Differential Calculus

QTM Unit 4

Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

 Basic terms
• Calculus
The mathematical study of continuous change. Differential calculus / Integral calculus.
• Functions
A relation that associates each element x of a set X, to a single element y of another set Y. If
the function is called f, this relation is denoted y = f (x) (read f of x). Eg y = 2x+3
=> f(x) = 2x+3
• Limits
A value of x (or close to x) for which a desired value of f(x) or y will be obtained.
• Slope
The rate of change in y with respect to x. (Usually in case of a linear function between x
and y. Eg. y= 2x+3. Slope of y=  y /  x, where  represents actual change.
• Derivative
The rate of change in y with respect to a change in x in case of a non-linear function
between x and y. Eg. y= x2 or y = 4x3 – 5x2 + 7, etc. Derivative of y = dy / dx, where d
represents estimated change.
• Differentiation
The process if obtaining the derivative of a function f(x). Derivative of f(x) =
f / (x) or dy/dx = Limit f(x + x) – f(x)
x  0 x
Basic Differentiation Rules
d
1. c  0  c is a constant 
dx
Ex. f ( x )  5
f ( x )  0

2.
d n
dx
 
x  nx n1  n is a real number 

Ex. f ( x)  x 7
f ( x)  7 x 6
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 Basic Differentiation Rules
d d
3.  cf ( x)   c  f ( x)   c is a constant 
dx dx
Ex. f ( x )  3 x 8

 
f ( x)  3 8 x7  24 x7

d d d
4.  f  x   g  x     f ( x)    g ( x) 
dx dx dx
Ex. f ( x)  7  x12
f ( x)  0  12 x11  12 x11

Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

• Find dy/dx of the functions
a) y = x4
b) y= 3x4
c) y= 5x2 + 7

Soln:
a) dy/dx = 4x(4-1) = 4x3
b) dy/dx = 4 * 3x(4-1) = 12x3
c) dy/dx= d/dx (5x2) + d/dx (7) = 10x + 0 = 10x

Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

 More Differentiation Rules
5. Product Rule
d d d
 f  x   g  x     f ( x)  g ( x)   g ( x)  f ( x)
dx dx dx

 
Ex. f ( x)  x  2 x  5 3x  8 x  1
3 7 2

 
f ( x)  3x 2  2 3x7  8 x 2  1   x  2 x  5  21x
3 6
 16 x 
Derivative Derivative of
of the first the second
function function

f ( x)  30 x9  48 x 7  105 x 6  40 x 4  45 x 2  80 x  2
Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.
More Differentiation Rules
6. Quotient Rule
d d
d  f   
x  g ( x )
dx
 f ( x )   f ( x )
dx
 g ( x ) 
 
dx  g ( x)   
g ( x )
2

Sometimes remembered as:

d  hi  lo d  hi   hi d lo
  
dx  lo  lo lo

Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

 More Differentiation Rules
6. Quotient Rule (cont.)
3x  5
Ex. f ( x)  2
x 2 Derivative of
Derivative of the denominator
the numerator
f ( x) 
 
3 x 2  2  2 x  3x  5

x 
2
2
2

3 x 2  10 x  6

x 
2
2
2

Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

• Find dy/dx
a) y= (5+2x2)(3x+4x2)
b) y= (2x+5) / (x2 – 3)

Ans:
a) 15+40x +18x2 + 32x3
b) - (2x2 + 10x+6) / (x2 – 3)2

Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

 More Differentiation Rules
7. The Chain Rule
If h( x)  g  f ( x)  then

h( x)  g   f ( x)   f ( x)

Note: h(x) is a composite function.

