1 Mathematics Project 2

Mathematics
Project 2
2 Mathematics Project 2

Application of Calculus in
Commerce and Economics

Academic Year 2020-2021

Subject – Mathematics
Class – 12 Aristotle
Name –Puran Tak
Submitted to – Ashwin Tambe
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Acknowledgement
With the help of this project, I gained a lot of
mathematical knowledge and skills in regard to calculus
and differentiation
I would like to thank my parents, siblings, and friends for
their cooperation and confidence which helped me in the
completion of this project. Without their help and
contribution, I think I wouldn’t be able to complete this
project
Because of this project, I gained a lot of knowledge that
would be helpful for me in the future. I didn’t complete
the project only with the intention of gaining marks but
also knowledge
Heartily once again, I would like to thank all those who
help me in the completion of the project.
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Index

Acknowledgement…………………………………………………3
Differentiation………………………………………………………5
Types of function in commerce and economics…………………….7
Cost function………………………………………………………7
Revenue function………………………………………………….9
Profit Function…………………………………………………….10
Break-Even point…………………………………………………10
Marginal Revenue…………………………………………………11
Marginal demand…………………………………………………11
Marginal Profit…………………………………………………….11

Profit Maximisation………………………………………………12
Revenue Maximisation…………………………………………12
Cost minimization……………………………………………12
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Differentitaion
Differentiation means the rate of change of one quantity with respect to
another. The speed is calculated as the rate of change of distance with
respect to time. This speed at each instant is not the same as the average
calculated. Speed is the same as the slope, which is nothing but the
instantaneous rate of change of the distance over a period of time.
The geometrical meaning of the derivative of y = f(x) is the slope of the
tangent to the curve y = f(x) at ( x, f(x)). The first principle of
differentiation is to compute the derivative of the function using the
limits. Let a function of a curve be y = f(x). Let us take a point P with
coordinates(x, f(x)) on a curve. Take another point Q with coordinates
(x+h), f(x+h)) on the curve. Now PQ is the secant to the curve. The
slope of a curve at a point is the slope of the tangent line at that point.

We know, slope of the secant line is y2−y1- x2−x1.

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We want h to be as small as possible to get the slope of the tangent. We

have y = f(x). There is an incremental change in x, denoted as Δx. Then
there exists an incremental change in y, denoted as Δy.

Then y + Δy = f(x + Δx)

f(x) + Δy = f(x + Δx)

Δy = f(x + Δx) - f(x)

Dividing by Δx on both
the sides,

Here if the limit exists. f'(x) is the first derivative

of f(x). This derivative of f(x) at a quantifies the change in f(x) with
respect to x. This process of computing the derivative of a function is
called differentiation.
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Types of cost and function in Commerce and

Economics
Cost function
Cost function in calculus is a mathematical formula used to
determine how much it will cost to produce a certain number of
units.
Fixed cost - Fixed Cost refers to the cost or expense that is not
affected by any decrease or increase in the number of units
produced or sold over a short-term horizon. In other words, it is
the type of cost that is not dependent on the business activity,
rather it is associated with a period of time.
Fixed Cost Formula = Total Cost of Production
– Variable Cost per Unit * No. of Units
Produced
Variable cost - Variable costs are expenses that
vary in proportion to the volume of goods or
services that a business produces. In other
words, they are costs that vary depending on
the volume of activity. The costs increase as the volume of
activities increases and decrease as the volume of activities
decreases.
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Total cost - In the simplest terms it is all the costs incurred in

producing something or engaging in an activity.
𝑇𝐶 = 𝑇𝐹𝐶 + 𝑇𝑉𝐶
Average cost - The Average Cost is the per unit cost of
production obtained by dividing the total cost (TC) by the total
output (Q)
TC/Q
Marginal Cost - Marginal cost represents the incremental costs
incurred when producing additional units of a good or service.
𝑀𝐶n= 𝑇𝐶n− 𝑇𝐶n-1
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Revenue Function - A formula or equation representing the way in

which particular items of income behave when plotted on a graph. For
example, the most common revenue function is that for total revenue in
the equation y = bx, where y is the total revenue, b is the selling price
per unit of sales, and x is the number of units sold.
Total revenue - Total revenue is the full amount of total sales of goods
and services. It is calculated by multiplying the total amount of goods
and services sold by the price of the goods and services.
𝑇𝑅 = 𝑃 × 𝑄
Average revenue - Average revenue is referred to as the revenue that is
earned per unit of output. In other words, it is the revenue that is
obtained by the seller on selling each unit of the commodity. Average
revenue of a business is obtained by dividing the total revenue with the
total output.
𝐴𝑅 = 𝑇𝑅/𝑄
Marginal revenue - Marginal revenue is the additional revenue on by
selling one more unit of the commodity.
𝑀𝑅n= 𝑇𝑅n – 𝑇𝑅n-1
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Profit function- A profit function is a function that focuses on business

applications. ... If x represents the number of units sold, we will name these two
functions as follows: R(x) = the revenue function; C(x) = the cost function.

P(x) = R(x) - C(x).

