C A 5 1 0 2 | Topics 1 – 6 & Module 2 Part A 09/03/20

Fundamentals of 3.
4.
Understand incentives
Understand markets
Managerial Economics 5. Recognize the time value of money
6. Use Marginal Analysis
ECONOMICS
Identify goals and Constraints
The science of making decisions in the presence
of scarce resources.  The first step in making sound decisions
varies on the underlying goals of the
 Resources are anything used to produce
manager;
a good or service, or achieve a goal.
 Achieving different goals entails making
 Decisions are important because scarcity
different decision
implies trade-offs.
 Different units within a firm may be given
Factors of Production different goals.

 Land For Example

 Entrepreneur
o Marketing department
 Labor
 use their resources to maximize sales or
 Capital
market share;
o Finance department
MANAGERIAL ECONOMICS  might focus on earnings growth or risk
reduction strategies.
Economics applied in decision making. It is a
 However, constraints make it difficult for
branch of economics that applies: economic
managers to achieve such goals as
theory and decision science methodology.
maximizing profits or increasing market
Manager share;
 These constraints include: available
A person who directs resources to achieve a
technology, availability of capital, labor and
stated goal:
the price of inputs used in production.
 Directs the efforts of others.
An Effective Manager must recognize the
 Purchase inputs used in the production
Nature and Importance of Profits
of the firm’s output
 Directs the product price or quality Profits are a signal to resource holders where
decisions. resources are most highly valued by society.

 Smith mentioned that by pursuing its self-

ECONOMICS OF EFFECTIFE MANAGEMENT interest the goal of maximizing profits, a
firm ultimately meets the needs of society.
(6) Basic principles comprising effective
 This induces new firms to enter the
management:
markets in which economic profits are
1. Identify goals and constraints. available. As more firms enter the
2. Recognize the nature and importance of industry, the market price falls, and
profits economic profits declines.

