6

MAXIMA AND MINIMA AND THEIR ECONOMIC

APPLICATIONS
Introduction
The concept of maxima and minima plays a very
important role in almost all fields and
especially in economics. Every consumer wants to maximise
to maximise his revenue and minimise his costs. his utility. Every producer wants
In other
to maximise his profits. All such problems can be solved words, the producer always tries
and minima. In this chapter, we shall through the technique of maxima
develop this important technique and illustrate its
applications in economics. The study of this chapter has been divided into following three
sections:
(1) Maxima and Minima of Functions of One Variable.
(2) Maxima and Minimia of Functions of Two Variables.
(3) Constrained Maxima and Minima.
SECTION I
Maxima and Minima of Functions of one variable
Before we take up a detailed study of maxima and minima, it is necessary to define increasing
and decreasing functions and their conditions.
Increasing and Decresing Functions
1. Increasing Function: Afunction ; = f() is said to be an increasing function of x it as
xincreases, yalso increases. For example, y= 4x + 5, y =+2x +1, y=xetc. are increasing
functions. The graph of the increasing function is shown below:

y=t ()

X
226
2. Decreasing Function: Afunctlon y =f() 0s said to be decreasing function of xf as X
1
y=20-2X etc. are decreasing functioneas y
y=
increases, ydecreases. For example,
below:
of the decreasing function is shown

y= f()

Conditions for Increasing and Decreasing Functions

Afunction y= () is an increasing or decreasing function according as dx is postive or
negative.
(1) If y= f) is an increasing function of x, then dx is positive i.e. dy
dx
> 0.

(2) Ify=f) is a decreasing function of x, then dy

dx is negative i.e.
<0

(3) If=0,
dx the function is said to be stationary, that is neither increasing nor decreasing

Example 1. Show that y =x-4x 0s decreasing at x= 1, stationary at x = 2

increasing at x=3 and
Solution: Given y= -4x
Diff w.r.t. x
dy =2X- 4
dx

(0) At x=1, 0L =
dx 2(1)-4 = -2 < 0

Since dy is negative, the

dx function is decreasing at x=2
 227

0Y 2(2)-4 =0
() At x=2, dx

Since = 0, the function is stationary at x=2 i.e. it is neither increasing nor decreasi9

(i) At x=3, dx0Y = 2(3) 4 =2 >0

Since 0Y
dx
is +ve, the function is increasing at x=3
EXERCISE 5.1
Define the following with the help of an example:
oIncreasing function, (i) Decreasing function, (i) Stationary function.
x=3, and increasing at x=5.
9Show that y =40- 6x+X is decreasing at x=2, stationary at
stationary at x=3 and increasing at
3 Show that y = 20 - 6x+ x is decreasing at x=0,
X=4.

and Conditions for them

Maximum and Minimum Values of a Function
Value: A function y = f) is said to have amaximum value f(a) at x= ait
1, Maximum decrease as x increases beyond a. In other
increase at X=a and begins to changes from
f() ceases to maximum at a point x =a if the function
y= f(x) is said to be the
words,a function
decreasing one in the neighbourhood of a. The following figure illustrate
an increasing to
idea:

dyidx = 0

y=t()

x=a, the function is increasing

X=a

all points just before

find that for is said to have
In the above figure we x=a, the function is decreasing. Thus, the function
and for all points just after
maximum value at x=a
Conditions or Maximum Value maximum value f(a) at x=a
conditions for y = f(x) to have a
The follow:ng two
() dy
dx
=0 at X=a

- as x passes through the value a

+ to
(ii) dy changes sign from
dx
228
maximum at x = a if the
function
Alternative criteria: A y =f() is following two
are satisfied: condtions
() dy =0

is negative i.e.dy <0 at X=a

2. Minimum value: Afunction y =fX) is said to have a minimum value f(a) at X=a t
f(x) cases to decrease at X=a and begins to increase as x increases beyond a. In other
words, a function y= f(x) 0s said to be minimum at a point x=a itf the function changes from
decreasing to increasing one in the neighbourhood of a. The folowing figure illustrate the
idea:

y= f(x)

|dyldx<0 dy/dx>0
|dy/dx=0

X
X=a

In the above figure, we find that for all points just before x=a, the function is decreasing
and for all points just after x=a, the function is increasing. Thus the function is said to have
minimum value at x=a.
Conditions for Minimum Value
The following two conditions for y = f(x) to have a
minimum value f(a) at x=a:
(0 dy-=0 at X=a
dx

(1) dy
dx changes sign from - to + as x passes through the value a.

