1

Derivatives
Difference quotients are used in many
business situations, other than
marginal analysis (as in the previous
section)
2
Derivatives
Difference quotients



Called the derivative of f(x)
Computing
Called differentiation


( )
( ) ( )
h
h x f h x f
lim x f m
h 2 0
+
=
'
=

( ) x f
'
3
Derivatives
Ex. Evaluate
if
( ) 6 2 + =
x
x f
( )
( ) ( )
5452 . 5
002 . 0
0110903561 . 0
002 . 0
99445674 . 13 0055471 . 14
001 . 0 2
6 2 6 2
3
999 . 2 001 . 3
~
~

~

+ +
~
'
f
( ) 3 f
'
4
Derivatives
Numerical differentiation is used to avoid tedious
difference quotient calculations
Differentiating.xls file (Numerical differentiation utility)


Graphs both function and derivative


Can evaluate function and derivative
5
Derivatives
Differentiating.xls

Increment
x
f (x ) f ' (x )
a b h s
= = #VALUE! 0.000001 t
u
v
w
29
30
31
32
33
34
35
Constants Definition Plot Interval
Formula for f (x )
Computation
FUNCTION
0
0.2
0.4
0.6
0.8
1
0 0.2 0.4 0.6 0.8 1
x
f (x )
DERIVATIVE
0
0.2
0.4
0.6
0.8
1
0 0.2 0.4 0.6 0.8 1
x
f ' (x )
6
Derivatives
Use Differentiating.xls to graph the derivative of
on the interval [-2, 8]. Then
evaluate .




( ) 6 2 + =
x
x f
( ) 3 f
'
DERIVATIVE
0
50
100
150
200
-5 0 5 10
x
f ' (x )
( ) 5452 . 5 3 ~
'
f
7
Important
If f '(x) is constant, the displayed plot will
be distorted.
To correct this, format the y-axis to have
fixed minimum and maximum values.
Eg: Lets try to plot g(x)=10x in [-2,8]

8
Derivatives
Properties

If then

If then

If then

If then
( ) ( ) x f a x g =
( ) ( ) x f a x g
'
=
'
( ) ( ) ( ) x g x f x h =
( ) ( ) ( ) x g x f x h
'

'
=
'
( ) b mx x f + = ( ) m x f =
'
( ) c x f = ( ) 0 =
'
x f
9
Derivatives
Tangent line approximations

Useful for easy approximations to complicated
functions

Need a point and slope (derivative)

Use y = mx +b
10
Derivatives
Ex. Determine the equation of the tangent line to
at x = 3.

Recall and we have the point (3, 14)


Tangent line is y = 5.5452x 2.6356
( ) 6 2 + =
x
x f
( ) 5452 . 5 3 ~
'
f
( ) 3 f
'
The slope of the graph of f
at the point (3,14)
11
Derivatives
Project (Marginal Revenue)

- Typically

- In project,

-
( ) ( ) q R q MR
'
=
( ) ( ) q R q MR
'
=1000
( )
( ) ( )
h
h q R h q R
q R
2
+
~
'
Why ?
12
Recall:Revenue function-R(q)
Revenue in million dollars R(q)




Why do this conversion?
Marginal Revenue in dollars per drive
( ) ( ) q R q MR
'
=
( )
( )
( ) q R
q R
q MR
'
=
'

=
1000
1000
1000000
13
Derivatives
Project (Marginal Cost)

- Typically

- In project,

-
( ) ( ) q C q MC
'
=
( ) ( ) q C q MC
'
=1000
( )
( ) ( )
h
h q C h q C
q C
2
+
~
'
14
Derivatives
Project (Marginal Cost)

- Marginal Cost is given in original data

- Cost per unit at different production levels

- Use IF function in Excel
15
Derivatives
Project (Marginal Profit)

MP(q) = MR(q) MC(q)

- If MP(q) > 0, profit is increasing
- If MR(q) > MC(q), profit is increasing
- If MP(q) < 0, profit is decreasing
- If MR(q) < MC(q), profit is decreasing
16
Derivatives
Project (Marginal Revenue)

- Calculate MR(q)
-
( ) ( )
( ) ( )
( ) ( ) ( ) ( )
( ) ( ) ( ) ( )
h
h q D h q h q D h q
h
h
h q R h q R
q R q MR
h q D h q h q D h q
2
2
1000
2
1000
1000
1000 1000
+ +
=

=
+
=
'
=
+ +
17
Derivatives
Project (Marginal Cost)

- Calculate MC(q)

- IF(q<=500,115,IF(q<=1100,100,90))

18
Derivatives
Project (Maximum Profit)

- Maximum profit occurs when MP(q) = 0

- Max profit occurs when MR(q) = MC(q)

- Estimate quantity from graph of Profit

- Estimate quantity from graph of Marginal Profit
19
Derivatives
Project (Maximum Profit)

- Create table for calculations


q D(q ) R(q ) C(q ) P(q ) MR(q ) MC(q ) MP(q )
575.644 167.70 $ 96.53 $ 86.66 $ 9.87 $ 100.000 $ 100.000 $ 0.000 $
20
Derivatives
Project (Answering Questions 1-3)


1. What price? $167.70

2. What quantity? 575,644 units

3. What profit? $9.87 million
q D(q ) R(q ) C(q ) P(q ) MR(q ) MC(q ) MP(q )
575.644 167.70 $ 96.53 $ 86.66 $ 9.87 $ 100.000 $ 100.000 $ 0.000 $
21
Derivatives
Project (Answering Question 4)


4. How sensitive? Somewhat sensitive

-0.2%


-4.7%
q D(q ) R(q ) C(q ) P(q ) MR(q ) MC(q ) MP(q )
575.644 167.70 $ 96.53 $ 86.66 $ 9.87 $ 100.000 $ 100.000 $ 0.000 $
q D(q ) R(q ) C(q ) P(q ) MR(q ) MC(q ) MP(q )
565.644 168.86 $ 95.52 $ 85.66 $ 9.85 $ 103.644 $ 100.000 $ 3.644 $
q D(q ) R(q ) C(q ) P(q ) MR(q ) MC(q ) MP(q )
585.644 166.51 $ 97.52 $ 87.66 $ 9.85 $ 96.287 $ 100.000 $ (3.713) $
q D(q ) R(q ) C(q ) P(q ) MR(q ) MC(q ) MP(q )
525.644 173.29 $ 91.09 $ 81.66 $ 9.42 $ 117.527 $ 100.000 $ 17.527 $
q D(q ) R(q ) C(q ) P(q ) MR(q ) MC(q ) MP(q )
625.644 161.53 $ 101.06 $ 91.66 $ 9.40 $ 80.745 $ 100.000 $ (19.255) $
22
Derivatives
Project (What to do)

- Create one graph showing MR and MC

- Create one graph showing MP

- Prepare computational cells answering your teams
questions 1- 4