is other than 10 and e, it is known as other logarithmic function
as y = logax and a 1 10 + e. In such cases base must be specified.
It is also possible to change the base of log as if y = lnx with base e,
then with base 10 it becomes y = log x whose log e is a constant.
log e

Derivative can be obtained directly for only natural logarithmic functions

dy 1
as if x = lnx, then = (prof has been omitted). So, if other than natural
dx x
log function is given, first change its base to e and then differentiate.
The standard forms are applicable in the same way.
Example: Differentiate the following with respect to x.

(i) y = ln (x2 + 1) (ii) y = ln ( 1+ x ) 2

(iii) y = ln2 (x + 1)

x +1
(iv) y = x . lnx (v) y = ln .
x −1

Solution: (i) y = ln (x2 + 1)

dy
2
1 d x +1 ( )
= 2 .
dx x +1 dx
2x
= 2
x +1

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( 1+ x ) 2
Notes
(ii) y = ln

dy 1 d 1 + x2
= .
dx 1 + x2 dx

1 1
= (1 + x2 )
−1/ 2
. .2 x
1+ x 2 2

x
=
1+ x 2
(iii) y = ln2 (x + 1)
or y = [ln (x + 1)]2
dy 2 ln ( x + 1)
= 2 ln (x + 1) .
dx dx

2 ln ( x + 1)
=
x +1

(iv) y = x . lnx
dy 1
= x . + lnx
dx x
= 1 + lnx.
x +1
(v) y = ln .
x −1

x +1
dy x −1 x −1
= .d
dx x +1 dx

x −1 1  x +1
−1/ 2
( x − 1) − ( x + 1)
= .   .
x +1 2  x −1  ( x − 1)
−1/ 2
x −1  x +1 1
= −  .
( x − 1)
2
x +1  x −1 

 1 
= −  
 ( x + 1)( x − 1) 

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Notes 1
= −
x2 − 1
In addition to this, logarithmic differentiation can be used in different ways.
It is based on the derivative of logarithmic function. It basically involves
three steps (i) taking natural log of both the sides, (ii) Differentiating
dy
implicitly both sides with respect to x, and (iii) solving for . Some
dx
forms based on these are as follows:
(a) Derivative of natural exponential function:
As y = ex . Taking natural log of both sides
lny = x . lne [lne = 1]
lny = x
Differentiating both sides with respect to e
1 dy
. = 1
y dx

dy
= y
dx
= ex.
(b) Derivative of other exponential functions as y = ax. Taking natural
log of both sides
lny = x . lna[lna is a constant]
Differentiating both sides with respect to x.

1 dy
. = lna
y dx

dy
or = lna . y
dx
= lna . ax
(c) Derivative of a function raised to the power another function as y =
[f (x)]g(x). It can be differentiated only with the help of logarithmic
differentiation. Taking natural log of both sides
lny = g(x) . ln f (x).

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Differentiating both sides with respect to x Notes

1 dy
1
. = g(x) . . f ¢(x) + ln f (x) . g¢(x)
y dx f ( x)

dy  g( x ) 
=  . f ( x ) + ln f ( x ).g ′( x ) . y
dx  f(x) 

 g( x ) 
. f ( x ) + ln f ( x ).g ′( x ) . [ f ( x )]
g( x )
= 
 f(x) 
Logarithmic differentiation can also be applied for differentiating algebraic
and exponential functions if these appears in combined forms.
Example: Differentiate the following with respect to x:
(i) y = 5x + 2 (ii) y = ax . xa (iii) y =
x
xe

(iv) y = x . lny (v) y = xlnx

Solution:
(i) y = 5 x + 2. Taking natural log of both sides lny = (x + 2) lns.
Differentiating both sides with respect to x.
1 dy
. = lns
y dx

dy
= lnx . y
dx
= lns . 5x + 2
(ii) y = ax . xa

dy x
d ( xn ) a
d (ax )
= a . +x .
dx dx dx
= ax . axa –1 + xa . ax . lna
 da x 
= ax . xa –1 [a + x . lna]  = a x .ln a 
 dx 

(iii) y = s x e . Taking natural log of both sides and differentiating.

x

lny = ex . lnx

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Notes 1 dy 1
. = e x . + ln x . e x
y dx x

dy = e x  1 ln x  .y
dx x 

= e x  1 ln x  x e x

x 

(iv) y = x . lny. Differentiating implicitly both sides with respect to x.

dy
= x . 1 . dy + lny
dx y dx

dy  x
or 1− = lny
dx  y 

dy ( ln y )
=
dx y−x

(v) y = xlnx. Taking natural log of both sides and differentiating with
respect to x.
lny = lny . lnx
= (lnx)2
1 dy
. = d . ln x
y dx y

dy = 2 . ln x . xln x
dx y

= 2 . lnx . xlnx – 1.
x
dy
Example: If ( x − y ) e x− y
= a, then prove that y . + x = 2y.
dx
x

Solution: Given ( x − y ) e x− y
= a, taking natural log of both sides:
x
ln (x – y) + . lne = lna
x− y

x
or ln (x – y) + = lna[as lne = 1]
x− y

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Differentiating both sides with respect to x. Notes

dy 
1  dy 
( x − y ) − x 1 − 
 dx 
1 −  + = 0.
( x − y)
2
x − y  dx 

dy  1 x  1 y
− +  = − +
dx  x − y ( x − y )2  x − y ( x − y )2

dy  y  −x + 2 y
  =
dx  ( x − y )2  ( x − y)
2

−x + 2 y
. ( x − y)
2
dy =
y.
( x − y)
2
dx
dy
y = = –x + 2y
dx
y dy
or + y = 2y.
dx

dy y2
Example: If y = x x x .......∞
, prove that x . =
dx 1 − y ln x

Solution: Given y =
x .......∞
xx

= xy
as y = x x 
x ....... ∞

 

Taking natural log of both sides and differentiating:

lny = y . lnx
1 dy 1 dy
. = y . + ln x .
y dx x dx

dy  1  y
 − ln x  =
dx  y  x

dy  1 
x = y 
dx 1 − y .ln x 

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Notes y3
=
1− y .ln x

dy ln x
Example: If xy = ex – y, prove that =
dx (1 + ln x )2

Solution: Given xy = ex – y, taking natural log of both sides.

y . lnx = (x – y) . lne
y . lnx = (x – y)(as lne = 1)
or y [lnx + 1] = x
x
or y =
1 + ln x

1
dy
(1 + ln x ) − x .
= x
(1 + ln x )
3
dx

ln x
=
(1+ ln x )
2

2.5 Applications Based on Derivation as Instantaneous

Rate of Change
As explained earlier, derivative is used as instantaneous rate of change in
business and economics. It denotes the rate of change in a function at a
level. Whenever we want to find out the rate of change in the function
at a particular level then find the derivative of the function and evaluate
it for that level. Some examples are given below to explain this:
Example: A firm has a revenue function given by TR (x) = 10x where
x is the units demanded and TR (x) is gross revenue with a production
cost function given by
2
 x 
TC (x) = 1,00,000 + 50  
1000 
Find the rate of change in profit if x = 1,00,000 units.

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2 Notes
 x 
Solution: Given TR (x) = 10x, TC (x) = 1,00,000 + 50  
1000 
Profit function, n(x) = TR (x) – TC (x)
2
 x 
= 10x – 1,00,000 – 50  
1000 
Rate of change in profit at x will be:
dx ( x ) 2x
= 10 – 50
dx 1000000
x
= 10 –
10 ,000

Putting x = 1,00,000 units

1,00 ,000
= 10 – = 0
10 ,000

So, rate of change in profit at x = 1,00,000 is zero indicating that profit

is constant at this level.

Example: The demand function of a commodity at x = 200 –p2 where

x units are demanded when price is Rs. p per unit. Determine the level
of output where rate of change in total revenue is zero.

Solution: Given x = 200 − p 2

or P = 200 − x 2

TR (x) = P . x = ( 200 − x 2 x)
Rate of change in TR (x) will be:
dTR ( x ) 1
( 200 − x 2 )
−1 / 2
= 200 − x 2 + x . − 2x
dx 2

x2
= 200 − x 2 −
200 − x 2

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Notes 200 − 2 x 2
=
200 − x 2
Putting it equal to zero and solving for x
200 − 2 x 2
= 0
200 − x 2
200 – 2x2 = 0
x2 = 100
x = 10 units.
Therefore, rate of change in total revenue is zero at x = 10 units.
The applications based on simple differentiation (derivative concept) are
explained below:
1. Measurement of price elasticity of demand:
Price elasticity of demand is an important economic concept. It is based
on law of demand. Low of demand states the quantitative relationship
between price and quantity demanded and if price is high, quantity
demanded is low and vice versa. The same quantitative relationships are
quantified by price elasticity of demand. It is always negative because
of negative relationships between price and quantity stated by law of
demand. In economics, it is defined as
Relative change in quantity demanded
Ey = Relative change in price

Symbolically, if demand function is x = f (p)

∆x
∆x p
Then Ep = x = . for change in price.
∆p ∆p x
p

This gives the price elasticity of demand for certain Dp change in price.
But if price elasticity of demand is required at a given price p instead
of certain change, then limit of Dp will tend towards zero and
Ep = lim ∆x . p at a price p
∆p → 0 ∆p x

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 ∆x dx  Notes
dx p
= .  as ∆lim = 
dp x  p →0 ∆p dp 
If a demand function is given and price elasticity of demand is required
at a price, it is given by:
dx p
Ep = .
dp x

where dx is the derivative of demand function with respect to p, p is

dp

the price at which elasticity is required, and x is quantity demanded at

that price.
Example: The demand function of a commodity is x = .
100 − p 2
Determine the price elasticity of demand (i) when price decreases from
Rs. 8 to Rs. 6, (ii) at price Rs. 8.

