MGMT 221, Ch. V

Chapter Five: Elements and Applications of Calculus 1
CHAPTER 5
ELEMENTS AND APPLICATIONS OF CALCULUS
Calculus is the Branch of mathematics that concerns it self with the rate of change
of one quantity with respect to another quantity.
6.1Differential Calculus
- Broadens the concept of slope - rates of change

There are two core concepts which lie down the foundation for differential
calculus. These are: Limits and Continuity.
Limits: In calculus there is often a concern about the limiting value of a function
as The independent variable approaches some specific value, a, this limiting value
when it exists is called a limit.
Notation:
Lim f (x) = L
Xa
A function f has a limit L (where L is some real number) as x approaches a if the

values of the dependent variable f (x) differ arbitrarily little from L for all values of
X which lie very close to a. The limit as X approaches a is symbolized:
Lim f (x) = L
Xa
N.B.
 The concept of the limit of a function as x approaches a should not be confused
with the concept of the values of a function at x = a
 The limit as x approaches a may exist, and the function many or may not be
defined at a.
 The function may be defined at a, and the limit may or may not exist.
 The limit as x approaches a may exist, and the function may be defined at a and
their values may, or may not be the same.
 Generally, x can approach a from either of two directions, through values that
are less than a or through values that are greater than a.
 The limit L must be a finite number.
The limit f (X) does not depend on the values of f (x) at X = a. Whether
Xa
or not the function, f(x) is defined at x = a doesn’t affect the limit or its existence or
non existence at x = a. In other words, lim f (x) = L
xa
means that the values of f (x) approach, with out necessarily being equal to L, as X
approaches, without necessary being equal to, a
E.g. Left-Hand and Right-Hand Limits

When the variable x approaches the value x=a but always remains less than a, we
say x is approaching a from the left. If the values of f(x) gets closer and closer to a
real number L as x approaches a from the left, we call L the LEFT-HAND LIMIT
and employ the symbolism
Lim f(x) = L
Xa
Only those values of X to the left of a are used to compute the left hand limit.
E.g. Lim (x+3)

X3
We might compute f (2.9) = 5.9, f(2.99) = 5.99, -------------- f (2.999---) = 5.999 --------.
Clearly, the values of f (X) are getting closer and closer to the number 6, and we
write.
L- = lim (x+3) = 6

X3
Similarly, the RIGHT-HAND LIMT of a function f as x approaches a is the value L +,

which f(X) converges on as x approaches the point X = a from the right, but always,
remains greater than a. We symbolize this limit as
Lim f(x) = L+
xa+
Only those values of X to the right of a on the number line are used to obtain the
right - hand limit. We might compute the limit
L+ = lim (x+3) = 6
x3+
by evaluating f (3.1), = 6.1 f(3.01) = 6.01 f(3.001) = 6.001 ----, f (3.00001) = 6.000001.
A function f has a limit L as X approaches a only if the left - hand and the right-
hand limits are equal. Their common value is the limit of f as x approaches a Here
(L- = 6) = (L+ = 6) = L , and we write lim (x + 3) = 6
x3
EXERCISES
Find the limits for the following functions; if it exists

1. Lim (X2 - 1)
x2
X 1.91.991.9991.9999 0 2.00012.0012.01 2.1

F(x)2.612.96012.9960012.999600013.00400013.004001 3.0401 - 3.41

L- 3 , L+ = 3
Lim (x2 - 1) = 3
x2
/X /
2. Lim
X x -0.1 -0.01 -0.001 0.001 0.01 0.1
X0 f(x) -1 -1 - 1 1 1
L+ is not equal to, so Limit does not exist.
3. Lim X x -0.1 -0.01 -.000001 0.001 0.01 0.1

X0 f(x)    0.032 0.1 0.32
Lim f(x) = 0 In such case priority should be given for the domain to
x0 determine either the right/ left hand limit is relevant. For lim
X , since the values of x are restricted to non-negative
x0
Numbers, the left hand limit is not relevant.
4. F(x)
Lim f(x) =?
X4
Lim f (x) x 3.9 3.99 3.999 3.9999 4.001 4.01 4.1

X4 f(x) 0.1 0.01 0.001 0.0001 0.001 0.01 0.1
- +
L =0 L = 0 =L
Lim f(x) = 0 limit exist; but the function doesn’t exist at 4 because the point x4
is not in the domain of the fun.
Limit Properties
Assuming that the two limits exist:
1. Limit of a Constant
The limit of a constant function is the constant value.
2. Limit of a Sum or a Difference
The limit of a sum or difference is the sum or difference of the
individual limits, provided that these limits exist.
3. Limit of a Constant Times a Function
The limit of constant times a function is the constant times the limit of
the function, if the limit exists.
4. Limit of a Function to a Power
The limit of a function raised to a power is the power of a limit if the
limit does exist.
5. Limit of a Product
The limit of a product is the product of the limits if these limits exist.
6. Limit of a Quotient
The limit of a quotient is the quotient of the limits if the limits exist and
the denominator is not zero.
Continuity of a Function
The continuity of a function can be determined at a specific point or over an
interval.
Continuity at a point
A function is said to be continuous at a point when there exists no gap at that point.
At the point of discontinuity we can’t find marginal functions (MR, MC---)
 A function f is continuous at x = a if and only if all these conditions apply to f at
a:
1. f(a) is defined (that is, the domain of a f includes x = a)
2. Lim f(x) exists
xa
3. Lim f(x) = f (a) whether x approaches a from the left or right.
X a
Geometrically, a function, f is seen to be continuous at a point x=a when there is
nether a hole nor a gap in the graph of f at x = a
If any one of the three requirements specified above is not satisfied, the function is f
is said to be discontinuous at x = a.
Four cases of discontinuity
1. A function f may be discontinuous because the value of f at x = a is not defined,

although the limit of f as x approaches a exists.
x2  4
E.g. f(x) = is not defined at x=2 and the fun is discontinued at x=2
x2
2. A function f may be discontinuous because the limit as x approaches a does not

exist.
L  10
E.g. F(x) = L+ is different from L-
2 x

 3x  5 
L  20
The limit doesn’t exist as x approaches a if the function has different right hand
and left hand limits at that point.
The graph of the function has a vertical gap at x=5. Such a vertical gap always
indicates discontinuity of the function at this point. This type of discontinuity is
often called JUMP DISCONTINUITY.
3. A function may be discontinues because the limit of f as x approaches a is not the

value of f at x=a.
E.g. f(x) =
x

1
is discontinuous at x = 3. This is because lim f(x) = 3 is not equal to f (3) = 1

x3
4. Another type of discontinuity exists. A function is said to have an infinite
discontinuity at x=a if f(x) becomes arbitrarily large positive or negative as xa- or
xa+.
 
E.g. f(x) = 1/x lim 1/x = - and lim 1/x = + hence
x0- x0+
Lim 1/x doesn’t exist, nor is f (0) defined.
Continuity of a function over an interval
A function is said to be continuous over an interval if its graph has no Break,

jumps, or holes in that interval inclusive [ ] or exclusive ( ). Alternatively, a
continuous function has a graph which can be drawn without lifting the pencil
from the paper over that interval.
 A function f is continuous over an open interval if it is continuous at each
number in that interval.
 A function f is continuous on a closed interval [a, b] provided the following
conditions are satisfied:
1. f is continuous over the open interval (a, b)
2. f (x) f (a) as xa from with in (a, b)
3. f (x) f(b) as xb from with in (a, b)
Continuity properties
1. Constant function
If f(x) = K where K is a constant, then f(x) is continuous for all x. In other words, a
constant function is continuous for all values of x.
2. Power functions
Functions of the form f(x) = xn and g(x) = , where n is a positive integer, are
continuous over all values of x of their respective domains.
3. Sum, difference and product

If f(x) and g(x) are continuous at a point, then f(x) + g(x), f(x) - g(x), and f(x) .g(x)
are continuous over that point.
4. Quotient
If f(x) and g(x) are continuous at a point, then f(x)/g(x) is continuous at that point
provided that g(x)0 at that point.
Any polynomial function is continuous at all values of x. Any rational function is

continuous at all values of x, where its denominator does not equal to zero.
Exercises
1. Technic, Inc. manufactures electronic circuitry for computers. For a particular unit,
there is a variable cost of Birr 4 per unit and a fixed cost of Birr 8,000 for the first
10,000 units produced. If the number of units manufactured exceeds 10,000, the
fixed cost increases by Birr 1,000.
a. Define the cost function. Answer:
b. Where is the cost function discontinuous? Answer: Since the graph has a
Break at x= 10,000, then C(x) is discontinuous at x=10,000.
2. One million Birr is deposited in to a savings account for 1 year at 12% compounded
quarterly. If interest is added at the end of each quarter
a. Find the account's balance for each quarter. Answer: Birr 1,030,000,
1,060,900, 1,092,720, and 1,125,508.81.
b. Where is the graph discontinuous? Answer: The graph is discontinuous at
the end of the first, second, third and fourth quarters.
Continuity and Differentiability

The relationship between continuity and differentiability is that: A function
differentiable at x=a is continuous at x=a. that is, differentiability implies
continuity. But the converse of the preceding statement is not true; continuity
doesn't imply differentiability. In other words, it is possible for a continuous at x=a
but not differentiable at x=a.
Intuitive development of the concept of derivative
In studying the relationship between variables our primary concern would be to

observe the manner in which the value of one variable (the dependent variable) is
changed with given increases or decreases in the value of the other variable (the
independent variable). This analysis of how the value of the dependent variable
responds to changes in the value of the controllable independent variable leads us

to a study of RATES OF CHANGE and eventually to the study of DERIVATIVES.
For a linear function each one unit change in x has the same effect on the value of y,
no matter what the value of x is, we call this slope and remains constant for a linear
function, whose graph is a straight line. This property is not the case for non-linear
functions, i.e., the slope changes from one value of x to another. Hence, when the
relationship between x and y is depicted by a non-linear function, the effect that a
one-unit change in one unit of x has up on the value of y is it self a function of x.
Because the slope is not a constant, it is not logical to speak of the “slope” of non
linear functions as we did for a linear function. We instead may speak of the
AVERAGE RATE OF CHANGE BETWEEN TWO POINTS (ARC), or
INSTANTANEOUS RATE OF CHANGE AT A POINT (IRC)
Average pate of change (ARC) between two points

Average Rate of Change (ARC) of a function f over an interval x to x+x is given by
the change in f(x) divided by the change in X; that is,
f ( x ) f ( x  x )  f ( x )
ARC = 
x x
E.g. At the same instant that a test driver begins his journey around a truck, a
stopwatch is started. The function is given by Y = f(x) = 10x 2 (x>0) expresses the
total distance, y (in miles) traveled by the driver during the first x hours. Thus,
during the first 3 hrs, the driver has traveled a total distance of Y= f (3) = 10(3) 2 = 90
miles.
During the first 5 hours, the driver has traveled a total distance of Y = f(5) = 10(5) 2 =
250 miles
We now pose the following question:
What is the driver's average speed during the time interval between the end of the third
hour and the end of the fifth hour?
Since the driver has traveled 90 miles during the first 3 hours and 250 miles during
the first 5 hours, he has traveled
y = 250 - 90 = 160 miles during
the time interval x = 5 - 3 = 2. Dividing by the length of the time interval, we have
as the average speed