Another Version:
If y  h( x)  g u  , where u  f ( x), then
dy dy du
 
dx du dx
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 Chain Rule Example
Ex. y  u , u  7 x  3x
52 8 2

dy dy du
 
dx du dx
5 32

 u  56 x 7  6 x
2
 Sub in for u

5
   
32
 7 x  3x
8 2
 56 x 7  6 x
2
  15 x  7 x  3x 
32
 140 x 7 8 2

Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

More Differentiation Rules
The Chain Rule leads to
The General Power Rule:
If h( x)   f ( x)  n, real  then
n

h( x)  n  f ( x)
n1
 f ( x)

 
12
Ex. f ( x)  3x  4 x  3x  4 x
2 2

 
1 1 2

f ( x)  3 x  4 x
2
6x  4
2
3x  2

3x 2  4 x
Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.
 Chain Rule Example
7
Ex. G ( x)   2 x  1 
 
 3x  5 
 2 x  1    3x  5 2   2 x  1 3 
6
G( x)  7   
 3x  5    3x  5  2 

91 2 x  1
6 6
 2x 1  13
G( x)  7   
 3x  5   3x  5   3x  5
2 8

Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

 Partial Derivatives
• When a function has one dependent variable and more than one
independent variable, the partial derivative technique of
differentiation is used. ( (delta) is used to indicate derivative)
• Suppose y = f(x1, x2)
Limit y
• y / x1 = (Taking x2 as a constant)
x1  0 x1

Limit y
• y / x2 = (Taking x1 as a constant)
x2  0 x2

• Eg. y= 2x2 + xz + 3z2. Find y / x and y / z

• y / x = 2 * 2x(2-1) + z * x(1-1) + 3 * 2 * 0 = 4x + z (taking z as constant)

• y / z =2* 2* 0 + x * z(1-1) + 3* 2 * z(2-1) = x + 6z (taking x as constant)
 Higher Order Derivatives
The second derivative of a function f is the derivative
of the derivative of f at a point x in the domain of the
first derivative.

Derivative Notations
d2y
Second f 
dx 2
d3y
Third f 
dx3
(4) d4y
Fourth f dx 4
n dny
nth f
dx n

Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Example of Higher Derivatives
Given f ( x)  3x5  2 x3  14 find f ( x ).

f ( x)  15 x 4  6 x 2

f ( x)  60 x  12 x
3

f ( x)  180 x 2  12

Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

Example of Higher Derivatives
2x 1
Given f ( x)  find f (2).
3x  2

2  3x  2   3  2 x  1 7 2
f ( x)    7  3x  2 
 3x  2   3x  2 
2 2

3 42
f ( x)  14  3 x  2   3 
 3x  2 
3

42 42 21
f (2)   3 
 3(2)  2 
3
4 32

Copyright © 2006 Brooks/Cole, a division of Thomson Learning, Inc.

 Maxima & Minima
• Steps to determine relative extrema (maximum and minimum) of the
function y = f(x)

1) Find first order derivative taking f /(x) or dy/dx = 0 to find the value of x
for which the function f(x) will attain maximum or minimum value.

2) Then find second order derivative f//(x) or d2y/dx2 for obtaining the
extrema value function.

3) a. If the value of f//(x) < 0, then the function f(x) will attain maximum
value for the obtained value of x (from step 1).

b. If the value of f//(x) > 0, then the function f(x) will attain minimum
value for the obtained value of x (from step 1).
4) Put the value of x in the extrema value function (from step 2) to obtain the
mamimum or minimum value.
Eg. Find the relative extrema of the function y= 2x2 – 16x + 50.

• Taking dy/dx = 0 => d/dx (2x2 – 16x + 50) = 0

=> 4x – 16 = 0
=> x = 4.
• d2y / dx2 = d/dx (4x-16) = 4, which is > 0.

• Therefore the function y= 2x2 – 16x + 50 will have relative minimum

when x = 4 (as d2y / dx2 is > 0)

• The minimum value of the function at x = 4 is y = 2*42 – 16*4 + 50

=> y = 18.
 Application of differentiation
• Point elasticity of demand
• Equilibrium price
• Profit maximizing quantity
• Maximum profit
• Revenue – Total Revenue, Average Revenue and
Marginal Revenue, Revenue maximization
• Cost – Total Cost, Average Cost, Marginal Cost,
Average Variable Cost, Average Fixed Cost, Cost
minimization.
• Utility – Total utility, Average Utility, Marginal Utility
• Cost related relationships
Total Cost = Cost per unit * Quantity
Average Cost = Total Cost / Quantity => AC= TC / Q
Marginal Cost MC= d(TC)/dQ
Average Variable Cost = Variable Cost / Q => AVC= VC/Q