Solution: (i) Given 100 − p 2

when p = Rs. 8 x = 6 units
and when p = Rs. 6 x = 8 units
So Dp = Rs. 2 Dx = –2
Ep = ∆x . p = −2 . 8 = −4 .
∆p x 2 6 3

(ii) At p = Rs. 8, I = 6 units

Ep =
∆x p d
. =
( 100 − p 2 ). p
∆p x dp x

−p p
= .
( 100 − p ) 2 x

− p2  100 − p 2 = x given 
=
x3   
64 16
= − =−
36 9

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Notes Example: The linear demand function of a commodity shows that quantity
demanded is nil when price is Rs. 50 per unit and it is just 1000 units
hen price is zero. Determine the price and quantity where price elasticity
and demand is unit.
Solution: Linear demand function can be obtained using intercept form
as intercept of x-axis is 1000 units and on y-axis is Rs. 50 [given].
x P
+ = 1
1000 50
or x + 20 P = 1000
or x = 1000 – 20 P ... (i)

Corresponding Ep = dx P = −20 P
dp x x

−20 P
= –1 [unit mean –1 for Ep]
x
or x = 20 P ... (ii)
Solving (i) and (ii) simultaneously for P
1000 – 20 P = 20 P
or 40 P = 1000
P = Rs. 25
Corresponding x = 20 (25) = 500 unit.
So, it has unit elasticity when P = Rs. 25 and x = 500 units.

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a Notes
Example: The demand function of a commodity is P = where a and
xb
−1
b are positive constants. Show that it has constant price elasticity of
b
at all prices.
a
Solution: Given P = b
= ax–b
x
dp
= –abx–b–1
dx
dx −1
or =
dp abx − b −1

Now Ep = dx . P
dp x

−1 P −P − ax − b
= . = = [Putting p = ax–b]
abx − b −1 x abx − b abx − b
−1
=
b
It is constant at all prices. So, whatever may be the price, price elasticity
−1
of demand remains .
b
2. Measurement of Price Elasticity of Supply:
Price elasticity of supply at a price can be measured with the help of
simple differentiation in the same way as price elasticity of demand.
This concept is based on the law of supply which states the positive
relationship between price and quantity supplied (from firm’s point of
view). It is defined for a supply function: x = g(P) as
Relative change in quantities supplied
Ep =
Relative change in price

∆x
∆x P
= x = . for DP change in price.
∆P ∆P x
P

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Notes At given price, price elasticity of supply is given by:

Ep = lim ∆x . p = dx . p
∆p → 0∆p x dx x

where dx is the derivative of supply function with respect to p. It always

dp

takes positive value because of positive relationship between price and

quantity supplied stated by law of supply.
Example: The weekly supply of butter (x kg) depends on the price (Rs.
p per kg) according to

x = 100 p − 12 + 150
Determine the price elasticity of supply at p = Rs. 21.

Solution: Given x = 100 p − 12 + 150

when p = Rs. 21, x = 450 units.
Ep = dx . p
dp x

1 −1/ 2 p
= 100 . ( p − 12 ) .
2 x
50 p 50 ( 21) 7
= = =
( )
p − 12 x 3 ( 450 ) 9

3. Measurement of price elasticity of demand and supply at equilibrium

price:
In case demand and supply functions for a commodity are given, it
is possible to measure both price elasticity of demand and supply at
equilibrium price using simple differentiation. The first step is the
determination of equilibrium price and quantity using demand and supply
function. Equilibrium price is the price at which both quantity demanded
and supplied are equal and corresponding quantity is known as equilibrium
quantity, So
X = f(p) (demand function)
and X = g(p) (Supply function)

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Then put f(p) = g(p) and some for p, this gives equilibrium price putting Notes
this in either demand function or supply function and solving for x gives
equilibrium quantity.
At this equilibrium price, price elasticity of demand is obtained by using
demand function and price elasticity of supply is obtained by using supply
function. The only difference in this application and the previous two is
that in this elasticities are calculated at equilibrium price only whereas
in earlier two at any arbitrary price (given).
Example: A firm has the following demand and supply functions

P = 100 − X 2 (Demand)
X = –10 + 2P (Supply)
Determine the price elasticity of demand and supply at equilibrium price.

Solution: Given P = 100 − X 2 or X = 100 − P 2

or P2 = 100 – X2.
For equilibrium condition, Put X = –10 + 2P in the demand function
P2 = 100 – [–10 + 2P] 2
= 100 – 100 + 40P – 4P2
or 5P2 – 40P = 0
P – 8 = 0 (equilibrium price)
P = 8
Corresponding equilibrium quantity,
X = 10 + 2 (8) = 6 units
So, price elasticity of demand at P = Rs. 8 with X = 6 units will be:

dX P d 100 − P 2 P
Ep = . = .
dP X dP X
1 P
(100 − P ) . − 2 P .
2 −1/ 2
=
2 X

−P2 −P2
= =
( 100 − P 2 ) X X

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Notes −64 −16

= =
36 9

= (
dX P d −10 + 2 P ) P
Ep = . .
dP X dP X

2 P 2(8)
= =
X 6
8
= .
3
Example: A firm finds that both quantities demanded and supplied are
30 units when market price is Rs. 8 per unit. It is known that demand
is nil if price is increased to Rs. 12 per unit and firm is not willing to
supply if price is reduced to Rs. 5 per unit. Determine the firm’s price
elasticity of demand and supply at equilibrium price assuming linear
relationship between price and quantity in both cases.

Solution: The demand equation being straight line, so its equation can
be obtained as:
P − 12 X −0
=
12 − 8 0 − 30
or –30 (P – 12) = 4X
15
or x = 90 – P(Demand)
2
Similarly supply function will be
P −5 X −0
=
5−8 0 − 30
or –30 (P – 5) = –3X

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or X = 10P + 50 (Supply) Notes

Using these price elasticity of demand and supply at equilibrium price,
P = Rs. 8 will be:

EP = dx . P =
−15 P −15(8)
. = = –2
dP X 2 X 2(30)

dx P 10 P 10(8) 8
ES = . = = =
dP x x 30 0
4. Derivation of marginal revenue function [MR(x)] from total revenue
function TR(x):
Total revenue function, TR(x), gives the total revenue of x units sold. It
can be obtained from the demand function as TR(x) = P . x where is the
price when x units are demanded. On the other hand, marginal revenue
function, MR(x) gives the additional revenue of xth unit. In economics,
marginal revenue is defined as change in total revenue caused by change
in number of units sold as additional revenue of xth unit = TR(x) – TR (x
– 1). It has an important relationship with total revenue as total revenue
will increase till marginal is positive, it will be zero if marginal is zero
and decrease if marginal is negative.
MR(x) can be obtained with the help of simple differentiation if TR(x)
is given. MR(x) gives the rate of change in total revenue which in turn
is also given by derivative of total revenue function. Therefore, MR(x)
is equal to simple derivation of TR(x):
d TR ( x )
MR(x) =
dx

It gives the rate of change in total revenue at x giving additional revenue

of (x + 1) the unit.

Example: The demand function of a commodity is x = 100 − p 2 .

Determine the corresponding marginal revenue function and find marginal
revenue when x = 6 units.

Solution: Given x = 100 − p 2

or p = 100 − x 2 (corresponding inverse function)

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( 100 − x ) x
Notes 2
TR(x)p . x =

Now MR(x) =
d TR ( x )
=
d ( )
100 − x 2 x
dx dx

1
(100 − x ) . − 2 x
2 −1/ 2
= 100 − x 2 + x .
2

x2
= 100 − x 2 −
100 − x 2

100 − 2 x 2
MR(x) =
100 − x 2

100 − 2 ( 6 )
2
28 7
MR(6) = = = = Rs. 3.50.
100 − ( 6 )
2 8 2

Example: The demand function of a commodity is p = 15 . 300 − 2 x

where Rs. p is the price per unit when x units are demanded. Determine
the level of output where marginal revenue is equal to zero and price
corresponding to the level.

Solution: Given p = 15 . 300 − 2 x

TR(x) = p . x = (15 . 300 − 2 x ) x

= 15 x . 300 − 2 x
d TR ( x )
corresponding, MR(x) = = d 15 x . 300 − 2 x
dx dx

= 15  x 1 ( 300 − 2 x )−1/ 2 . − 2 + 300 − 2 x 

 2 

 −x 
= 15  + 300 − 2 x 
 300 − 2 x 

 300 − 3x 
MR(x) = 15  
 300 − 2 x 

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Putting this equal to zero and solving for x Notes

 300 − 3x 
15   = 0
 300 − 2 x 
or 300 – 3x = 0
x = 100 units
At x = 100 units, p = 15 300 − 2 (100 )

= Rs. 150.
So, marginal revenue is zero when x = 100 units and corresponding price
is p = Rs. 150.
Example: A firm can sell 100 units if it charges Rs. 5 per unit. It knows
that for each Rs. 0.10 reduction in price, it can sell 20 more units.
Determine the firm’s marginal revenue function. Use it to determine
marginal revenue when x = 100 units.
Solution: Given when P = Rs. 5
quantity demanded, x = 100 units
when P = Rs. 4
quantity demanded, x = 300 units.
(as for each Rs. 0.10 reduction, quantity demanded increases by 20 units,
so if price declines 10 times to Rs. 4, quantity demanded also increases
10 times to 300 units).
Using two point form:
P −5 X − 100
=
5−4 100 − 300
or –200 (P – 5) = X – 100
or x = –200P + 1100
11 X
or P = −
2 200

So, corresponding, TR(x) = P . X =  11 − X  X

 2 200 

11 X2
= X−
2 200

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Notes 11 X2 
d X −
d TR ( X ) 2 200 
MR(X) = =
dx dx
11 X
= −
2 100
when X = 100 units
11 100 9
MR (100) = − = = Rs. 4.50.
2 100 2
5. Measurement of Price elasticity in terms of average revenue and
marginal revenue:
Price elasticity of demand, as defined earlier, is the ratio of relative change
in quantity demanded and relative change in price. In economics there
are three important methods of its measurement, viz. (i) total expenditure
method, (ii) point method, (iii) arc method.
According to point method, price elasticity of demand at a point on the
demand curve is equal to lower half of the tangent at that point divided
by upper half of his tangent as in figure, price elasticity of demand of
BC
B is equal to .
AB

The same result, if further analysed using relationship between average

revenue and marginal revenue gives elasticity of demand:
AR
Ep =
AR − MR

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  Notes
or MR = AR 1 − 1 
 E p 

[For proof, see any textbook on Economics].

