Credit+ Calculus Applications of Derivatives - Commerce

Units produced x The number of units of a product being produced.

Cost Function C(x) The cost of producing x units of a product.

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Average Cost Function C(x) = ( The cost per unit of producing x units of a product.

Price Function p(x) The price of a single unit at a given production level.

Revenue Function R(x) = xp The revenue resulting from x products being sold

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Marginal Cost C′(x) = *( The r.o.c. of cost w.r.t. the number of units produced.
It is an approximation of the cost of producing one
more unit ( the exact value is C(x + 1) - C(x) ).

Price Function p(x) The price of a single unit at a given production level.

Revenue Function R(x) = xp The revenue resulting from x products being sold

Profit Function P(x) = R(x) – C(x) The net profit resulting from x products being sold

Assumption: all products are sold

Note: “Marginal” basically means “derivative of”.

Marginal values can be obtained for cost, profit and revenue functions.

Examples

Example 1

Sweet Dreams Ltd. is a producer of processed chocolate. A team of bright young management
consultants have been hired by this company to help them improve profits. The consultants have
estimated that the cost (in dollars) of producing x 1-kg blocks of chocolate is given by:

C(x) = 140 000 + 0.43x + 0.000 001x2

a) Find the marginal cost function. C'(x) = 0.43 + 0.000 002x

b) Find the marginal cost at a production level of 1000 bags.

C'(1000) = 0.43 + 0.000 002(1000)

= $0.432
c) Find the actual cost of producing the 1001st bag.
C(1001) - C(1000)
= $ 0.432 001
Example 2

Hanc’s Hamburgers has taken a survey of its customers and has found that the annual demand for
their hamburgers is given by

p(x) = 800 000 - x

200 000

a) Find the marginal revenue function.

R’(x) = 800 000 - 2x
200 000

b) The cost function for Hanc’s Hamburgers is C(x) = 125 000 + 0.42x

Find the marginal profit at a production level of 300 000 hamburgers.

R'(300 000) = 1.00

C'(300 000) = 0.42

P’(300 000) = $ 0.58 / hamburger

Exercises

1. A company determines that the cost C , in dollars, of producing x items

is given by the equation C(x) = 55 000 + 23x + 0.012x2
a) Find the marginal cost function.
b) Find the marginal cost at a production level of 100 items.
c) Find the cost of producing the 101st item.

2. A manufacturer determines that the revenue R , in dollars, derived from

selling x units of one of their products is given by the equation
R(x) = 8000x - 0.02x3.
a) Find the marginal revenue function.
b) Find the marginal revenue when 300 units are sold.
c) Compare this to the actual gain in revenue when the 301st unit is sold.

3. The Snuffle & Dustcough Company estimates that the cost C , in dollars,
of manufacturing x packs of tissues is C(x) = 23 000 + 0.24x + 0.0001x2
and that the corresponding revenue is R(x) = 0.98x - 0.0002x2.
a) Determine the profit function.
b) Determine the marginal profit function.
c) Determine the marginal profit when 100 units are sold.
d) Compare this to the actual increase when the 101st unit is sold.

Answers

1. a) C’(x) = 23 + 0.024x b) $ 25.40/item c) $25.41

2. a) R’(x) = 8000 - 0.06x2
b) $ 2600/unit c) $2581.98
3. a) P(x) = -0.0003x + 0.74x - 23 000
2

b) P’(x) = 0.74 - 0.0006x c) $ 0.68/pack d) $ 0.6797/pack