FINANCIAL

MATHEMATICS

U3

BASIC CALCULUS
AND ITS
APPLICATIONS

prepared by

B ib h ya N an d S h ar m a, Ja i R a j, Ro b in Ha ve a ,
T o kau a Te kab u
Unit 3: Basic Calculus and its Applications 3.2
Study Organiser
Before you begin this unit, please check through your study organiser. It shows the
topics that we will be covering, the skills you need to acquire (the outcomes) and the
activities you will do to help you acquire these skills.
Topic Learning outcomes Activities
3.1 The definition of a derivative • Define a derivative
• Discuss derivatives

3.2 The derivative of a constant • Explain the derivative of a Example 3.1

function, the constant rule constant function, the constant rule

3.3 The derivative of a power • Differentiate power functions Example 3.2,

function 3.3
Activity 3.1
3.4 Constant Multiple Rule • Explain the constant multiple rule Example 3.4
3.5 Rules of Linearity • Discuss the rules of linearity Example 3.5,
3.6
Activity 3.2
3.6 The Product Rule • Identify the product rule
3.7 The Quotient Rule • Outline the quotient rule Example 3.7
3.8 The Chain Rule • Articulate the chain rule Example 3.8
3.9 Higher-order derivatives • Interpret the higher-order Example 3.9
derivatives
3.10 Second derivative • Differentiate functions twice Example 3.10
3.11 Analyzing of functions: • Analyze functions
Increase, decrease and the
first derivative test
3.12 Critical Points • Identify the critical points
3.13 The first derivative test • Perform first derivative test Example 3.11,
3.12
3.14 Accounting and Economic • Analyse the Accounting and Example 3.13,
applications Economic applications 3.14, 3.15, 3.16,
3.17.

You are expected to spend 12 hours on this unit.

Unit 3: Basic Calculus and its Applications 3.3

Introduction
In this unit, we shall study the basic concepts of calculus and consider a few of its
applications related to Accounting and Economics. We will relate the idea of
Differentiation in this section relating to the field of Calculus. We will look at the
different techniques of differentiation to find the derivatives of the functions.

The total potential generated for target attraction and avoidance of the stationary
rod- shaped and elliptic obstacles. A 3D view of the total potentials and the
corresponding contour plot generated from the attractive potential function and the
repulsive potential functions.

Unit 3: Basic Calculus and its Applications 3.4

3.1 The definition of a derivative
The definition of the derivative is defined from the concept of the tangent line. In
here, we relate this idea of a limit to the slope of the tangent line at a particular
point, let us say x = c . Thus, from this relationship, we are able to develop and
derive the definition of the derivative: the slope of the tangent line at a given point
on the graph of a function, let us say f ( x ) , is called the derivative of the function at
that point.

The fundamental definition of the derivative, given as f ' ( x ) at x = a of a function

is defined as
f (a + h) − f (a)
f ' ( a ) = lim
h→0 h
provided that the limits exists. Then, we say that f is differentiable x = a . Note that
f ' ( a ) is the slope of the tangent line to f ( x ) at the point ( a, f ( a ) ) .
Note that the derivative of a function f ( x ) at x = c , defined as f ' ( c ) is called the
instantaneous rate of change of f with respect to x at the instant when x = c .

3.2 The derivative of a constant

function, the constant rule
For any constant function, say f ( x ) = c, c ∈ ℝ , the derivative is f ' ( x ) = 0 . In
simple terms, the derivative of a constant function is always equal to zero. This in
turn tells us that the horizontal line y = c has a tangent line with zero slope.

Example 3.1

a. If f ( x ) = −7 , then f ' ( x ) = 0.

1
b. If y = , then y ' = 0.
2
dy
c. If y = f ( t ) = 2.5 , then = f ' ( t ) = 0.
dt

Unit 3: Basic Calculus and its Applications 3.5

3.3 The derivative of a power
function
For any power function, say f ( x ) = x n , where n is any real number, the derivative
of f with respect to x is f ' ( x ) = nx n −1 . That is,

Reduce this power by 1

d n
dx
( x ) = nx n −1

Multiply by this power

Example 3.2
Differentiate the following:
a. y = x3 .
1
b. f ( x) = .
x2

Solution

= ( x ) = 3 x3−1 = 3 x 2
dy d 3
a.
dx dx
Bring the power to the front and multiply it to the term and then decrease the power
by 1.
1
b. Note that 2
= x −2 . Thus, we can use the Power Rule:
x
d  1  d −2
 2  = ( x ) = ( −2 ) x
2
f '( x) = −2 −1
= −2 x −3 = − 3 .
dx  x  dx x

Unit 3: Basic Calculus and its Applications 3.6

Activity 3.1

Spend at least 20 – 30 minutes on this activity.

Differentiate the following:

1
a. C ( x ) = b. P ( x ) = 2 x − 1 c. R ( x ) = x 4 .
x

Example 3.3
d  1  2
Show that  =− 3 5 .
dx  3 x 2  3 x
Solution
2
1 −
Notice that = x , and by the Power Rule,
3
3
x2

d  1  d  − 23  2 − 2 −1 2 −5 2
 3 2 = x =− x 3 =− x 3 =− 3 5 .
dx  x  dx   3 3 3 x

3.4 Constant multiple rule

If a function f is differentiable at x and c is any real number, then cf is also
differentiable at x and

d d
c f ( x )  = c  f ( x )  = c f ' ( x ) .
dx dx

Example 3.4
Differentiate:
a. f ( x ) = 8x4 .

