NNWORKSHEET 5

APPLICATION OF DERIVATIVES
MAXIMA AND MINIMA, ELASTICITY,
PARTIAL DIFFERENTIATION, LAGRANGE MULTIPLIER

1. A television company charges Rs 6000 per unit of an order of 50 units or less units. The
charge is reduced by Rs 75 per set for each order in excess of 50.Find the largest size
order the company should allow so as to receive maximum revenue.
Solution
51 price is 6000-75 ; 52 price will be 6000-150
Differential pricing
Let the number of units of purchase be x ; assume x is greater than 50 ( units increasing
price decreasing )

R(x) = P*Q = [6000-75(x-50)] *x

= 9750x-75x^2
X= 65

2. The cost function of a good produced by a firm is given by the relation C = 65+0.025q2
and it can sell the goods at Rs 5 per unit. Find the maximum profit and the number of
units produced at maximum profit?
Solution
Let the quantity of production be q
//C(x) = 65+0.025q^2 // R(x) = 5q // P(x) = R(x) - C(x) // P(x) = 5q-65-0.025q^2
// P’(x) =5- 0.05q; 5- 0.05q=0; q= 100 // P” (x) = -0.5; Hence P” (x) <0 the maximum
value of P(x) = 5q-65-0.025q^2 is at q= 100 // Profit at q=100 is Rs.185

3. A cottage toy industry achieves daily profit function f(x), given by f(x) =- 0.005x2+2x-75
which is based on manufacture and sale of x units of toys. Find
 (i) How many toys the industry must manufacture and sell per day to achieve
maximum profit?
(ii) What is the profit per toy when maximum profit is achieved?
x= 200,max profit = 125,profit per toy = 0.625

4. Let the cost function of a firm be given by the equation C(X) = 300x-10x2+1/3x3 where C
(x) stands for cost function and x for output.
Calculate (i) Output at which marginal cost is minimum
(ii)Output at which average cost is equal to marginal cost
Solution
(i) Output at which marginal cost is minimum
MC = 300−20 x + x 2 ; f’(x)= 2x-20 ; x= 10
f”(x)= 2 ; Hence the f”(x) > 0 we have the minim value of MC = 300−20 x + x 2
at x= 10
(ii) Output at which average cost is equal to marginal cost
AC= MC
MC = 300−20 x + x 2
1 2
AC = 300−10 x + () 3
x

2
When 300−20 x + x =300−10 x + ( 31 ) x 2
the value of x is 15 units
5. The total cost function of a firm is C= (1/3)x3 -5x2+28x+10 , where c is the total cost and
x is the output. A tax at the rate of Rs 2 per unit of output is imposed and the producer
adds it to his cost. If the demand function is given by p=2530-5x, where p is the price per
unit of output, find the profit maximizing output and the price at this level.
Solution
C(x) = [(1/3)x3 -5x2+28x+10 ]+2x = (1/3)x3 -5x2+30x+10
R(x) = (2530-5x)*x = 2530x-5x^2
1 3
P(x) = 2500 x− ()
3
x −10

P’(x) = 2500−x2; x= 50
P”(x) = -2x ; at x = 50 P”(x) = -100 ; Hence P”(x) <0, the max profit P(x) =

2500 x− ( 13 ) x −10 is at x= 50
3

The price at x= 50
p=2530-5x Price is Rs 2280

6. The demand function for a certain item is given as p= (40000-x)/20000. Find the
marginal revenue when x= 10000 units
At x= 10000 revenue is Rs 1 per unit
7. XY Company are the makers of water pump. A linear regression model used to estimate
the demand function for water pump gave the following results.
Qd = 9500- 2510Px+0.02 A+9325Pop
Where Qd is the quantity of water pump demanded
Px is the price of the pump
A is the company’s advertising expenditure in rupees
Pop is percentage of Indian population
(i) What is the point price elasticity at a price of Rs 6 and Rs 12 when A = Rs100000
and Pop = 0.5?
Qd = 9500- 2510Px+0.02 A+9325Pop = 9500- 2510*6+0.02 *100000+9325*0.5
=?
P
( )
At price of Rs 6 Ep=- ¿) * q = -[-2510*¿1102.5) ] =
13.66 ; Relatively elastic
P
At price of Rs 12 Ep=- ¿) *( q )
= -[-2510*¿) ] = -2.158
Since the Q demanded is -13.96 at Rs 12 for the
given demand function, this price is not feasible
(ii) What is the point advertising elasticity at an advertising level of Rs 200000 price
of Rs 6 and Pop = 0.5?

Qd = 9500- 2510*6+0.02 *200000 +9325*0.5 = ?