or the average rate of change of distance with respect to time. Note that the average
speed is the slope of the straight line, L, passing through points (3,90) and (5,250)of
the graph of Y = f(x)=10x 2. Such a straight line intersecting the graph in at least two
points is called a secant line.
In general the slope of the secant line passing through two points of the graph of a
function is the average rate of change of that function over the respective interval.
Note that the secant line passes through the points (x,f(x)) and (x+x, f(x+x)).
Thus, the average rate of change of the function Y= f(x) over the interval from x to
x+x is given by the expression
ARC =
This ratio is called a difference quotient. It gives the slope of the secant line passing
through (x, f(x)) and (x+x, f(x+x)).
The general procedure for determining a formula for the difference quotient is:
1. Replace x with x+x to obtain f(x+x))
2. Subtract f(x) from the result of step 1 to obtain y = f(x+x)- f(x)
3. Divide the result of step 2 by x (and simplify) to obtain a formula for
difference quotient . This result gives a formula for
the average rate of change for the given function f(x) as we move from x
to x+x.
Example
1. Compute the difference quotient of the function defined by Y = f(x) = 10x 2
Step 1. Replace x with x+ x
f (x+x) = 10(x+x )2
= 10[x2 +2x(x) + (x) 2]
= 10x2 +20x(x) + 10(x) 2
Step 2. Subtract f(x) from the result of step 1
= f(x+x) - f(x)
= 10x2 +20x(x) + 10(x) 2 - 10x2
= 20x(x) + 10(x) 2
Step 3. Divide the result of step 2 by x
= 20x + 10x
Using this general formulation, we can determine the ARC for f(x) = 10x 2 between
any two points.
Exercises
1. The total revenue R, gained from selling x units of a product is given by
R(x) = -0.2x2 + 8000x (0<x<20,000)
a. Determine the formula for the average rate of change of sales volume with
respect to x. Answer: -0.4x-.2(x)+ 8,000
b. Use the result of part [a] to determine the average rate of change of sales
revenue with respect to x as x changes from x= 10,000 to x = 14,000. Answer:
3,200.
c. Interpret the result of part b. Answer: As x changes from x=10,000 to x=
14,000, an additional unit sold yields Birr 3,200 of sales revenue, on the
average.
2 The total cost, C of producing x units of a product is given by
C(x) = 3x2+ 80,000 [0, 100]
a. Find the average rate of change of cost with respect to x. Answer:6x+3x
b. Determine the average rate of change of cost with respect to x as x changes
from x=50 to x=55. Answer:315
c. Interpret your result. Answer: As x changes from x=50 to x= 55, an
additional unit produced costs Birr 315, on the average.
3. The profit, P (in millions of Birr), gained from selling x (in thousands) units of a
product is given by: P(x) = -0.1x2+4x-30 [10<x<30]
a. Find the average rate of change of profit with respect to x. Answer:-0.2x -
0.1x+4
b. Determine the average rate of change of profit with respect to x as x changes
from x=12 to x=15. Answer: Birr 1,300,000
c. Interpret your result. Answer: As x changes from x=12,0000 to x= 15,000, an
additional unit sold yields Birr 1,300, on the average
Instantaneous Rate of Change (IRC)

The instantaneous rate of change of a function is a rate of change, not over an
interval of a finite length, but at a point.
In the previous section we discussed the relationship between the distance, Y (in
miles), traveled by a driver and the time elapsed, x (in hours). These two quantities
are related by the equation Y= f(x) = 10x 2 (x>0), and the formula for the average
rate of change of Y with respect to X over the interval x to x +x is given by
= 20x +10(x).
The average rate of change of Y with respect to x when x changes from one value to
the other is determined by substituting those values of x. Now let's ask one
question: What the speed of the car at x=3? This result is called instantaneous speed
or instantaneous rate of change of Y with respect to x at x=3. It is determined by
first calculating a formula for the instantaneous rate of change of Y with respect to
x at point (x, f(x). This formula is determined by calculating the average rate of
change = 20x+10(x) letting x get very small (i.e., we let x0) to
obtain 20x. This result, 20x, is called the derivative of the function f(x) =10x 2 and is
denoted by f'(x). Thus, the derivative f '(x) = 20x gives the formula for the
instantaneous rate of change of Y with respect to x at any point (x, f(x)) of the
function defined by Y= f(x) =10x2.
Therefore, the instantaneous rate of change or the derivative of Y with respect to x

is the limit of the average rate of change as x0(provided this limit exists). This is
written as f '(x) = Lim as x0.
Graphically, the derivative is the slope of the straight line tangent to the graph of
the function at (x, f(x)).
The slope of the tangent line at any point x on the x axis represents the instantaneous
rate of change of the function f at that point.
The IRC of f at any point x is the limit of the ARC of f over the interval from x to
x+x as x approaches zero; that is
f ( x )
IRC = Lim
x
X 0
f ( x  x )  f ( x )
= Lim
x
X0 if this limit exists.
= Derivative of f(x)
The Derivative
The IRC is also called the derived function or the derivative. The derivative of a
df ( x) df
function f is that function, commonly denoted f ', f '(x), D xf(x), , or Y' Dxy,
dx dx
f ( x)
, whose function value at any x in the domain of f is given by f '(x) = lim
x
f ( x  x)  f ( x)
= lim , if that limit exists.
x
x0 x0
The process of determining the derivative of a function is termed Differentiation.

In order for the derivative to exist, the difference quotient f ( x) / x must have a
limit as x0. At each x where this limit does exist, the function is said to be
differentiable.
Differentiability
A function is said to be differentiable at a point if its derivative exists at that point.
For a derivative to exist at a specified value of X,
a. Its graph must have a unique non vertical tangent line at that point.
b. It must have no sharp corner at that point.
c. The function must be continuous at that point.
d. The function must be defined at that point.
Rules of Differentiation
Differentiation by direct application of the limit formula, f('x) = is
sometimes awkward and cumbersome. Therefore, functions should be classified in
to certain groups according to their behavior, so that the process of finding a
derivative when applied to these groups follows a definite formula.
A few of the more commonly used rules are:
1. Constant Function Rule
Derivative of a constant function is zero
f(x) = k e.g. f(x) = 10 - horizontal straight line
f '(x) = 0 f '(x) = 0
2. Power Rule
The derivative of a variable raised to the constant power, n, where n is any real
number and n0, is equal to the power n multiplied times the variable raised to the
power n-1.
F(x) = Xn e.g. f(x) =X3 f(x) = x2 f(x) =X
n-1 2
F '(x) = n x f '(x) = 3x f '(x) = 2x f '(x) = 1
F (x) =
1 1/ 2 1 1
F '(x) = x = x
2 2 2 x
3. Constant Multiplier Rule
The derivative of a constant times a function is the constant times the derivative of
the function.
F(x) = kg(x)
f1(x) = k. g '(x) E.g. f(x) = 5x3 f(x) = 3x
1 2 2
f (x) = 5.3x = 15x f ' (x) =3
4. Sum or Difference Rule

The derivative of the sum (or difference) of two functions is the sum (or difference)
of their respective derivatives.
F(x) = [g(x) + h(x)]
f '(x) = [g '(x) + h'(x)] E.g. F(x) = 6x4 - 5x2 f(x) = 3x
3-
f '(x) = 24x 10x f ' (x) =3
5. Product Rule
The derivative of a product is the deviate of the first factor multiplied by the
second, plus, the first factor multiplied by the derivative of the second.
H(x) = [f(x). 8 (x)] E.g. f(x) = (2x2-5) x+3)
h '(x) = [f '(x).g(x)] + [f(x) x g '(x)] f '(x) = [(4x) .(x+3)] + 1 (2x2-5)
= 4x2 + 12x + 2x2-5
= 6x2 + 12x -5
6. Quotient Rule
The derivative of a quotient is the denominator times the derivative of the
numerator, minus the numerator times the derivative of the denominator, all over
the denominator squared.
E.g.
[ g ( x ). f 1 ( x )]  [ f ( x ). g1 ( x )]
h(x ) 
[g ( x )]2
10x 4  10x  15x 4 5x 4  10x
= =
( x 3  1) 2 ( x 3  1) 2
H(x) =
x 2  2x  2x  2x 2 x 2  2x ( x  2)
= = =
(x4 ) x4 x3
7. Chain Rule
If y =f (u) is a differentiable function of u and u= g(x) is a different table function of
x, then
dy dy du
 .
dx du dx
The chain rule states that if y is a function of u and u is a function of x, then the
derivative of y with respect to x (i.e., dy/dx) equals the derivative of y with respect
to u (i.e., dy/du) times the derivative of u with respect to x (i.e., du/dx).
( 6x 2  5)10
E.g. Y = dy/du = 10u9
u
y= f(u) dy/du = 12x
= U10 where U = 6x2 - 5 dy/du = 10u9 (12x)

= 120xu9
= 120x (6x2 - 5)9
Higher - Order Derivatives

If a function f has a derivative for each value of x in some specified interval, then
the derivative function f is defined for that interval. If, in turn, the derivative
function it self has a derivative for points in that interval, this new derivative
function is called the SECOND DERIVATIVE OF the original function, often
denoted f ''(x). Similarly, if f '' has a derivative, we speak of the THIRD
DERIVATIVE of the original function, and note this as f '''(x), and so on.
No new rules of differentiation are needed for higher-order derivatives. One

simply differentiates, and then differentiates again, and again, using the same set
of derivative rules.
Example
F (x) = 3x4+5x3+2x2+3x+10 -1st function (original function.)
F '(x) = 12x3+15x2+4x+3 - First derivative.
'' 2
F (x) = 36x +30x+4 - Second derivative
F '''(x) = 72x+30 - Third derivative
(4)
F (x) = 72 - Fourth derivative
(5)
F (x) = 0 - Fifth derivative
Derivatives are of particular of particular importance because they provide

information about:
1. The rate of change in the value of the function relative to
infinitesimal changes in the value of the independent variable.
2. Where the function is increasing in value and where it is
decreasing.
3. Where the function reaches its maximum and/or minimum
values.
Given a function f which is continuous on some open interval I and differentiable
in that interval:
1. If f '(x) > 0 for all x in the interval, then f is strictly increasing over that interval.
2. If f ' (x) < 0 for all x in the interval, then f is strictly decreasing over that interval.
3. If f '(x) = 0 for all x in the interval, then f is constant over that interval - horizontal
line.
Additional information provided by the second derivative
Just as f ' relates information about the behavior of f, so does f '' relate information
about the behavior of f '. It follows, naturally, that f '' also relates information about
the behavior of f. In the same way, the third derivative f ''' gives information about
the second derivative and so on.
We have noted that when the first derivative of a function is positive, the function
is increasing; or when the first derivative is negative, the function is decreasing.
But we often need information about the rate of increase or decrease and for this
information we look to the second derivative of the function. The second derivative
gives the slope of the first derivative.
1. If f '' (x) > 0 the first derivative f ' is an increasing function at X.

2. If f '' (x) < 0 the first derivative f ' is a decreasing function at X.
3. If f '' (x) = 0 the first derivative f ' is a constant function at X.
Thus, the first and second derivatives taken together tell us a great deal more about
the function than does the first derivative alone.
a. If f ' > 0 and f '' > 0, the function f is increasing at an increasing rate. That is,
the slope of f is positive and is getting steeper.
b. If f ' < 0 and f '' > 0, the function f is decreasing at an increasing rate. That is,
the slope of f is negative but is becoming less steep.
c. If f ' < 0 and f '' < 0, the function f is decreasing at an increasing rate. That is,
the slope of f is negative and is becoming steeper.
d. If f ' > 0 and f '' < 0, the function f is increasing at a decreasing rate. That is,
the slope of f is positive but is becoming less steep.
e. If f ' > 0 and f '' = 0, the function f is increasing at a constant rate. That is, the
slope of f is positive and linear.
f. If f ' < 0 and f '' = 0, the function f is decreasing at a constant rate. That is, the
slope of f is negative and linear.
Extreme Values of a function

Geometrically, the maximum and/or minimum values of a function are the high
and/or low points on the function’s graph.
Extreme values of a function are divided in to

