9.9 Applications Marginals and Derivatives

Chapter 9
Derivatives
Harshbarger/Reynolds, Mathematical Applications for the Management, Life, and Social Sciences, 12 th Edition. © 2019 Cengage. All 1
Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
9.9 Applications: Marginals and Derivatives
Harshbarger/Reynolds, Mathematical Applications for the Management, Life, and Social Sciences, 12 th Edition. © 2019 Cengage. 2
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Objectives
• To find the marginal cost and marginal revenue at different levels of
production
• To find the marginal profit function, given information about cost and revenue
Marginal Revenue
Marginal Revenue (1 of 3)
The instantaneous rate of change (the derivative) of the revenue function gives
the marginal revenue function.
Marginal Revenue
If R = R(x) is the total revenue function for a commodity, then the marginal
revenue function
Note that if the demand function for a product in a monopoly market is p = f(x),
then the total revenue from the sale of x units is
Example 1 – Revenue and Marginal Revenue
If the demand for a product in a monopoly market is given by
p = 16 − 0.02x
where x is the number of units and p is the price per unit,
(a) find the total revenue function, and
(b) find the marginal revenue for this product at x = 40.
Example 1 – Solution
(a) The total revenue function is
(b) The marginal revenue function is
At dollars per unit.

Thus the 41st item sold will increase the total revenue by approximately
$14.40.
The marginal revenue is an approximation or estimate of the revenue gained
from the sale of 1 additional unit.
We have used marginal revenue in Example 1 to find that the revenue from the
sale of the 41st item will be approximately $14.40.
The actual increase in revenue from the sale of the 41st item is
Marginal revenue (and other marginals) can be used to predict for more than
one additional unit.
For instance, in Example 1, per unit means that the
expected or approximate revenue for the 41st through the 45th items sold
would be 5($ 14.40) = $72.00.
The actual revenue for these 5 items is
Marginal Cost
Marginal Cost (1 of 2)
The derivative of a total cost function gives the marginal cost function.
Marginal Cost
If C = C (x) is a total cost function for a commodity, then its derivative,
is the marginal cost function
Example 3 – Marginal Cost
Suppose the daily total cost in dollars for a certain factory to produce x kitchen
blenders is
(a) Find the marginal cost function for these blenders.

(b) Find and interpret the marginal cost when x = 80 and x = 200.
Solution:
(a) The marginal cost function is the derivative of C(x).
Example 3 – Solution (1 of 3)
(b)
These values for the marginal cost can be used to estimate the amount that
total cost would change if production were increased by one blender.
Thus,
means total cost would increase by about $3.20 if an 81st blender were
produced.
Note that C(81) − C(80) = 3.141 ≈ $3.14 is the actual increase in total
cost for an 81st blender.
Also, means that total cost would increase by about $32 if a

201st blender were produced.
Whenever is positive it means that an additional unit produced adds

to or increases the total cost. In addition, the value of the derivative (or
marginal cost) measures how fast C(x) is increasing.
Thus, our calculations above indicate that C(x) is increasing faster at x =
200 than at x = 80.
The graphs of the total cost function and the marginal cost function in Figure
9.35(a) and (b) also illustrate these facts.
(a) Total cost (b) Marginal cost

Figure 9.35
Marginal Cost (2 of 2)
Because producing more units can never reduce the total cost of production,
the following properties are valid for total cost functions.
1. The total cost can never be negative. If there are fixed costs, the cost of
producing 0 units is positive; otherwise, the cost of producing 0 units is 0.
2. The total cost function is always increasing; the more units produced, the
higher the total cost. Thus the marginal cost is always positive.
3. There may be limitations on the units produced, such as those imposed by
plant space.
Marginal Profit
Marginal Profit (1 of 2)
As with marginal cost and marginal revenue, the derivative of a profit function
for a commodity will give us the marginal profit function for the commodity.
Marginal Profit
If P = P(x) is the profit function for a commodity, then the marginal profit
function is MP  P ( x ).
In a competitive market, each firm is so small that its actions in the market
cannot affect the price of the product.
Marginal Profit (2 of 2)
The price of the product is determined in the market by the intersection of the
market demand curve (from all consumers) and the market supply curve (from
all firms that supply this product).
The firm can sell as little or as much as it desires at the given market price,
which it cannot change.
Therefore, a firm in a competitive market has a total revenue function given by
R(x) = px, where p is the market equilibrium price for the product and x is the
quantity sold.
Example 6 – Profit in a Competitive Market
A firm in a competitive market must sell its product for $200 per unit. The cost per
unit (per month) is 80 + x, where x represents the number of units sold per
month. Find the marginal profit function.
Solution:
If the cost per unit is 80 + x, then the total cost of x units is given by the equation
The revenue per unit is $200, so the total revenue is given by R(x) = 200x.
Example 6 – Solution
Thus the profit function is
The marginal profit is P ′  x   120  2 x.
Example 7 – Marginal Profit (1 of 2)
Figure 9.38 shows graphs of a company’s total revenue and total cost
functions.
Figure 9.38
Example 7 – Marginal Profit (2 of 2)
(a) If 100 units are being produced and sold, will producing the 101st item
increase or decrease the profit?
(b) If 300 units are being produced and sold, will producing the 301st item
(c) If 1000 units are being produced and sold, will producing the 1001st item
At a given x-value, the slope of the tangent line to each function gives the
marginal at that x-value.
Figure 9.38
(a) At x = 100, we can see that the graph of R(x) is steeper than the graph of
C(x).
Thus, the tangent line to R(x) will be steeper than the tangent line to C(x).
Hence MR 100   MC 100  , which means that the revenue from the 101st
item will exceed the cost.
Therefore, profit will increase when the 101st item is produced.
Note that at x = 100, total costs are greater than total revenue, so the
company is losing money but should still sell the 101st item because it will
reduce the amount of loss.
(b) At x = 300, we can see that the tangent line to R(x) again will be steeper
than the tangent line to C(x). Hence MR  300   MC  300  , which means that the
revenue from the 301st item will exceed the cost. Therefore, profit will
increase when the 301st item is produced.
Figure 9.38
(c) At x = 1000, we can see that the tangent line to C(x) will be steeper than the
tangent line to R(x).
Hence MC 1000   MR 1000  , which means that the cost of the 1001st item will
exceed the revenue.
Therefore, profit will decrease when the 1001st item is produced.

9.9 Applications Marginals and Derivatives

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Chapter 9

(b) The marginal revenue function is

At dollars per unit.

The actual revenue for these 5 items is

(a) Find the marginal cost function for these blenders.

Also, means that total cost would increase by about $32 if a

Whenever is positive it means that an additional unit produced adds

(a) Total cost (b) Marginal cost

The marginal profit is P ′  x   120  2 x.

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