π
b. g ( x ) = .
x2

Solution

a. f '( x) =
d
dx
( 8 x 4 ) = 8 ( x 4 ) = 8 ( 4 ) x3 = 32 x3
d
dx
d π  2π
b. g ' ( x ) =  2  =π
dx  x  dx
(
d −2
x ) = −2π x −3 = − 3
x

Unit 3: Basic Calculus and its Applications 3.7

3.5 Rules of Linearity
If f ( x ) and g ( x ) are differentiable at x and c is any constant, then

d d d
 f ( x ) ± g ( x )  = f ( x) ± g ( x) = f '( x) ± g '( x).
dx dx dx
The derivative of the sum (or difference) of two (or more) differentiable functions
equals to the sum (or difference) of their derivatives.

This formula affirms that functions that are sums and differences can be
differentiated term by term.

Example 3.5
Find the derivative of:
a. y = x2 + 2x +1

b. f ( x ) = 4 x 3 − 3x 2 + 7 x − 2

3 2
c. g ( x) = − 3x 2 + +5
x x2

Solution
a. The function is the sum of three functions. Hence, we can differentiate term
by term.
dy d 2
=
dx dx
( d d
) d
x + 2 x + 1 = x 2 + ( 2 x ) + (1) = 2 x + 2
dx dx dx

b. f '( x) =
d
dx
( 4 x3 − 3 x 2 + 7 x − 2 )

=
d
dx
( 4 x3 ) + ( −3x 2 ) + ( 7 x ) + ( −2 )
d
dx
d
dx
d
dx
= 12 x − 6 x + 7
2

d  3  d  3  d d  2  d
+ ( −3 x 2 ) +  2  + ( 5 )
2
c. g '( x) =  − 3x 2 + 2 + 5  =  
dx  x x  dx  x  dx dx  x  dx

d  − 12 
= 3  x  − 3 ( x 2 ) + 2 ( x −2 ) + ( 5)
d d d
dx   dx dx dx
 1   −2 
3
= 3  −   x  − 3 ( 2 )( x ) + 2 ( −2 ) ( x −3 ) + 0
 2  
3 4
=− − 6x −
2 x 3 x3

Unit 3: Basic Calculus and its Applications 3.8

Example 3.6
3 2
If g ( x ) = − 3x 2 + + 5 , then find:
x x2

a. g '( x). b. g ' (1) .

Solution
a. Same as (c.) above
3 4
g '( x) = − − 6x −
2 x3 x3

3 4 3 1
b. g ' (1) = − − 6 (1) − 3
= − − 6 − 4 = −11 .
2 1 3 1 2 2

Activity 3.2

x − 2x
1. If, R ( x ) = then find:
x

a. R '( x). b. R ' (100 ) .

2. Find the derivative of:

a. C ( x ) = 3x 4 − 2 x3 + x 2 − 12 x + 100. b. P ( x ) = −
7
(
1 8
x + 3x 2 − 5 ) .

3.6 The product rule

Suppose that f ( x ) and g ( x ) are differentiable at x . Then,

d d d
 f ( x ) × g ( x )  = g ( x ) f ( x) + f ( x) g ( x)
dx dx dx
= f 'g + g' f

Unit 3: Basic Calculus and its Applications 3.9

3.7 The quotient rule
Suppose that f ( x ) and g ( x ) are differentiable at x and g ( x ) ≠ 0 . Then,

d d
g ( x) f ( x) − f ( x) g ( x)
d  f ( x)  dx dx
 =
dx  g ( x )  ( g ( x))
2

f 'g − g' f
= .
g2

Example 3.7
Compute the derivatives for the following functions:
a. P ( x ) = ( x 2 + 1) ( 2 x − 3)

1 
b. C ( x ) = ( 8 x 4 + 1)  + x 
x 
x −1
c. R ( x ) =
x2 + 1

Solution
a. Applying the product rule, we have
f = ( x 2 + 1) g = ( 2 x − 3)
f ' = 2x g'=2
This yields:
P ' ( x ) = ( f .g ) ' = f ' g + g ' f
= 2 x ( 2 x − 3 ) + 2 ( x 2 + 1) .

b. Applying the product rule, we have

1 
f = ( 8 x 4 + 1) g =  + x  = x −1 + x
x 
1
f ' = 32 x3 g ' = − 2 +1
x
This yields
C ' ( x ) = ( fg ) ' = f ' g + g ' f
1   1 
= 32 x3  + x  +  − 2 + 1 ( 8 x 4 + 1)
x   x 
c. Applying the quotient rule, we have

Unit 3: Basic Calculus and its Applications 3.10

 f = x − 1, g = x 2 + 1,
f ' = 1, g ' = 2 x.
This yields
 f  f 'g − g' f
R '( x) =   ' =
g g2

=
(x 2
+ 1) − 2 x ( x − 1)
.
(x + 1)
2 2

3.8 The chain rule

The chain rule is concerned with the differentiation of composition of functions, that

is, functions of the form, y = f ( g ( x ) ) . For example: C ( x ) = ( x 2 + 3) .