- Local/Relative extrema - Maximum & minimum
- Absolute extrema - Absolute maxima and Absolute minima
Local Extrema: - usually for open intervals
a. A function f attains a relative/local maximum at x=a if there exists an open

interval I containing a such that f (a) > f(x) for all x in the interval I. That is to
say, a function is considered to achieve a relative maximum at some value of the
independent variable if the value of the function at that point is at least as large
as it is for any other nearby points.
b. A function attains a relative minimum at x=a if there exists an open interval I
containing a such that f(a) < f(x) for all x in the interval I. That is to say, a
function is considered to achieve a relative minimum at some value of the
independent variable if the value of the function at that point is at least as small
as it is for any nearby point.
Because a relative maximum need not be the highest point for the entire graph but
simply a point higher than other points in its immediate neighborhood, a function
may have more than one relative maximum.
Similarly, a relative minimum is minimal only in relation to adjacent points, so a

function may have more than one relative minimum.
Absolute Extrema - usually for closed interval.
a. A function f attains an absolute maximum at x = a if and only if f (a) > f(x)

for all x in the domain of f.
b. A function f attains an absolute minimum at x=a if and any if f (a) < f(x) for
all in the domain.
A point [a, f (a)] is an absolute extremum only if it is the very highest or lowest,
point on the entire curve.
When the domain of f is a closed interval
If the domain of a function is restricted to some closed interval, and if the function
is continuous on that domain, the function necessarily has both an absolute
maximum and an absolute minimum.
The absolute extrema of such functions may occur either at an end point or at an
interior point of the closed interval, or possibly at both. Relative extrema, on the
other hand, are conventionally considered to occur only at interior points of the
domain.
When the domain of f is defined over an open interval (a, b), or if the domain is
unrestricted, then f may or may not have an absolute maximum or an absolute
minimum.
First Derivative Test for Relative Extrema

Relative extrema occurs only at critical points of a function.
A critical point of a continuous function f is a point (x*, f (x)) such that either
a. F '(x*) = 0 or,
b. F ' (x*) does not exist but f(x*) is defined
X* is the Critical Value of x.
In searching for relative extrema we need only consider critical values of x. Thus,
the first step in identifying relative extrema is to determine the set of x which
comprises candidates for extrema; that is we determine x* = {x/f'(x*) = 0 or f ' (x*)

does not exist but f(x*) is defined. However, these are only “candidates” for
extrema; they are not necessarily relative extrema. The next step, thus, is to
determine the character of each member of the X* set. One method of determining
the character of a critical point is known as the First Derivative Test.
To the immediate left of a maximum point the function is always increasing (that
is, f ' >0) and to the immediate right of a maximum point the function is always
decreasing (that is, f '<0). Hence; THE ALGEBRAIC SIGN OF THE FIRST
DERIVATIVE ALWAYS CHANGES FROM +VE TO - VE AS THE FUNCTION
TRANSVERSES A RELATIVE MAXIMUM POINT (always moving from left to
right along horizontal axis.)
Similarly, to the immediate left of a minimum point the function is decreasing (that
is, f ' < 0), and to the immediate right of a minimum point the function is always
increasing (that is, f '>0). So, THE ALGEBRAIC SIGN OF THE FIRST DERIVATIVE
ALWAYS CHANGES FROM -VE TO +VE AS THE FUNCTION TRANSVERSES A
RELATIVE MIMUM POINT.
If the sign of the first derivative does not change as the function transverses a
critical point, the point is neither a maximum nor a minimum.
Example:
Find the relative maxima and minima of the following functions, if they exist.
1. f (x) = x2 - 4x +4
a. f '(x) = 2x - 4 b. Use f '(x) to determine the behavior of f
2x - 4 = 0 1. f ' (x) < 0 for x <2 - f  when x< 2
2(x-2) = 0 2. f ' (x) > 0 for x>2 - f  when x> 2.
X = 2 - candidate, so that at x=2 there is a relative minimum of f.
2. f(x) = 4x3
a. f ' (x) = 12x2 1. f ' (x) > 0 for x<0 - f  when x< 0
2
12x = 0 2. f ' (x) > 0 for x > 0 - f  when x > 0
x = 0 - candidate +ve +ve
The algebraic sign of f ' does not change as we move from left to right across the
critical point; therefore, the critical point x* 0, is neither a maximum or nor a
minimum.
3. f(x) = 1/x2 The first derivative can never be negative and the function is undefined
at x = 0, so no critical value.
4. f(x)=x2/3
f '(x)= . The first derivative can't be set equal to zero. Though the first
derivative can never be equal to zero, f(x) is defined at x=0. So the critical value is
x=0. Since f '(x) is negative for all values of x to the left of zero and positive for all
values of x to the right of 0, x=0 is a relative minima.
5. f(x)= x3+3x2-72x+9
f '(x)= 3x2+6x-72, setting f '(x)= 0 and solving yields
3x2+6x-72=0
3(x2+ 2x-36) =0
3(x+6) (x-4) =0
Thus, x=-6 and x=4 are critical values. Since there are no values of x at which f '(x)
does not exist, these are the only critical values. Since f '(x)>0 for all nearby values
of x to the left of x=-6 and f '(x) <0 for all nearby values of x to the right of x=-6,
then, by the first derivative test, a relative maximum exists at x=-6. Also, since f '(x)
<0 for all nearby values of x to the left of x=4 and f '(x)>0 for all nearby values of x
to the right of x=4, then, by the first derivative test, a relative minimum exists at
x=4. Computing the corresponding y values we have (-6,333) as relative maxima
and (4,-167) as relative minima.
Second Derivative Test for Relative Extrema

We have seen that the second derivative f '' gives information about the rate of
change of the first derivative f '. If f ''>0 at some point x = a, then f ' is an increasing
function at that point, and the graph of f is Concave upward. Or if f " < o at some
point x = a, then f ' is a decreasing function at the point, and the graph of f is
concave down ward.
If an extremum occurs at a point X* where f is concave downward, that extremum

is a maximum. If an extremum occurs it a point X* where f is concave upward, that
extremum is a minimum. These facts lead to a second procedure for locating local
extrema, a procedure referred to as the Second Order Derivative Test.
The second derivative test for locating relative extrema proceeds as follows:
1. Find the first derivative f ' and the second derivative f "of the function f.
2. Locate the set of critical values of x.
3. Evaluate the second derivative f '' at each critical value x*
A. If f '' (x*) < 0, then f(x*) is a maximum value of f.
B. If f '' (x*) > 0, then f(x*) is a minimum value of f.
C. If f '' (x*) = 0, then the test is indeterminate - Use 1st derivative test.
Example:
Use the second derivative test to locate the relative extrema
a. f(x) = x2 - 4x - 45
1. f '(x) = 2x - 4, f ''(x) =2
2x = 4
2. X = 2 = critical value
3. 2> 0 - f '' (2) = 2 - the function is concave upward at this point, Hence, the
point (2, f (2)) is a relative minimum point on function f.
b. f(x)= x3 +3x2 + 3x - 5
1. f '(x) = 3x2 + 6x + 3, f '' (x) = 6x + 6
2. 3x2 + 6x + 3 = 0 Use 1st derivative test
(3x+3) (x+1) = 0 x -3 -2 -1 1 2 3
3x=-3, x=-1 f '(x) 12 3 0 12 27 48
x = -1 Critical value +ve +ve
Therefore, No relative extremum.
c. f(x) = x2 - 6x + 7
1. f '(x) = 2x -6 f ''(x) =2
2. 2x - 6=0
x = 3 critical value.
3. f ''(x)= 2 >0, therefore, [3, f(3)] is a relative minimum.
Locating Absolute Maxima and Minima
In locating absolute extrema we must consider whether the function is defined in a

closed interval [a, b] or an open interval (a, b). If the domain is not specified, it is
generally considered to be the set of all real numbers.
When the domain of f is a closed interval- an interval that contains both of its endpoints
A continuous function f defined on a closed interval [a, b] must attain both an
absolute maximum and an absolute minimum at points in [a, b].
If f is continuous on [a, b] with critical values x*1, X*2, --------X*n at interior points
of the interval, the point at which f attains its absolute maximum must be critical
value of x which represents a relative maximum of at one of the end points of the
interval a or b. Similarly, f must attain its absolute minimum either at one of the
interior point critical values which represents a relative minimum or at a and b.
Thus, to find the absolute maximum and absolute minimum, we evaluate f(x*1),
f(x*2) ------- f (X*n), f (a) and f (b). The largest of these is the absolute maximum of f
on the interval [a, b]; the smallest of these is the absolute minimum of f on the
interval [a, b]. The other critical values - the other X* - represent relative extrema.
The end points a and b are considered for absolute extrema only, and not as
candidates for relative extrema.
In short, to find the absolute maximum on a closed interval, we follow the

following steps.
1. Find the x coordinates of all the first-order critical points of f in the interval
a<x<b.
2. Compute f(x) at these critical points and at the end points x=a and x=b.
3. Select the largest and smallest values of f(x) obtained in step 2. These are the
absolute maximum and absolute minimum, respectively.
Example
Find the maxima and minima for the function f defined as
1. f(x) = x3 - 7.5x2 +10 0<x<5
f ' (x) = 3x2 - 15x+12 = 0
3x2 - 15x + 12 = 0
x2 - 5x + 4 = 0
(x-4) (x-1) = 0
x* = 4, 1 - critical values. Then compute f(x) at the critical points and end points.
x 0 1 4 5
f(x) 10 3.5 -46 -52.5
On the interval [0, 5], f(0)= 10 is the absolute maximum and f(5)= -52.5 is the
absolute minimum.
2. f(x)=2x3+3x2-12x-7 [-3,0]
f '(x)= 6x2+6x-12
x2+x-2 =0
(x-1)(x+2)=0
x* = 1, -2, of these, only x=-2 lies in the interval -3<x<0. Then compute f(x) at x=-2
and endpoints x=-3 and x=0.
x -3 -2 0
f(x) 2 13 -7
On the interval [-3, 0], f (-2) = 13 is the absolute maximum and f(0)= -7is the
absolute minimum.
Absolute extrema on open interval

To find the absolute extrema of a continuous function on an open interval, we
evaluate the function at all the critical points and end points that are contained in
the interval. However, before drawing any conclusion, we must find out if the
function actually has relative extrema on the interval. One way to do this is to use
the first derivative to determine where the function is increasing and where it is
decreasing and sketch the graph.
Absolute extrema on intervals containing only one critical point

In reality, many practical optimization problems involve only one first-order

critical point of the function. When this happens, we use the second derivative test
to identify the absolute extremum. Given that a function is continuous over some
interval and only one critical value exists in the interval, then
1. If f ''(x*) < 0, f(x*) is the absolute maximum value of f(x) over the interval.
2. If f ''(x*) > 0, f(x*) is the absolute minimum value of f(x) over the interval.
3. If f ''(x*) = 0, the test fails.
The second-derivative test for absolute extrema can be applied to any interval,
whether closed or not. The only requirement is that the function be continuous and
have only one critical point on the interval.
Business Application of Differential Calculus

Marginal Analysis
One important use of the derivative in business and economics involves marginal
analysis MC, MR, MP, and MU.
MC - It is the rate of change in total cost per unit change in production at an output
level of x-units at any production level x (non - linear functions)
Example
1. Suppose the total cost c(x) in thousands of dollars for manufacturing x unit is given
by the function C (x) = 575 + 25x -1/4x2
a. Find the marginal cost at a production level of x units
C' (x) = 25 - 1/2x
b. Find the marginal cost at a product level of 40 units and interpret the result
C ' (40) = 25 - 40/2 = 5,000.
At a production level of 40 units the rate of change of total cost relative to

production is Birr 5000. The cost of producing one more unit at this level of
production (40 units) is approximately 5,000 Birr. The cost of producing the 41st
unit of product.
c. Find the actual cost of producing the 41st unit and compare this cost with the
result found in question 2.
C (41) - C (40) = [575 + 25(41)-41/4] - 575+25(40)-40/4]

= (1025 - 420.25) - (1000 - 400)
= 604.75 - 600
= 4.75 = Birr 4,750
2. The market research department of a company recommends that the company

manufacture and market new transistor radio. After suitable market testing the
research department presents the following demand equation
X = 10,000 - 1000 p (x is demand at Birr/radio)
P = 10 - x/1000
The financial department provides the following cost equation C(x) = 7000 + 2x.
Conduct a marginal analysis for the company
Solution.
C(x) = 7000 + 2x TR= PQ = (10 - x/1000) X

C' (x) = 2 = 10x - x2/1000
MR = R'(x) = 10 - 2x/1000
= 10 - .002x
P(X) = R(x) - C(x)
= 10x - x2/1000 - (7000 + 2x)
= 8x - x2/1000 - 7000
P ' (X) = 8-0.005x
3. A manufacturer’s cost and revenue functions are