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C A 5 1 0 2 | Topics 1 – 6 & Module 2 Part A
THE NATURE AND IMPORTANCE OF PROFITS
IN A FREE MARKET ECONOMY
Accounting Profits VS Economic Profits
Recognize the Nature and Importance of Profits
 Accounting Profit – Total amount of
money taken in from sales (total revenue)
minus the amount of cost of producing
goods or services.
Formula: AP = TR – Explicit Costs
 Economic Profit – the difference between
total revenue and opportunity cost.
 Opportunity cost – the explicit cost of
a resource plus the implicit cost of
giving up its best alternative.
 Explicit Cost – wages, rent, and
cost of materials.
 Implicit costs – forgone salary,
or forgone rent.
Formula: EP = TR – Opportunity Costs
Sample Problem
1. Suppose John’s Tailoring Shop uses, his
own resources, land, capital, his own time
in the production of goods Total Revenue
from sales Php 100 000 cost of production
Php 50 000
Entrepreneur's own forgone salary Php 40
000 foregone interest on capital Php 1 000
and foregone rent Php 2 000 Calculate his
economic profit?
EP = TR – Economic Costs (Explicit Costs +
Implicit Costs)
EP = 100,000 – 50, 000 + 40,000 + 3,000
Economic Profit = Php 7,000
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2. John runs a small pottery firm He hires one
helper at Php 10 000 per year, pays annual
rent of P 5 000 for his shop, and spends
Php 20 000 per year on materials.
He has been offered Php 15 000 per year
to work as a potter for a competitor Total
annual revenue from pottery sales is Php
70 000 Calculate his accounting profit and
economic profit.
AP = 70,000 – 10,000 + 5,000 + 20,000
Accounting Profit = Php 35,000
EP = 70,000 – 10,000 + 5,000 + 20,000 +
15,000
EP = Php 20,000
FIVE FORCES FRAMEWORK
The “Five forces” framework pioneered by
Michael Porter (an academician and
management guru) explained that his
framework can be used to identify:
 State of competition
 Profitability of an industry
1. Entry
Heightens competition and reduces the margins
of existing firms in a wide variety of industry
settings.
A number of economic factors affect the ability
of entrants to erode Entry costs, sunk costs,
economies of scale, network effects, reputation,
switching costs and government restraints.
Example
 Entry can come from a number of
directions:
 Wendy’s entered the fast food
industry in 1979. (1969)
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 Toyota in Japan applied globalization
strategies and has sold vehicles
worldwide.
 Apple now also sells the popular
iPhone
2. Power of Input Suppliers
Industry profits tend to be lower when suppliers
have the power to negotiate favorable terms for
their inputs.
Supplier power tends to be low when inputs are
relatively standardized and relationship specific
investments are minimal, input markets are not
highly concentrated or alternative inputs are
available with similar marginal productivity.
3. Power of Buyers
Industry profits tend to be lower when
customers or buyers have the power to
negotiate favorable terms for the products or
services produced in the industry.
 If the buyer is price sensitive and well
educated about the product, then buyer
power is high.
 Then if the customer purchases large
volumes of standardized products from
the seller, buyer bargaining power is
high.
 If substitute products are available on the
market, buyer power is high
4. Industry Rivalry
The sustainability of industry profits also
depends on the nature and intensity of rivalry
among firms competing in the industry.
Rivalry tends to be less intense (and hence the
likelihood of sustaining profits is higher) in
concentrated industries that is, those with
relatively few firms.
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5. Threat of Substitutes and Complements
The level and sustainability of industry profits
also depend on the price and value of
interrelated products and services Porter’s five
forces framework emphasized that the presence
of close substitutes erodes industry profitability.
The availability of a substitution threat effects
the profitability of an industry because
consumers can choose to purchase the
substitute instead of the industry’s product.
UNDERSTAND MARKETS
Bargaining position of consumers and producers
is limited by three rivalries in economic
transactions:
 Consumer – Producer Rivalry
 Consumer – Consumer Rivalry
 Producer – Producer Rivalry
 Government and the Market
1. Consumer – Producer Rivalry
Consumers attempt to negotiate or locate low
prices, while producers attempt to negotiate
high prices.
In a very loose sense, consumers attempt to “rip
off” producers, and producers attempt to “rip
off” consumers.
2. Consumer – Consumer Rivalry
It arises because of the economic doctrine of
scarcity.
When limited quantities of goods are available,
consumers will compete with one another for
the right to purchase the available goods.
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3. Producer – Producer Rivalry TIME VALUE OF MONEY

Those firms that offer the best quality product at Present value of a single future value
the lowest price earn the right to serve the
The amount that would have to be invested
customers.
today at the prevailing interest rate to generate
When two gas stations located across the street the given future value:
from one another compete on price, they are 𝐹𝑉
engaged in producer-producer rivalry. 𝑃𝑉 =
(1 + 𝑖)𝑛
4. Government and the Market
Where:
When agents on either side of the market find
PV = present value
themselves disadvantaged in the market
FV = future value
process, they frequently attempt to induce
R = interest rate
government to intervene on their behalf.
N = nos. of years
Government plays a key role in disciplining the Example
market process.
1. "The present value of receiving
Php100.00 ten years from now given at
a 7 percent interest rate".
The Time Value of Money 𝐹𝑉 𝑃100
𝑃𝑉 = 𝑃𝑉 =
RECOGNIZE THE TIME VALUE OF MONEY (1 + 𝑖)𝑛 (1.07)10

The timing of decision involves a gap PV = Php 50.83

between the time when costs are borne and
2. If the interest rate is 5 percent, what is
benefits received.
the present value of $10 received one
Managers can use present value analysis to year from now?
properly account for the timing of receipts and
$10.00
expenditures. 𝑃𝑉 = PV = $9.52
(1.05)1
The Time Value of Money 3. What is the PV of receiving Php1,000,
1. Present value of a single future value; two years from now given that the
2. Present value of a stream of future values; interest rate is 8%?
3. Future value and the opportunity cost of 1,000
𝑃𝑉 = PV = Php 857.33
waiting (1.08)2
4. Present Value of Indefinitely Lived Assets
4. If the interest rate is 10% the PV of
5. Present value and Profit Maximization
Php2,000 received in one year from now
will be?
2,000
𝑃𝑉 = PV = Php 1,818.18
(1.10)1