Alternative criteria: Afunction y=f() is minimum at x =aif the following two conditions
are satisfied:
dy =0 at x=a
dx

() dy is positive i.e. dy >0at X= a

d dy
 229

ints of Inflexion: The value of y =f(x) at the

points where dx and d
at x=a are
zerois
called point of inflexion. At the point of
nor decreasing. inflexion, the function is neither increasing
The conditions for maxima, minima and the
Summarised as below: points of inflexion of a function y= f0) are

For Maxima: () ddx 0 [First order condition]

() <0
[Second order condition]
For Minima: ) [First order condition]
>0
[Second order condition]

For Point of Inflexion: () =0

dx

(i) = 0

Working Rule for finding maximum and minimum values of a function

Step I: Put the givern function =y
Step ll: Find dx and dy
Step ll: Put OL =0 and solve the equation
dx
Let a, b, c, .... be the roots of this equation.

Step IV: Put x = a in If the result is -ve, the function is maximum at x=a and

max. y = f(a)
If by putting x = a in the result is +ve, the function has minimum value at x=a and
d
min. y = f(a)
found in step lI.
Similarty we test for other values, b,c,...as

Step V: When ÞY0fo: a particular value of x =a (say), then x=a gives a point of
d value.
inflexion and therefore y is neither maximum nor minimum for this
230

method for Step IM of the above working rule

Alternative
dervatives, we may study the signs of dydx
If it is inconvenient to find
higher
of x
When
(a, b ..) to be tested.
and slightly greater than the value
If thelesssignthanchanges
slightly from +veto -ve, the value under consideration makes y maximum,
the sign changes from -ve to +ve, the value under consideration makes y minimurm.
consideration gives point of inflexion.
If the sign does not change, the value under
values of the function
Example 2. Find the maximum and minimum
y=*- 6r + 3
Solution: y=*- 6r + 3
= 2x -6
First order condition

=2X-6 =0
dx
> 2r-6= 0
.. x=3
Second order condition

-=2 > 0

. x=3 gives the mini. value

Ymin =-6x+3 = (3) - 6(3) +3
= 9- 18 +3 = -6
Example 3. Find the maximum and minimum value of the function:
y=*- 12x +12
Solution: y=*- 12x +12
ÞY 3 -12
dx
First order condition

ÞY3-
dx 12 =0
3- 12=0
.. *=4
or x = +2, -2
 231

Secondorder condition

AtX=+2

-6x2= 12> 0
X=2 gives mini. value

Ymin.
(2)- 12(2) + 12 = 8- 24 + 12 = -4
Atx =-2

dI-6(-2)=-12 < 0
max. value
. x=-2 gives
24
Ynay. =(-2)" - 12(-2) + 12 =
maximum and one minimum value.
Eample 4, Show that the curve y =x+ X has one
former.
Show that the latter 0s larger than the
Solution: y=X+

dx
First order condition
1
cx

"-1= 0
>X=t1
i. X=1, -1
Second order condition

At x = -1

2 = -2 < 0
(-1)
232

value
X 1 gives max.
Ya x--1t-2
At x +1
2 -2>0
(1)
min. value.
.. X=+1 gives
Ymax =X+=1+=2
1
value.
minimum value is greater than the maximum
Thus the
Show th¡t the maximum value of the function fx):=-27x +108 is 108
Example 5. value.
more than the minimum

Solution: Let y =f() = - 27x+ 108

dy = 3- 27
c'x
First order condition

dx
OY3- 27 =0
3-27 = 0 or 3=27
=9 X=±3
. X= +3, -3
Second order condition

= 6x
d
At x = +3

= 6(3) = 18> 0

.. x=3 gives min. value.

Ymin, = (3)° - 27 (3) + 108 = 27- 81 + 108 = 54
At x = -3

dy =6(-3) =-18 < 0

.:. x= -3 gives max. value.
 233

.=(-3)" - 27(-3) + 108 =-27 + 81 + 108 =162

Thuus the maximum value of the function is 108 more
than the minimum value.
Example 6. Find the extreme value of the function
y=x-6+9r-8

Solution: y=-6+9r.
(-8

dy-- 12x +9
First order condition

dY-
dx
12x +9 0
:. 3- 12%+9= 0
or 3(- 4x +3) = 0
or x- 4x+3 (Factorise it)
or (x-3) (*-1) =0
.:. X=3,1