C (x) = 3,500 + 200x + 0.2x2 0<x< 100
And
R(x) = 284x - 0.5x2 0<x< 100
Where C(x) and R(x) are in Birr and x is the number of units of product produced
and sold
a. Determine the marginal cost, marginal revenue and marginal profit
functions
b. Compute C(50)and C'(50), R(50) and R'(50), P(50) and P'(50), R(60)
and R'(60), P(60)and P'(60), C(70) and C'(70), R(70)and R'(70), P(70) and
P'(70).
c. Interpret your results.
Solution
R'(x) = 284 - 1x R' (50) = 284-1(50) =234

C '(x) =200+0.4x C'(50) = 200 + 0.4(50) =220
P'(x) = R'(x) - C'(x) P'(50) = 84 - 1.4(50) = 14
= 284-1x - (200 +.4x) R'(60) = 284-1(60) =224
= 84 - 1.4x C'(60) = 200-0.4(60) =224
P'(60) = 84 - 1.4(60) = 0
R'(70) = 284 - 1(70) = 214
C'(70) = 200- 0.4(70) =228
P'(70) = 84 - 1.4(70) = -14
R (50) = 284(50)-.5(502) =Birr12, 950

C (50) = 3500+ 200(50) + .2(502) = Birr14, 000
P (50) = 84(50) - .7(502) - 3500 = Birr (1,050)
R (60) = 284(60)-.5(602) =Birr15, 240
C (50) = 3500+ 200(60) + .2(602) = Birr16, 220
P (50) = 84(60) - .7(602) - 3500 = Birr (980)
R (70) = 284(70)-.5(702) =Birr17, 430
C (50) = 3500+ 200(70) + .2(702) = Birr18, 480
P (50) = 84(50) - .7(502) - 3500 = Birr (1,050)
At a production level of 50 units, the total revenue realized and the total cost
incurred are Birr 12,950 and Birr 14,000, respectively, and a production of one more
unit increases the revenue by Birr 234 and the cost by Birr 220.
4. A small machine shop manufactures drill bits that are used in petroleum
industry. The shop manager estimates that the total daily cost (in Birr) of
producing X bits is C(x) = 1,000 + 25x – 0.1x2.
a. Find the daily average cost if x units are produced.
b. Find the average cost per unit if 10 drill bits are produced.
c. Find the marginal average cost function.
d. Find the marginal average cost if 10 drill bits are produced, and interpret
the results.
Solution:
a.
b.
c.
d.
A unit increase in production will decrease the average cost per unit by
approximately Birr 10.10 at a production level of 10 units.
5. The total profit (in Birr) from the sale of X video cassettes is P(x) = 5x – 0.05x 2 –
450.
a. Find the average profit if x video cassettes are produced and sold.
b. Find the marginal average profit function.
c. Find the average profit per unit if 150 video cassettes are produced and
sold.
d. Interpret the result.
Solution:
a.
b.
c.
d.
A unit increase in production and sales will increase the average profit per
unit by approximately Birr 0.015 (1.5 cents) at a production and sales level of
150 units.
Optimization Problems
1. A company manufactures and sells x transistor radios per week. If the weekly cost
and demand equations are: C(x) = 5000 + 2x and P = 10-x/1000 [0, 8000]
Find for each week

a. The production level that leads to maximum revenue the maximum revenue.
b. The production level that leads to maximum profit and the maximum profit.
c. The production level that leads to the minimum cost and the minimum cost.
Solution
a. TR = P(x) = 10x - x2/1000 b. Profit (P(x) = R(x) - c(x)
R' (X) = 10- 2x/1000 = 10x - .001x 2 - (5000-2x)
= 10-0.002x P(x) = 8x - .001x2-5000
TR get its maximum when P'(x) = 8-.002x
MR=0, so 10-0.002x=0 p(x) gets maximum when P'(x) =0
x = 5000 units 8 = .002x
R' (x) = - .002 - Absolute max. x = 4000 units
2
R(x) = 10(5000) - 5000 /1000 P (4000) = 8(4000)-0.001(40002)-5000
= 25,000 Birr = 11,000 birr, R(x) = 24,000 Birr
(5000, 25,000) = P =Birr 5. (4,000 11,000) Price 6=Birr.
C. If the cost function is a 1st degree equation, the minimum cost is at x= 0
2. The Ethiopian Airlines purchases a particular type of plane at a cost of Birr

1,800,000. The company estimates that the average operating cost is a function of x,
the number of hours of flight time. Average operating cost, stated in Birr per hour
of flight time, is estimated by the function 0(x) = 0.05x - 200
a. Determine how many hours a plane should be flown if the objective is to

minimize the total average cost.
b. What is the minimum total average cost?
Solution
Average operating cost = 0.05x - 200
a. Total operating cost = 0.05x2 - 200x
Total cost = 0.05x2 - 200x + 1,800,000
C¯ (X) = 0.05x2-200x + 1, 800,000
x
= 0.05x - 200 + 1,800,000/x
The total average cost is minimum if C¯ '(x) = 0

C¯ '(x) = 0.05 - 3,600,000/x2
.05 = 3,600,000/x2
.05x2 = 36,000,000
x = 6000 hours.
b. C(x) = .05x -200+1,800,000/x

= .05(6000)-200+1,800,000/6,000
= 300-200+300
= Birr 400
3. A rectangular area of 1,050 square feet is to be enclosed by a fence, and then divided
down the middle by other fence. The fence down the middle costs Birr 0.50 per
foot, and the other fence costs Birr 1.50 per running foot. Find the minimum cost
for the required fence.
Solution.
Area of a rectangular polygon = 1050 sq. ft
Area = XY
= 1050 = XY = X = 1050/Y
Cost = (1.50y) 2 + (1.50x) 2 + 0.5y
= 3y +3x+0.5y
= 3.5y + 3x ------------------------------------------- C = 3.5(30) + 3(35)
C(y) = 3.5y + 3 (1050/y) = Birr 210

= 3.5Y + 3150/y
Cost is minimum when C '(y) is =0
C' (y) = 3.5 - 3150/y2
3.5 - 3150/y2= 0
3.5y2 = 3150
y2 = 900
Y = 30feet, X = 35 feet
4. A manufacturer can produce radios at a cost of Birr 2 a piece. The radios have been
selling for Birr 5 a piece, and, at this price, consumers have been buying 4,000
radios a month. The manufacturer is planning to raise the price of the radios and
estimates that for each Birr 1 increase in price, 400 fewer radios will be sold each
month.
a. Express the manufacturer's monthly profit as a function of the price at
which the radios are sold.
b. At what price should the manufacturer sell the radios to maximize
profit?
Solution
a. Profit = (number of radios sold) (profit per radio)
Let x denote the price at which the radios will be sold and p(x) the corresponding
profit, and the number of radios sold = 4,000- 400(number of Birr 1 increases)
The number of Birr 1 increases in the price is the difference x-5 between the new
and the old selling prices. Hence,
Number of radios sold = 4000-400(x-5)
= 400[10-(x-)]
= 400(15-x)
The profit per radio is simply the difference between the selling price x and the cost
Birr 2. That is,
Profit per radio = x-2
The profit equation then becomes P(x) = 400(15-x) (x-2)
b. The goal is to find the absolute maximum of the profit function
P(x) = 400(15-x) (x-2) (5<x<15)
To find the critical points, compute the first derivative (using the product and
constant multiple rules) to get
P '(x) = 400[(15-x) (1) + (x-2) (-1)
= 400(15-x-x+2)
= 400(17-2x) which is zero when 17-2x =0 or x= 8.5
Comparing the values of the profit function
P (5) = Birr 12,000 P (8.5) = Birr 16,900 P (15) = 0
At this critical point and at the end points of the interval, we can conclude that the
maximum possible profit is Birr 16,900 which will be generated if the radios are
sold for Birr 8.5 a piece.
4. A rectangular card board poster is to contain a 96 - square-inch rectangular section
of printed material, have a 2-inch border top and bottom, and a 3 - inch border on
each side. Find the dimensions and area of the smallest poster that meets these
specifications.
Solution
A= (y+4) (x+6)
2'
= (y+4) (96+6)
= 64 +24+96/ (y +4) 3' 96 sq inch
= 6y +24 +96 + 384/y 3033
= 6y + 120+ 384/y
A'(y) = 6 - 384/y2
Set A'(y) = 0 xy = 96
2
6 = 384/y 8x = 96
2
y =64 y=8 x = 12
Area = 12 x18 = 216 sq inch
5. Sharp industries produce table knives. Each knife cost Birr 6 to produce and
sells for Birr 9. The quality control manager has determined from past data
that out of x knives that are produced during any given day, the fraction
defective for the day is given by x 2/20,000,000, where 100< x < 1500. Each
defective knife costs the company an additional Birr 20.
Required
a. Determine the equation that gives daily profit, p, as a function of daily
production volume, x.
b. Determine the maximum daily profit and the daily production volume
that yields the maximum daily profit
Solution.
a. Profit is the difference between all costs incurred and TR realized, that is
P = TR - TC
= PQ - (VQ + FC + Other costs)
= 9x - (6x + additional cost of the defective knives)
= 3x - (additional cost of the defective knives)

The number of defective knives produced in a day is determined by multiplying
the fraction of defective and the daily production volume. Hence,
Number of defectives = Fraction defective * Daily production volume
= *X
Since each defective costs the company an additional Birr 20, then additional cost of
the defective knives = 20 * =
Thus, the daily profit is given by:
P(x) = 3x - (100< x<1,500)
Critical values: P'(x) = 3 - =0
3= , x2 = 1, 000 (the only critical value)
Test for the absolute extrema using second derivative test

P"(x) =
P"(1000) = -0.06<0
By the second derivative test for absolute extrema, the function P(x) has an absolute
maximum at x = 1000. Hence,
P (1000) = 3(1000)-
= Birr 2000
6. From past experience, an apple grower knows that if the apples are harvested now,
each tree will yield on average 130 pounds and the grower will sell the apples for
Birr 0.64 per pound. However, for each additional week that the grower waits
before harvesting, the yield per tree will increase by 5 pounds, while the price per
pound will decrease by Birr 0.02. How many weeks should the grower wait before
harvesting the apples in order to maximize the sales revenue per tree? What is the
maximum sales revenue per tree?
Solution:
Let x be the number of weeks the grower waits. The sales revenue per tree is given
by R = number of pounds per tree * price per pound
R(x) = (130+5x) (0.64 - 0.02x)
Critical values
Using the product rule we find

R'(x) = (130+5x) (-0.02) + (0.64 - 0.02x) (5)
= 0.6 - 0.2x
0 = 0.6 - 0.2x
0.6 = 0.2x
x=3
Test for absolute extrema (Second derivative test)
R"(x) = -0.2 <0
Absolute maximum is at x = 3
R (3) = [130 +5(3)] [0.64 - .2(3)]
= 145 * 0.58
= Birr 84.10
7. The manager of an ocean resort wants to enclose a rectangular area of beach along
the ocean. There must be at least 500 feet of frontage along the ocean, as illustrated
below. Find the dimensions that maximize the enclosed area if 2,000 feet of fencing
are available. Find the maximum area.
Ocean
500 feet x
Objective: To maximize the enclosed Test for absolute extrema using the second
area this is given by: derivative test
A= Length * Width A"(y) = -4
A = (500 + x) y A"(500) = -4 <0
Length of fence = 2000 feet
Y + (500 + x) + Y = 2000 X = 1500 - 2y
2y + 500 + x = 2000 = 1500 - 2(500)
2y + x = 1500 = 500 feet
x = 1500 - 2y Thus, the dimensions of the enclosed area
A = (500 + x) y are 500 + x by y, that is 500 + 500 by 500 =
A(y) = (500 + 1500- 2y) y 1000 by 500
= 2000y - 2y2 (y > 0) Maximum area = 1000 x 500
A'(y) = 2000 - 4y = 500,000 square feet
2000 = 4y
y = 500 feet, the only critical value
8. A travel agency will plan a group tour for group size 25 or larger. If the group
contains exactly 25 people, the cost is Birr 300 per person. However, each person's
cost is reduced by Birr 10 for each additional person above the 25. What size group
will produce the largest revenue for the agency?
Solution
TR = number of people * cost per person
R(x) = (25 +x) * (300 - 10x)
= 7500 + 50x - 10x2
R(x) reaches its maximum when R'(x) = 0
R'(x) = 50 - 20x
50 - 20x = 0
x = 2.5
This means adding 2.5 people produces the highest TR. Since we can't have 2.5
people test the function at either by adding 3 people or 2. That is,
R (25 +3) = 28[300 - 10(3)] = Birr 7560
R (25 +2) = 27[300 - 10(2)] = Birr 7560
Thus, the revenue is maximized at either 27 or 28 people in the group.
9. Minimizing Inventory Cost (Where inventories arrive in lot size of Q)
One of the many products sold by a discount store is a special model video cassette
recorder (VCR). Each such VCR costs the store Birr 200. The annual demand is
200,000 units. Ordering costs are Birr 40 per order, and the annual holding cost per
unit is 8% of the cost of a VCR.
a. Determine the equation for the total annual inventory cost.