Ad elasticity of demand
A
EA= ¿) *( q ) = 0.02 * (200000/3102.5) = 1.29
8. Suppose the demand function for a certain product is x= 200-4p where p is the price in
rupees per unit and x is the number of units that can be sold monthly when the price is Rs
p.
(a) Find the point elasticity of demand as a function of p
(b) Find the point elasticity of demand when p= 10
(c) Find the point elasticity of demand when p= 30
(d) At what price will demand have unit elasticity?
Price elasticity = p/(50-p) (b) 1/4 (c) 1.5 (d) p=25

9. Find the price elasticity of demand for each of the following demand functions at P=3
and P=5
a. Q=75-5P
b. Q=42-6P
c. 8Q+2P =56
(a) @p= 3 Ep = 0.25 @p=5 Ep = 0.5
(b) @p=3 Ep = 0.75 @p=5 Ep = 2.5
(c) @p=3 Ep = 0.12 @p=5 Ep = 0.22

10. Suppose a demand function for a certain commodity is given in the form
P= 4000 -5x showing association between price (p) and quantity (x)
x= 800-0.2p
(a) Find the point elasticity as a function of p Ep = 0.2 *(p/800-0.2p)
(b) Find and interpret the elasticity of demand when p= Rs 2000 = 0.2*5 = 1
(c) Find and interpret the elasticity of demand when p= Rs 3000 = 0.2*15 =3

11. A manufacturing company is currently charging Rs 80 each for its product x. a marketing
consultant has determined that at price p the demand for x is x= 1000-5p. The marketing
manager is considering raising the price by a small amount. How will that increase its
revenue? Would you draw the same conclusion if current price were Rs 120?

@ p= 80 Ep= 2/3 inelastic @p= 120 Ep = 3/2 elastic. Price increase is not recommended
at Rs120
12. Given the demand function
Qd= 650 - 5P - P2
Where P = 10 determine price elasticity of demand
Solution
dQ P
Ep = -(
dP
)*( )Q
dQ
= F’(-5P - P2 ¿=−¿ 5-2P
dP
dQ
When P=10 value of =−5−2 ( 10 ) =−25
dP
When P =10 Q is Qd= 650 – 5*10 -102 = 500
dQ P 10
Ep = -(
dP
)*( )Q
= -[-25*( )
500
] = 0.5 ; relatively inelastic as 0<Ep<1

13. Determine the point at which Total revenue will be maximized for the following demand
function P= 24-3Q

14. When Price P= 25, find elasticity of demand if function s q= 100-2P

Ep = 1

15. New central book agency engages an economist to determine the demand for its new
mathematics book
Demand Q = 1200-500Px+4I+50Pc
Where Px = price =4
I = income per capita =1000
Pc= Price of similar book off competing publisher ( cross elasticity) = 5
Determine
(i) effect of price on total revenue - Ep
Q = 1200-500Px+4I+50Pc
Q = 1200-500Px+4*1000+50*5
Q = 5450-500Px
 P
Ep=- ¿) *( x ) = -[-500*(4/3450)] = 0.58
It is relatively inelastic Ep <1 hence there is scope
for increase in revenue at price Rs 4
(iii) Sale of books rising with rising income – Ei

I 1000
EI= ¿) *( q ) = 4∗( 3450 )=1.16

Since Ep > 1 and income and demand has a positive

association, the increase in income can result in increase
in demand

16. The value of coefficient of income in a regression model of quantity demanded on price,
income and other variables is 12. Compute income elasticity for this item at income of
Rs10000 and sale of 90000 units
Solution

I 10000
Income elasticity of demand = EI= ¿) *( q ) = 12 *( 90000 ) = 1.33
Here Ep > 1 but demand and income have a positive
relationship hence at income of Rs10000 increase in
income will result in increase in demand
 Optimization
17. Find the utility maximizing combinations of X and Y when
(i) TU = 10 X +20 Y -4XY Given Px = 2, Py = 4, I = 25
(ii) TU =15X + 20 Y -4X2 – Y2 Given Px=3, Py= 6, I = 20

18. A firm sells two models of mobile phones S1 and S2. The following demand equations
indicate the trend of the market of price of mobile phones Model S1 (x) and Model S2 (y)
QS1= 14000-3x+7.5y
QS2 = 18000+5.5x-6y
Determine the optimum price to maximize revenue for the firm.

19. Find optimum commodity purchase for a consumer whose utility function is U = 3x3y
And having budget constraints of 6x+10 y =1000

20. A firm is seeking to maximize profit by selling two variety of premium chocolates - Dark
chocolate and milk chocolate. The profit margin of each is Rs 10 for dark chocolate and
Rs 15 for Milk chocolate. The production constraints are given by
2x2+5y2 <=250 where x is units f production of dark chocolate and y is units of
production of milk chocolate.
(i) Find the optimum production quantity of x and y and maximum profit and
revenue earned if price is Rs 100 for dark chocolate and Rs 150 for milk
chocolate
(ii) At what rate will profit increase if production constraints are slightly relaxed?
(iii) If in the subsequent year, the contain changes to 2x2+5y2 <= 300 how will it
impact quantity produced, profit and revenue of the company?