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Present value of a stream of future values Example

The cumulative present value of future cash Present value reflects the difference between
flows can be calculated by summing the the future value and the opportunity cost of
contributions of FVt, the value of cash flow at waiting:
time t:
𝑃𝑉 = 𝐹𝑉 − 𝑂𝐶𝑊
𝐹𝑉1 𝐹𝑉2 𝐹𝑉𝑛
𝑃𝑉 = 1
+ 2
+⋯+ The manager of an office supply company is
(1 + 𝑖) (1 + 𝑖) (1 + 𝑖)𝑛
contemplating the purchase of a new copier,
Example which will cost P50,000 and has a useful life of
Consider a project that returns the following 3 years. The copier will save the firm for
income stream: P20,000 in year one, P20,000 in the second
year, and P15,000 in the third year.
 Year 1, P10,000;
 Year 2, P50,000; and  The machine can be re-sold at the end of
 Year 3, P100,000. three years to a junk dealer for P5,000.
Alternatively, the manager can invest the
at an annual interest rate of 3 percent, what is P50,000 at a guaranteed interest rate of
the present value of this income stream from 5%.
year 1 to year 3?  To maximize profits, should the manager
𝑃10,000 𝑃50,000 𝑃100,000 purchase the copier? or invest the money
𝑃𝑉 = 1
+ 2
+ at 5%?
(1 + 0.03) (1 + 0.03) (1 + 0.03)3
𝑃𝑉 = 9,708.73 = 47,129.79 = 91,516.16 1. Calculate the PV of a Stream of future cash
flows
𝑃𝑉 = 148,352.68
By purchasing the copier, the firm effectively
The Net Present Value of a Project earns 20,000 in 1yr., 20,000 in 2 yr. and 15,000
Is simply the present value (PV) of the income in year 3. Thus, the PV of benefits of buying the
stream generated by the project minus the copier at 5% is:
current cost of the project:
20,000 20,000 20,000
𝑁𝑃𝑉 = 𝐹𝑉 − 𝑂𝐶𝑊 Year 1 Year 2 Year 2
19, 047.61 18,140.58 12,957.56
 The Net Present Value is positive (+) – the
project is profitable
The Present Value of buying the copier is
 The Net Present Value is negative (–) –
should reject a project that has such = Php 50,145.75
negative NPV since the cost of such a 2. Calculate the Net Present Value
project exceeds the PV of the income
stream the project generates. Given:

Present Value (PV) = 50,145.75

Opportunity cost of waiting (OCW) = 50,000
Formula: NPV = PV – OCW

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𝑁𝑃𝑉 = 50,145.75 − 50,000 NPV = 145.75 firm’s physical, human and intangible
asset;
The PV exceeds the cost of the copier (50,000)
 In other words, the value of the firm
the manager maximizes profits by purchasing
today is the present value of its current
the copier instead of investing the 50,000 at 5%.
and future profits.
Present Value of Indefinitely Lived Assets  The PV of the firm takes the long-term
impact of managerial decisions on
 Some decisions generate cash flows that profits.
continue indefinitely.
1+𝑖
 Consider an asset that generates a cash Formula: 𝑃𝑉 = 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑓𝑖𝑟𝑚
𝑖−𝑔
flow from one to three years for an
indefinite period of time. Where:
 The asset generates a perpetual stream of
PV = Present Value
identical cash flows at the end of each
i = interest rate
period.
g = growth rate
𝐶𝐹
Formula: 𝑃𝑉𝑝𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦 = 𝑖 The formula explains that the profits of the firm
Where: have not yet been paid out to stockholders as
dividends
CF = cash flow
i = interest rate Profit Maximization
Example
Example:
What is the present value of a preferred stock
(entitles the holder to a fixed dividend) that pays Suppose the interest rate is 10% and the firm is
a perpetual dividend of P150 at the end of each expected to grow at 5% for the foreseeable
year when the interest rate is 5%? future the firms current Profits are 100m.