b. Determine the order size that minimizes the total annual inventory cost.
c. Determine the minimum total annual inventory cost.
d. Determine the number of orders placed in a year for this particular VCR.
Solution
a) The total annual inventory cost is calculated by the following formula:

C = ordering cost + carrying cost
The ordering cost is calculated by multiplying the cost of placing an order by the
number of orders placed in a year. Since 200,000 VCRs orders are placed annually
in quantities of Q VCRs per order, the number of orders per year is . Thus
since the cost of placing each order is Birr 40, we have
Ordering cost = 40 =
The carrying cost is calculated by multiplying the cost of carrying 1 unit in

inventory for a year by the average number of units in inventory. The average
inventory is (0 +Q)/2 = , since the inventory level varies from 0 to Q. Thus, since
the cost of carrying 1 VCR in inventory for a year is Birr 16 (8% of 200), we obtain
Carrying cost = 16 = 8Q
Therefore, the total annual inventory cost is calculated as

C (Q) = 40 + 16
Simplifying, we obtain
C (Q) = + 8Q (Q>0)
b) Calculating C' (Q) and setting it equal to zero gives the critical point.
C'(Q) =
The critical value is obtained by setting C'(Q) =0. Hence, = 0.

Solving for Q2 gives
Q2 = 1,000,000
Q = 1,000 the only critical value.
Applying the second derivative test to Q = 1,000, we have
C"(Q) =
C"(1000) = = 0.016 which is positive. Therefore, by the

second derivative test for absolute extrema, an absolute minimum exists at Q =
1000. Thus, in order to minimize the total annual inventory cost, the store should
order this particular model of VCR in lots of 1000.
C. The minimum annual inventory cost is
C (1000) =
= Birr 16,000.
D. The number of orders placed in a year for this VCR is given by
10. Minimizing Inventory Cost (Where items of inventory are supplied at a constant
rate during a given time interval)
Star Soap and Detergent Inc., manufactures a special type of bath soap, Max. Star
can produce this soap at an annual rate of 480,000 cases. The annual demand is
estimated to be 320,000 cases. It costs Star Birr 400 to set up a production run. The
annual holding cost per case of soap is Birr 12.
a. Determine the equation for the total annual inventory cost for Star.
b. Determine the value of Q that minimizes the total annual inventory cost.
c. Determine the minimum total annual inventory cost.
d. Determine the annual set-up cost.
e. Determine the annual holding cost.
Solution
a. The total annual inventory cost associated with this production lot size inventory
model is given by
C = set-up cost + carrying cost
Where
Q= number of units of inventory manufactured during a production run
D= annual demand rate
P= annual production rate/rate of inflow of inventory in to the stockpile
K= cost of setting up a production run
H= annual holding cost per unit of inventory
P-D= rate of net inflow of inventory in to the stockpile
Simplifying we obtain
b) Calculating C' (Q) and setting it equal to zero gives the critical
point.
C'(Q) =
The critical value is obtained by setting C'(Q) =0. Hence, =0

Solving for Q2 gives
Q2 = 64,000,000
Q = 8,000 the only critical value.
Applying the second derivative test to Q = 8,000, we have
C"(Q) =
C"(8000) = = 0.0005 which is positive. Therefore, by the

second derivative test for absolute extrema, an absolute minimum exists at Q =
8000. Thus, in order to minimize the total annual inventory cost, the store should
produce this particular model of soap in lots of 8000.
c) The minimum annual inventory cost is
C (8000) =
= Birr 32,000.
d. The annual set-up cost is calculated by multiplying the number of times that star
sets up which is 40 (320,000/8,000) by the cost of setting up, Birr 400. Therefore, the
annual set-up cost is Birr 16,000(40x400).
e. The annual holding cost is calculated by multiplying the average inventory by
the annual holding cost of a unit of inventory. Average inventory is further
calculated using the formula . For the star case it is equal to
= 1,333 units. Multiplying the average inventory by the

unit cost of carrying the inventory, we get the annual holding cost. And it is equal
to Birr 16,000 (1333x12).
11. Optimal Price for Maximum Revenue

Owners of Bishangari, a resort village, have 200 seaside cottages which they rent by
the week to summer vacationers. When weekly rent is Birr 400, all units are
occupied throughout the summer months. Owners of the village would like to
increase the rental fee, but experience has indicated that for each Birr 20 per week
increase in rent (above Birr 400), five units will be vacant each week. What weekly
rental fee should be charged to maximize weekly revenue?
Solution:
The quantity to be maximized is revenue, R, each week and is determined by
Revenue = (Number of cottages rented). (Weekly rent per cottage)
The controllable independent variable is the number of Birr 20 increase in rent put
in to effect. Let us denote this as
X = number of Birr 20 increases in weekly rental fee put in to effect
Because after 40 such increases all cottages would be vacant, the value set of x is
restricted to 0< x <40.
The number of cottages rented will be (200 - 5x), while the weekly rental per
cottage is (400+ 20x). Hence, the revenue function is given by
R(x) = (200 - 5x). (400+20x) = 80,000 + 2000x - 100x2 [0, 40]
To find the value of x at which this function reaches a maximum, we differentiate

to obtain R' (x) = 2000 - 200x. Setting the first derivative equal to zero, we find the
critical value of x to be
2000 - 200x = 0
x = 10 (the only critical value)
Then by the second derivative test, we see that R" (x) = -200 is negative for all x
indicating that this extremum is a maximum point on the graph.
To locate absolute maxima or minima, we also consider the endpoints of the

domain of the function. Thus, we evaluate
R (0) = 80,000+200(0) - 100(02) = Birr 80,000

R (10) = 80,000+200(10) - 100(102) = Birr 90,000
R (40) = 80,000+200(40) - 100(402) = Birr 0
Hence, at x = 10 there is an absolute maximum.
With 10 increases of Birr 20 each weekly rental fee for a cottage, the rent would
increase from Birr 400 to Birr 600. The number of cottages rented each week would
decrease by 10*5 = 50, from the present level of 200 down to 150. Revenue realized
would be birr 600*150 = 90,000, and would be at a maximum level.
12. Optimal Price for Maximum Profit

Owners of Bishangari (from the preceding question) wonder whether the strategy
that yields the maximum revenue will also yield maximum profit. Their weekly
cost for cleaning and maintenance on a cottage rented is Birr 90, while this cost is
only Birr 10 on a cottage which is vacant.
Given that the number of cottages rented each week is a function of the number x
of Birr 20 increases in weekly rent(above the present Birr 400),
Number of cottages rented = 200 - 5x

and
Number of cottages vacant = 5x
Then the cost (of cleaning and maintenance) function is
C(x) = 90 (200 - 5x) + 10 (5x)
18,000 - 400x
The profit function, thus, is

Profit = Revenue - Cost
P(x) = 80,000 + 2000x - 100x2) - (18,000 - 400x)
62,000 + 2400x - 100x2 [0, 40]
To find the critical values of x for this function, we find the first derivative of P' (x)
= 2400 - 200x, and, setting this equal to zero, solve
2400 - 200x = 0
x = 12
To locate the absolute maximum, we evaluate P(x) at this critical value as well as at
each of the end points of the interval of relevant x values, as
P (0) = 62,000 + 2400(0) - 100(02) = Birr 62,000
P (12) = 62,000 + 2400(12) - 100(122) = Birr 76,400
P (40) = 62,000 + 2400(40) - 100(402) = Birr - 2,000
Thus, at x = 12, there is an absolute maximum for the function.
The profit -maximizing strategy - which is not the same as the revenue maximizing
strategy- would be to increase the weekly rent on each cottage by 12 * Birr 20 = Birr
240,, or from Birr 400 to Birr 640. This would mean that 5(12) = 60 cottages would
be vacant each week; only 140 of the 200 cottages would be occupied. Revenue
would total birr 640 * 140 = Birr 89,600. Cost of cleaning and maintenance would be
C (12) 18,000 - 400(12) = Birr 13,200 leaving a weekly profit of Birr 76,400 (Birr
89,600 - Birr 13,200)
Integral Calculus
Calculus has two main Branches: Differential Calculus - which deals with the
problems of finding the rate at which a known but varying, quantity changes: and
Integral Calculus - which deals with the problem of finding a quantity, given that
we know the rate at which it is changing.
Integral calculus is the reciprocal of the differential calculus. Given the rate of
change f '(x), by integral calculus we can find the original function f(x).
E.g. f(x) = 5
F(x) = 5x +c
F'(x) = 5
Because the derivative of a constant is zero, once an antiderivative of a function is
found, another antiderivative of the same function can be formulated simply by
adding a non-zero constant to the first derivative. Thus, F(x), by it self is not
unique; it is only one member of a family of antiderivatives for some specified
function, each of these antiderivatives for some specified function, each of these
anti-derivatives differing from the others only by an arbitrary constant C. Thus, if
F(x) is an antiderivative of f(x), the general expression F(x) + C is called the
ANTIDERIVATIVE of f(x), or the INDEFINITE INTEGRAL, and is denoted by the
symbol f(x)dx.
Given F(x, an antiderivative of f(x), the indefinite integral of f(x) is defined to be

F(x)+c = f(x)dx read as the indefinite integral of function f(x) with respect
to the variable x.
 - Integral sign
- indicates that the operation of anti differentiation
(integration) is to be performed.
f(x) - Integrand
dx - indicates integration is to be performed with respect to the
variable X.
C - Constant of integration
The process for finding f(x)dx is called indefinite integration.
E.g. Find the indefinite integral for the following

1. f(x) = 10x 2. f(x) = 3x - 10
2
f(x)dx = 5x +c f(x)dx = 3/2x2-10x+c
Find the function that has a slope of 10x 4 at each point and that passes through the
point (2, 74).
f(x) = 10x4
f(x)dx = 10x4dx = 2x5+c Therefore, F(x) = 2x5 + 10
5
Y = 2(2 ) + C
74 = (2 x 32) + C
C = 10
Basic Rules for Integration
The determination of anti-derivatives by trial and error is cumbersome. So many
rules for integration have been developed from the corresponding theorems
concerning derivatives. The most common are:
1. Constant Rule
f(x) = K f(x) = 3 f(x) = 0
f(x)dx = Kx+C 3dx = 3x+C 0dx = 0+c =C
2. Power Rule
f(x) = xn f(x) = x f(x) = x2
f(x)dx = ; n1 f(x)dx = +C f(x)dx =
If n = -1, ln x + C
It is because logarithmic functions are not defined for negative values of x.
3. Constant Multiplier Rule
f(x) = kg(x) f(x) = 5x
x2
if f(x) exists, f(x)dx = 5 +C
2
f(x)dx = Kg(x)dx+c = 5( )+C

x2
f(x) = =
2
f(x)dx = x2dx + C
4. Sum or Difference Rule
f(x) = h(x)  g(x) , if h(x) and g(x) exist
f(x) = h(x)dx  g(x)dx
E.g. f(x) = 3x+6
f(x) = 3xdx + 6dx
=
= ; where C = C1 + C2
5. Product Rule
f(x) = (x+2)2
= x2+4x+4
f(x)dx =
6. Quotient Rule
f(x) =
f(x)dx =
Business Applications of Integral Calculus