• Revenue related relationships

Total Revenue = Price * Quantity = P*Q
Average Revenue = Total Revenue / Quantity => AR = TR/Q
Average Revenue is also the price. AR = P
Marginal Revenue MR= d(TR)/ dQ

• Point Elasticity of demand for a given output

I ed I = AR / (AR – MR) for a given value of output, Q.
 if ed > 1, demand is elastic
 if ed = 1, demand is constant
 if ed < 1, demand is inelastic
Eg. Given the price equation, P = 100 – 2Q, where Q is the quantity
demanded, find
(i) The Marginal Revenue
(ii) The Point Elasticity of demand when Q = 10

• MR = d(TR)/dQ
• TR = AR x Q
• AR = P = 100 – 2Q
• So, TR = P x Q => (100 – 2Q) x Q = 100Q – 2Q2
(i) MR = d(TR) /dx = 100 – 4Q
(ii) Point elasticity ed = AR / (AR – MR) for Q = 10
AR = 100 – 2Q = 100 – 2 x 10 = 80
MR = 100 – 4Q = 100 – 4 x 10 = 60
ed = 80 / (80 – 60) = 4
As ed is > 1, the demand is elastic.
Eg. Find out the output at which the Average Cost is minimum from the total
cost function TC = 2Q2 + 5Q+ 18

• AC = TC / Q = (2Q2 + 5Q+ 18) / Q = 2Q + 5 + 18/Q

• d(AC)/dQ = 2 – 18Q-2

• For minimization of AC
d(AC)/dQ = 0
=> 2 – 18Q-2 = 0
=> 2 = 18/Q2
=> Q2 = 9
=> Q = √9
=> Q = (+/-) 3

• d2(AC) / dQ2 = 0 – (-2)*18Q(-2-1) = 36 Q-3= 36/Q3

• For Q = 3, d2(AC) / dQ2 = 36 / 33 = 1.33 which is > 0
• Therefore the output at which AC is minimized is 3 units.
Eg. Given the short-run total cost function TC = 2Q3 – 15Q2 + 30Q +16,
a) find out the level of output at which AVC is minimum and MC = AVC at that
output level
b) Show that when output Q = 4, the AC is minimum and AC = MC.

a) TC = 2Q3 – 15Q2 + 30Q +16

• VC = 2Q3 – 15Q2 + 30Q
• AVC = VC / Q = (2Q3 – 15Q2 + 30Q) / Q = 2Q2 – 15Q + 30
• d(AVC)/dQ = 4Q – 15

• For minimization of AVC, d(AVC)/dQ =0 => 4Q – 15 = 0 => Q= 15/4 = 3.75

• d2(AVC)/dQ2 = 4 * Q(1-1) – 0 = 4, which is > 0.
• Therefore at Q = 3.75, the AVC is minimum.
• At Q = 3.75, AVC = 2(3.75)2 – 15 (3.75) + 30 = 1.87
• Again MC = d(TC)/dQ = 6Q2 – 30Q + 30
• For Q = 3.75, MC = 6 (3.75)2 – 30 (3.75) +30 = 1.87
• Therefore at Q = 3.75, MC = AVC
b) AC = TC / Q = 2Q2 – 15Q + 30 + 16/Q

• For minimization of AC, d(AC)/dQ =0 => 4Q – 15 +0 – 16 /Q2= 0

• For Q = 4, d(AC)/dQ = 4*4 – 15 – 16/42 = 16 – 15 – 1 = 0
• d2(AC)/dQ2 = 4 + 32/Q3
• For Q = 4, d2(AC)/dQ2= 4 + 32 / 43 which is > 0.
• Therefore at Q = 4, the AC is minimum.