Second order condition

-=6x-12
d
At x=1

=6x-12 = 6(1) - 12 = -6 <0

:. x=1 gives max. value
Ymax, = (1) - 6(1) + 9(1) 8
= 1-6 +9-8=-4

At x=3

dy =6x- 12 =6 x 3- 12 = 18 - 12 = 6 > 0

i. x=3 gives min. value

Ymin, = (3)° 6(3) + 9(3) 8
= 27- 54 + 27- 8 =-8
234

the extreme values of the function:

Example 7. Find
y= 2 - 152 + 36x +7
y= 2x - 152.+ 36x
+ 7
Solution:
OY = 6-30x +36
dx
First order condition

d y - 30x +36 = 0
dx
6(-5x+ 6) = 0
[Factorise it)
- 5x +6 = 0

or (-2) (-3) =0
or x=2, x=3
Second order condition

= 12x- 30

At x=2

Y 122) - 30 =-6 < 0

d
.:. x=2 gives the max. value
Ymay, = 2(2)° - 15(2) + 36(2)+7=35
At x=3

= 12(3) -30 = 36 - 30 = 6 >0

d
:. x=3 gives min. value
Ymin, =2(3) 15(3) + 36(3) +7=34
Example 8. Find the extreme values of
y= 12- 45x + 40
Solution: y= 12- 45 + 403
Diff. w.r.t. x
dy = 60x- 180x + 1202
dx
 235

First order condition

d 60x-180 + 120x =0
6Ox ( -3x + 2) = 0
Either 60x= 0 or x-3x + 2 = 0
>X=0, or (-1) (x-2) = 0
2
.. X=0, X =1, X=
Second order condition

y 240-540 + 240x

At x=0

OI=0 -0+0 0

As =0,X =0 gives neither maximum nor minimum. 4

.:. X=0 is the point of inflexion.

= 240(1)-540(1) + 240 = -60 <0

. X=1 gives max. value

Ymax. = 12- 45x+ 40x

= 12 -45 + 40 = 7
At x=2

dy =240(2) - 540(2) + 240(2) = 240 > 0

d
i: x=2 gives min. value.
+ 40(2) = -16
Ymin, = 12x - 45x+ 40x3 = 12(2)- 45(2)*
the following function:
CAample 9. Find the extreme values of
y=**- 14x + 24x +9
Solution: y=- 14X + 24x +9
Diff. w.r.t. X
Y 4y-28x + 24
dx
236

First order condition

Y 4x-28x +24 = 0
[Cubic Equation)
4(x-7x + 6) = 0
7X +6 = 0

(X-1) ( +tx -6) = 0

> (X-1) (X+3)(x-2) =0
X=1,2, -3

Second order condition

Y= 12-28
At x=1

OY= 12(1) - 28 = 12 - 28 -16 < 0

.. X= 1 gives max. value.

Ymax. = (1)" - 14(1)+ 24(1) + 9= 20

At x=2

O12(2)- 28 = 12 x 4 - 28 = 48 - 28 = 20 > 0

.:. X= 2 gives min. value

Ymin. = ()"- 14(2) + 24(2) +9= 16 - 56 + 48 +9= 17
At x=-3

y = 12(-3)- 28 = 12 x 9- 28 = 80 > 0

.:. X=-3 gives min. value

Ymin. =(-3)" - 14(-3 + 24(-3) +9

= 81 - 126 - 72 + 9 -108
:. =2 and x -3 both gives mini. values. But as y(2)= 17 and V(-3) = -108
:. x=-3 gives mini. value and it is equal to -108.

Example 10. Find the maximum value of logx 0< X < o

 237

logx
Solution: Let y = X

X. d og x) - logx.
d
1
X - log x. (1) 1- log x
dx

First order condition

o1-logx= 0

1-I09=0 or 1- log x=0

.:: logx=1
log x = log e | log e = 1]
oubog KSeviç 2
.. X= e

Second order condition

d
1- log x) - (1 - log x)
d (y?
-(1- log x) (2x) -X- 2x + 2x log x Roihen00 19b02
d
-3x + 2 log x
dx

At x=e

-3e + 2e log e -3e + 2e

| log e = 1]
4e

dy <0
d
** X= e gives maxi. value

Ymax, = loge e = 1/e

238

Divide 16 into two parts so that the product is maximum.