3

There are two parts: An inner part ( x 2 + 3) and an outer part ( x 2 + 3) .

3

Formula for its derivative

If y = f ( g ( x ) ) , then

= f '( g ( x)) × g '( x) ,

dy
dx
or equivalently
dy dy du
= × .
dx du dx
If y = f ( g ( x ) ) , let y = f ( t ) , where t = g ( x ) . Then,

dy df ( t ) dg ( x )
= ⋅ ,
dx dt dx
or equivalently
dy dy dt
= × .
dx dt dx

Derivative of the outer function, leaving the inner function alone, times the
derivative of the inner function.

Unit 3: Basic Calculus and its Applications 3.11

Extended Method for Chain Rule
If y = f ( g ( h ( x ) ) ) , then

dy
dx
( )
= f ' g ( h ( x )) × g '( h ( x )) × h '( x ) .

Derivative of the outer function, leaving the inner functions alone, times the
derivative of the inner function leaving the inner inner function alone, times
the derivative of the inner inner function.

Example 3.8
Find the derivative of:

a. y = x 2 − 2 x + 1
1
b. y =
x − 3x + 1
2

Solution
1
a. If we write this formula as y = f ( u ) = u = u 2 , where u = x 2 − 2 x + 1 , then

its derivative is
dy dy du 1 − 12 1 2 ( x − 1) ( x − 1)
= × = u × ( 2x − 2) = × = .
dx du dx 2 2 u u
Now, we need to write this derivative in terms of x alone, we
u = x 2 − 2 x + 1 . Thus
substitute
dy
=
( x − 1) .
dx x2 − 2 x + 1
1
b. Let u = x 2 − 3 x + 1 . Then, y = f ( u ) = = u −1. Thus,
u
dy dy du −2 x + 3
= × = −u −2 × ( 2 x − 3) = .
dx du dx u2
Now, we need to write this derivative in terms of x alone, we
u = x 2 − 3 x + 1 . Thus
substitute
dy −2 x + 3
= 2 .
dx x − 3x + 1
Note that we could also have found the derivative with the Quotient Rule and
obtained the same result. TRY IT OUT YOURSELF!

Unit 3: Basic Calculus and its Applications 3.12

3.9 Higher-order derivatives
Notice that for a function f ( x ) , its derivative f ' ( x ) is a function again. We can
compute the derivative of f ' ( x ) , called the second derivative of f and written as
f '' . We can then compute f ''' = ( f '' ( x ) ) ' and call it the third derivative. Repeating
the process, we can continue to take derivatives indefinitely. Such higher order
derivatives have important applications.
In practice, it is common to write f ( 3) instead of f ''' , f ( 4) instead of f '''' , and so
( )
on. In general, f ( n +1) = f ( n ) ' is the derivative of the nth derivative.
d
As we know, the differential operator gives an alternative notation for first
dx
derivative. In the operator notation, the higher-order derivatives can be written as
d  df  d 2 f d  d2 f  d3 f d  d n f  d n +1 f
f '' =   = 2 , f ''' =  2  = 3 , ⋅⋅⋅, f n+1 =  n  = n+1 .
dx  dx  dx dx  dx  dx dx  dx  dx

Example 3.9
If f ( x ) = 3x 4 − 2 x 2 + 1 , compute as many derivatives as possible.

Solution

f '( x) =
df
dx
=
d
dx
( )
3 x 4 − 2 x 2 + 1 = 12 x 3 − 4 x;

d2 f
f '' ( x ) = 2 =
dx
d
dx
(
12 x 3 − 4 x ) = 36 x 2 − 4;

= ( 36 x 2 − 4 )
d3 f d
f ''' ( x ) = 3
= 72 x;
dx dx
4
d f d
f 4 ( x ) = 4 = ( 72 x ) = 72;
dx dx
5
d f d
f 5 ( x ) = 5 = ( 72 ) = 0.
dx dx
Evidently, for every n ≥ 5 , the nth derivative will be zero, that is, f (
n)
( x) = 0 .

3.10 Second derivatives

The derivative f ' of a function f is itself a function and hence may have a
derivative of its own. If f ' is differentiable, then its own derivative is denoted by
f '' and is called the second derivative of f .
Other common notations are
d
f '' ( x ) =  f ' ( x ) 
dx

Unit 3: Basic Calculus and its Applications 3.13

Example 3.10
x2 + 1
If f ( x ) = , then the first order derivative is
5x

 x + 1 − ( x 2 + 1) [5 x ]
d 2 d
d  x + 1
2 ( 5x ) Recall: The Quotient Rule
f '( x) =  =
dx dx
(5x )
2
dx  5 x 

5 x ( 2 x ) − ( x 2 + 1) ( 5 ) 10 x 2 − 5 x 2 − 5 5 x 2 − 5
= = = .
25 x 2 25 x 2 25 x 2
Moreover, the second order derivative is

d d  5x2 − 5 
f '' ( x ) =  f ' ( x )  = 
dx dx  25 x 2 

( 25 x ) dxd 5 x
2 2
− 5 − ( 5 x 2 − 5 )
d
dx
 25 x 2 
=
( 25 x ) 2 2

25 x 2 (10 x ) − ( 5 x − 5 ) ( 50 x ) 250 x
2 3
− 250 x 3 + 250 x 250 x 2
= = = = 3.
625 x 4 625 x 4
625 x 4
5x

3.11 Analysis of functions:

Increase, decrease and the
first derivative test

3.11.1 Definition

Let f be defined on an interval, and let x1 and x2 denote numbers in that interval.
(a) f is increasing on the interval if f ( x1 ) < f ( x2 ) whenever x1 < x2 .