Break-even point - The break-even point is the point at which total cost
and total revenue are equal, meaning there is no loss or gain for your
small business. In other words, you've reached the level of production at
which the costs of production equals the revenues for a product.
R(x) = C (x)
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Marginal revenue
Similar to the definition of Marginal Cost, we can define the Marginal
Revenue and the Marginal Profit as follow
1. the rate of change of revenue per unit change in the output (number
of products) is the Marginal Revenue, given by dR(x)/dx

2. The rate of change of profit per unit change in the output (number
of products) is the Marginal Profit, given by dP(x)/dx

𝑀𝑓(𝑥 + 1) = 𝑓(𝑥 + 1) − 𝑓(𝑥)

𝑆𝑙𝑜𝑝𝑒 𝑜𝑓 𝑎 𝑐𝑢𝑟𝑣𝑒 = 𝑦2 – 𝑦1/𝑥2− 𝑥1

Marginal demand- Marginal demand in economics is the change in

demand for a product or service in response to a specific change in its
price. Normally, as prices for goods or services rise, demand falls, and
conversely, as prices for goods or services fall, demand rises.

Marginal Profit- The first derivative of the profit function is marginal

profit.
MP(Q)= dP/dQ
Marginal profit can also be obtained by subtracting the derivative of
marginal cost from the derivative of marginal revenue.
MP=MR-MC
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Profit Maximisation
An assumption in classical economics is that firms seek to maximise
profits
Profit = Total Revenue (TR) – Total Costs (TC).
Therefore, profit maximisation occurs at the biggest gap between total
revenue and total costs.
A firm can maximise profits if it produces at an output where marginal
revenue (MR) = marginal cost (MC)

Revenue Maximisation
Revenue maximisation is a theoretical objective of a firm which
attempts to sell at a price which achieves the greatest sales
revenue. This would occur at the point where the extra revenue
from selling the last marginal unit (i.e. the marginal revenue,
MR, equals zero). If marginal revenue is positive, an extra unit
sold must add to total revenue and revenue maximisation will
not have been reached. Only when marginal revenue iszero will
total revenue have been maximised. Stopping short of this
quantity means that an opportunity for more revenue has been
lost, whereas increasing sales beyond this quantity means that
MR becomes negative and TR falls. This can be seen in the
following graph, with revenue maximization at output Q, and at
point A on the AR curve. beyond this quantity means that MR
becomes negative and TR falls. This can be seen in the
following graph, with revenue maximisation at output Q, and at
point A on the AR curve
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Cost minimization
Cost is minimized at the levels of capital and labor such that the
marginal product of labor divided by the wage (w) is equal to the
marginal product of capital divided by the rental price of capital (r)

Cost minimized where MPl/w = MPk/r

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Example 1 - A firm is selling 100 units at a price of Rs 250. However, to

sell 110 units, they need to cut the price down to Rs 240. What is the
level of marginal revenue at this higher level of sales?
Solution: This question simply requires a good understanding of the
economic terms we have encountered so far. We can simply solve it as –
We can write the total revenue function for 100 units as – R(100) =
100 × 250 = Rs 25000
Similarly, for 110 units – R(110) = 110 × 240 = Rs 26400
The marginal revenue is then simply: The difference between the total
revenue at 110 units and the total revenue at 110 units, divided by 10
(the number of additional units), to get the extra cost per unit. Thus,
Marginal Revenue = 26400–2500010/10
= Rs 140
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Example 2 - The cost function for the manufacture of x number of

goods by a company is C(x) = x3–9x2+24x. Find the level of output at
which the marginal cost is minimum. Further, if the selling price of a
unit is 2x3+9x2, find the average profit.

Solution:We calculate the marginal cost as –

dC(x)/dx=d/dx(x^3–9x^2+24x)
=3x^2–18x+24

In order to be a minimum at x = x0(say), its derivative must vanish at x 0.

Thus –
d/dxx=x0(3x^2–18x+24)
x=+2,+4

By the seond derivative test, we can conclude that at x = +4, the function
assumes a minima. Thus, for an output = 4 finished goods, the marginal
cost would be minimum. Now, since we are have the selling price
already, we can calculate the average profit as –
P(x)x=SP(x)–CP(x)x
⇒ =(2x^3+9x^2)–(x^3–9x^2+24x)x
⇒ =x^3+24x^x
=x^2+24

We can see clearly that the average profit depends on the number of
goods manufactured (i.e. x), which should definitely be so in any
practical example.
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Example 3- For a new product, a manufacturer spends Rs. 1,00,000 on the

infrastructure
and the variable cost is estimated as Rs.150 per unit of the product. The sale
price per unit was
fixed at Rs.200.
Find = (i) Cost function (ii) Revenue function
(iii) Profit function, and (iv) the break even point.
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Example 4- The total revenue received from the sale of x units of a

product is given by
R(x) 12x 2x^2 + 6
Find = (i) the average revenue
(ii) the marginal revenue
(iii) marginal revenue at x = 50
(iv) the actual revenue from selling 51st item
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Example 5- The marginal revenue function for a product is given by

Find the total revenue function and the demand function.

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Conclusion
It was a wonderful learning experience for me while working on this project.
This project took me through the various phases of differentiation. I enjoyed
every bit of work and time I had put in the research and work I had done . I
faced a lot of difficulties while working on it but with the help of different
websites, books and and all those who helped me in this project I
successfully completed it. It helped me a lot in gaining knowledge and
learning about the calculus and differentiation. I would like to thank Mr.
Ashwin Tambe for giving me the opportunity to make this project in the first
place.