Finding Total Functions
Exercises
1. The marginal revenue function for a company product is given by the function f(x) =
50,000 - x; where x is the number of units produced and sold. Moreover, TR = 0
when no units are produced and sold. Find the company's TR function.
f(x) - marginal revenue
TR = the integration of MR
= F(x)dx = (50,000 - x)dx
= 50,00dx - xdx
= 50,000x - x2/2 + C
0= 50,000(0) - (0/2) + C
0=C
R(x) = 50,000x - x2/2
2. The function describing the MC of producing a product is f(x) = x+100, where x = the
number of units produced. It is also known that TC = 40,000 Birr when x is 100
units. Determine the total cost function.
Solution.
MC = x + 100
TC = MC
= (X+100) dx
= xdx + 100dx
= x2/2 + 100x + C
40,000 = (1002/2) + 100(100) +C
=15,000 + C
C = 25,000
C(x) = x2/2 + 100x + 25,000
3. The function describing the marginal profit from producing and selling a product is
f(x) = - 6x+750 where x = the number of units produced and sold. Moreover, when
100 units are produced and sold, total profit equals Birr 25,000. Determine the total
profit function.
Solution
MP = - 6x+750 = -3x2+750x+c
TP = MP dx 25,000 = -3(1002) + 750(100) + C
= (-6x + 750)dx 25,000 = 45,000 + C
= -6xdx + 750dx + C C = -20,000
= -6x/2 + 750x + C P(x) = -3x2+750x-20,000

4. The marginal propensity to save, S'(x), is a function of a nation's income, x (in
billions of Birr), as defined by the equation: S'(x) = .5 - .12x- 1/2 (x>0). If S = 0 when x =
81, then
a. Find the equation defining total savings, S(x).

b. Find the total savings at a national income of Birr 144 billion.
Solution
S(x) = S'(x) dx S(x) = .5x - .24x1/2 - 38.34
= (.5 - .12x-1/2) dx S(144) = .5(144) - .24(1441/2) - 38.34
= .5dx - .12x-1/2dx = 72 - .24(12) - 38.34
(-1/2 +1)
= .5x - .12x /1/2 + C = 72 - 41.22
1/2
= .5x - .24x + C = Birr 30.78 billion
1/2
0 = .5(81) - .24(81 ) + C
= 40.5 - 2.16 + C
= 38.34 + C
C = - 38.34
S(x)= .5x - .24x1/2 - 38.34
Definite Integral
Consider a firm producing some commodity. At a production level of x units, the
marginal cost is: C'(x) = 6x + 8. The antiderivative of the marginal cost is: C(x) = (6x
+8) dx
= 3x2 + 8x + C
If we are told that the fixed cost is Birr 600, then we determine the arbitrary constant
to be C=600.Hence, the cost function is: C(x) = 3x2 + 8x + 600.
Suppose we wish to determine the total net change in cost if production rises from
x=10 to x=15. This total net change in cost is determined by evaluating
C (15) - C (10)
Since
C (15) = 3 (152) + 8 (15) + 600 = Birr 1,395
and
C (10) = 3 (102) + 8 (10) + 600 = Birr 980
the total net change in cost is
C (15) - C (10) = Birr 1,395 - Birr 980
= Birr 415.
Thus, as production changes from x=10 to x=15, the total cost increases by Birr 415.
Definition
If f is a bounded function on the interval [a, b] we define the definite integral of f
as:
Where
The numbers a and b are called limits of integration.
F (b) - the value of the antiderivative at x=b.
F (a) - the value of the antiderivative at x=a.
a - lower limit
b - upper limit
the definite integral of f between a lower limit x=a and an upper
limit x=b.
According to this definition the calculation of the definite integral proceeds as
follows:
1. Determine the antiderivative, F(x), of f(x)
2. Evaluate the antiderivative at x=b and at x= a
3. Subtract F(a) from F(b)
There are three basic assumptions in computing a definite integral. These are:
1. continuity over an interval
2. non-negativity
3. antiderivative exists
Example
1. The marginal revenue function is given as f(x) = 10.
a. Find the change in total revenue associated with increasing sales from
1500 to 1800 units [1500, 1800]
b. Find the incremental revenue from selling 1,500 units.
Solution
a.
= 10x +C
= F (1800) - F (1500)
= 10(1800) + C - [10(1500) + C
= 10(1800) - 10(1500)
= Birr 3,000
b.
= 10x
= F (1500) - F (0)
= Birr 15,000
2. The marginal profit for producing and selling x items is given by f(x) = 600- 5x.
What is the change in total profit if the level of production changes from 40 to 60
units?
Solution
= 600x - 2.5x2
= F (60) - F (40)
= [600(60) - 2.5(602)] - [600(40) - 2.5(402)]
= 27,000 - 20,000
= Birr 7,000
3. A truck carrying natural gas gets stuck at a low underpass and leaks natural gas at
the rate of L'(t) = 10t +20 cubic feet per minute, where t denotes time (in minutes)
elapsed since the gas first began leaking.
a. Find the total amount of natural gas that has leaked during the first five
minutes. Answer: 225 cubic feet.
b. Find the total amount of natural gas that has leaked during the first 10 minutes.
Answer: 700 cubic feet
c. Find the total amount of gas that has leaked during the fifth minute. Answer: 65
cubic feet
d. Find the total amount of gas that has leaked during the sixth minute Answer: 75
cubic feet
e. If the amount of natural gas that the truck was carrying was 5,100 cubic feet,
how many minutes will be elapsed before the truck is empty? Answer: 30
minutes
Area problems
The fundamental theorem of calculus allows us to compute the area under the
graph of a continuous non-negative function f(x) over the interval a<x<b by
, where F(x) is an antiderivative of f(x).
To find areas under a curve we employ the following steps.
1. Graph the function
2. Find any x-intercepts
3. Shade the area to be found
4. Note whether the shaded area contains any regions that lie below the x-
axis as well as above the x-axis.
5. Evaluate the appropriate definite integrals
Example
1. Find the area of the region bounded by the lines f(x) = 2x and x = 2, and the x axis.
Solution (2, 4)
Y = 2x
(0, 0) (2, 0)
To compute this area using calculus, apply the integral formula with f(x) = 2x. Take
b = 2 since the region is bounded on the right by the line x=2, and take a=0 since, on
the left, the boundary consists of the single point (0, 0), which is part of the vertical
line x=0. You will find, as expected that
2. Find the area of the region bounded by the curve f(x) = -x 2 +4x - 3 and the x axis.
Solution
From the factored form of the polynomial f(x) = -x 2 +4x - 3 = - (x-3) (x-), we see that
the x-intercepts of the curve are (1, 0) and (3, 0). From the corresponding graph we
see that the region in question is below the curve f(x) = -x 2 +4x - 3 and extends from
x=1 to x=3. Hence,
f(x)
x
0 1 3
The region is bounded by f(x) = -x2 +4x - 3and the x-axis.
Area below the X-Axis

If f(x) < 0 over some interval b <x <c, the corresponding area between the graph of
f(x) and the x-axis lies below the x-axis. The definite integral results in a
value that is the negative of the area, so the absolute value of such a definite
integral gives the area.
Area 1
F(x)
0 a b c x
Area 2
Area = Area 1 + Area 2
Where
Area 1 = and Area 2   or -
Example:
Find the area between the x-axis and the curve f(x) = x 2-9 from x=1to x = 4.
Solution
Sketch the graph and identify the region needed.
f(x)
A1
1
-3 3 4 x
A2
-9
Find A1 and A2.

A2 =
A1 =
Total area= A1 + A2
=
Multivariable Calculus
1. Functions of several variables
A function such as y = f(x) = x 3 +3x2 +5x – 1000 has dependent variable y and
independent variable x. Since there is only one independent variable, f(x) is called
a function of one variable. If a function has two independent variables- say x and
y- it is called a function of two variables and is usually denoted by f(x, y). If a
function has three independent variables - say x, y and z- it is called a function of
three variables and is usually denoted by f(x, y, z). In general, functions of more
than one variable are called multivariate functions.
As a specific example, we consider a company producing metal tanks. It has been

determined that the daily production cost, z, is dependent on the daily number of
tanks produced, x, and the daily number of person hours used, y. these quantities
are related by the multivariate function
Z = f(x, y) = x2 – 8x + y2 – 12y + 1500
If during a given day, the company produced x = 2 tanks and used y = 5 person
hours of labor, then the daily production cost is
Z = f (2, 5) = 22 – 8(2) + 52 – 12(5) + 1500 = Birr 1,453.
Example
1. Revenue Function: Several Products
A watch manufacturing company produces two watches named Ovex and Rolex. It
has determined that the demand equations for the two types of watches it produces
are given by
p = 210 – 4x +y
q = 300 + x – 12y
Where p is the price of Ovex watch, q is the price of the Rolex watch, x is the
weekly demand for the Ovex watch, and y is the weekly demand for the Rolex
watch.
a) Find the weekly revenue function R(x, y) and evaluate R (20, 10).
b) If the weekly cost function is C(x, y) = 700 + 70x +100y, find the weekly
profit function P(x, y) and evaluate P(20, 10)
Solution:
a) Revenue = (Demand for the Ovex watch)* (Price of a Ovex watch) + (Demand
for the Rolex watch)* (price of a Rolex watch)
R(x, y) = (xp) + (yq)
= x (210 – 4x + y) + y (300 + x – 12y)
R(x, y) = 210x + 300y – 4x2 + 2xy – 12y2
R (20, 10) = 210(10) + 300(10) – 4(20)2 + 2(20) (10) – 12(10)2

= Birr 4,800
c) Profit = Revenue – Cost

P(x, y) = R(x, y) – C(x, y)
= 210x + 300y – 4x2 + 2xy – 12y2 – 700 – 70x – 100y
= 140x + 200y – 4x2 + 2xy – 12y2 – 700
P (20, 10) = 140(20) + 200(10) – 4(20)2 + 2(20) (10) – 12(10)2 – 700
= Birr 1,700
2. Cobb- Douglas Production Function [f(x, y) = Cxay1-a where C and a are constants
with 0 < a < 1, x = number of units of labor, and y = number of units of capital]
For some company, the number of units of produced when using x units of labor
and y units of capital is given by the production function
f(x, y) = 80x1/4y3/4
Find the number of units produced when 625 units of labor and 81 units of capital
are used.
Solution:
f (625, 81) = 80(625)1/4(81)3/4

= 80 (5) (27) = 10, 800 units
3. Advertising and Sales

A company spends x thousands of dollars per week on newspaper advertising and
y thousand dollars per week on television advertising. Its weekly sales were found
to be given by
S(x, y) = 5x2y3
Find S (3, 2)
Solution:
S (3, 2) = 5(3)2(2)3 = Birr 360,000
2. Partial Derivatives
We know how to differentiate many kinds of functions of one independent variable
and how to interpret the results. What about functions with two or more
independent variables?
Recall the company producing metal tanks above. It has been determined that the
daily production cost, z, is dependent on the daily number of tanks produced, x,
and the daily number of person-hours used, y. These quantities are related by the
multivariate function
Z = f(x, y) = x2 – 8x + y2 – 12y + 1500.