The same result can be provided using simple differentiation. It is as
follow:
TR(X) = P . X
d TR ( X ) dX dP
= P. +X. [Using product form]
dX dX dX
dp
or MR(x) = P + X
dX

p
= P + X .
X . Ep

 dX p X . E p dX dP p 
Ep = . or = ∴ = 
 dp X P dP dX X . E p 

 
MR = P 1 + 1 
 E p 

 
= AR 1 + 1  [P = AR]
 E p 

 
MR = AR 1 − 1  [Q Ep is always negative]
 E p 

AR
or Ep =
AR − MR
dp
Alternatively, MR = P + X .
dP
X dP
= P + P . .
P dP
[dividing and multiply second form by p]
 
=  P + P . 1 
 E p 

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Notes    X dP 1 
MR = AR 1 − 1    as . = 
 E p   P dX E p 

Example: AR and MR denotes the average and marginal revenue of any

output, show that.
AR
EP =
AR − MR
at this output. Also find the price elasticity of demand function P =
a − bX and verify the above for the price-elasticity.
Solution: First part already proved,
Given P = a − bX

So dP = 1 −b −b
( a − bX ) . − b =
−1/ 2
=
dX 2 a − bX 2p

dX −2 P
=
dP b
So, price elasticity of demand:
dX p −2 P p
Ep = . = .
dP x b X
−2 P 2
=
bX
AR
Using Ep = ,
AR − MR
requires MR at this level which will be:
P = a − bX

TR(X) = P . X = a − bX X
d TR ( X )
Corresponding MR(X) = = a − bX + X
dX

 −b 

  (Using product form)
 2 . a − bx 
bX
= P –
2P

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2 P 2 − bX Notes
=
2p

p
Now Ep =
 2 P 2 − bX 
P− 
 2P 
P (2 p)
=
2 P − 2 P 2 + bX
2

2P 2
=  ... (iii)
bX

So, both (i) and (ii) are equal except negative sign. It is because, Ep =
AR
is based on the assumption that Ep is negative. It has already
AR − MR
been incorporated in the formula.
Example: The demand equation of a commodity is x = 60 –P2. Determine
the price elasticity of demand when marginal revenue is Rs. 4.00.
Solution: Given X = 60 – P2
and MR = Rs. 4.00
So, price elasticity of demand requires average revenue when marginal
revenue is Rs. 4. It can be obtained only if x is known at which MR =
Rs. 4.00.
P = 60 − X

TR(x) = P . X = ( 60 − X x )
d TR ( x )
MR(x) =
dx

x ( −1)
= 60 − x +
2 60 − x
2 ( 60 − X ) − X
=
2 . 60 − X

2P2 − X
MR(x) = = 4 (Given)
2P

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Notes or 8P = 2P2 – X
or x = 2P2 – 8P ... (ii)
Using (i) and (ii) equations
60 – P2 = 2P2 – 8P
or 3P2 – 8P –60 = 0
3P2 – 18P + 10P – 60 = 0
3P [P – 6] + 10 [P – 6] = 0
(3P + 10) (P – 6) = 0
−10
So, either P = (not possible, so it is ignored)
3
or P = Rs. 6
or AR = Rs. 6 when MR = Rs. 4
AR 6
Ep = = = 3.
AR − MR 6 − 4
6. Derivation of marginal cost function from total cost function:
Total cost function gives the functional relationship between total cost
and number of units produced. Marginal cost function gives the additional
cost of last unit. It can be obtained from total cost function with the help
of simple differentiation. The derivation of marginal cost function from
total cost function is explained:
d TC ( X )
MC(X) = .
dX

Example: A firm’s total cost function is TC(X) = X3 + 2000. Determine

the corresponding average cost function, A(X) marginal cost function,
M(X) and also determine the level of output where average cost equals
marginal cost.
Solution: Given TC(X) = X3 + 2000
TC ( X ) 2000
So, AC(X) = = X2 +
X X
d TC ( X )
and MC(X) = = 3X2
dX

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(Putting both equal and solving for X) Notes

2
X + 2000
= 3X2
X

or 2X3 = 2000
X3 = 1000
X = 10 units.
IN-TEXT QUESTIONS
1. An open interval is defined as that interval in which end points
_______ included.
2. Differential calculus is related with rate of change.
3. Differential calculus is related with average rate of change. The
method involved is known as _______.
4. A rational function appearing in the form of division of _______
functions is taken as continuous for all the intervals.

2.6 Successive Differentiation

So, far we have discussed the first order differentiation. But it is also
possible to obtain the derivative of the first derivative itself and this
process may go on till it is possible. The process is known as successive
differentiation. It involves the derivative of the derivatives. These are also
known as higher order derivatives. The method and standard forms are
same as in the case of first-order derivatives. For example, if y = 12x2,
its first-order derivative is 24x, its derivative 24 is known as second-order
dy d 2 y d 3 y
successive derivative, and likewise. These are denoted as , ,
dx dx 2 dx 3

and so on or y1, y2, y3 and so on or f ′ ( x ) , f ′′ ( x ) , f ′′′ ( x ) and so on.

Example: If y = ln  x + 1 + x  , show that (1 + x2) y2 + xy1 = 0.

2
 

Solution: Given, y = ln  x + 1 + x  ,
2
 

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Notes 1  1 
dy
1 + 2 (1 + x )
2 −1/ 2
y1 = = . 2x
dx x + 1 + x2  

1  x 
= 1+ 
x + 1 + x2  1 + x2 

1  1 + x2 + x 
=  
x + 1 + x 2  1 + x 2 

1
y1 =
1 + x2

Cross-multiplying, squaring both sides:

(1 + x2) (y1) 2 = 1
Differentiating both sides with respect to x.
(1 + x2) 2y1y2 + (y1) 2 . 2x = 0
Taking 2y1 common from both sides:
(1 + x2) + xy1 = 0.
1 1
d2y dy
Example: If 2x = ym + ym , prove that (x2 – 1) 2
+ x. = m2y.
dx dx
1 1
Solution: Given 2x = ym + ym

Differentiating both sides w.r.t. I

1  m −1 dy  1  − m −1 dy 
1 1
2 = y .  − y . 
m dx  m  dx 

1  m −  dy
1 1
= y − y 
m
my   dx

Cross multiplying:
1  m −  dy
1 1
2my = y − y 
m
my   dx
dy
= 2 . x 2 − 1 .
dx

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Notes
[ a − b] = ( a + b ) − 4ab
2

= 2
 m1 − 
1 1

y + y  − 4y . y
m m

 

= 4x2 − 4

= 2 . x2 − 1
dy
or my = x2 − 1 .
dx
Squaring both sides and differentiating implicitly w.r.t. x
2
 dy 
(my) = (x – 1)  
2 2
 dx 
2
d 2 y  dy 
m . 2y
2 dy
dx
= ( x − 1) 2 dy
2
. 2 +   . 2x
dx dx  dx 
dy
Taking 2 as common from both sides:
dx
d2y dy
m2y = (x2 – 1) +x
dx 2 dx

d2y dy
or (x2 – 1) 2
+x = m2y.
dx dx
1
Example: If y = x +1 − x −1 , prove that (x2 – 1) y2 + xy1 = y.
4
Solution: Given y = x +1 − x −1

1 1
y1 = −
x . x +1 2 . x −1

x −1 − x +1
y1 =
2 . x2 − 1

−y
=
2 x2 − 1

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Notes
or 2 . x 2 − 1 . y1 = –y
Squaring both sides and differentiating w.r.t. x
4(x2 – 1) (y1)2 = y2
4[(x2 – 1) 2y1y2 + (y1) 2 . 2x] = 2yy1
Taking 2y1 as common
4[(x2 – 1)y2 + xy] = y
1
or (y2 – 1)y2 + xy1 = y.
4
Example: If y = (a + bx) e–nx, show that y2 + 2ny1 + n2y = 0.
Solution: Given y = (a + bx) e–nx
y1 = (a + bx)e–nx – n + e–nx . b
= – ny + e–nx . b [Product form]
[Putting y = (a + bx)e–nx]
and y2 = –ny1 + e–nx . –bn
= –n [–ny + c–nx b] + e–nx . –bn
= n2y – nbe–nx – nbe–nx
= n2y – 2nbe–nx
Talking L.H.S. and putting values of y1 and y2
Y2 + 2ny1 + n2y
or n2y – 2nbe–nx + 2n [–ny + be–nx] + n2y
or n2y – 2nbe–nx – 2n2y + 2nbe–nx + n2y
= 0 R.H.L.
Interpretation of first derivative and second derivative
There exist an important relationship between first derivative and second
derivative. Both these together enables us to know the dimension of
change in the nature of function and rate of change in that dimension.
The first derivative gives the rate of change in the value of the function
(also known as slope of the function). It may be positive, zero or negative
indicating whether the function is increasing, constant or decreasing.