• At Q = 4, AC = 2(4)2 – 15 (4) + 30 + 16 /4= 6

• Again MC = d(TC)/dQ = 6Q2 – 30Q + 30
• For Q = 4, MC = 6 (4)2 – 30 (4) +30 = 6
• Therefore at Q = 4, MC = AC
Eg. In a perfectly competitive market, the price of a product is Rs. 4 and the total cost (TC) is
given by C = q3 – 15q2 + 31q +100. Find the profit maximizing output and maximum
profit.
• Profit = TR – TC
• TR = p * q = 4q
• Profit = (4q) – (q3 – 15q2 + 31q +100) = 4q – q3 + 15q2 – 31q – 100
• d(profit)/dq = 4– 3q2 + 30q – 31
• For maximization of profit, d(profit)/dq =0 => 4– 3q2 + 30q – 31 = 0
=> – 3q2 + 30q – 27 = 0
Alternatively you can use => q2 – 10q + 9 = 0
{(– b)+/- √ (b2 – 4ac)} / 2a for solving the => q2 – 9q – q +9 = 0
quadratic equation => q(q – 9) – ( q – 9)=0
=> (q – 9) (q – 1) = 0
=> q = 9 or 1
• d2(Profit)/dq2= – 6q + 30
• For q = 9, d2(Profit)/dq2 = – 6 * 9 + 30 = – 24 which is < 0 (maximum)
• For q = 1, d2(Profit)/dq2 = – 6 * 1 + 30 = 24 which is > 0 (minimum)
• Therefore at Q = 9, the profit is maximum.
• The maximum profit at q = 9 is 4 * 9 – 93 + 15* 92 – 31* 9 – 100 = 143
Eg. A monopolist has the following total revenue (R) and Total Cost (C) functions
R = 30q – q2
C = q3 – 15q2 + 10q +100
Find the profit maximizing output, Maximum profit, Equilibrium Price and the
Point Elasticity of Demand at the equilibrium price.

• Profit (π)=R – C = (30q – q2) - (q3 – 15q2 + 10q +100) = - q3 + 14q2 + 20q –100
• And d (π)/ dq = – 3q2 + 28q +20
• For profit maximization d (π)/ dq = 0
=> – 3q2 + 28q +20 = 0 (Solve using quadratic formula)
=> q = 10 or 2/3
• d2 (π)/ dq2 = – 6q + 28
• For q = 10 , d2 (π)/ dq2 = – 6*10 + 28 = – 32, which is < 0 (Maxima)
• For q = 2/3, d2 (π)/ dq2 = – 6*(2/3) + 28 = 32, which is > 0 (Minima)
• Therefore the profit maximizing output = 10
• The maximum profit π=–q3–14q2 + 20q –100
• For q=10 => π = -103–14.102+20.10–100 = 500 which is the maximum profit
Contd…

• Since Price = Average Revenue = Revenue / output = R / q

• Therefore Price function = (30q – q2) / q = 30 – q
• For equilibrium output q = 10, Equilibrium Price = 30 – 10 = 20

• Point elasticity= AR / (AR – MR)

• AR = 30 – q; For q = 10, AR = 30 – 10 = 20
• MR = d(R)/dq = 30 – 2q ; For q =10, MR = 30 – 2*10 = 10

• Point elasticity at equilibrium price 20 = 20 / (20 – 10) = 2

 Maxima and minima rules in case of more than one
independent variable (partial differentiation)
• Suppose y = f(x1, x2)
• Find first order partial derivatives y / x1 and y / x2
• From the two equations obtained from y / x1 = 0and y / x2 = 0, find the values
of x1 and x2.
• Then find second order partial derivatives 2y / x12 and 2y / x22
2y / x12 =  /x1 (y / x1) = f11
2y / x22 =  /x2 (y / x2) = f22
• Next find the cross order partial derivatives 2y/x12 x22 and 2y/x22 x12
2y / x12 x22 = /x2 (y/x1) = f12
2y / x22 x12 = /x1(y/x2) = f21
• Then find Hessian Determinant of order 2 (IH2I) = f11 * f22 – f12 * f21

• Conditions for maxima : Conditions for minima:

1) y / x1 = 0and y / x2 = 0 1) y / x1 = 0and y / x2 = 0
2) f11 < 0, f22 < 0 2) f11 > 0, f22 > 0
3) IH2I > 0 3) IH2I > 0
Eg. For a monopolist, selling two products A and B, the demand functions and the
total cost function are given below. How many units of each of these products
should he sell so as to maximize his net profit? Also obtain the prices of each of
the products and the value of the profit.
Demand functions
For Product-A PA+QA = 80
For Product-B PB+2QB = 50
Total cost function TC= 14Q2A+4Q2B+8QA+6QB+4QAQB+30