We now consider finding the instantaneous rate of change of z with respect to x (i.e., the
instantaneous rate of change of cost with respect to the number of tanks produced).
This is expressed by finding the derivative of z with respect to x. however, since z =
f(x, y)has two independent variables, the derivative of z with respect to one of the
independent variables is called a partial derivative, or simply a partial.
Specifically, the derivative of z with respect to x is called the partial derivative of z
with respect to x and is denoted by any of the following: , fx (x, y), fx. It is
defined by provided
that limit exists. This is the ordinary derivative of z with respect to x. it is found by
treating x as a variable and the remaining independent variables (in this example,
y) as constants and applying the differentiation rules. Thus, if Z = f(x, y) = x 2 – 8x +
y2 – 12y + 1500, then fx(x, y) = 2x – 8.
Similarly, the instantaneous rate of change of z with respect to y is expressed by the

partial derivative of z with respect to y and is denoted by any of the following:
, fy (x, y), fy. Similarly, it is defined by
provided that limit
exists.
The partial derivative of z with respect to y is found by treating y as a variable and
the remaining independent variables (in this example, x) as constants. Hence, if Z =
f(x, y) = x2 – 8x + y2 – 12y + 1500, then fy(x, y) = 2y – 12.
If we wish to evaluate at x = 6 and y = 10, this is denoted by any of the
following notations: , , or fx(6,10).
Since is given by fx(x, y) = 2x – 8, then or fx (6, 10) is given by

fx(6,10) = 2(6) – 8
=4
Thus, when x = 6 tanks are being produced daily and y = 10 person hours are being
used daily, the instantaneous rate of change of cost with respect to the number of
tanks produced (i.e., the marginal cost is) is Birr 4. In other words, assuming the
number of person-hours used daily does not change, an additional tank costs
approximately Birr 4.
Analogously, if we wish to evaluate at x = 6 and y = 10, this is denoted by any
of the following notations: , , or fy(6,10).
Since is given by fy(x, y) = 2y – 12, then or fy (6, 10) is given by
fy(6,10) = 2(10) – 12 = 10
Thus, when x = 6 tanks are being produced daily and y = 10 person hours are being
used daily, an additional person hour costs approximately Birr 8. This assumes the
number of tanks produced daily remains fixed.
Example:
1. The revenue, z, derived from selling x units of calculators and y units of adding
machines is given by the function
Z = f(x, y) = -x2 + 8x - 2y2 + 6y + 2xy + 50
a) At a sales level of x= 4 calculators and y = 3 adding machines, find the marginal
revenue resulting from the sale of an additional calculator.
b) At a sales level of x= 4 calculators and y = 3 adding machines, find the marginal
revenue resulting from the sale of an additional adding machine.
Solution:
a) Since the marginal revenue resulting from the sale of an additional calculator is
defined as the instantaneous rate of change of z with respect to x, we calculate f x by
treating x as a variable and y as a constant. We thus obtain
fx (x, y) = -2x + 8 + 2y
fx (4, 3) = -2(4) + 8 + 2(3) = 6
Therefore, at x = 4 and y = 3, sales revenue is increasing at a rate of approximately
Birr 6 per calculator sold. Hence, the marginal revenue is Birr 6.
b) Since the marginal revenue resulting from the sale of an additional adding machine
is defined as the instantaneous rate of change of z with respect to y, we calculate f y
by treating y as a variable and x as a constant. We thus obtain
fy (x, y) = -4y + 6 + 2x
fx (4, 3) = -4(3) + 6 + 2(4) = 2
Therefore, at x = 4 and y = 3, sales revenue is increasing at a rate of approximately
Birr 2 per adding machine sold. Hence, the marginal revenue is Birr 6.
2. For some firm the number of units of produced using x units of labor and y
units of capital is given by the production function f(x, y) = 80x 1/4y3/4.
a) Find the equations for both marginal productivity of labor and

marginal productivity of capital.
b) Evaluate and interpret the results of part a when 625 units of labor
and 81 units of capital are used.
Solution:
a) Equations for marginal productivities:
Marginal productivity of labor = fx(x, y) = 80(1/4) x-3/4y3/4 = 20x-3/4y3/4.
Marginal productivity of capital = fy(x, y) = 80x1/4 (3/4) y-3/4 = 60x1/4y-1/4.
b) fx(625, 81) = 20(625)-3/4 (81)3/4 = 20(1/125)(27) = 4.32
Thus, when 625 units of labor and 81 units of capital are used, 1 more unit labor
results in approximately 4.32 more units of production.
fy(625, 81) = 60(625)1/4(81)-1/4 = 60(5)(1/3) = 100
Thus, when 625 units of labor and 81 units of capital are used, 1 more unit of
capital results in approximately 100more units of production.
3. The annual profit of a certain hotel is given by

2 2
P(x, y) = 100x +4y +2x +5y + 100,000
Where x is the number of rooms available for rent and y is the monthly advertising
expenditures. Presently, the hotel has 90 rooms available and is spending Birr 1000
per month on advertising.
a) If an additional room is constructed in an unfinished area, how will this affect
annual profits? Answer: Birr 18,002
b) If an additional Birr is spent on monthly advertising expenditures, how will this
affect profit? Answer: Birr 8,005
4. The cost of producing x washers and y dryers is given by
C(x, y) = 40x + 200y + 10xy + 300
Presently, 50 washers and 90 dryers are being produced. Find the marginal cost of
producing
a) 1 more washer. Answer: Birr 940
b) 1 more dryer. Answer: Birr 700
3. Second Order Partial Derivative

The partial derivative of a partial derivative is called a second partial derivative,
or simply a second partial. Specifically, if z = f(x, y), then there are four second
partials:
1. The partial derivative of with respect to x, or ( ). This is denoted by
any of the following: , fxx(x, y) or fxx. Take the first partial with respect to x.
Then take the partial of the result again with respect to x.

2. The partial derivative of with respect to y, or ( ). This is denoted by
any of the following: , fyy(x, y) or fyy. Take the first partial with respect to y.
Then take the partial of the result again with respect to y

3. The partial derivative of with respect to x, or ( ). This is denoted by
any of the following: , fyx(x, y) or fyx. Take the first partial with respect to
y. Then take the partial of the result again with respect to x.
4. The partial derivative of with respect to y, or ( ). This is denoted by
any of the following: , fxy(x, y) or fxy. Take the first partial with respect to
x. then take the partial of the result again with respect to y. NB: For all
continuous functions fyx = fxy.
Example:
1. For z = f(x, y) = x5 – y4 + 3x2y6 + 18, calculate each of the following.
a) fx b)fxx c) fxy d)fy e) fyy f) fyx
Solution:
a) 5x4 + 6xy6 b) 20x3 – 6y6 c) 36xy5 d) –4y3 +18x2y5
e) –12y2 + 90x2y4 f) 36xy5
2. For z = f(x, y) = 3x2 + 4y5 – 8x3y6 + 15, calculate each of the following.
a) fx b)fxx c) fxy d)fy e) fyy f) fyx
Solution:
b) 6x - 24x2y6 b) 6 - 48xy6 c) -144x2y5 d)
20y4 -48x3y5
e) 80y3 - 240x3y4 f) -144x2y5
4. Relative Maxima and minima for functions of two variables
Relative maxima and minima of multivariate functions are defined in a manner

similar to that used for single variable functions. Specifically, a function z = f(x, y)
is said to have a relative maximum point at the point (x 0, y0) if f(x0, y0)> f(x, y) for
all points (x, y) neighboring to (x 0, y0). A function z = f(x, y) is said to have a
relative minimum point at the point (x0, y0) if f(x0, y0) < f(x, y) for all points (x, y)
neighboring to (x0, y0).
To determine the relative maxima and relative minima of functions involving two
variables, we use the first-derivative rule for functions of two variables.
This rule states that if a function z = f(x, y) has either a relative maximum or a
relative minimum at a point (x 0, y0) and if both partial derivatives and exist
at (x0, y0), then it is necessary that both partial derivatives, when evaluated at x = x 0
and y = y0, to be equal to zero. This is because at a relative maximum or minimum
located at (x0, y0), the slope, fx(x0, y0), of the tangent line parallel to the xz plane is
zero and the slope fy(x0, y0), of the tangent line parallel to the yz plane is zero. Such
a point (x0, y0), at which both partial derivatives and equal zero, is called a
critical point of the function z= f(x, y). Thus to determine relative maxima and
relative minima of functions of two variables, we first search for critical points. A
point f(x0, y0) is called a critical point of z = f(x, y) if f x(x0, y0) = 0 and fy(x0, y0) = 0.
Critical points yield candidates for relative maxima/minima.
Example:
1. Find the critical points for the function z = f(x, y) = x2 – 8x + y2 – 12y + 1500
Solution
We must compute fx and fy, set them equal to zero, and solve for x and y.
computing fx and fy gives
fx = 2x – 8 and fy = 2y - 12
Setting fx and fy equal to zero and solving for x and y yields

0 = 2x – 8 0 = 2y - 12
x=4 y=6
Thus, the point (x0, y0) = (4, 6) is the only critical point of the function z = (x, y)
2. Find the critical point of the function z = f(x, y) = x 3 + x2y + 2x – 4y + 8

Solution
We must compute fx and fy, set them equal to zero, and solve for x and y.
computing fx and fy gives
fx = 3x2 +2xy + 2 and fy = x2 - 4
Setting fx and fy equal to zero gives the equations

3x2 +2xy + 2 = 0 and x2 – 4 = 0
Since this set of equations does not constitute a linear system, we attempt to solve
one of the equations for one of its unknowns and substitute the result(s) in to the
other equation to solve for the remaining unknown.
Solving the second equation, x2 – 4 = 0, gives x = ±2. Solving the first equation, 3x 2
+2xy + 2 = 0, for y gives . Substituting x = 2 in to this equation gives
. Thus, (2, -7/2) is a critical point. Substituting x = -2 in

to the equation for y yields . Thus, (-2, 7/2) is another
critical point.
As previously stated in this section, we first search for the critical points when
attempting to determine relative maxima and relative minima of functions of two
variables. However, a critical point may or may not yield either a relative
maximum or relative minimum. Recall that this is also the case with functions of
one variable. Just as we have a second derivative test for functions of one variable,
we also have a similar test to identify the relative minima and maxima of functions
of two variables. This test is stated as follows.
Second derivative test for functions of two variables
Let (x0, y0) be a critical point of z = f(x, y) such that f x, fy, fxx, fyy, and fxy are
continuous at (x0, y0). Also, let
A = fxx(x0, y0)
B = fyy(x0, y0)
C = fxy(x0, y0)
Then
1. f(x0, y0) is a relative maximum if AB – C2 > 0 and A < 0.
2. f(x0, y0) is a relative minimum if AB – C2 > 0 and A > 0.
3. f(x0, y0) is a saddle point if AB – C2 < 0 and A < 0.
4. The test fails and no information is given about the point (x 0, y0) if AB =
C2 > 0 and A < 0.
Example
1. Find any relative maxima and minima of the function
z = f(x, y) = x2 – 8x + y2 – 12y + 1500
Solution
First, we find the critical points. Computing fx and fy gives
fx = 2x – 8 and fy = 2y - 12
Setting fx and fy equal to zero and solving for x and y gives x = 4 and y = 6. Hence,
(4, 6)is the only critical point. We now apply the second derivative test for
functions of two variables. Computing fxx, fyy, and fxy gives
fxx(x, y)= 2, fyy(x, y)= 2 and fxy(x, y)= 0.
Evaluating each of these at the critical point (x, y) gives

A = fxx(x, y) = 2
B = fyy(x, y) = 2
C = fxy(4, 6) = 0
AB – C2= 2(2)-02 = 4
Since AB – C2> 0 and A > 0, then, according to the second derivative test, a relative
minimum occurs at (4, 6). Thus, the relative minimum value of z is z (4, 6) = (4) 2 –
8(4) + (6)2 – 12(6) + 1500 = 1448.
To find relative extrema for functions of two variables

1. Search for critical points
· Find the first order partials fx and fy
· Set the first order partials equal to zero and solve for x and y
· Determine all possible ordered pairs (x, y) that satisfy both
equations fx(x, y) = 0 and fy(x, y) = 0. These are the critical points.
2. Apply the second derivative test for functions of two variables

· Compute the second order partials fxx, fyy and fxy.
· Evaluate the second order partials at each critical point.
· Apply the second derivative test to each critical point.
Example
1. The revenue, z, derived from selling x units of calculators and y units of adding
machines is given by the function
Z = f(x, y) = -x2 + 8x - 2y2 + 6y + 2xy + 50
a) How many calculators and adding machines should be sold in order to
maximize sales revenue?
b) What is the maximum sales revenue?
Solution
Critical points
a) we first calculate fx and fy, as follows:
fx = -2x + 8 + 2y
fy = -4y + 6 + 2x
Setting fx and fy equal to 0, we have
0 = -2x + 8 + 2y
0 = -4y + 6 + 2x
Solving for this linear system for x and y, we obtain x = 11 and y = 7. Thus, the only
critical point is (11, 7).
Second derivative test
We calculate fxx = -2, fyy = -4, and fxy = 2.
Since the partial critical point is (11, 7), then