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But even if it is increasing, it may be at increasing rate (in case of increasing Notes
return) at constant rate (in case of constant return) or at decreasing rate
(in the case of third phase of laws of returns). For instance, in case of
imperfect competition, total revenue increases upto certain level but at
a decreasing rate. The same can be answered with the help of algebraic
value of second derivative. If the second derivative is positive, function
changes at increasing rate; if zero at constant rate; and if negative at
decreasing rate.
Therefore, to conclude, if first derivative gives the dimension in which
value of the function change and second derivative gives the rate at which
dy d2y
it is changing in that dimension. For example: if > 0 and > 0 , it
dx dx 2
dy d2y
means function is increasing at increasing rate; if > 0 and = 0,
dx dx 2
dy d2y
it means function is increasing at constant rate if > 0 and <0,
dx dx 2
it means function is decreasing at increasing the rare. Mathematically,
first derivative gives the rate of change of function, second derivative
gives the rate of change of the rate. First derivative gives the slope of
the function whereas second derivative gives slope of the slope. First
derivative gives the velocity whereas second derivative gives the rate
of acceleration. First derivative give the rate of change in total function
whereas second derivative gives rate of change in marginal functions.
Example: A firm selling its product under imperfect competition is given
by x = 100 − p 2 . Show that the corresponding total revenue function
increases at decreasing rate till it is increasing.
Solution: Given x = 100 − p 2

or p = 100 − p 2

So, corresponding TR(x) = p . x = ( 100 − p ) x

2

Rate of total revenue is given by:

d TR ( x ) 1
(100 − x ) − 2 x
2 −1/ 2
= 100 − p 2 . x .
dx 2

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Notes − x2 100 − x 2 − x 2
=
100 − x 2 100 − x 2

100 − 2 x 2
=
100 − x 2

100 − 2 x 2
=
p

It will be positive till x = 10 units, to TR(x) is increasing till x = 10.

d 2TR ( x )
Rate of increase till x = 10 is given by
dx 2

=
(100 − x ) ( −4 x ) − (100 − 2 x )
2 2

100 − x 2

=
(100 − x ) ( −4 x ) + (100 − 2 x )
2 2

(100 − x ) 2 3/ 2

300 x − 2 x 2 
= −
(100 − x2 )
3/ 2

which is negative so total revenue is increasing till x = 10 units, but at

decreasing rate.
Example: Show that the total cost function, TC(x) = ax2 + bx + c where
a > 0, b > 0; c > 0 is an increasing function at increasing rate.
Solution: Given TC(x) = ax2 + bx + c
d TC ( x )
So, rate of change in TC(x) = = 2ax + b
dx

which is positive as both a and b are positive. So, is it increasing function.

d 2 TC ( x )
Further = 2a > 0, so it is increasing at increasing rate.
dx 2

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2.7 Applications Based on Successive Differentiation Notes

In addition to, second derivative gives the rate of change in marginal

functions, there are a number of applications in business and economics
based on the successive differentiation. Some of these are explained below:
1. Determining the convex and concavity of functions:
In economics, the concept of convexity and concavity is significant.
There are a number of curves which should be either convex or concave
from below. For example, indifference curve must be convex from below
whereas production possibility curve is concave from below. The same
can be determined with the help of algebraic value of first derivative
and second derivative.
A function is taken as convex from below if tangent at all points is below
the curve (or curve is above the tangent). There can be three possibilities
in this case as shown below:
At x = x1
d g ( p) d 2 g ( p)
In case (i) > 0 but > 0
dp dp 2

d AC ( x ) d 2 AC ( x )
In case (ii) = 0 but > 0
dx dx 2

d f ( p) d 2 f ( p)
In case (iii) < 0 but > 0.
dp dp 2

(i) (ii) (iii)

Supply function Average cost function Demand function

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Notes For inputs, a function is taken as convex from below if its second
derivative id positive irrespective of the value of first derivative. But it
must be positive in case of supply function as shown in Figure (i), it
must be negative in case of demand function as shown in Figure (ii),
it may be first negative, then zero and positive in case of average cost
function as shown in Figure (iii). In addition to this, tangent position
changes in anti-clockwise direction in this case.
Otherwise function is taken as concave from below. In this case, tangent
is above the curve (or curve is below tangent). There can be three
possibilities in the case also as shown below:

(i) (ii) (iii)

Total Revenue Average Production Production Possibilities
function function curve
At x = x1
d TR ( x ) d 2 TR ( x )
In (i) case, > 0 but < 0
dx dx 2

d AP ( x ) d 2 AP ( x )
(ii) case = 0 but < 0
dx dx 2

d f ( x) d 2 f ( x)
(iii) case < 0 but < 0
dx dx 2

So, in each case, first derivative may take any value, but second derivative
is always negative. In addition to this, tangent changes its position in
clockwise direction.

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a Notes
Example: Show that the demand curve P = – C is downward
x+b
sloping and convex from below (p is price x is quantity and a, b and c
are positive constants).
a
Solution: Given p = – c
x+b
dp
= < 0
dx
d2 p 2a
So, demand curve is sloping downwards = > 0 which implies
dx 2
( x + b)
demand curve is convex from below.
Example: An indifference map is defined by the relation (x + h) y+k
= a where h, k and a are positive constants. Show that the indifference
curves are downwards sloping and convex from below:
Solution: Given (x + h) y+k = a
a
or x + h =
y+k

a
or x = – h
y+k

dx −a
= < 0
2( y + k )
3/ 2
dy

So, indifference curves are sloping downward.

d2x 3a
= 3/ 2 < 0,
dy 2 4( y + b)

So, in difference curves are convex from below.

d2 p 
Example: It is given that a demand curve is convex from below  2 > 0 
 dx 
at all points where p is price per unit and x is quantity demanded. Show
d2 p
that the marginal revenue curve is also convex from below if either
dx 2

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Notes d2 p 3 d2 p
is positive or is negative and numerically less than . . Does
dx 2 x dx 2
a similar property held for demand curve that are concave from below.
Solution: Let the demand function is p = f(x), then corresponding total
revenue function:
TR(x) = p . x
d TR ( x ) dx dp
= MR(x) = p . + x. [Product form]
dx dx dx
dp
or MR(x) = p + x .
dx
d MR ( x ) dp d 2 p dp dx
= + x. 2 + .
dx dx dx dx dx

dp d 2 p dp
= + x. 2 +
dx dx dx

2 dp d2 p
= + x. 2
dx dx

For its convexity from below:

d 2 MR ( x ) d2 p d 3 p d 2 p dx
= 2. + x . + .
dx dx2 dx 3 dx 2 dx

3d 2 p d3 p
= + x .
dx2 dx 3

must be positive.
3d 2 p d3 p
+ x . = 0
dx2 dx 3

3 d2 p d3 p
or . + = 0 (Dividing both sides by x)
x dx2 dx3

d3 p 3 d2 p d3 p d2 p
if is positive, then . + will be positive as is already
dx3 x dx2 dx3 dx2
positive (Given). So, corresponding MR(x) is convex from below:
d2 p 3 d2 p d 2 p
If < 0, then . > (Given)
dx2 x dx2 dx 2

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d2 p 3 d2 p Notes
So, MR(x) is convex also if < 0 but less than . .
dx2 x dx2

d2 p
In case demand curve is concave from below will be negative, then:
dx2

d 2 MR ( x ) 3 d2 p d3 p d2 p 3 d2 p d3 p
(i) = . 2 + 3 will be positive if > 0 and . <
dx x dx dx dx2 x dx2 dx3
which is not fulfilled. So, MR(x) will not be convex from below if
demand curve is concave from below in this case.
d3 p 3 d2 p d3 p
(ii) if < 0 then . + < 0,
dx3 x dx2 dx3

So, MR(xx) is again concave from below.

2. Determining the relatively extreme values of functions:
Another important application based on successive differentiation is
determination of relatively extreme values of a function (also known as
maxima and minima). This in turn, has a number of important applications
in business and economics.
It involves the following steps:
(a) Determining the point where it takes relatively extreme value: if y
= f (x) is the function, then put dy/dx = 0 and solve for x, gives
the value of x where f (x) takes relatively extreme value.
(b) Determining whether function is taking relatively maximum, relatively
minimum or point of inflection (neither increasing, nor decreasing)
at the point given by step (a), as

d2 y
if > 0, relatively minimum.
dx2

d2 y
if = 0, point of inflection.
dx2

d2 y
if < 0, relatively maximum.
dx2
It is also possible to determine the relative maxima and minima using
first derivative in place of second derivative in the second step. First
step is same in this situation also.