150 a. What is the value of the firm with no

𝑃𝑉𝑝𝑒𝑟𝑝𝑒𝑡𝑢𝑖𝑡𝑦 = = 𝑃𝐻𝑃 3,000 dividends paid out (the present value of
5%
its current future earnings)?
The value of a preferred stock that pays the
owner 150 at the end of each year when the Substitute 1 + .1
𝑃𝑉 = 100𝑚 ( )
interest rate is fixed at 5%. the Values . 1 − .05
Value of current 1.10
future earnings
𝑃𝑉 = 100𝑚 ( ) = 2.2 𝑚𝑖𝑙𝑙𝑖𝑜𝑛
0.05
PRESENT VALUE OF A FIRM
b. What is the value of the firm immediately
 Present value analysis is also useful in after it pays to stockholders as dividend
determining the value of a firm since the equal to its current profits?
value of a firm is the PV of the stream of
profits (cash flow) generated by the Formula: 𝑃𝑉 𝑓𝑖𝑟𝑚 𝑒𝑥. 𝑑𝑖𝑣. = 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑓𝑖𝑟𝑚 −
𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑

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Value of the firm after it got pay out dividend to Table 1: Determining the Optimal Level of a
stockholders: 𝑃𝑉 = 2.2𝑚 − 100𝑚 = 2.1𝑚 Control Variable (Q=bottles of soda)

Legend:
Marginal Analysis CV = Control Variable
TB = Total Benefits
Benefit Cost TC = Total Costs
NB = Net Benefits
MB = Marginal Benefit
MC = Marginal Cost
MNB = Marginal Net
Benefit

(1) (2) (3) (4) (5) (6) (7)

One of the most important managerial tools.
CV TB TC NB MB MC MNB
Q B(Q) C(Q) N(Q) MB(Q) MC(Q) MNB(Q)
Marginal Analysis states optimal managerial
△(4)
decisions involve comparing the marginal Or
benefits and marginal costs
Given Given Given (2) - (3) △(2) △(3) (5) – (6)

 Given a control variable, Q, of a 0 0 0 0 – – –

managerial objective, denote the 1 90 10 80 90 10 80
 Total benefit as B (Q). 2 170 30 140 80 20 60
 Total cost as C (Q). 3 240 60 180 70 30 40
 Manager’s objective is to maximize that 4 300 100 200 60 40 20
benefits. 5 350 150 200 50 50 0
6 390 210 180 40 60 –20
Formula: 𝑁 (𝑄) = 𝐵 (𝑄) − 𝐶 (𝑄) 7 420 180 140 30 70 –40
8 440 360 80 20 80 –60
Marginal Principle 9 450 450 0 10 90 –80
10 450 550 –100 0 100 –100
To maximize net benefits, the manager should
increase the managerial control variable up to
Determining the Optimal Level of Control
the point where marginal benefits equal
Variable
marginal costs.

 Use marginal analysis

 Marginal benefit: MB (Q)
 The change in total benefits
arising from a change in the
managerial control variable, Q.
 Marginal cost: MC (Q)
 The change in the total costs
arising from a change in the
managerial control variable, Q.
 Marginal net benefits M N B (Q)
 M N B (Q) = MB (Q) – MC (Q)

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Determining the Optimal Level of Control Slope (first

Variable II 𝑑𝑁 (𝑄) derivative) of the
 𝑀𝐵 = 𝑑𝑄 total cost curve

Example

1. It is estimated that the benefit and cost

structure of a firm is:

𝐵 (𝑄) = 250𝑄 − 4𝑄 2
𝐶(𝑄) = 𝑄 2

 Find the MB (Q) and the MC (Q) functions.

𝑀𝐵(𝑄) = 250 − 8𝑄

Panel presents the net benefits, B(Q) - C(Q), and 𝑀𝐶(𝑄) = 2𝑄

represents the vertical difference between B and
C in the top panel.
Determining the Optimal Level of a Control
Variable III
 What value of Q makes NMB (Q) zero?
250 − 8𝑄 = 2𝑄 → 𝑄 = 25
When Q=25, the manager ensures that NMB
are maximized. This is where MB at the level
of Q that maximizes net benefits.