Example 11. the other part will be 16-X.
Solution: Let one part
product of two parts
i.e.
be x, so that
X and 16-X Suppose yis the
y=x(16 - x) = 16x - x*
.:
Diff. w.rt. x

dy,= 16 -2x

First order condition

OY 16 - 2X = 0
dx
’ 2X = 16

’ X= 8
Second order condition

ÞY-2 <0
.:. x=8gives maX. product
.:. If one part is 8, then the other part = 16-8 = 8
Example 12. Find the extreme value of 3x*-10x+ 6 +5
Solution: Let y =3 - 10 + 6x+5
Diff. w.r.t. x

dx Y12-30x +12x
First order condition

dx
=12 - 30X + 12X = 0
> 12 -30x + 12x = 0
’ 6x (2-5x + 2)
=0
’ X=0 or 2x - 5x
-x +2 =0
or 2 - 5x + 2 = 0
or 2 - (Factorise it)
or 2x (x-2) - 1
4X-X+2=0
(*-2) = 0
(2x - 1) (x-2) = 0
’ X=0, X= X=2
 239

Sacondorder condition

d!6-60x + 12

12 > 0
dI 36(0) - 60(0) + 12 =
min. value
. r=0gives
Ymin.
=3/0)- 10(0) +6(0)+5 =5

- 60 + 12 = 9-30 + 12 = -9 < 0

.. x= gves max. value.

3 2
+5

= .1875 -1.25 + 1.5 + 5 = 5.4375

At x=2

dy =36(2) - 60(2) + 12
= 144 120 + 12= 36 > 0
.. X=2 gives min. value
Ynin, =3(2)*- 10(2)° + 6(2) + 5
Ymin. = 48- 80 + 24 + 5 = -3
But as y(0) =5 and y(2) = -3 x 2 gives
** X=0and x =2 both gives min. values.
min. value.
A TYPICAL EXAMPLE

values of
Example 13. Find the maximum and minimum
(*-3° ( + 1)
Soluion: Let y=(« - 3)° (« +1)"
Diff. w.rt. X, We have
d-3).+1)
dx
+(+1)-3)°
(-3. 4(*+1)° +(a+1).5(-3)
240

[4(X-3) + 5(X+1)]
= (X-3)*. (x+1)°.
(x-3) (x+1)°. (9x - 7)
First order condition

dy = (*-3)* (x+ 1) (9x-7) = 0

dx

(x-3)* (x+1)° (9x-7) = 0

7
.. X=3, X=-1, X=
9

Second order condition

here, we shall follow the
Since it is inconvenient to find higher derivatives sign methos
At x=3

When x is slightly < 3, dx = (+) (+) (+) = +

When xis slightly > 3, dx = (+) (+) (+) = +

dy does not change sign as x passes through 3
dx
.. x=3is a point of inflexion and gives neither a maximum nor a minimum valie
At x=-1

When x is slightly < -1,

dx

When x is slightly > -1, dy = (+) (+) () = -

dx
dy
dxchanges sign from + to -ve as xX passes ihrough -1.
X= -1 makes y maximum

Ymax = (-4)° (o)' =0

7
A.x.= 3.ISMAX

When x is slightly <

9' dx = (+) (+) ( =
When x is slightly > 7 dy
9 dx (+) (+) (+) = +
dy
dx changes sign from - to + as x 7
passes through 9
 241

7 minimum
.x=a makes y
7
Puttingx= 9 in (), we get

205 16
=
Ymin.

Example 14. Find the maximum value of

solution: Let y=
-()
Take log of both sides, we have

logy = -*log x [: log m=n logm)

Dif. w.rt. x
d d
log y) = logx)

ydx --*g) +logx

--**ogx.1|
1 dy = -(1 + log x)

dy =y[1+ log x]

First order condition

=-y(1+logx) =0
-Y(1+ log x) = 0 or 1+log x =0
* logx = -1=- log e = log e
’X=e= 1/e
Second order condition
d Putting value of
d? y1+log x) + (1 +logx) dx dx

+(1+log) [-y(1 +log )) |

 242

At x=e1. -y(-e+(1 +loge÷i

-y [-e + (1 - log e) ] = -ye <0
At x= 1/e,y has maximum value, Ymax, =e
EXERCISE 5.2
1. Find the maximum and ninimum values of the following functions:
(0 y=-2+3
() y = 4r+ 10 + 16
Y