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Notes dy
(i) It is relatively maximum at the point where = 0, if derivative
dx
is positive for this any value of x before this and negative for any
after this.
dy
(ii) It is relatively minimum at the point where = 0, if first derivative
dx
is negative for any values of x before this and positive for any
value after this.
(iii) It is a point of inflection of first derivative is zero for some value
before and after this.

x 2 − 27
Example: Find relatively extreme values of a function y = and
x−6
also determine maxima and minima.
x 2 − 27
Solution: Given y =
x−6

For relatively extreme values its first derivative will be equal to zero.
dy
=
( x − 6 ) 2 x − ( x 2 − 27 )
dx ( x − 6)
2

x 2 − 12 x + 27
=
( x − 6)
2

Putting it equal to zero and solving for x

x 2 − 12 x + 27
= 0
( x − 6)
2

x2 – 12x + 27 = 0
(x – 3) (x – 9) = 0
So, either x = 3 or x = 9

( x − 6 ) ( 2 x − 12 ) − ( x 2 − 12 x + 27 ) . 2 ( x − 6 )
2
d2 y
When x = 3, =
dx2 ( x − 6)
4

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9 ( 2 x − 12 )
Notes
−53 −2
= = =
( x − 6)
4
81 3

d2 y 54 2
and when x = 9, = =
dx2 81 3
Therefore, at x = 3, it takes relatively maximum value, i.e., 18 and at x
= 9, it takes relatively minimum value, i.e., 6.
Example: Find the value of a, b and c of a function f (x) = ax2 + bx
+ c, if it has relatively maximum value of 7 at x = 1 and the function
passes through the point (2, –2).
Solution: Given f (x) = ax2 + bx + c
If it has relatively maximum value of 7 at x = 1
d f ( x)
= 2ax + b = 0
dx
Putting x = 1, 2a + b = 0 ... (i)
Also when x = 1, f (x) = 7
and when x = 2, f (x) = –2
a + b + c = 7 ... (ii)
4a + 2b + c = –2 ... (iii)
Subtracting (ii) and (iii),
3a + b = –9 ... (iv)
Solving (i) and (iv) simultaneously for a and b
a = –9, b = 18
Putting these in (ii) equation, c = –2.
3. Determining the equilibrium of firm:
Equilibrium is described as the state of stability. A firm is said to be
in equilibrium when it is not willing to change its price and output. It
occurs when firm makes maximum profit (as in economic analysis, it is
assumed that a firm is willing to maximise profit).
It can be determined with the help of first derivative and second derivative
if firm’s demand function with total cost function is given. The method
is based on the conditions given in economics.

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Notes A firm’s equilibrium occurs at that level where marginal revenue equals
marginal cost and marginal cost cuts marginal revenue curve from below.
Mathematically, it requires:
(i) Putting MR(x) = MC(x) and solving for x

d 2TR ( x ) d 2Tc ( x )
(ii) At this value of x, < , for profit maximisation.
dx 2 dx 2
If the second condition is not fulfilled, the firm will not make maximum
profit.
Example: The demand function of a commodity is
P = 1000 – 2x
TR(x) = P . x = (1000 – 2x) x
= 1000x – 2x2
d TR ( x )
and MR(x) = = 1000 – 4x ... (i)
dx
Similarly TC(x) = x3 – 5ax2 + 1315x + 2000
d TC ( x )
MC(x) = = 3x2 – 118x + 1315 ... (ii)
dx

For equilibrium MR equals MC

Putting MR(x) = MC(x) and for x:
1000 – 4x = 3x2 – 118x + 1315
or 3x2 – 114x + 315 = 0
or x2 – 38x + 105 = 0
or (x – 3) (x – 35) = 0
either x = 3 or x = 35
d 2TR ( x )
At x = = –4
dx 2
= 6x – 118 = –100
So –4 > 100.
d 2TR ( x )
At x = 35, = –4
dx 2

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d 2TC ( x ) Notes
= 6x – 118 = 92
dx 2

So –4 < 92
Firm is making maximum profit when x = 35 unit as
d 2TR ( x ) d 2TC ( x )
<
dx 2 dx 3
At this level, P = 1000 – 2 (35) = Rs. 930.

2.8 Maxima and Minima

In calculus, extreme values of a function are of two types, viz., relatively
extreme and absolutely extreme values. Relatively extreme values
also known as local extreme values. They are extreme in relation to
surrounding values of a function. Some are described are maxima and
manima. Absolutely extreme values are extreme in the entire range of
the function. These values are also known as global extreme values or
maximum and minimum. These may be more than one relatively extreme
values of a function but there is only one absolutely extreme value of a
function in the Figure.

f (x) has relatively maximum values at B and D and relatively minimum

of point A and C. But it has absolutely maximum at B and absolutely
minimum at C.
Calculus gives only relatively extreme values. For example, if a profit
function is given, similarly if average cost function is given, objective is
to determine the level of output where cost per unit is minimum.

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Notes Absolutely extreme values can be obtained from relatively extreme values
by simple comparison. If a function has two relatively maximum values,
then absolutely maximum can be obtained by comparing both relatively
maximum values of a function. But if the function has only one relatively
extreme value it becomes absolutely extreme also.
The relatively extreme values can be obtained using calculus in the same
way as explained in the determination of relatively extreme values under
Successive Differentiation. The step required are summarised below:
dy
(i) If y = f (x), then put = 0 and solve for x.
dx
d2 y
(ii) At this values of x, if > 0, y takes relatively minimum value,
dx2
d2 y
if = 0, point of inflection, and
dx2

d2 y
if < 0, y takes relatively maximum values.
dx2
Example: If f (x) = ax2 + bx + c, a 1
0, prove that the point
 −b 4ac − b 2 
 , 
 2a 4a 

is a relatively maximum if a < 0 and is a relatively minimum if a > 0.

Solution: Given f (x) = ax2 + b + c
d f ( x)
= 2ax + b.
dx
Putting it equal to zero and solving for x for relatively extreme value.
2ax + b = 0
x = –b/2a
−b
At x =
2a
d 2 f ( x)
= 2a
dx 2

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It will be positive if a > 0, so taking relatively minimum value of Notes

2
−b −b 4ac − b 2
= a   + b   + c =
 −b 
f 
 2b   2a   2a  2a

4ac − b 2
It will be negative if a < 0, so taking relatively minimum value of
2a

2.9 Applications in Business and Economics

There are a number of important applications in business and economics
based on maxima and minima. Some of these involves maximisation,
others minimisation depending on the nature of the function. Some of
the important applications are explained below:
1. Maximisation of total revenue function:
If a firm’s demand function is given, it is possible to determine the
corresponding level of output whose total revenue is maximum using
maxima and minima. But it will be possible only if firm is operating under
imperfect competition (where price decreases as firm sells more units).
In case of perfect competition, price is constant for a firm resulting in
total revenue as an increasing function. The total revenue is maximum
when marginal revenue is zero.
d TR ( x )
(i) Put = 0 and solve for x.
dx

d 2TR ( x )
(ii) The value of x, where , Tr(x) is maximum.
dx 2
Example: The demand function of a commodity is p = 15e–x/3 for 0 d
x d 8 where Rs. p is the price per unit when x units are demanded.
Determine the price and quantity for which total revenue is maximum.
Solution: Given p = 15e–x/3
TR(x) = p . x = (15e− x / 3 )
x

= 15xe–x/3
dTR ( x )
and = 15  x . e − x / 3 . −1 + e − x / 3 + 1
dx  3 

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Notes
= 15e − x / 3  − x + 1
 3 
For maximisation, put it equal to zero and solve for x
 −x  = 0
15e x / 3  + 1
 3 

So, either 15e − x / 3 = 0 or  − x + 1 = 0

 3 
−x
+ 1 = 0 [15e–x/3 = 0 not possible as it is equal to p]
3
x = 3 units.

d 2TR ( x )  − x / 3 −1  − x  − x / 3 −1 
At x = 3, = 15 e . +  + 1 e . 
dx 2
 3  3  3

= −5e x / 3 1 + x + 1

 3 

= –5e–1 < 0.
So, TR(x) is maximum when x = 3 units
At this level, p = 15e–1.
Example: A watermelon grower wishes to send his produce to the city
market as early as possible in the season to catch the prices. He can
send now 6 tons at a price of Rs. 60 per ton. By waiting, he estimates
that he can add 3 tons per week to what he can send now, but then the
price will be reduced by Rs. 5 per ton per week. How long should he
wait for maximum revenue (use the method of Calculus). Also determine
price at that level and maximized total revenue.
Solution: Let watermelon waits for x weeks for maximum revenue.
Then quantity after x weeks = (6 + 3x) tons and price after x weeks =
Rs. (60 – 5x) per ton.
Total revenue after x weeks:
TR(x) = (60 – 5x) (6 – 3x)
For maximisation, take its first derivative w.r.t. x
dTR ( x )
= (60 – 5x) (6 + 3x) – 5
dx

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Putting it equal to zero and solving for x Notes

150 – 30x = 0
or x = 5 weeks
d TR ( x )
2
At x = 5 weeks, = – 30 < 0.
dx 2

Sp TR (x) is maximum at x = 5 weeks.