2. An engineering firm conducted a study to

determine the benefits and cost structures:

𝐵 (𝑄) = 300𝑄 − 6𝑄 2
𝐶(𝑄) = 4𝑄 2
 Determine the MB and MC functions

Therefore: 𝑀𝐵 = 300 − 12𝑄 𝑀𝐶 = 8𝑄

 What level of Q maximizes net benefits?

Equating MB and MC yields

Marginal Value Curves are the Slopes of Total 300 − 12𝑄 = 8𝑄
Value Curves
300 = 20𝑄
 A calculus alternative The optimal level of Q is = 15
 Slope of a continuous function is the
derivative/ marginal value of that  What is the marginal benefit and marginal
function: cost at this level of Q?
Slope (1 derivative)
st
𝑑𝐵 (𝑄)
 𝑀𝐵 = 𝑑𝑄
 of the total benefit 𝑀𝐵 = 300 − 12(15) = 20 𝑀𝐶 = 8(15)120
𝑑𝐶 (𝑄) curve
 𝑀𝐵 = 𝑑𝑄

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 Determine the maximum level of net

benefits at this level of Q?

𝑀𝑁𝐵 = 300(15) − 6(152 ) − 4(152 )

= 4,500 − 1,350 − 900 = 2,250

2,250 is the amount at which the engineering

firm maximizes profits.

SUMMARY (MODULE 1)

1. Goals, constraints, incentives, and market

rivalry affect economic decisions.
2. Economic profit, accounting profit and
costs.
3. The role of profits in a market economy.
4. The five forces framework to analyze the
sustainability of an industry’s profits.
5. Present value analysis to make decisions
and value assets. Market Equilibrium in Action
6. Marginal analysis to determine the optimal
 Consider a market with demand and
level of a managerial control variable.
supply functions, respectively as:

𝑄 𝑑 = 10 − 2𝑃 𝑎𝑛𝑑 𝑄 𝑠 = 2 + 𝑃
Market Forces: Demand  A competitive market equilibrium exists
at a price, Pe, such that 𝑄 𝑑 (𝑃𝑒 ) = 𝑄 𝑠 (𝑃𝑒 ).
and Supply That is,

COMPETITIVE MARKET EQUILIBRIUM 10 − 2𝑃 = 2 + 2𝑃 → 8 = 4𝑃

 Determined by the intersection of the 𝑃𝑒 = $2

market demand and market supply curves. 𝑄 𝑒 = 10 2($2) = 6 𝑎𝑛𝑑 𝑄 𝑒 = 2 + 2($2) = 6
 A price and quantity such that there is no
𝑄 𝑒 = 6𝑢𝑛𝑖𝑡𝑠
shortage or surplus in the market.
 Forces that drive market demand and Price Restrictions and Market Equilibrium
market supply are balanced, and there is
 In a competitive market equilibrium, price
no pressure on prices or quantities to
and quantity freely adjust to the forces of
change.
demand and supply.
 The equilibrium price is the price that
 Sometime government restricts how
equates quantity demanded with quantity
much prices are permitted to rise or fall.
supplied
 Price ceiling
 Price Floor

