MAMI OI OF

Derivatives Lecture 4 17103

Cost Revenue and Profit functions
Marginal Cost Revenue and Profit

Average cost

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today textbook Chapter 11.2 p 837 843

Last time in MAMI Olof
Leibniz notation
Ifc f a

power Rule
da en nyc n EIR

Sam Rule

da fed god defeat god

Constant Multiple Rule

golf Gay c da f Ga CE IR

Constant Rule

da C O CE IR
Cost Revenue and Profit Functions
Here are some definitions for when working with
these business type
problems
Think of them in relation to an example business like
a company selling ice creams

Defn the price of an item usually p

is the price a customer pays for an item
Units of currency e g Rands

dog the price of one ice cream is p R 5

Defn the quantity of an item usually a or q

is the total number of items produced
or sold
Units of items e.g ice creams

e g if 10 ice creams are sold then the quantity

2 10 ice creams
Defn the cost function Gc gives the total
cost to the business of producing a
items Units of currency
e
g the cost function for producing a ice creams
is
CCM 0.00122122 1000

if l produce 100 ice creams the total cost is

100 0.0016007 2 100 1000 821190

e g if each cream has a price of RS

R 64 521
Defn the profit function P Gc gives the total
profit by producing and selling ac items
Units of currency
profit money earned selling
money spent producing
i e PGD RED Clad

PGD 5K 0.0012 22 1000

0.00127 31 1000
Defn the break even point equilibrium point
is the number of items where cost
the
of producing a items equals the money
earned selling a items
i e the a such that RGC Gc

this is the same as Plac O

 Example 1
A company manufactures hockey jerseys for R300. The cost of making x of these hockey
jerseys is given by the cost function:

Oc 2002 3000

a) Find the revenue function.

b) Sketch the cost and revenue functions on the same axes.
c) What is the revenue for selling 20 jerseys.
d) Find the profit function.
e) How many jerseys should the company manufacture to make a profit?

a RG price x quantity
3002

y s Ge
b 200 3000
of CCO
38 0,3000
20040773000
R 5000

RED 3002
if 2 RAO 300 10 3000
C R 207 300 20 R 6000
d PGD RGD Ccac
3002 2002 3000
10 02C 3000

e break even point

RGD CCG
3002C 2002 3000
1002C 3000
x 30
to make a profit we should sell more than 30 jerseys
Marginal Cost Revenue and Profit functions
Remember our ice cream business had cost revenue
and profit functions
2 0.0012 22 1000
R GO 52C
P Gc 0.00124 32C 1000

Defn The marginal cost is the derivative of CG

ie the function C 60
It measures the rate of change of cost with
respect to se

The marginal cost c'a tells you the approximate

cost of producing one more item
e g C 2
da f 0.001 I 2x 10007
fapprox cost of producing
the last ice cream
0.001 2 t 2x da tooo
1007 0.001 2 10
0.001 se 2 z t o f
2
22 I R 1.8
O 001 2

K
Defn
LIE The
Exact cost

revenue is
CoD Choo

the derivative of Rea

ie
marginal
the function R GD
It measures the rate of change of revenue
with respect to 2

The marginal revenue R 64 tells you the

approximate revenue earned by selling one
more item
e g R 2 da So 5 dak RS
Defn The marginal profit is the derivative of PG
i e the function Plead
It measure the rate of change of profit with
respect to sc

The P Ga
marginal profit from tells you the
approximate profit producing and
selling one more item
e g p Gc da 0.00122 32 1000
So basically marginal means derivative
Also remember Plac RED Gc
pied Ree Ca
da Rea da ko
R Gc C 2

The units of these marginal functions is

currency per item
 Example 2
You hold a bakesale to raise money for charity. The cost (in Rand) of producing x
brownies is:

Gc 202 5020 20
You sell each brownie for R10.
a) Find the revenue and marginal revenue functions.
b) Find the profit and marginal profit functions.
c) How many brownies must you sell in order for marginal profit to be 0? What is the
profit when you sell this many brownies)

a
a R 64 1 Ox

R'GO daRGD I 10x 10 2 10

b PCD RED C GO
I Osc act 502C t 20
za 602 20
 P GO 20 60 20
2x 60

e P Gc o
22 60 0
22 60
I 30

pad

20
a
 Example 3
We can use the concepts of marginal analysis
in other contexts too
You run a tutoring company, hiring t tutors. The number of tutoring sessions in a month is
given by:

70 t t t where I It 4
Ct
a) Calculate Q′(t), the marginal product of labour.
b) Calculate Q(3) and Q′(3). What do these numbers mean?
c) You currently hire 3 tutors. Students pay R200 for a tutoring session. Approximately
much extra revenue does your company make in a month if it hires one more tutor?

a Q'Ct g ZOE E E
2
70 2 t 3

b Q 3 70 3 32 33
174
if i have 3 tutors I can run 174 tutoring sessions
in a month
Q'G 70 267 36372
37
if I increase the number of tutors from 3 to 4
then the number of tutoring sessions increases by
37

what is revenue function

Rct 200 QA
200 70 t t E3
14000 t 200 E 2005
Average Cost Function
Deen The average cost function Eca is the
average cost per item when producing
x items
total cost producing a item
E x
41 number of items x

d g
g g 0.0012212kt ooo let 2

IgE
note average cost is different from marginal cost
Summary
Cost function
Gc total cost of producing a items
Revenue function
Rbc total amount of money earned
selling x ac items
price quantity
Profit function
Plac R Gc Gc total profit from producing
and selling x items
Marginal cost function C 2C
approx cost of
producing one more item
Marginal revenue function R'Gc
approx money earned selling one more item

Marginal profit function P x

approx profit made producing and selling one
more item
Average cost function Ea coff
Next time in MAMIOLOF
Limits
textbook Chapter 10.1 p
720 729