FUNCTIONS, DERIVATIVES AND APPLICATIONS

FUNCTIONS
In order to know about Functions, let us discuss about Set Theory
SET: A set is a collection of well-defined objects denoted by capital letters A,
B, C, …… The objects (elements) are represented within curly braces { }
separated by commas.
RELATION: When two sets A with elements{x1, x2, x3……xn} and Set B with
elements{y1, y2, y3,…yn}are defined and if all the elements of Set A is one way
or the other connected with the elements of Set Y, then there exists a Relation
between the two sets A and B denoted by Э R: X → Y
FUNCTION: When the Set A with elements {x1, x2, x3……xn} have a common
relation with the elements {y1, y2, y3,…yn}of Set B, then there exists a function
where y is a function (dependent variable on x) and x is an independent variable
mathematically written as Э fn: y = f(x)
The function y varies as the variable x varies, since x is independent and y is
dependent on x.
TYPES: There are different types of Mathematical and Economic Functions
and some of them are as under:
MATHEMATICAL FUNCTIONS
 CONSTANT FUNCTION: If y = k (constant), then it is called as a
Constant Function. The graphical representation will be a Straight Line
parallel to x – axis.

 LINEAR FUNCTION: If y = ax + b, then it is called as a Linear Function

where a and be are constants. The graphical representation will be a
Straight Line.

 POWER FUNCTION: If y = xn, or y = cxn, then it is called as a Power

Function where C is the Co-efficient and n is the Index. The graphical
representation will be a Curve.

 EXPONENTIAL FUNCTION: If y = ex or y = ax, then it is called as an

Exponential Function. The graphical representation will be a Curve.
 LOGARITHM FUNCTION: If y = logex or y = logax, then it is a
Logarithmic Function where e and a are the base of Logarithms. The
graphical representation will be a Curve.

ECONOMIC FUNCTIONS
 DEMAND FUNCTIONS: The two variables in a Demand Function is the
Price p of the commodity and the Demand D for the commodity.
Mathematically, D = f(p) but Economically p = f(D). is known as
Demand Function. The Demand Function is a Decreasing Function since
when the price increases the Demand decreases and when the Price
decreases the Demand increases. This Demand Function should be
expressed as a Linear or a Quadratic Functions. The graphical
representation of a Demand Function is

 SUPPLY FUNCTIONS: The two variables in a Supply Function is the

Price p of the commodity and the Supply S for the commodity.
Mathematically, S = f(p) but Economically p = f(S). is known as Supply
Function. The Supply Function is an Increasing Function since when the
price increases the Supply also increases and when the Price decreases
the Supply decreases. This Supply Function should be expressed as a
Linear or a Quadratic Functions. The graphical representation of a Supply
Function is
When the Demand and Supply Functions are considered together, then both the
curve intersects with each other and that Point of Intersection is called as the
Equilibrium Point Mathematically and Economically that intersecting point is
called as the Equilibrium Price and Equilibrium Quantity.

 TOTAL REVENUE FUNCTION: The function represents the amount

obtained by selling D units at the price p. Thus, the Total Revenue
Function (TR) is expressed as R = p . D
  AVERAGE REVENUE FUNCTION: Average Revenue is Revenue per
unit which is the price p of a commodity expressed as AR = R / D = p

 TOTAL COST FUNCTION: The Total Cost of Producing x units of a

commodity denoted by C. That is the Total Cost is the function of x and
is expressed in the Linear or a Quadratic Function.