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PRICE CEILING
Price Ceiling in Action
 Consider a market with demand and
supply functions respectively, as
𝑄 𝑑 = 10 − 2𝑃 𝑎𝑛𝑑 𝑄 𝑠 = 2 + 2𝑃
 Suppose at $1.50 price ceiling is
imposed in the market
 𝑄 𝑑 = 10 − 2($1.50) = 7 𝑢𝑛𝑖𝑡𝑠
 𝑄 𝑠 = 2 + 2($1.50) = 5 𝑢𝑛𝑖𝑡𝑠
 Since 𝑄 𝑑 > 𝑄 𝑠 a shortage of 7 – 5 =
2 units exists.
 Full Economic Price of 5th unit is
5=10-2Pfull or Pfull = $2.50 from:
 $1.50 – dollar price
 $1 – non pecuniary price
PRICE FLOOR
Price Floor in Action
 Consider a market with demand and
supply functions, respectively as
𝑄 𝑑 = 10 − 2𝑃 𝑎𝑛𝑑 𝑄 𝑠 = 2 + 2𝑃
09/03/20
 Suppose a $3.50 price floor is imposed
on the market.
 𝑄 𝑑 = 10 − 2($3.50) = 3 𝑢𝑛𝑖𝑡𝑠
 𝑄 𝑠 = 2 + 2($3.50) = 9 𝑢𝑛𝑖𝑡𝑠
 Since 𝑄 𝑠 > 𝑄 𝑑 a shortage of 9 – 3 = 6
units exists.
 The cost to the government of
purchasing the surplus is $3.50 x 6 =
$21.
COMPARATIVE STATICS
Comparative Static Analysis
 The study of the movement from one
equilibrium to another.
 Competitive markets, operating free of
price restraints, will be analyzed when:
 Demand changes
 Supply changes
 Demand and supply simultaneously
change
DEMAND AND SUPPLY
Changes in Demand
 Increase in demand only
 Increase equilibrium price
 Increase equilibrium quantity
 Decrease in demand only
 Decrease equilibrium price
 Decrease equilibrium quantity
Example
Suppose that consumer incomes are projected
to increase 2.5% and the number of individuals
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over 25 years of age will reach an all-time high
by the end of next year. What is the impact on
the rental car market?
Effects of a Change in Demand for Rental Cars
Simultaneous Shifts in Supply and Demand
Suppose that simultaneously the following
events occur:
 An earthquake hit Kobe, Japan and
decreased the supply of fermented rice
used to make sake wine.
 The stress caused by the earthquake led
many to increase their demand for sake,
and other alcoholic beverages.

What is the combined impact on Japan’s sake

and market?
Changes in Supply

 Increase in supply only

 Decrease equilibrium price
 Increase equilibrium quantity
 Decrease in demand only
 Increase equilibrium price
 Decrease equilibrium quantity

Example

Suppose that a bill before Congress would

require all employers to provide health care to
their workers. What is the impact on retail
markets?

Effects of Change in Supply

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Long Hand Method

Example: y = x5

Step1: Convert mo ‘yung y into 𝑦 + ∆𝑦 and ‘yung x naman into 𝑥 + ∆𝑥

 So based sa example, magiging 𝑦 + ∆𝑦 = (𝑥 + ∆𝑥)5

Step 2: Magbebase ka sa Pascal Triangle
 Bali gagamitin mo ‘yung Pascal Triangle as
reference mo for the next step.
 Since sa given example natin, 5 ‘yung
exponent, titignan mo ‘yung row na “5” ’yung
number after ng 1. In that case, row 6 siya, with
pattern of: 1, 5, 10, 10, 5, 1

Step 3: Iinput mo ‘yung values (1,5,10,10,5,1) sa previous equation natin kanina which is
𝑦 + ∆𝑦 = (𝑥 + ∆𝑥)5
 In that case, magiging ganito siya:
𝑦 + ∆𝑦 = 𝑥 5 + 5𝑥 4 ∆𝑥 + 10𝑥 3 ∆𝑥 2 + 10𝑥 2 ∆𝑥 3 + 5𝑥∆𝑥 4 + ∆𝑥 5
 Sa equation natin sa taas, manonotice mo ‘yung patten from pascal triangle. Then,
lahat ng exponent ng constant number, decreasing from 5 ‘yung exponent. While
‘yung ∆x naman, increasing hanggang mareach ‘yung exponent na 5.
Step 4: Imaminus mo ‘yung original equation natin – y = x5, sa equation natin from Step 3
 𝑦 + ∆𝑦 (−𝑦) = 𝑥 5 + 5𝑥 4 ∆𝑥 + 10𝑥 3 ∆𝑥 2 + 10𝑥 2 ∆𝑥 3 + 5𝑥∆𝑥 4 + ∆𝑥 5 (− 𝑥 5 )
 𝑦 + ∆𝑦 (−𝑦) = 𝑥 5 + 5𝑥 4 ∆𝑥 + 10𝑥 3 ∆𝑥 2 + 10𝑥 2 ∆𝑥 3 + 5𝑥∆𝑥 4 + ∆𝑥 5 (− 𝑥 5 )
 ∆𝑦 = 5𝑥 4 ∆𝑥 + 10𝑥 3 ∆𝑥 2 + 10𝑥 2 ∆𝑥 3 + 5𝑥∆𝑥 4 + ∆𝑥 5
Step 5: Divide both sides by ∆x
∆𝑦 5𝑥 4 ∆𝑥 + 10𝑥 3 ∆𝑥 2 + 10𝑥 2 ∆𝑥 3 + 5𝑥∆𝑥 4 + ∆𝑥 5
=
∆𝑥 ∆𝑥