• Since PA+QA = 80 => PA=80 – QA

• TRA = PA* QA => TRA = (80 – QA) * QA => TRA = 80QA – QA2

• Since PB+2QB = 50 => PB = 50 – 2QB

• TRB = PB* QB => TRB = (50 – 2QB) * QB => TRB = 50QB – 2QB2

• Profit (π)= TRA + TRB – TC => π = –15Q2A – 6Q2B+72QA+44QB – 4QAQB – 30

• π /  QA = –30QA + 72 – 4QB
•  π /  QB = –12QB + 44 – 4QA
• For profit maximization:
•  π /  QA = 0 => –30QA + 72 – 4QB = 0 ……. (i)
•  π /  QB = 0 => –12QB + 44 – 4QA = 0 …….(ii)

• Solving (i) and (ii), we get QA = 2, QB = 3.

• 2π/QA2 = /QA (π/QA) = – 30 +0 – 0 = – 30 ……f11 < 0

• 2π/QB2 = /QB (π/QB) = – 12 +0 – 0 = – 12 …… f22 < 0

• 2π/QA2 QB2 = /QB ( π / QA) = 0 + 0 – 4= – 4 …… f12

• 2π/QB2 QA2 = /QA ( π / QB) = 0 + 0 – 4= – 4 ……. f21

• IH2I = f11 * f22 - f12 * f21 = (- 30 * - 12) - (- 4 * - 4) = 360 – 16 = 344 > 0

• Since f11 & f22 < 0 and IH2I > 0, profit π is maximized at QA=2 and QB = 3
• Maximum profit = –15*22 – 6*32+72*2+44*3– 4*2*3 – 30 = 108
• PA = 80 – 2 = 78
• PB = 50 – 2*3= 44
Eg. The profit P(x) due to advertising investment of X, in crores of
rupees is given by P(x) = 120 + 80x - x2
a) What amount of advertising fetches maximum profit?
b) What is the maximum profit?

• P(x) = 120 + 80x - x2

• dP/dx = 80 – 2x
• For profit maximization dP/dx = 0 => 80 – 2x = 0 => x = 40
• d2P/dx2 = – 2, which is < 0.
• Profit is maximized at x = 40
• Maximum profit = 120 + 80*40 – 402 = 1720
Eg. A company charges Rs.550 for a FM radio set on order of 50 or
less sets. The charges are reduced by Rs.5 per set for each set
ordered in excess of 50. Find the largest size of order the company
should allow so as to receive maximum revenue.

• Let the order size be x.

• Revenue (R) = p * q = 550x – {5(x – 50)}x = 800x – 5x2

• dR/dx = 800 - 10x

• For revenue maximization dR/dx = 0 => 800 – 10x = 0 => x = 80
• d2R/dx2 = – 10, which is < 0.
• Revenue is maximized at x = 80
• Maximum revenue = ?
Eg. A consumer consumes two commodities X1 and X2 and the utility
function is given by U=X12+3X1X2+5X2. Find at the marginal
utilities of X1 and X2.

• Total Utility (U)=X12+3X1X2+5X2.

• Marginal Utility = dU/dx
• (Since U is a function of X1 and X2, partial derivatives will apply)
• Marginal Utility of X1 = U /  X1 = 2X1 + 3X2
• Marginal Utility of X2 = U /  X2 = 3X1 + 5
1) The total revenue and total cost functions of a firm are given as:
R = 26q – 3q2
C = 2q2 – 4q +10
Find:
a) The profit maximizing output and corresponding profit, price and total revenue at that
level of output.
b) The revenue maximizing output and corresponding profit, price and total revenue at
that level of output.

2) The total cost function of a firm is given by TC=aq2 + bq + C, where q is the quantity and
the demand function is given by P=-aq2 and where P is the price. Find out profit
maximizing output.

3) The demand functions of a monopoly in two different markets are given by P1= 53 - 4Q1
and P2= 29 - 3Q2 and the total cost function is C = 20 + 50Q where P1 and P2 are the
prices and Q1 and Q2 are the outputs in Market-1 and Market-2 respectively, such that
Q=Q1+Q2.Find
a) profit maximizing output to be sold in first and second markets,
b) equilibrium prices of first and second markets,
c) maximum profit.