(b) f is decreasing on the interval if f ( x1 ) > f ( x2 ) whenever x1 < x2 .

Unit 3: Basic Calculus and its Applications 3.14

 Increasing Decreasing

f ( x1 ) f ( x2 ) f ( x1 ) f ( x2 )

x x
x1 x2 x1 x2

f ( x1 ) < f ( x2 ) if x1 < x2 f ( x1 ) > f ( x2 ) if x1 < x2

y y
Increasing Decreasing

x x
x1 x2

Graph has positive slope Graph has negative slope

The above figure suggests that a differentiable function f is increasing on any

interval where its graph has positive slope, and is decreasing on any interval where
its graph has negative slope. This intuitive observation suggests the following
important theorem.

3.11.2 Theorem 1: Test for increasing and

decreasing function using f’
Let f be a function that is continuous on a closed interval [ a, b] and differentiable
on the open interval ( a, b ) .
(a) If f ' ( x ) > 0 for every value of x in ( a, b ) , then f is increasing on [ a, b] .

(b) If f ' ( x ) < 0 for every value of x in ( a, b ) , then f is decreasing on [ a, b] .

Unit 3: Basic Calculus and its Applications 3.15

3.11.3 Steps for finding where a function is
increasing and where it is decreasing
Step 1: Find the derivative f ' ( x ) of the function f ( x ) .

Step 2: Set up a table that solves the two inequalities:

f '( x) > 0 and f '( x) < 0

3.11.4 Definition: Relative maxima and

Relative minima
A function f is said to have a relative maximum at x0 if there is an open interval
containing x0 on which f ( x0 ) is the largest value, that is, f ( x0 ) ≥ f ( x ) for all x
in the interval. Similarly, f is said to have a relative minimum at x0 if there is an
open interval containing x0 on which f ( x0 ) is the smallest value, that is,
f ( x0 ) ≤ f ( x ) for all x in the interval. If f has either a relative maximum or a
relative minimum at x0 , then f is said to have a relative extremum at x0 .

Remark: The word “relative” in the above definition indicates that a point is
maximum or minimum only in relation to nearby points on the graph of f .

3.12 Critical points

Since a function f is increasing when the derivative f ' is positive and decreasing
when f ' is negative, the only points where f can have a relative extrema are those
where f ' ( x ) = 0 or where f ' ( x ) does not exist. Such points are extremely useful
and are given a special name.

3.12.1 Critical numbers and critical points

A number c in the domain of f is called a critical number if

(a) f ' ( c ) = 0 , or

(b) f ' ( c ) does not exist.

The corresponding point ( c, f ( c ) ) on the graph of f is called a critical point.

Note: The point ( c, f ( c ) ) on the graph of f where f ' ( c ) = 0 is also called a

stationary point.

Unit 3: Basic Calculus and its Applications 3.16

3.13 The first derivative test
Let f denote a differentiable function. Find the derivative of f , locate the critical
numbers of f and set up a “sign diagram” to determine where f is increasing and
where it is decreasing.

(a) If f is increasing to the left of a point A on the graph of f and is

decreasing to the right of A , then at the point A there is a relative
maximum.

(b) If f is decreasing to the left of a point B on the graph of f and is

increasing to the right of B , then at the point B there is a relative
minimum.

Example 3.11
Consider the graph of y = f ( x ) given in the figure below. The function is
increasing on the intervals ( a, b ) and ( c, d ) while the function is decreasing on the
intervals ( b, c ) and ( d , e ) . Notice that f also has a relative maximum at b and at
d and a relative minimum at c .

Relative Maximum
( b, f ( b ) )
Relative Maximum
Increasing ( d , f ( d ))
Decreasing
Decreasing

x
a b c d e

y = f ( x)

Increasing
Relative Minimum
( c, f ( c ) )

Example 3.12
Determine where the function f ( x ) = x3 − 6 x 2 + 9 x − 2 is increasing or decreasing.
Moreover, use the First Derivative Test to locate the relative maxima and relative
minima, if any, of f ( x ) .

Unit 3: Basic Calculus and its Applications 3.17

Solution
Note that the domain of f is the set of real numbers. Now, f ' ( x ) = 3x 2 − 12 x + 9 .

Setting f ' ( x ) = 0 gives 3 x 2 − 12 x + 9 = 0 . Solving for x yields

3 ( x 2 − 4 x + 3 ) = 3 ( x − 1)( x − 3) = 0 such that x = 1 and x = 3 .

There are no values of x such that f ' ( x ) does not exist.

So the critical numbers x = 1 and x = 3 separate the real number line into three
parts:
−∞ < x < 1 , 1 < x < 3 , and 3 < x < +∞ .
We now construct a sign diagram, using 0, 2, and 4 as test numbers to find the sign
of f ' ( x ) on each interval.

