BUSINESS MATHEMATICS

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DIFFERENTIATION

Lecture 4

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Learning objectives
• To introduce derivative of functions
• To explain rules of differentiation
• To discuss marginal functions
• To explain further rules of differentiation
• To explain optimization of economic functions

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Derivative of functions

Learning Objective 1 4
Slope or Gradient

• Slope or gradient of a line is taken to be the change in y

divided by the corresponding change in x as you move
between any two points on the line

• It is customary to denote the change in y by Δy, where Δ

is the Greek letter “delta”;.

• The notation
slope = Δy
Δx

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Quick check 1

• Find the slope of the straight line passing through

A (1,2) and B (3,4)

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Gradient

Gradient is positive if the line is uphill, negative if the line is

downhill and zero if the line is horizontal

Not all functions in economics are linear.

A straight line which passes through a point on a curve and

which just touches the curve at this point is called a
tangent.

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Gradient

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Gradient

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Gradient

The slope of the curves varies, represents by mathematics

symbol :

to represent the slope of the graph of a function f at x = a

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Derivative

The slope of the graph of a function is called the derivative

of the function.

It is usually referred to as the derived functions.

Notation :

Representing the derivative of y with respect to x

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Quick check 2

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Differentiation

The process of finding the derived function symbolically

(rather than using graphs) is known as differentiation.

Or

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Quick check 3

Differentiate :
a. y = x4
b. y = x 10

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Rules of differentiation

Learning Objective 2 15
The Constant rule

To find the derivative of a constant multiple of a function :

Differentiate the function and multiply by the constant

For any constant c

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Quick check 4

Differentiate :
a. y = 2x4
b. y = 10x

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The Sum rule

To find the derivative of the sum of two functions:

Differentiate each function separately and add

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Quick check 5

Differentiate :
a. y = x 2 + x 50
b. y = x 3 + 3

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The Difference rule

To find the derivative of the differences of two functions:

Differentiate each function separately and subtract

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Quick check 6

Differentiate :
y =x5-x2

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Quick check 7

Differentiate :
y = x 3 + 7x2 -2x + 10

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Marginal functions

Learning Objective 3 23
Revenue and Cost

Marginal Revenue, MR, of a good is defined by

Marginal Revenue is the derivative of total revenue

with respect to demand

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Revenue and Cost

The equation can be transposed to give

Change in total revenue = marginal revenue x change in

demand

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Quick check 8

Write down an expression for marginal revenue

functions if the total revenue function of a good is :

If the current demand is 60, estimate the change in the

value of TR due to a 2 unit increase in

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Average revenue

Average Revenue, AR is defined by

Since TR = PQ,

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Marginal Cost

Marginal Cost, MC, is defined by

Marginal cost is the derivative of total cost with respect

to output

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Marginal Cost

Change in total cost = marginal cost x change in

output

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Quick check 9

Find an expression for MC if

If the current output is 15, estimate the effect on TC of

a 3 unit decrease in Q

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Production

• Marginal product of labor

• Marginal product of labor is the derivative of

output with respect to labor

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Consumption and Savings

Marginal propensity to consume is the derivative of

consumption with respect to income

Marginal propensity to save is the derivative of savings

with respect to income

MPS are defined by

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Quick check 10

• Calculate MPC and MPS when y = 3o

• If the consumption function is

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Further rules of differentiation

Learning Objective 4 34
The Chain Rule

If y is a function of u, which is itself a function of x, then

Differentiate the outer function and multiply by the

derivative of the inner functions

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Quick check 11
Differentiate
a. y = (3 x2 – 5 x + 2) 4
b. y = 1
3x + 7

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The Product Rule

To differentiate the product of two functions:

Multiply each function by the derivative of the other and
add

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Quick check 12
Differentiate
y = x2 (2x +1) 3

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The Quotient Rule

To differentiate the quotient of two functions:

Bottom times derivative of top, minus top times derivative
of bottom, all over bottom squared.

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Quick check 13
Differentiate
y= x
1+x

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Optimization of economic function

Learning Objective 5 41
Economic functions

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Economic Functions

• Points B,C,D,E,F, and G are referred to as the

stationary points ( critical points, turning points or
extrema)
• At a local maximum ( relative maximum) the graph
falls away on both sides
• At local minimum (relative minimum) the graph rises
on both sides
• At stationary point of inflection the graph rises on one
side and falls on the other

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Economic Functions

• Method for finding and classifying stationary points of

a function , f(x), is as follows:
1. Solve the equation f’(x) = 0 to find stationary points,
x= a
2. If
• f”(a) > 0 then the function has a minimum at x=a
• f”(a) < 0 then the function has a maximum at x=a
• f”(a) = 0 then the point cannot be classified using the
available information

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Quick check 14
Find and classify the stationary points of the following
functions. Hence, sketch their graphs

f (x) = x2 -4x + 5

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End of Lecture 4

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