When p = (60 – 5x) = (60 – 25) = Rs. 35 per ton.
and TR(5) = 35(21) = Rs. 735.
Example: A shoe manufacturer produces both high grade and low grade
shoes in units of x hundreds of pairs and y hundreds of pairs per day
respectively. Assume that the equipment in plant is capable of producing
the shoes is this relationship:
42 − 5 x
y = (x < 10)
10 − x
if the high grade shoes are sold at a price twice the low grade shoes.
Determine the pairs of both be produced to maximize total revenue.
Solution: Let the price of low grade shoes be Rs. p per pair, then price
of high grade shoes will be Rs. 2 p per pair. Accordingly total revenue
will be:
TR = 2px + py

or TR(x) = 2px + p  42 − 5 x 
 10 − x 

 42 − 5 x 
 Putting y = 10 − x 
 
For maximizing TR(x), take its first derivative w.r.t. x, put it equal to
zero and solve for x

dTR ( x )
 (10 − x ) . − 5 − ( 42 − 5 x ) . − 1 
= 2p + p  
(10 − x )
2
dx  

 −8 
= 2p + p  
 (10 − x ) 
2

Putting it equal to zero and solving for x

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Notes
 −8 
2p + p   = 0
 (10 − x ) 
2

8
= 2 [Cancelling p from both sides]
(10 − x )
2

or (10 – x)2 = 4
10 – x = +2 or 10 – x = –2
or x = 8 or 12
x = 8 [x < 10, to x = 12 not possible]
d 2TR ( x ) −16
At x = 8 = which is negative, so
(10 − x )
2 2
dx

RT(x) is maximum when x = 8, putting this in transformation function

 42 − 5 ( 8 ) 
y =   = 1.
 10 − 8 
Therefore, total revenue is maximum when manufacturer produces 800
pairs of high grade and 100 pairs of low grade.
2. Minimisation of Average cost function:
Maxima and minima can also be used for determining the level of output
where per unit cost is minimum corresponding to given total or average
cost function. It is often used in economic analysis. It gives the optimum
level of output.
dA ( x ) d 2 AC ( x )
(i) Put = 0 and solve for x (ii) the value of x for which
dx dx 2
> 0, per unit cost is minimum corresponding average cost can be
obtained by putting this x in AC(x).
Example: A train which is found to consume fuel at the rate of (0.0002x2
+ 0.02x + 0.32) gallons per hour when travelling at x miles per hour.
Determine (i) the speed at which the fuel consumption per mile is at
minimum. (ii) if fuel cost Rs. 0.50 per gallon and other costs are Rs.
0.09 per hour, what speed will minimize the total cost per mile.
Solution: Given fuel consumption for x miles is (0.0002x2 + 0.02x +
0.32) gallons when speed is x miles per hour.

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TC(x) = 0.0002x2 + 0.02x + 0.32 Notes

Corresponding AC(x) giving per miles fuel consumption will be:
AC ( x ) 0.32
AC(x) = = 0.00002 x + 0.02 +
x x
For minimising it, take its first derivative w.r.t. x
dAC ( x ) 0.32
= 0.0002 −
dx x2
Putting it equal to zero solving for x
0.32
0.0002 – = 0
x2
or x2 = 1600
x = 40 miles per hour.
d 2 AC ( x ) 0.64
At x = 40 miles per hours, = > 0
dx 2
x3
The fuel consumption is minimum at x = 40 miles per hour.
(ii) If fuel cost Rs. 0.50 per gallon and other costs are Rs. 0.09 per hour,
then total cost of x miles travelled in one hour will be:
TC(x) = 0.50 [0.0002x2 + 0.02x + 0.32] + 0.09
So, corresponding average cost per mile will be:
TC ( x )
AC(x) = = 0.50 0.0002 x + 0.02 + 0.32  + 0.09
x  x  x

For minimising AC(x), take its derivative w.r.t. x

dAC ( x )
= 0.50 0.0002 − 0.32  0.09
2 
0.25
− 2 = 0.0001 − 2
dx  x  x x

Putting it equal to zero and solving x

0.25
0.0001 – = 0
x2
or x2 = 2500
or x = 50 miles per hour.
d 2 AC ( x ) 0.25
At x = 50 miles per hour, = > 0.
dx 2
x2

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Notes The cost is minimum when speed is 50 miles per hour.

Example: A machine initially costs Rs. 6,400 with no scrap value. The
cost of operating is Rs. 500 in the first year and increases to Rs. 800
in each successive year. Determine (i) the number of years it should be
operated for minimising total operating cost per year, and (ii) corresponding
cost per year.
Solution: Capital cost = Rs. 6400
Operation cost = Rs. 500 + Rs. 1300 + Rs. 2100.... upto x years.
x
= [2(500) + (x – 1)800]
2
[Second x term of an A.P.]
x
= [800 + 200]
2
= 400x2 + 100x
TC(x) = operating cost + capital cost
= 400x2 + 100x + 6,400.
Corresponding per year cost function will be:
TC ( x ) 6400
AC(x) = = 400x + 100 + .
x x
For minimising it, take its derivative w.r.t. x
dAC ( x ) 6400
= 400 –
dx x2
Putting it equal to cost and solving for x.
6400
400 – = 0
x2
or x = 4 years
d 2 AC ( x ) 12800
At x = 4 years, = > 0. So, cost per year is minimum if
dx 2
x3
machine is operated for 4 years. Corresponding AC(x) = 400 (4) + 100

6400
+ = Rs. 3300.
4

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3. Maximisation of profit function: Notes

If a firm’s demand function with total cost function is given, it is possible
to determine the firm’s equilibrium by maximizing the corresponding profit
function in other situations also the same can be applied, if profit function
can be obtained. It is taken as profit, function p(x) = TR(x) – TC(x).
d π( x)
For maximizing if (i) = 0 and solve for x, (ii) the value of x
dx
d 2π( x)
for which < 0, profit is maximum corresponding profit can be
dx 2
obtained by putting in p(x).
Example: The total cost function of a firm is
1 3
TC(x) = x – 5x2 + 28x + 10
3
where TC(x) is the total cost of x units. A tax at the rate of Rs. 2 per
unit of output is imposed and the producer adds it to his cost. If the
market demand function is given by
P = 2530 – 5x
where P is the price per unit of output, determine the profit maximising
price and output.
Solution: Given P = 2530 – 5x
1 3
TC(x) = x – 5x2 + 28x + 10
3
corresponding TR(x) = P . x,
1 1
After tax TC(x) = x3 – 5x2 + 28x + 10 + 2x = x3 – 5x3 + 30x + 10
3 3
= (2530 – 5x)x
= 2530x – 5x2
p(x) = TR(x) – TC(x)
1 3
= 2530x –5x2 – x + 5x2 – 30x – 10.
3
1 3
= –x + 2500x – 10
3

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Notes For maximising p(x), take its derivative w.r.t. x

d π( x)
= –x2 + 2500
dx
Putting it equal to zero and solving for x
–x2 + 2500 = 0
or x = 50 unit.
d 2π( x)
At x = 50 units = –2x < 0
dx 2
So, profit is maximum
when x = 50 units,
Corresponding P = 2530 – 5 (50) = Rs. 2280.
Example: The relationship between sales, TR(x) and advertising cost,
Rs. x is given by
32000 x
TR(x) =
500 + x
It is known that gross profit is 25 per cent of the sales. Determine (i)
the corresponding net profit as a function of x, p(x) (ii) the value of x
which maximises p(x) and (iii) maximized p(x).
32000 x
Solution: (i) Given TR(x) =
500 + x

So, gross profit = 1  32000 x 

4  500 + x 

8000 x
=
500 + x
p(x) = Gross profit – x (advertisement cost)
8000 x
= – x.
500 + x
(ii) For maximizing it, take its first derivative w.r.t. x,

d π( x) ( 500 + x ) 8000 − 8000 x

= – 1
( 500 + x )
2
dx

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Notes
8000 ( 500 )
= – 1
( 500 + x )
2

Putting it equal to zero and solve for x

8000 ( 500 )
– 1 = 0
( 500 + x )
2

(500 + x)2 = 8000 (500)

500 + x = 2000
x = Rs. 1500
d 2π( x) −8000000
At x = Rs. 1500, = < 0
( 500 + x )
2 3
dx

So, p(x) is maximum when x = Rs. 1500.

8000 (1500 )
(iii) Corresponding profit p (1500) = – 15000
500 + 1500
= Rs. 4500.
Example: A coal dealer has 80 tons of coal in stock which can be sold
at the rate of Rs. 3.00 per kg. in this month. The dealer knows that price
will increase by Rs. 0.10 per month on an average if he does not sell in
the current month, but coal looses weight by 1 per cent per months with
a storage cost of Rs. 30 per ton per month. Determine (i) the dealer’s
net revenue function assuming he stores for x months, (ii) the profit
maximizing value of x (iii) price at that level, and (iv) maximised profit.
Solution:
(i) Let assume dealer stores for x months,
Price = Rs. (3 + 0.10x) per kg.
Quantity = (8000 – 800x) kg.
Storage cost = Rs. 2400x
So p(x) = Px
= (3 + 0.10x) (80000 – 800x) – 2400x
= 2,40,000 + 3200x – 80x2

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Notes (ii) For maximising, take its first derivative w.r.t. x

d π( x)
= 3200 – 160x
dx
Putting it equal to zero and solving for x
3200 – 160x = 0
x = 20 months.
d 2π( x)
At x = 20 months, = –160 < 0
dx 2
So, p(x) is maximum when x = 20 months.
(iii) Corresponding price, P = Rs. [3 + 0.10 (20)]
= Rs. 5.00 per kg.
(iv) Maximised profit, p(2) = 2,40,000 + 3200(20) – 80(20)2
= Rs. 2,72,000.
4. Minimisation of Total Cost:
Usually, total cost function gives the functional relationship between
total cost and the number of units produced. It means it is an increasing
function, so minimisation of this is not possible. But sometimes, the total
cost is defined in such a way that, it decreases upto certain level and
then increases. Only in such cases, this application is relevant. The step
involves for minimisation are as follow:

dTC ( x )
(i) Put = 0 and solve for x
dx

d 2TC ( x )
(ii) The value of x for which > 0,
dx 2
TC(x) is minimum.
Example: An open tank with a square base and vertical sides is to be
constructed of the metal sheet so as to hold a given quantity of water.
Show that this cost of material will be least when depth is half of the
width.
Solution: Let capacity tank = y cubic units and its base = x units, with
height = h units. Corresponding volume of open tank will be:
length . breadth .height = y

