Chapter Five: Elements and Applications of Calculus

Introduction to Calculus
It is a dried fact that the application of concepts of calculus in the business arena specially; in
marginal analysis and optimization problems is paramount. In this part of the module, basic
concepts in calculus to be seen include: concept of limit and continuity, derivatives, definite and
indefinite integration, and their major application areas in business; typically, marginal analysis,
optimization problems and area functions.
Calculus is branch of mathematics concerned with the study of such concepts as the rate of
change of one variable quantity with respect to another, the slope of a curve at a prescribed point,
the computation of the maximum and minimum values of functions, and the calculation of the
area bounded by curves
Calculus is the branch of mathematics that concerns itself with the rate of change of
one quantity with respect to another quantity.
Calculus is a mathematical tool to solve problems in business, economics and other
areas which mainly rely about changes. There are two types of calculus: Differential
calculus and Integral calculus.
Differential Calculus
It is one aspect of calculus that measures the rate of change in one variable as another
variable changes. It broadens the idea of slope. There are two core concepts which
lie down the foundation for differential calculus. These are: Limits and
Continuity.
A function: if for every value of a variable x, there corresponds exactly one and only
one value of the variable y, we call y is a function of x, written as: y=f (x )
lim f ( x)=l, if and only if the
Limits: the limit of f(x) as x ⟶ c is ℓ which is written as; x⟶ c

functional value f(x) is close to the single real number ℓ, whenever x is close to but not equal to c
(on either side of c).
Example 1: for the function f ( x )=x 2 +2, find the limit of f(x) as x approaches to 1
Example-1
A company manufactures and sells x transistor radios per week. Its weekly cost and demand
equations are:
C(x) = 5000 +2x
P = 10 – x fi
1000 nd
a) Production level that maximizes revenue and the maximum revenue.
b) The production level that maximizes profit and the maximum profit.
c) The MR and MC at the profit maximizing output level.
d) The average cost per unit if 1000 radios are produced.
e) The marginal average cost at a production level of 1000 radios and interpret the result
Interpretation: At a production level of 1000 units a unit increase in production will
decrease average cost by approximately 0.5 cents or by 0.005 Birr.
Self-test 5.1.
A certain manufacturing company has the following information: Average total cost is
given by the equation:
č(q) = 0.5q -500+ 5000 and,
q
The demand function is:
P = 2500-0.5q
A. Find the firm’s: i. Total profit function ii. Marginal cost function iii. Marginal average
cost function
B. Find the quantity level that: i. maximizes total revenue ii. Maximizes total profit iii.
Minimizes total cost
C. Find the firm’s: i. Maximum revenue ii. Maximum profit
D. Find the price level that leads to maximum: i. Revenue ii. Profit
Integral Calculus
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).
Indefinite Integral: Given F(x) which is the anti-derivative of f(x), the indefinite integral
of f(x) is defined to be:
f(x) dx = F(x) +C,
Where; = the integral symbol f(x) = the integrand (the function to be integrated) F(x) = the
integral (the outcome of integration) C = the constant of integration dx = indicates the variable to
be integrated
Indefinite integral for finding total functions:
Example: The function describing the marginal cost of producing a product is given by f(x) =
x+100, where x is the number of units produced, determine the total cost function if the total cost
of producing 100 units is birr 40 000.