∆𝑦
= 5𝑥 4 + 10𝑥 3 ∆𝑥 + 10𝑥 2 ∆𝑥 2 + 5𝑥∆𝑥 3 + ∆𝑥 4
∆𝑥

Note: Since dinivide siya by delta x, lahat exponent of delta x will decrease.

12 | C A 5 1 0 2
C A 5 1 0 3 | Topics 1 – 6 & Module 2 Part A 09/03/20

Step 6: Substitute mo into 0 lahat ng ∆x.

∆𝑦 ∆𝑦
= 5𝑥 4 + 10𝑥 3 (0) + 10𝑥 2 (0) + 5𝑥(0) + (0) → = 5𝑥 4
∆𝑥 ∆𝑥
Step 7: Proceed ka sa limits
 After ng lim , ‘yung values within the parenthesis is ‘yung final equation mo from
∆𝑥→0
Step 5, after division of delta x.
lim (5𝑥 4 + 10𝑥 3 ∆𝑥 + 10𝑥 2 ∆𝑥 2 + 5𝑥∆𝑥 3 + ∆𝑥 4 ) = 5𝑥 4
∆𝑥→0

Step 8: Rewrite mo ‘yung final answer as this format: 𝑓 ′ (𝑥) = 𝑓𝑖𝑛𝑎𝑙 𝑎𝑛𝑠𝑤𝑒𝑟
 In our case, 𝑓 ′ (𝑥) = 5𝑥 4 ‘yung final answer.

Actual Solution in Paper:

Problem: 𝑦 = 𝑥 5
𝑦 + ∆𝑦 = (𝑥 + ∆𝑥)5
𝑦 + ∆𝑦 = 𝑥 5 + 5𝑥 4 ∆𝑥 + 10𝑥 3 ∆𝑥 2 + 10𝑥 2 ∆𝑥 3 + 5𝑥∆𝑥 4 + ∆𝑥 5
𝑦 + ∆𝑦 (−𝑦) = 𝑥 5 + 5𝑥 4 ∆𝑥 + 10𝑥 3 ∆𝑥 2 + 10𝑥 2 ∆𝑥 3 + 5𝑥∆𝑥 4 + ∆𝑥 5 (− 𝑥 5 )
∆𝑦 = 5𝑥 4 ∆𝑥 + 10𝑥 3 ∆𝑥 2 + 10𝑥 2 ∆𝑥 3 + 5𝑥∆𝑥 4 + ∆𝑥 5
∆𝑦
= 5𝑥 4 + 10𝑥 3 ∆𝑥 + 10𝑥 2 ∆𝑥 2 + 5𝑥∆𝑥 3 + ∆𝑥 4
∆𝑥
lim (5𝑥 4 + 10𝑥 3 ∆𝑥 + 10𝑥 2 ∆𝑥 2 + 5𝑥∆𝑥 3 + ∆𝑥 4 ) = 5𝑥 4
∆𝑥→0

𝑓 ′ (𝑥) = 5𝑥 4

13 | C A 5 1 0 2