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or x . x . h = y Notes
y
or h = units.
x2
If cost of material is Rs. C per sq. unit, then total cost,
TC(x) = cost of bottom material + cost town sides material.
= C [Area of bottom] + C [Area of front and back]
= + C [Area of two sides]

TC(x) = cx2 + 2c  x . y2  + 2c  x . y2 
 x   x 

2cy 2cy
= cx 2 + +
x x
4cy
TC(x) = cx 2 +
x
For minimising it, take its derivative w.r.t. x
dTC ( x ) 2cy
= 2cx –
dx x2
Putting it equal to zero and solving for x
4cy
2cx – = 0
x2
4cy
2cx =
x2
2 y 2 x2 y
or x = 2
= 2 [as y x2h]
x x
or x = 2h
d 2TC ( x ) 8cy
At x = 2h, = 2c + > 0.
dx 2
x3
So, TC(x) is minimum when depth is half of the width.
440
Example: A cylinder with a capacity of cubic ft. is made of two
7
types of material. The cost of material of the top and bottom is Rs. 6
per sq. ft and the sides material cost Rs. 4.80 per sq. ft. Determine the

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Notes dimensions of the cylinder which minimizes total cost and minimized
total cost.
440
Solution: Given volume = cubic ft.
7
440
So pr2h = cubic ft.
7
440
h =
7πr 2
440 7
=
7 22r 2
20
=
r2
Corresponding cost of material of top and bottom
= [Total area of top and bottom] × Rate
= (2pr2) 6 = Rs. 12pr2
Cost of sides = {Total area of sides} × Rate
= (2prh) . Rs. 4.80
= Rs. 9.60 prh

TC(r) = 12pr2 + 9.60pr .  202 

r 

192π
= 12πr 2 +
r
For minimising, TC(r), take its first derivative w.r.t. r
dTC ( r ) 192π
= 24πr −
dr r
Putting it equal to zero and solving for r
192π
24πr − = 0
r2
192π
r2 = = 8
24π
r = 2 ft.

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At r = 2ft. Notes
d 2TC ( r ) 384π
= 24πr −
dr 2
24r 3
So, at r = 2 ft, TC (x) is minimum
20
Corresponding h = = 5 ft.
( 2)
2

and minimized TC (2) = 48x + 96p

= Rs. 144p.
5. Maximisation of tax Revenue:
The theory of maxima and minima can also be used for maximizing tax
revenue. The method used is same as in case of optimizing other functions
as total revenue function, total cost function etc. The only difference is
that the level of output sold is function of the rate of tax. So, total tax
revenue is equal to rate of tax multiplied by units sold, is a function of
rate of tax.
The unit sold is obtained considering the production tax imposed at the
rate of Rs. T per unit. It will be different in case of perfect competition
and monopoly. In the case of perfect competition, output sold is given
by equilibrium price whereas in the second case, it is same as profit
maximizing output given by equality of marginal revenue and marginal
cost.
Therefore, in the case of perfect competition, the tax imposed is added
in the supply function which will shift the supply function upward and
increase the equilibrium price to some output (depending on the elasticity
of demand) and reduces the equilibrium quantity as shown in Figure 1.

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Notes

Figure 1
So, if P = f(x) (Demand function)
and P = g(x) (Supply Function before tax)
then P = g(x) + t (supply function after tax)
Equilibrium output is given by putting,
f(x) = g(x) + t and solving for x. It will give x as a function of tax rate t.
Corresponding to this output.
Total tax revenue = t . xt.
So, for maximizing (i) it take its derivative w.r.t. t, put it equal to zero

d 2TR ( t )
and solve for t. (ii) the value of t for which < 0; tax revenue
dt 2
is maximum.
In the case of monopoly, the firm adds it to the marginal cost function
as shown in Figure 2.

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Notes

Figure 2
The profit maximizing output is given by setting MR(x) = MC(x) + t
and solving for x. At this profit must be minimum. It is same as xt.
Corresponding total tax Revenue: TR(t) = t . x which can be maximized
in the same way as explained above.
Example: An industry operating under competition has the demand
x
function P = 10 – x with the supply function P = 4 + . Determine (i)
2
the equilibrium quantity before tax; (ii) the equilibrium quantity after tax
if tax at the rate of Rs. t per unit is imposed; (iii) the value of t which
maximizes tax revenue; (iv) maximized tax revenue.
Solution:
(i) Given P = 10 – x (Demand function)
x
and P = 4 + (Supply function before tax)
2
Equilibrium quantity will be:
x
10 – x = 4 +
2
or x = 4 units
Corresponding equilibrium price will be, P = 10 – 4 = Rs. 6.

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Notes x
(ii) After tax supply function becomes P = 4 + + t. So, new equilibrium
2
after tax will be
x
10 – x = 4 + + t
2
2
or xt = 4 – t.
3
2
(iii) if xt = 4 – t, total tax revenue will be
3

Tax Revenue (t) = t  4 − 2 t 

 3 

For maximizing it, take its first derivative w.r.t. t.

d tax Revenue ( t ) 4
= 4 – t
dt 3
Putting it equal to zero and solving for t.
4
4 – t = 0
3
or t = Rs. 3 per unit.
At t = Rs. 3 per unit,
d 2 Tax Revenue ( t ) 4
= – < 0
dt 2
3
So, tax revenue is maximum when t = Rs. 5 per unit.
(iv) Maximized tax revenue = t . xt

= 3  4 − 4 t 
3  
= Rs. 6.
Example: The demand and total cots function of a monopolist are P =
12 – 4x and TC(x) = 8x + x2 respectively. It the tax of Rs. t per unit is
imposed. Find (i) the quantity and price corresponding to the maximum
profit, (ii) maximized profit, and (iii) the tax that maximizes the tax
revenue.

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Solution: Notes
(i) Given P = 12 – 4x, so total revenue, TR(x) = 12x – 4x2
Total cost after tax, TC(x) = 8x + x2 + tx
p(x) = TR(x) – TC(x)
= 12x – 4x2 – 8x – x2 – tx
= x (4 – t) – 5x2.
For maximizing p(x), take its first derivative w.r.t. x,
d π( x)
= (4 – t) – 10x
dx
Putting it equal to zero and solving for x
(4 – t) – 10x = 0
4−t
or x = units
10
4 − t d 2π( x)
At x = , = –10 < 0.
10 dx 2

4−t
So, profit is maximum when x = ,
10

= 12 – 4 (
4 − t) 52 + 25
Corresponding P =
10 10
2
4−t 4−t
(ii) Maximized profit,  4−t 
π  = [ 4 − t ] − 5  
 10  10  10 

(4 − t )
2

=
20
4−t
(iii) When x = ,
10

Tax revenue (t) = t . x = t  4 − t  .

 10 
For maximizing it, take its derivative w.r.t. t
d tax revenue ( t ) 4 − 2t
=
dt 10

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Notes Putting it equal to new and solving for t

4 − 2t
= 0 or t = Rs. 2.
10
At t = Rs. 2,
d 2 tax revenue ( t ) 1
= t < 0.
dt 2
5
So, tax revenue is maximum when t = Rs. 2 per unit.
6. Determination of Economic-order Quantities:
Economic-order quantity (EOQ) is defined as that order size where overall
cost of maintaining inventory is minimized. It is the basic concept of
inventory control models.
A simple EOQ model assuming deterministic demand and supply conditions,
constant cost, linear demand, instantaneous supply, no shortage involves
the following costs:
(i) Inventory Cost: It means cost of purchasing inventory. In this simple
case where demand is known with certainty with constant per unit
cost. Inventory cost = No. of units demanded x cost per unit. Since
it is constant in this situation, it does not effect EOQ. So, whether
it is considered for calculating EOQ or not does not effect EOQ.
(ii) Ordering Cost: It includes all those cost which are incurred from
the placement of order till supply inventory reaches the premises.
If order size with ordering cost is given; then total ordering cost
is equal to number of order multiplied by cost per order. Number
of orders is given by demand per time unit divided by order size.
So, total ordering cost = No. of order x per order cost.
D
= (s)
x
where D is demand per time unit betting given; x is the order size
and s is the cost per order. It has opposite relationship with order
size.
(iii) Holding Cost: It is also known as storage cost, it includes all those
costs which are incurred for maintaining inventory in stock such
as godown rent, insurance charges, godown keeper salary etc. It is

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equal to average inventory in stock multiplied by per unit holding Notes

cost. Average inventory in stock is given by average of opening
and closing stock.
x
So, Holding cost = . H  Average inventory = x + 0 = x 
2  2 2
It has direct relationship with order size.
Therefore, total inventory cost, if x is order size will be give by
TC(x) = Cost of inventory + Ordering cost + Holding cost
D x
= DC + . s + . H
x 2
where D, C, s and H are constants.
The purpose is to determine the value of x which minimizes TC(x). The
method is same as explained earlier. Same value of x is known as EOQ.
Example: A company required 1,200 units of inventory in a year. The cost
of inventory is Rs. 10 per unit. Cost of ordering is Rs. 300 irrespective of
the size of order and holding cost is 20 per cent of the average value of
inventory in the business. Find the total cost function TC(x) when order
are placed in x units and determine the value of x which minimizes the
overall cost.
Solution: Let x is the order size which minimizes the total cost; then
cost of inventory = DC = (1,200) (Rs. 10) = Rs. 12,000.