−∞ < x < 1 1< x < 3 3 < x < +∞

sign of + + + + + + + + + + + + + + + − − − − − − − − − − − − − − − − + + + + + + + + + + + + + + +
x
f '( x)
test point: x = 0 test point: x = 2 test point: x = 4

f ' (0) = 9 > 0 f ' ( 2 ) = −3 < 0 f ' ( 4) = 9 > 0

Increasing Decreasing Increasing

We conclude that the function f is increasing on the interval ( −∞,1) and ( 3, +∞ )

and is decreasing on the interval (1,3) .

We see that f is increasing for −∞ < x < 1 and is decreasing for 1 < x < 3 .
When x = 1 , f (1) = 2 . By the First Derivative Test, f has a relative maximum at
the point (1, 2 ) .

Similarly, f is decreasing for 1 < x < 3 and is increasing for 3 < x < +∞ .
When x = 3 , f ( 3) = −2 . By the First Derivative Test, f has a relative minimum at
the point ( 3, −2 ) .

Unit 3: Basic Calculus and its Applications 3.18

3.14 Accounting and Economics
applications
3.14.1 Marginal Revenue
The marginal revenue of a product is defined as the rate of change of the revenue
function. For linear revenue functions, the rate is the slope of the line that is the
graph of the revenue function. The marginal revenue of a function is also applicable
for non linear functions, which is defined as the rate of change at a given point,
commonly known as the instantaneous rate if change.

Average Rates of Change

The average rate of change of a function f ( x ) from x = a to x = b is defined by

f (b ) − f ( a )
Average rate of change = .
b−a

y
f ( x)
( b, f ( b ) )

( a, f ( a ) )

f (b) − f ( a )
m=
b−a

a b x

The figure shows that the average rate of change is the same as the slope of the
segment joining the points ( a, f ( a ) ) and ( b, f ( b ) ) .

Unit 3: Basic Calculus and its Applications 3.19

Example 3.13
Suppose that Cosmic Services (Fiji) Limited’s total cost in dollars to service x units
of air conditioners is given by C ( x ) = 0.01x 2 + 25 x + 1500.
Find the average rate of change of total cost for:

a. The first 100 air conditioners serviced (from x = 0 to x = 100 ).

b. The second 100 air conditioners serviced.

Solution
a. The average rate of change of total cost from x = 0 to x = 100 air
conditioners serviced is

C ( x) =
C (100 ) − C ( 0 )
=
( 2
)
0.01(100 ) + 25 (100 ) + 1500 − 1500
100 − 0 100
4100 − 1500
= = 26 .
100
Therefore, 26 dollars per unit of air conditioners.

b. The average rate of change of total cost from x = 100 to x = 200 air
conditioners serviced is

C ( x) =
C ( 200 ) − C (100 )
=
( 2
) (
0.01( 200 ) + 25 ( 200 ) + 1500 − 0.01(100 ) + 25 (100 ) + 1500
2
)
200 − 100 100
6900 − 4100
= = 28.
100
Therefore, 28 dollars per unit of air conditioners.

Example 3.14
Suppose that the Lako Tu Shoe manufacturer in Suva knows that because of the
demand for school shoes, the revenue is given by
R ( x ) = 1500 x − 0.02 x 2 , 0 ≤ x ≤ 1000

where x is the number of shoes and R ( x ) in dollars.

a. What is the marginal revenue if 500 shoes are sold?

b. Find the change in revenue caused by the increase in sales from 500 to 501
shoes.
c. Find the difference between the marginal revenue found in (a) and the
change in revenue in (b).

Unit 3: Basic Calculus and its Applications 3.20

Solution
a. The marginal revenue for the sale of x number of shoes is
R ' ( x ) = 1500 − 0.04 x.

The marginal revenue at x = 500 shoes is

R ' ( 500 ) = 1500 − 0.04 ( 500 )1500 − 20 = 1480 dollars per number of shoes.

We can interpret this to mean that the approximate revenue from the sale of
the 501st number of shoes will be $1480.00.

b. The revenue at x = 500 shoes is

R ( 500 ) = 1500 ( 500 ) − 0.02 ( 500 ) = 745, 000.00 .

2

The revenue at x = 501 shoes is

R ( 500 ) = 1500 ( 501) − 0.02 ( 501) = 746, 479.98 .

2

Thus, the change in revenue is

R ( 501) − R ( 500 ) = 746, 479.98 − 745, 000.00 = 1479.98 dollars.

c. The difference is 1480 − 1479.98 = 0.02 . Thus, we see that the marginal
revenue at x = 500 numbers of shoes is a good estimate of the revenue from
501 st number of shoes.

3.14.2 Maximising Revenue

Because the marginal revenue is the first derivative of the total revenue, it should
be obvious that the total revenue function will have a critical point at the point
where the marginal revenue equals 0. With the total revenue
function R ( x ) = 16 x − 0.02 x 2 , the point where R ' ( x ) = 0 is clearly a maximum
because R ( x ) is a parabola that opens downwards. But the domain may be limited,
the revenue function may not always be a parabola, or the critical point may not
always be maximum, so it is important to verify where the maximum value occurs.