A = f (11, 7) = -2
B = f (11, 7) = -4
C= f (11, 7) = 2.
AB – C2 = -2(-4) - 22 = 4
Since AB – C2 > 0 and A < 0, then, according to the second derivative test, a relative
maximum occurs at (11, 7). Thus, in order to maximize revenue, x = 11 calculators
and y = 7 adding machines must be sold.
b) The maximum sales revenue is
Z = f (11, 7) = - (11)2 + 8(11) – 2(7)2 + 6(7) + 2(11) (7) + 50 = Birr 115.
2. Meditech, Inc. produces two products used in the dental industry. Each thousand
units of product 1 sells for Birr 100, and each thousand units of product 2 sells for
Birr 80. Meditech’s analysts have determined that if x thousand units of product 1
and y thousand units of product 2 are produced, the total production cost is given
by
C(x, y) = 10x2 + 5y2 – 10xy – 20x +5y +12
a) Determine the equation for total sales revenue, R(x, y).

b) Determine the equation for total profit, P(x, y).
c) Determine the number of units of each product that should be produced in
order to maximize total profit.
Solution
a) The total sales revenue is given by R(x, y) = 100x + 80y
b) The total profit function is given by
P(x, y) = R(x, y) – C(x, y)
= 100x +80y – (10x2 + 5y2 – 10xy – 20x +5y +12)
= -10x2 - 5y2 + 10xy + 120x + 75y – 12
c) computing Px and Py, we have

Px = -20x + 10y + 120
Py = -10y + 10y + 75
Setting Px and Py equal to zero and solving for x and y yields the critical point,
(19.5, 27). Computing Pxx, Pyy, and Pxy and applying the second derivative test for
functions of two variables gives
Pxx(x, y) = -20
Pyy(x, y) = -10
Pxy(x, y) = 10
Hence,
A = Pxx(19.5, 27) = -20
B = Pyy(19.5, 27) = -10
C = Pxy(x, y) = 10
AB – C = (-20) (-10) – 102 = 100
2
Since AB – C2 > 0 and A<0, then, by the second derivative test, a relative maximum
occurs at (19.5, 27). Thus 19.5 thousand units of product 1 and 27 thousand units of
product 2 should be produced in order to maximize total profit. The maximum
profit is
P (19.5, 27) = -10(19.5)2 – 5(27)2 + 10(19.5) (27) + 120(19.5) + 75(27) – 12
= Birr 2,170.50.
3. A firm manufactures two competing brands of a given

product. Let p1 and p2 be the case selling prices (in Birr) of brands 1 and 2
respectively. If x1 cases of brand 1 and x2 cases of brand 2 are demanded by the
market, then the relationship between the unit (case) prices and the demands for
the competing brands are given by equations
X1 = 80 – 2p1 + p2
X2 = 30 + p1 – p2
a) Determine the equation for the total sales revenue, R (p1, p2).
b) If Birr 40 and Birr 30 are the unit case costs of brand 1 and brand 2,
respectively, determine the total cost, C (p1, p2).
c) Determine the equation for total profit, P (p1, p2).
d) Determine the case selling prices, p 1 and p2, that maximize total
profit, P (p1, p2).
Solution
a) Since sales revenue for each brand is price * quantity, then the total sales revenue
is R = p1x1 + p2x2.
Since we want R (p1, p2), we substitute 80 – 2p1 + p2 for x1 and 30 + p1 – p2 for x2
to obtain R (p1, p2) = p1 (80 – 2p1 + p2) + p2 (30 + p1 – p2)
= -2p21 – p22 + 2p1p2 + 80p1 + 30p2
b) Multiplying each case cost by the respective demand gives the total cost
C = 40x1 + 30x2
Since we want C (p1, p2), we substitute 80 – 2p1 + p2 for x1 and 30 + p1 – p2 for x2 to

obtain C (p1, p2) = 40(80 – 2p1 + p2) + 30(30 + p1 – p2)
= -50p1 + 10p2 + 4100
c) The total profit is given by

P (p1, p2) = R (p1, p2) – C (p1, p2)
= (-2p21 – p22 + 2p1p2 + 80p1 + 30p2) – (-50p1 + 10p2 + 4100)
= -2p21 – p22 + 2p1p2 + 130p1 + 20p2 - 4100
d) Computing the partial derivatives Pp1 and Pp2 gives

Pp1 = -4p1 + 2p2 +130
Pp2 = -2p2 + 2p1 + 20
Setting the above partial derivatives equal to zero and solving for p 1 and p2 yields
the approximate critical point, (75, 85). Computing the second partials and
applying the second derivative test for functions of two variables gives
Pp1p1 (p1, p2) = -16
Pp2p2 (p1, p2) -2
Pp1p2 (p1, p2) = 2
Hence,
A = Pp1p1 (75, 85) = -16
B = Pp2p2 (75, 85) -2
C = Pp1p2 (75, 85) = 2
AB – C2 > 0 and A < 0, then by the second derivative test, a relative maximum
occurs at (75, 85). Thus, brand 1 should be priced at Birr 75 per case and brand 2
should be priced at Birr 85 per case in order to maximize total profit.
The maximum profit is
P (75, 85) = -2(75)2 – (85)2 + 2(75) (85) + 130(75) + 20(85) - 4100
= Birr 1625.
Lagrange Multipliers
Some times we must optimize a function z= f(x, y), where x and y are constrained.
As an example, consider a factory that burs two types of fuel: BF108 and BF109.
The number of tons of pollutant exhausted by the factory in a year is given by
Z = f(x, y) = x2 +2y2 – xy – 279,990.
Where x is the amount (in thousands of gallons) of BF108 fuel used annually and y
is the amount (in thousands of gallons) of BF109 fuel used annually. The factory
uses a combined amount of 800 thousand gallons of fuel annually. We seek to
determine how many thousands of gallons of each type of fuel should be burned
annually in order to minimize the amount of pollutant exhausted.
Since the factory uses a combined amount of 800 thousand gallons of fuel annually,
then
x + y = 800
Mathematically, our problem is to
Minimize f(x, y) = x2 +2y2 – xy – 279,990.
Subject to the constraint g(x, y) = x + y =800
Such a problem may be solved by the method of Lagrange multipliers. In general,
the method of Lagrange multipliers is used to solve the following type of problem.
Maximize (or minimize) z = f(x, y)

Subject to g(x, y) = C, where c is constant.
To use the method of Lagrange multipliers, we define a new function

F(x, y, λ) = f(x, y) + λ(c – g(x, y))
Where λ is called the Lagrange multiplier and the function F is called the
lagrangian function. Studying the lagrangian function, F, note that since g(x, y) = C,
then C – g(x, y) = 0, and the value of F will equal that of the original function, f.
Thus, by finding the values of x, y, and λ that maximize (or minimize) F, we also
find the values of x and y that maximize (or minimize) f(x, y) subject to the
constraint equation g(x, y) = C.
Returning to our problem, we find

F(x, y, λ) = f(x, y) + λ(c –g(x, y))
= x2 + 2y2 – xy – 279,990 + λ (800 – x – y)
We now find the critical values of F.

Calculating FX, FY, Fλ, we have
FX = 2x – y – λ
FY = 4y – x – λ
Fλ = 800 – x – y
Setting these equal to zero yields
2x – y – λ = 0
4y – x – λ = 0
800 – x – y = 0
Solving the first equation for λ, we have
λ = 2x – y
λ = 4y - x
Equating these two expressions for λ yields
2x – y = 4y - x
-5y = -3x
y=
Substituting for y in to the third equation 800 – x – y yields
800 – x – = 0. Solving for x, we obtain x = 500.
Substituting x = 500 in to y = , we have y =

We now substitute x = 500 and y = 300 in to either of the equations for λ. Arbitrarily
choosing the equation λ = 2x – y we obtain λ = 2(500) – 300 = 700. Thus, the function
F has a critical point x= 500, y = 300, and λ = 700.
Then we test the critical points for maxima and minima. The function F has only
one critical point at (500, 300, 700), we conclude that (500, 300) produces a
minimum for f. Hence,
Min f(x, y) = f (500, 300)
= (500)2 + 2(300)2 – (500) (300) – 279,990.
= 10 – is the minimum number of tons of exhausted pollutant.
Interpretation of Lambda, Λ
If x = x0, y = y0 and λ = λ0 are the optimal solution values to the constrained

optimization problem
Maximize (or minimize) z = f(x, y) subject to g(x, y) = C then it can be
shown that where is evaluated at the optimal solution values.
In other words, λ0 is the rate of change of z with respect to c and thus measures the
sensitivity of the optimal value of f to a change in c. returning to our original
example, recall that λ0 = 700. Since = λ0 = 700, then each unit increase in c (i.e.,
each additional thousand gallons of fuel used) increases the optimal amount of
pollutant exhausted by approximately 700 tons.

MGMT 221, Ch. V

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MGMT 221, Ch. V

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Chapter Five: Elements and Applications of Calculus 1

- Broadens the concept of slope - rates of change

A function f has a limit L (where L is some real number) as x approaches a if the

E.g. Left-Hand and Right-Hand Limits

E.g. Lim (x+3)

Similarly, the RIGHT-HAND LIMT of a function f as x approaches a is the value L +,

Find the limits for the following functions; if it exists

X 1.91.991.9991.9999 0 2.00012.0012.01 2.1

F(x)2.612.96012.9960012.999600013.00400013.004001 3.0401 - 3.41

L+ is not equal to, so Limit does not exist.

3. Lim X x -0.1 -0.01 -.000001 0.001 0.01 0.1

Lim f (x) x 3.9 3.99 3.999 3.9999 4.001 4.01 4.1

Four cases of discontinuity

1. A function f may be discontinuous because the value of f at x = a is not defined,

2. A function f may be discontinuous because the limit as x approaches a does not

3. A function may be discontinues because the limit of f as x approaches a is not the

is discontinuous at x = 3. This is because lim f(x) = 3 is not equal to f (3) = 1

Continuity of a function over an interval

A function is said to be continuous over an interval if its graph has no Break,

3. Sum, difference and product

Any polynomial function is continuous at all values of x. Any rational function is

Continuity and Differentiability

Intuitive development of the concept of derivative

In studying the relationship between variables our primary concern would be to

responds to changes in the value of the controllable independent variable leads us

Average pate of change (ARC) between two points

We now pose the following question:

as the average speed

Instantaneous Rate of Change (IRC)

Therefore, the instantaneous rate of change or the derivative of Y with respect to x

written as f '(x) = Lim as x0.

The process of determining the derivative of a function is termed Differentiation.

4. Sum or Difference Rule

= U10 where U = 6x2 - 5 dy/du = 10u9 (12x)

Higher - Order Derivatives

No new rules of differentiation are needed for higher-order derivatives. One

Derivatives are of particular of particular importance because they provide

Additional information provided by the second derivative

1. If f '' (x) > 0 the first derivative f ' is an increasing function at X.

Extreme Values of a function

Extreme values of a function are divided in to

Local Extrema: - usually for open intervals

a. A function f attains a relative/local maximum at x=a if there exists an open

Similarly, a relative minimum is minimal only in relation to adjacent points, so a

a. A function f attains an absolute maximum at x = a if and only if f (a) > f(x)

When the domain of f is a closed interval

First Derivative Test for Relative Extrema

comprises candidates for extrema; that is we determine x* = {x/f'(x*) = 0 or f ' (x*)

Second Derivative Test for Relative Extrema

If an extremum occurs at a point X* where f is concave downward, that extremum

Locating Absolute Maxima and Minima

In locating absolute extrema we must consider whether the function is defined in a

In short, to find the absolute maximum on a closed interval, we follow the

Absolute extrema on open interval

Absolute extrema on intervals containing only one critical point

In reality, many practical optimization problems involve only one first-order

Business Application of Differential Calculus

At a production level of 40 units the rate of change of total cost relative to

C (41) - C (40) = [575 + 25(41)-41/4] - 575+25(40)-40/4]

2. The market research department of a company recommends that the company

C(x) = 7000 + 2x TR= PQ = (10 - x/1000) X

3. A manufacturer’s cost and revenue functions are

comprises candidates for extrema; that is we determine x* = {x/f'(x) = 0 or f ' (x)