1200
Cost of ordering = No. of orders × per order cost = (300)
x
Cost of holding = Average inventory × per unit holding cost

= x (10 )  20  = Rs. x
2 100  
1200
So TC(x) = 12000 + (300) + x
x
For minimizing TC(x), take its first derivative w.r.t. x
dTC ( x ) 3,60,000
= – + 1
dx x2

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Notes 3,60,000
Putting it equal to zero and solving for x – + 1 = 0, x = 600 units.
x2

d 2TC ( x ) 7, 20,000
At x = 600 units, = > 0.
dx 2
x3
TC(x) is minimum when order size is 600 units.
7. Relationship between average product and marginal product:
There exists an important economic relationship between average product
and marginal product. The relationship states if average product increases,
marginal product increases at a higher rate and lies above average product;
if average product decreases, marginal product decreases at a higher
rate and lies below average product but marginal product equal average
product is maximum. The same is shown in the Figure.
The relationship can be produced using maxima and minima. The important
is to show that both are equal when AP is maximum. If total product
is given as univariate function (involving an input) then corresponding
TP ( x ) dTP ( x )
AP(x) = and MP(x) = . Now maximizing AP(x) requires
x dx
taking derivative of AP(x) w.r.t. x, putting it equal to zero and solving x.
At this level both average product and marginal product must be equal.

Example: The total production function of a commodity is given by TP(x)

= ax + bx2 + cx2 where TP(x) is total output and x is input. Verify that
when average product is maximum, it is equal to marginal product. Are
there any restrictions for the value of a, b and c.

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Solution: Given TP(x) = ax + bx2 + cx2 Notes

TP ( x )
AP(x) = = a + bx + cx2
x

dTP ( x )
MP(x) = = a + 2bx + 3cx2
dx
For maximizing AP(x), take the first derivative w.r.t. x
dAP ( x )
= b + 3cs
x
Putting is equal to zero and solving for x
b + 2cx = 0
−b
x =
2c
Putting it equal to zero and solving for x
b + 2cx = 0
d 2 AP ( x )
At x = −b , 2
must be negative for maximum
2c dx

d 2 AP ( x )
= 2c if less than zero
dx 2
So, c must be negative.
−b
If c must be negative, then b must be positive for x = being positive.
2c
b2 b2c b2
At x = −b , AP  −b  = a – + 2 =a−
2c  2c  2c 4c 4c

 b2  b2
and MP  −b  = a + 2b  −b  + 3c  2  = a –
 2c   2c   4c  4c

−b
So, both AP(x) and MP(x) are equal when x = (where AP(x) maximum).
2c
8. Other Applications:
In addition to these specific applications based on maxima and minima,
there are a number of situations where these can be applied. Some of
these are exemplified below.

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Notes Example: A wire of 50 cms in length is to be cut in two parts and then
bent into two circles. Find the length of each part so that the sum of the
areas of two circles is least.
Solution: Let one part = x cms, then other part = 50 – x cms.
So, circumference for first circle = 2pr = x
x
or r =
2π
πx 2 x 2
Corresponding area of this circle = pr2 = =
4π 2 4π
Similarly, circumference of second circle = 2pr = (50 – x) cms.
50 − x
or r =
2π
2
 50 − x 
Corresponding Area of circle = pr = p  2

 2π 

( 50 − x )
2

=
4π
Total area of two circles given by adding (i) and (ii) will be
x 2 ( 50 − x )
2

A(x) = +
4π 4π
For minimizing, take its first derivative, w.r.t. x

dA ( x )
= x −(
50 − x )
So
dx 2π 2π

2 x − 50 x − 25
= =
π 2π
x − 25
Putting it equal to zero and solving for x, = 0
2π
or x = 250 cms

d 2 A( x)
At x = 25 cm, = > 0,
dx 2
So, area of two circle is least if each part is of 25 cms.

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Example: The production manager of a publishing company plans to Notes

include 180 sq. cms. of actual printed matter in each page of a book
under production. Each page should have 2.5 cms margin along the top
and bottom and 2 cms wide margin along the sides. What are the most
economical dimensions of each printed pages.
Solution: Let length of the printed page = x cms

180
then breadth of printed page = cms. (as Area = length × breadth)
x
Corresponding length of pate = [x + 2(2.5)] cms = (x + 5) cms
(as margin both sides is 2.5 cms)

breadth of the page will be = 180 + 2 ( 2 )  cms

 x 
180
= + 4 cms.
x

Corresponding Area of page, A(x) = (x + 5)  180 + 4 

 x 
For the most economical dimension, A(x) should be minimum.
Put first derivative of A(x) w.r.t. x equal to zero and solve for x.

dA ( x )
= (x + 5) – 180  180
+

+ 4 = 0
dx x3  x 
180 900 180
= − − 2 + + 4 = 0
x x x
or x2 = 225
or x = 15 cms.

d 2 A( x) 1800
At x = 15 cms = > 0
dx 2 x3
So, A(x) is minimum when length of page (5 + 5) = 20 cms,
 1800

and breadth of page =  15 + 4  = 16 cms.
 
Example: An open box with length one and a half times the breadth is
made form 1800 sq. ft. of material. Determine the dimensions of the box
so as to minimize its volume and minimized volume.

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Notes Solution: Given surface area of his open box = 1800 sq. ft.

3
Let breadth of box is x ft. then length = x ft with height h ft.
2
Then Area of bottom + Area of front and box + Area of two sides +
surface area

or 3 x 2 + 2  3 × h  × 2 × h = 1800
2 2 
3 2
or x + 5 xh = 1800
2
3 2
1800 − x
h = 2 ft.
5x
Corresponding volume of the open box, V(x) = length . breadth . height

 3 2
3 1800 − 2 x 
= x . x .  
2  5x 
 

9 3
= 540x – x
20

For maximizing V(x), take its first derivative w.r.t. x

dV ( x) 27 2
= 540 − x
dx 20
Putting it equal to zero and solving for x

27 2
540 − x = 0
20
or x = 20 ft.

d 2 N ( x) −27
At x = 20 ft. = x < 0,
dx 2
10
So, volume is maximum when breadth = 20 ft.

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 BUSINESS MATHEMATICS

3 Notes
( 20 )
2
1800 −
Corresponding length = 30 ft, height = 2 = 12 ft.
5 ( 20 )

Maximized volume, V(20) = (30)(20)(12) = 7200 cubic ft.

IN-TEXT QUESTIONS
5. The process of successive differentiation is also known as of
________ the derivatives.
6. The relationship states if average product increases, marginal
product increases at a rate ________.
7. Economic-order quantity (EOQ) is defined as that order size
where overall cost of maintaining inventory is ________.

2.10 Summary
In this chapter of differentiation of a function we have studied the
meaning of derivatives, Derivative as Instantaneous Rate of Change,
Standard Forms of Differentiation maxima & minima of Functions. We
also studied the concepts of marginal analysis and elasticity of demand
and supply. Applications based on derivation as instantaneous rate of
change, Applications based on Successive Differentiation, Applications in
business and economics has also been discussed in detail in this chapter.

2.11 Answers to In-Text Questions

1. Two
2. Average
3. Differentiations
4. Zero
5. Derivatives
6. Higher
7. Minimized

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Notes 2.12 Self-Assessment Questions

1. If y = xn, find its derivative by first principle.
2. The total cost of producing x units of a commodity is TC(x) = x3 +
100. Show that rate of change in total cost is varying at all levels.
3. Differentiate y = xn e ax + b with respect to x.
4. Show that the total cost function, TC(x) = ax2 + bx + c where a >
0, b > 0; c > 0 is an increasing function at increasing rate.
5. A firm has a revenue function given by TR (x) = 10x where x is
the units demanded and TR (x) is gross revenue with a production
2
 x 
cost function given by TC (x) = 1,00,000 + 50  
1000 
Find the rate of change in profit if x = 1,00,000 units.

6. The production manager of a publishing company plans to include

180 sq. cms. of actual printed matter in each page of a book under
production. Each page should have 2.5 cms margin along the top
and bottom and 2 cms wide margin along the sides. What are the
most economical dimensions of each printed pages.
7. An industry operating under competition has the demand function
x
P = 10 – x with the supply function P = 4 + . Determine (i) the
2
equilibrium quantity before tax; (ii) the equilibrium quantity after
tax if tax at the rate of Rs. t per unit is imposed; (iii) the value of
t which maximizes tax revenue; (iv) maximized tax revenue.
440
8. A cylinder with a capacity of cubic ft. is made of two types
7
of material. The cost of material of the top and bottom is Rs. 6 per
sq. ft and the sides material cost Rs. 4.80 per sq. ft. Determine the
dimensions of the cylinder which minimizes total cost and minimized
total cost.
a
9. Show that the demand curve P = – C is downward sloping
x+b
and convex from below (p is price x is quantity and a, b and c are
positive constants.

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 BUSINESS MATHEMATICS

10. A shoe manufacturer produces both high grade and low-grade Notes
shoes in units of x hundreds of pairs and y hundreds of pairs per
day respectively. Assume that the equipment in plant is capable of
producing the shoes is this relationship.

2.13 Suggested Readings

u Anthony, M., & Biggs, N. (1996). Mathematics for Economics and
Finance. Cambridge: Cambridge University Press.
u Ayres, F. J. (1963). Theory and Problems of Mathematics of Finance.
New York: McGraw Hill Publishing.
u Budnick, P. (1986). Applied Mathematics for Business, Economics,
& Social Sciences. New York: McGraw Hill Publishing.
u Dowling, E. (2011). Introduction to Mathematical Economics. New
York: McGraw Hill Publishing.

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