(ii) y =2
(M) y= 3
(My=--9
2. Find the extreme values of the following functions
(0 y= 2+3-12x
() y=2 -9+ 12x +6
(u) y = +4-3x +1
(iv) y =2- 21x + 36x- 20
3. Find the maximum and minimum values of
(x-3) (x+1)
4. Show that x 5+ 5r - 10
and neither maximum nor has maximum value at X=1, aminimum value when =
minimum value when x=0
5. Divide 14 into two parts
such that the product of two parts
6. Divide 100 into two may be maximum. .
minimum. parts such that the sum of the
squares of the parts may 0e

1 (0) Min. = 2 at x=1 (i) Min. Answers

26 at x=2, Max. =6 at x= -2
fui) Min = 0a x=0, 32 at x = 4
Max
27 3

Max
 243

Min. = -7 at x=1, Max, = 18 at x*-2

2.()
(1) Min. = 13/27, at x =1/3, Max, 19 at x-3
(i) Min. -16 at x=2, Max. =7 at x=1, Pt. of inflexion at x=0

() Min. -128 at X=6, MaxX. = -3 at x=1

0 (at x=1); Min. value
3.46
3. Max. value = (at x=). Points of inflexion at x=3
5. 7, 7;
6. 50, 5000

Economic Applications of Maxima and Minima of Function of One Variable

The technique of maxima and minima has its applications in the folloing topics in economics:
mMaximisation of Revenue: Revenue means sales receipts. The total reveue of a fin is:
R= pq
where p is the price and qis the quantity
Conditions for Revenue Maximisation: To maximise revenue R, the following two
conditions are fulfilled:

(0)
dR =0
dq

(ü) <0
dq
fuifilled:
To maximise AR, the following two conditions are
d (AR) =0
dg
AR <0
d
total
demand function is p = 100-4q, find the level of output at which
Example 15. If the the maximum revenue.
revenue is maximum and also find
Solution: The demand function is:
p= 100- 4q
R= pq
= (100- 4g) q = 100g 4q
i. R= 100g - 4q
Diff. w.r.t. q
dR
= 100- 8q
dq
 244

First order condition

dR
= 0
dg
100 - 8q =0
> 8g = 100
.". q= 12.5
Second order condition

da 100- 8q) = -8<0

dq
q= 12.5 gives maximum revenueos 2l 2
At q= 12.5, p = 100- 4q = 100 -4 x12.5 = 50v eavGEt to noitegi
Maximum R = pq=50x 12.5 = 625
121
Example 16. If p= -1, find level of output at which total revenue is maximum
q+4
Also find maximum revenue.
121
Solution: Given p= 1
q+4
121 121
R= pq = q+49 9
q+4
Diff. w.r.t. q
dR d 121 d
dg dqq+4 (g)ut 91s 30isboo

d d
(q+4) (9) -q. dg (q+4)
= 121 dq -

(q+4)?
121 (g+4) (1) -q.(0)
(q+4)²
4
= 121 484
-1
(q+4)°
First order condition
dR 484
dq -1=0
(2 + 21)
484
-1 =0 ’ 484
(g+4)? (q+4}?
1
 245
(g +4) =484
(g + 4) = 22 or q = 18]
Second order condition

dR d 484 dP
1
dg? dg (g+4) d
.[484.(q +4)-1|

d'R = 484 (-2) (q + 4)-3 968

0=
dg (q + 4)°
d²R -968 -968
Atq = 18. dq? (18+ 4) (22)3 < 0

dR
As dq? <0, q = 18 gives maximum revenue
121 121 121- 22 99
-1= -1=
At g = 13, p = 18+ 4 22 22 22 2

Maximum R=pq= x 18 = 81
2
total
Example 17. Given the demand function p = /9-q, find the level of output at which
revenue is maximum. Also find the maximum revenue.
Solution:Given:p= /9-q
R= pq = /9-q .9
Diff. w.r.t. q
dR d 49-q.9)
dq dq
1 [Use u.v. Formula)
J9-q .1+q-2./9-g(-)

=/9-4- 2J9-q
2(9-q) -q 18-3q
2 /9-q 2 /9-q
First order condition
dR
=0
d
18-3q = 18
=0 ’ 18- 3q=0or 3q
2,J9-q
q=6
246
Second order condition

d²R d 18-3q
dq? dq|2 49-q
2 (-1)
2/9-q(-3) - (18 -34). 2 /9-q
4(9-)