Example 3.15
A firm has total revenues given by
100 x
R ( x) = , x>0
x 2 + 100
for x units of a product and R is in thousands of dollars.

Unit 3: Basic Calculus and its Applications 3.21

(a) Over what intervals are the revenues increasing? Decreasing?
(b) What are the maximum revenues?

Solution
(a) To find where R is increasing/decreasing, we first compute R ' ( x ) . So,

S '( x) =
(x 2
+ 100 )100 − (100 x ) 2 x
=
10, 000 − 100 x 2
.
(x + 100 ) (x + 100 )
2 2 2 2

We see that R ' ( x ) = 0 when 10, 000 − 100 x 2 = 0 , or

100 (100 − x 2 ) = 0
⇒ 100 (10 + x )(10 − x ) = 0
⇒ x = −10 or x = 10

Because R ' ( x ) is never undefined ( x 2 + 100 ≠ 0 for any real number x ) and
because x > 0 , our only critical number is x = 10. Testing R ' ( x ) to the left and right
of x = 10 gives the sign diagram.

0 < x < 10 10 < x < +∞

sign of + + + + + + + + + + + + + + + − − − − − − − − − − − − − − − −
x
R '( x) 0
test point: x = 5 test point: x = 15

R ' ( 5 ) = 0.48 > 0 R ' (15 ) = −0.12 < 0

Increasing Decreasing

Hence, R is increasing on the interval ( 0,10 ) and decreasing on the interval

(10, +∞ ) .
(b) Because R is increasing to the left of x = 10 and R is decreasing to the right
of x = 10 , by the First Derivative Test, the maximum value of R occurs at
x = 10 and is
100 (10 )
R (10 ) = = 5 (thousand dollars).
10 2 + 100

Unit 3: Basic Calculus and its Applications 3.22

3.14.3 Minimising average cost
Because the total cost function is always increasing for x ≥ 0 , the number of units
that will make the total cost a minimum is always x = 0 units.
So, it is more useful to find the number of units that will make the average cost per
unit a minimum.

Average Cost: If the total cost is represented by C ( x ) , then the average cost per
unit is
C ( x)
C ( x) = .
x
For example, if C ( x ) = 3x 2 + 4 x + 2 is the total cost function for a commodity, the
C ( x)
3x 2 + 4 x + 2 2
average cost function is C ( x ) = = = 3x + 4 + .
x x x
Note that the average cost per unit is undefined if no units are produced.

Example 3.16
Suppose that the average costs of a mining operation depends on the number of
machines used, and the average costs, in dollars, are given by
1, 278, 900
C ( x ) = 2900 x + , x >0.
x
(a) Over what intervals are the average costs increasing? Decreasing?
(b) What are the minimum average costs?

Solution
(a) To find where C is increasing/decreasing, we first compute C ' ( x ) . So,

1, 278,900 2900 x 2 − 1, 278, 900

C ' ( x ) = 2900 − =
x2 x2
We see that C ' ( x ) = 0 when 2900 x 2 − 1, 278,900 = 0 , or

2900 ( x 2 − 441) = 0
⇒ 2900 ( x + 21)( x − 21) = 0
⇒ x = −21 or x = 21

Moreover C ' ( x ) is undefined at x = 0 (since the denominator x 2 = 0 for x = 0 )

Since, x > 0 , our only critical number is x = 21. Testing C ' ( x ) to the left and right
of x = 21 gives the sign diagram.

Unit 3: Basic Calculus and its Applications 3.23

 0 < x < 21 21 < x < +∞

sign of − − − − − − − − − − − − − − − − + + + + + + + + + + + + + + +
x
C '( x) 0
test point: x = 5 test point: x = 25

C ' ( 5 ) = −48, 256 < 0 C ' ( 25 ) = 853.76 > 0

Decreasing Increasing

Hence, C is increasing on the interval ( 21, +∞ ) and decreasing on the interval

( 0, 21) .
(b) Because C is decreasing to the left of x = 21 and C is increasing to the
right of x = 21 , by the First Derivative Test, the minimum value of C occurs
1, 278,900
C ( 21) = 2900 ( 21) + = $121,800
at x = 21 and is 21 .

3.14.4 Maximising profit

Example 3.17
The price of a product in dollars is related to the number of units x demanded daily
by p = 168 − 0.2 x .

A monopolist finds that the daily average cost for this product is
C ( x ) = 120 + x (in dollars).

(a) How many units must be sold daily to maximise profit?

(b) What is the selling price at this “optimal” level of production?

(c) What is the maximum possible daily profit?

Solution
(a) The total revenue function for the product is
R ( x ) = p × x = (168 − 0.2 x ) x = 168x − 0.2 x 2

and the total cost function is

C ( x ) = C ( x ) × x = (120 + x ) x = 120 x + x 2 .

Unit 3: Basic Calculus and its Applications 3.24

Thus, the profit function is
P ( x ) = R ( x ) − C ( x ) = 168 x − 0.2 x 2 − (120 x + x 2 ) = 48 x − 1.2 x 2 .

So, the marginal profit is P ' ( x ) = 48 − 2.4 x .

We see that P ' ( x ) = 0 when x = 20 .

Because P ' ( x ) is never undefined for all real values of P, our only critical
number is x = 20 . Testing P ' ( x ) to the left and right of x = 20 gives the
sign diagram.