 AVERAGE COST FUNCTION: The Cost of Production per unit of a

commodity is the Average Cost expressed as C and given by AC = C/x

 PROFIT / LOSS FUNCTIONS: The difference between the Revenue and

Cost of a commodity determines the Profit / loss Functions:

 If R > C, then it is Profit given as Profit = Revenue – Cost

 If R < C, then it is Loss given as Loss = Cost – Revenue

 If R = C, then it is Break Even Point (No Profit No Loss) given as

R–C=0

DERIVATIVES
DEFINITION: Derivates are rate measures. When y = f(x), y is a dependent
variable and x is an independent variable. That is, the function y changes when
the variable x changes. In order to determine the rate at which the function y
changes with respect to the variable x changes, Derivatives are used which is
mathematically denoted as
If y = f(x)
then dy/dx = f’(x) is the First Derivative
d2y/dx2 = f’’(x) is the Second Derivative
d3y/dx3 = f’’’(x) is the Third Derivative and so on
dny/dxn = fn(x) is the nth Derivative.
dy/dx implies differentiating the function y with respect to the variable x.
DERIVATIVES OF SOME STANDARD FUNCTIONS: The derivatives of
some standard functions are as under:
 CONSTANT FUNCTION: If y = k,
then dy/dx = 0

 POWER FUNCTION: If y = xn or y = cxn

then dy/dx = nxn-1 or dy/dx = c n x n-1

 EXPONENTIAL FUNCTION: If y = ex or y = ax
then dy/dx = ex or dy/dx = ax log a

 LOGARITHMIC FUNCTION: If y = log x or y = logax

then dy/dx = 1/x or dy/dx = 1/xloga
RULES OF DIFFERENTIATION: The rules of differentiation are as under:
 SUM RULE: If two or more functions are added together, then their sum
is obtained by
If y = u + v
then dy/dx = du/dx + dv/dx

 DIFFERENCE RULE: If two or more functions are subtracted, their

difference is determined by
If y = u – v
then dy/dx = du/dx – dv/dx

 PRODUCT RULE: If the functions are multiplied, then their product is

determined by
If y = u . v
then dy/dx = u dv/dx + v du/dx
  QUOTIENT RULE: If the functions are divided, then their quotient is
differentiated as
If y = u/v
then dy/dx = v du/dx – u dv/dx
v2

APPLICATIONS OF DERIVATIVES

Derivatives are applied to determined whether the functions satisfy relevant

conditions for more applications. Some of them are as under

INCREASING AND DECREASING FUNCTIONS: In order the determine

whether the function is increasing or decreasing or both then the following
conditions are satisfied

If f(x) is a differentiable function at x = a and f’(x) x= a > 0, then f(x) is an

increasing function at the point x = a
If f(x) is a differentiable function at x = a and f’(x) x = a < 0, then f(x) is a
decreasing function at the point x = a

MAXIMA AND MINIMA: To determined the maximum value and the

minimum value of a function, then the following conditions are satisfied
If f(x) is a differentiable function at x = a and f’(x)x = a = 0 then
f(x) is Maximum if f’’(x)x = a < 0
f(x) is Minimum if f’’(x)x = a > 0
MARGINAL COST FUNCTION: When the Cost function is differentiated
with respect to x then Marginal Cost Function is determined.
MC = dC/dx
MARGINAL AVERAGE COST FUNCTION: When the Average Cost
Function is differentiated with respect to x, then Marginal Average Cost
Function is determined
MAC = dAC/dx
MARGINAL REVENUE FUNCTION: When the Revenue Function is
differentiated with respect to the D, then Marginal Revenue Function is
determined
MR = dR/dD
ELASTICITY OF DEMAND: Let D be the Demand and p be the Price. The
quantity
-p dD is called as the Elasticity of Demand denoted by η
D dp

 If η = 0, then the Demand is Perfectly Elastic

 If 0 < η < 1, then the Demand is Inelastic
 If η = 1, then the Demand is Proportional to the Price
 If η > 1, then the Demand is Elastic

RELATIONSHIP BETWEEN MARGINAL REVENUE AND

ELASTICITY OF DEMAND:

We know that R = p . D
MR = dR/dD = p + Ddp
dD

We know that η = -p dD
D dp

D dp = - p/ η
dD

MR = p – p/ η

MR = p (1 – 1/ η)

MR = AR (1 – 1/ η)

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