6/9-q 18-3q
1 2 /9-q
4(9-q)
6(9 -) +18-3q -54 +6q+18-3q
J9-q 4(9- q) /9 - q
4(9-q)
-36 + 3q
-54 +6q+18- 3q
4(9-q) /9-q 4(9-q) /9 -q
-36+3 x6 -18 -18
dR 20.78 <0
Atq=6, da? 4(9-q).(9-q 12 W3
R willbe maximum at q = 6
Atq =6, P= J9-q = 3 =1.732
Maximum R=pxq=6x 1.732 = 10.392
y= 15e for 0Sxs8
Example 17 A. The demand function for a paricular commodity is
demanded. Determine the price and
where y is the price per unit and x is the number of units
quantity for which the revenue is maximum.
Solution: Demand function is : y = 15e-x3
R= y.x = 15e-x3x x
dR
dx (15exn, x) = 15[e-a (1) + xe-3(-1/3)]
dx
= 15e (-x/3 + 1]
dR
First order condition for max R, =0
dx
15e* [-x/3 + 1] = 0
-X
e-0, +1 =0 ’X=3
 246 ()
Second order condition
d'R ddR
dq? dk dk=15 (e ().(%+1]+e"(
X
=-5e-N3
1+1 -- Be-. (-w3 +2)
dR
For X=3, do? -5e [-1 +2] =-5/e <0[2<e< 3)
Thus, R is maximum when x =3
Substituting x=3 in the demand function y=15e-, we get the price
y= 15e- = 15/e.

(2) Minimisation of Costs

The technique of maxima and minima can also be used to minimise total costs or
average cost or average variable cost. Suppose we have a total cost function :
C= f(a)
where C represents total cost andq represents output.
Conditions for Cost Minimisation :
(a) To minimise total costs, the following two conditions must be fulfilled:
dC
=0
dg

(i) >0(+ ve)

dq?
must be fulfilled :
(b) To minimise average cost, the following two conditions

(Þ) (AC) = 0
dq
d²AC
() dg? >0 (+ ve)
following two conditions must be fulfilled:
(C) To minimise average variable cost, the
d
() (AVC) = 0
dq
d(AVC) >0 (+ ve)
(i)
dq'
two conditions must be fulfilled:
(d) To minimise marginal cost, the following
d
(0) (MC) = 0
dq

(i)
d² (MC) >0 (+ ve)
dq?
246 (i)
Example 18. If the cost function is
C=
Find40out- the
6q +value
q of output for which Cis minimum. Also find the minimum value of cOst.

Solution: Given: C=40 - 6g + q²

Diff. w.r.t. q
dc d
d dq
(40- 6q + q²) =-6+ 2q
Fist order condition
dc
dq
=0-6 + 2q = 0 or 2q= 6 or q= 3
q=3
Second order condition
d² C d
(-6+ 2q) =2> 0
dq dq

As >0, q = 3 gives the minimum C

dq
Minimum cost C =40 - 6q+4o t gfOO
=40-18+9-31

Example 19. From the total variable cost

C= 2x3- 300x² + 600x
Solution:Given total variable cost
TVC = 2x3-300x² + 600x
TVC 2x--300x* +600x
AVC=
X X
.. AVC= 2x2-300x +600
d
Now (AVC) = 4x - 300
dx
Firt order condition
d(AVC) =0’4x 300 =0 or x=75
dx

Second order condition

d² AVC
dy² dx (4x -300) = 4> 0
d² AVC
dx2 >0, X= 75 gives the minimum AVC
As

Hence AVC is minimum when x = 75

 246 (ii)
Example 20. Given the cost function
c= 10q - 4q' + 3g5
Find the minimum average cost.
Solution :C= 10q- 4q' + 3q
10q - 4q +3q°
AC = = 10 - 4q + 3q
dAC
dq
=-12q + 12q
First order condition
dAC
dq
=0’-12² +12q³ =0
or - 12q°(1- q) = 0
or either - 12q² = 0 or (1 - ) = 0
.. q=0, q = 1
Second order condition
' AC
=-24q + 36q²
dq'
At q=0
d² AC
=-24 (0) + 36 (0) = 0
dq?
Thus, function has a point of inflexion at q = 0
At q=1
d² AC
=-24 (1) + 36 (1)² = 12 > 0
dq
. q=1 gives the min. value of AC function.
Minimum AC= 10- 4q° + 3q'
= 10- 4(1)° + 3(1)4
= 10-4 +3
=9
.. Min. AC =9

Example 20 A. The total cost function for producing con modity - x is

TC = 60- 12x + 2X?
average cost (AC) function
Find the level of out put of which TC is minimums. Find also the
verify that at the luwest point
and the levelof output of which this function is minimum, andtheir
of the AC curer, AC = MG