0 < x < 20 20 < x < +∞

sign of +++++++++++++++ −−−−−−−−−−−−−−−−−−−

x
P '( x) 0
test point: x = 5 test point: x = 25

P ' ( 5 ) = 36 > 0 P ' ( 25 ) = −12 < 0

Increasing Decreasing

Hence, P is increasing on the interval ( 0, 20 ) and decreasing on the interval

( 20, +∞ ) . Because P is increasing to the left of x = 20 and P is decreasing
to the right of x = 20 , by the First Derivative Test, the maximum value of P
occurs at x = 20 .

That is, selling 20 units will maximise the profit.

(b) The selling price is determined by p = 168 − 0.2 x , so the price that will result
from supplying 20 units per day is p = 168 − 0.2 ( 20 ) = $164 . That is, the
“optimal” selling price is $164 per unit.

(c) The maximum profit occurs at x = 20 and is

P ( 20 ) = 48 ( 20 ) − 1.2 ( 20 ) = $480
2

. Thus, the maximum possible profit is

$480 per day.

Unit 3: Basic Calculus and its Applications 3.25

 Tutorial

Spend at least 30 – 45 minutes on this activity.

100
1. The demand for calculators in Natewa Bay Secondary School is D ( p ) = −1 .
p
a. What happens when p = 0 ?
b. What is the average rate of change of demand of calculators when p
increases from
i. 1 to 50 ?
ii. 50 to 150 ?
2. Suppose that the total cost in dollars of producing Natural Water (in cartons) can
be approximated by the formula
C ( x ) = 0.0001x3 + 0.005 x 2 + 28 x + 3000.

Find the average rate of change of total cost of producing Natural Water (in
cartons) when the production changes:
a. from 100 to 300 cartons of Natural water.
b. from 300 to 600 cartons of Natural water.
c. Interpret the results from parts (a) and (b).
3. Suppose that the revenue function for selling x flip-flops is
R ( x ) = 300 x − x 2 .

a. What is the marginal revenue function for selling x flip-flops?

b. What is the marginal revenue for selling 50 flip-flops and what does it
mean?
c. What is the marginal revenue for selling 200 flip-flops and what does it
mean?
d. What is the marginal revenue for selling 150 flip-flops and what does it
mean?
e. As the number of units sold passes through 150 flip-flops, what happens to
the revenue?

Unit 3: Basic Calculus and its Applications 3.26

4. Suppose that the demand for Lobster at the Bikenibeu market in Kiribati
depends on the price p according to
50, 000 1
D ( p) = − , p>0
p2 2
where p is in dollars. Find and explain the meaning of instantaneous rate of
change of demand with respect to price when the price is:
a. p = 50 ?
b. p = 100 ?

5. The daily sales S ( t ) attributed to the advertising campaign of the book written

under the Sharma Vanualailai Series, titled “Mathematics: A revision Guide for
Form7” is given by
3 18
S (t ) = 1 + − ,
t + 3 ( t + 3) 2

where t is the number of weeks the advertising campaign runs.

a. What is the rate of change of sales at:
i. t = 8? ii. t = 10?
b. Should the advertising campaign be continued after the 10th week?
Explain.

6. Raj’s firm in Savusavu determines that x units of its product can be sold daily at
p dollars per unit, where

p = 1000 − x .
The cost of producing x units per day is
C ( x ) = 3000 + 20 x .

a. Find the revenue function, R ( x ) .

b. Find the profit function, P ( x ) .

c. Assuming that the production capacity is at most 500 units per day (that is,
0 ≤ x ≤ 500 ), determine how many units the company must produce and sell
each day to maximise the profit.

d. Find the maximum profit.

e. What price per unit must be charged to obtain the maximum profit?

Unit 3: Basic Calculus and its Applications 3.27

7. The daily cost C ( x) of producing electric washing machines is given by

C ( x) = 100 + 10 x + 0.01x 2
where x represents the number of washing machines produced.
Find:
a. the cost of producing 75 washing machines.
b. the marginal cost function.
c. the marginal cost at x = 75 . Interpret your answer.
d. the estimate cost of producing 76 washing machines using the marginal
cost.

e. the average cost function.

f. the minimum average cost.

8. The price p per ton (in dollars) of cement when x tons of cement is demanded is
given by the equation:

p = − x + 200 .
Find:
a. the revenue function.
b. the marginal revenue.
c. the marginal revenue at x = 10 tons .

9. The price of a sunglasses in dollars in Tuvalu is related to the number of units x

demanded daily by

p = 168 − 0.2 x
A monopolist finds that the daily average cost in dollars for a sunglass is
C ( x) = 120 + x
How many sunglasses must be sold daily to maximise profit?

Unit 3: Basic Calculus and its Applications 3.28

 Tutorial Solution

1. a. When p=0, the function becomes undefined as we cannot divide by zero,

that is, the demand cannot be zero.
b. The average rate of change of demand of the calculators:
 100   100 
 − 1 −  − 1
D ( 50 ) − D (1)  50   1  = −3.43 .
i. =
50 − 1 24
 100   100 
 − 1 −  − 1
D ( 50 ) − D (1)  150   50 
ii. = = −0.06 .
150 − 50 100

2. The average rate of change of total cost are:

f ( 300 ) − f (100 ) 14550 − 5950 8600
a. = = = 43.
300 − 100 200 200
f ( 600 ) − f ( 300 ) 43200 − 14550 26850
b. = = = 95.50.
600 − 300 300 300
c. The average rate of change of total cost of production is greater when 300 to
600 printers are produced.

3. Using the revenue function, R ( x ) = 300 x − x 2 , we have

a. R ' ( x ) = 300 − 2 x.

b. R ' ( 50 ) = 300 − 2 ( 50 ) = 200 .

A positive value for R ' ( x ) means that R ( x ) is increasing.

c. R ' ( 200 ) = 300 − 2 ( 200 ) = −100.

A negative value for R ' ( x ) means that R ( x ) is decreasing.

d. R ' (150 ) = 300 − 2 (150 ) = 0.

A zero value for R ' ( x ) means that R ( x ) is stationery.

e. The revenue changes from increasing to decreasing at x = 150.

Unit 3: Basic Calculus and its Applications 3.29

 50, 000 1 1
4. The demand function is D ( p ) = 2
− = 50, 000 p −2 − .
p 2 2

The derivative of the demand function is D ' ( p ) = −100, 000 p −3 .

a. D ' ( 50 ) = −100, 000 ( 50 ) = −0.8.

−3

If price increases by $1.00, the demand will drop approximately 0.8 units.

b. D ' (100 ) = −100, 000 (100 ) = −0.1.

−3

If price increases by $1.00, the demand will drop approximately 0.1 units.

3 18
5. The sales is given by S ( t ) = 1 + = 1 + 3 ( t + 3) − 18 ( t + 3 ) .
−1 −2
−
t + 3 ( t + 3) 2

The derivative of the sales function is

3 36
S ' ( t ) = −3 ( t + 3) + 36 ( t + 3) = −
−2 −3
+ .
( t + 3) ( t + 3)
2 3

a. The rates are:

3 36 3
i. when t = 8, S ' ( t ) = − + = ≈ 0.00225.
( 8 + 3) ( 8 + 3)
2 3
1331

3 36 3
ii. when t = 10, S ' ( t ) = − + = ≈ 0.0014.
(10 + 3) (10 + 3)
2 3
2197

b. The campaign should not be continued because the sales are now dropping.

6. The solution of the problem is as follows:

a. R ( x ) = px = (100 − x ) x = 100 x − x 2

b. P ( x ) = R ( x ) − C ( x ) = R ( x ) = (100 x − x 2 ) − ( 3000 + 20 x ) = −3000 + 980 x − x 2

c. P ' ( x ) = 980 − 2 x, P ( x ) = 0 for 0 < x < 500 when x = 490 ; test the points 0,

490, 500 to find that the profit is a maximum when x = 490 .

d. P ( 490 ) = 237,100

e. p = 1000 − x = 1000 − 490 = 540

Unit 3: Basic Calculus and its Applications 3.30

7. The solution of the problem is as follows:
a. C (75) = 100 + 10(75) + 0.01(75) 2 = $906.25

b. C '( x ) = 10 + 0.02 x

c. C '(75) = 10 + 0.02(75) = $11.5

Thertefore $11.5 is the cost of producing one additional WM after 75 has been produced or the
cost of 76th WM.

d. C (76) ≈ C (75) + C '(75) = 906.25 + 11.5 = $917.75

C ( x) 100 + 10 x + 0.01x 2 100

e. C ( x ) = = = + 10 + 0.01x
x x x

−100
f. C '( x ) = + 0.01
x2
−100
C '( x ) = 2 + 0.01 = 0 when x 2 = 10, 000 ⇒ x = 100
x
200
C ''( x) = 3 ⇒ C ''(100) > 0 Hence there is a local minimum at x = 100
x
100
∴ C (100) = + 10 + 0.01(100) = $12
100

8. The price per ton of cement is p = − x + 200 .

a. R( x) = px = ( − x + 200 ) x = − x 2 + 200 x .

b. Marginal revenue: R '( x ) = −2 x + 200 .

c. R '(10) = −2 (10 ) + 20 = $180/unit

9. The revenue is R ( x) = xp = x(168 − 0.2 x) = 168 x − 0.2 x .

2

C ( x)
Since average cost is C ( x) = , therefore C ( x) = 120 x + x 2 .
x

The profit function is P ( x) = R ( x) − C ( x) = 48 x − 1.2 x 2 .

Differentiating the profit function, we get P '( x ) = 48 − 2.4 x .
Setting the profit function to zero, we solve for x .

Thus P '( x ) = 48 − 2.4 x = 0 . Hence x = 20.

Unit 3: Basic Calculus and its Applications 3.31

 Now, we have to test whether x = 20 results in the maximum or not. Therefore,
we use the first derivative test.

+++ −−−

20
Therefore, from the first derivative test, a plus (+) followed by a minus (-)
results in the maximum. Therefore, we confirm that x = 20 will result in the
maximum profit.

Summary
In this Unit, we discussed the different rules of differentiation and have looked at a
number of examples to solve problems. The rules discussed in this Unit form the
basic element for the next two Units, where applications of calculus in accounting
and economics are discussed.

Unit 3: Basic Calculus and its Applications 3.32