APPLICATIONS OF CALCULUS IN COMMERCE AND ECONOMICS

18.1 Introduction

18

In the chapter on Differential Calculus, we learnt that differentiation is the process which measures the instantaneous rate of change of a dependent variable with respect to another independent variable, when two variables are functionally related. In Economics and Commerce we come across with many situations where two variables are functionally related, viz., demand and price, supply and price, cost and quantity demanded etc. The change in one variable causes a relative change in the other variable. For example, sale of a commodity is affected when its price changes or total cost is affected when the quantity of output changes. Major economic and business theories depend upon these changing behaviours. The estimation of the rate at which these quantities change form the basis of the use of calculus in Economic and business studies. Thus calculus based techniques are extensively used in Economics, operation management, marketing management, financial management etc. Marginal analysis on Economics and Commerce is the most direct application of differential calculus. Differential Calculus techniques are also used in solving problems of maximising profit, minimising cost, elasticity of price and supply etc. Integration is applied to find total and average functions when the marginal functions are given. Integral calculus techniques are also used to find the demand function when the price elasticity of demand is given. In the present chapter, we confine our studies to find total, average and marginal functions break-even analysis maximization and minimization problems. We shall also investigate some of the applications of integration. 18.2 Basic Functions Before studying the application of calculus, let us have a look on some important functions in Economics and Commerce. 18.2.1 Cost function Total cost C of producing and marketing x units of a commodity depends upon the number of units (x). The function which describes this relationship is called cost function and we write

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Cost function = C = C (x) The cost C of producing and marketing x units of a commodity may be analysed as fixed cost and the variable cost. The fixed cost consists of all types of costs which do not change with the level of production. The examples of fixed cost are taxes , interest, insurance, rent etc. Variable cost consists of those types of costs which depends upon the number of units of a commodity produced like material, labour, packaging etc. Thus, total cost is the sum of fixed cost and the variable cost i.e. C = F + V(x), where F is independent of x, hence, is fixed cost and V(x) is a function of x, hence, represents the variable cost. For example, if the total cost of producing and marketing x units is given by C = 2x + ex + 3e, then the fixed cost is 3e and the variable cost is 2x + ex 18.2.2 Demand function Economic theories show that the quantity demanded of a commodity depends upon many factors, viz., price of the commodity, stock of wealth with the consumer, taste of the consumer, income and price of other related commodities etc. To facilitate the studies of demand all variables which influence the demand except the price of the commodity are considered to be constant. Therefore, in this case the demand function is used to represent the functional relationship between demand and price of a commodity. If p denotes the price per unit and x is the number of units demanded by a consumer at that price, then the demand function is represented as x = f (p). The implicit form of the demand function is f (x, p) = 0. 18.2.3 Revenue function When x units of a commodity are sold at a rate of Rs p per unit then the total revenue received by the seller is a function of x and is, therefore, called a revenue function denoted as R = px. By demand function the price per unit p may be expressed as function of x i.e. Therefore Thus p = g(x) R = x g(x) R (x) = px = x g(x)

i.e. R is a function of x. This function is also called total revenue function denoted by R (x). 18.2.4 Profit function Profit function is the functional relationship between the profit earned from the production and sale of a commodity, and the number of units produced and sold. The profit is evaluated as the difference of the total revenue and the total cost of production and sale of a commodity. This function is expressed as

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P(x) = R(x) C(x) where and P(x) : total profit R (x): total revenue received on selling x units of the commodity C(x): total cost on producing and marketing x units of the commodity. Thus, the profit function is a function of quantity produced and sold. 18.3 Break-Even Analysis The break-even point is the level of production where the revenue received from the sales is equal to the cost of production. At break-even point the profit is equal to zero. Therefore, we can say that the break-even point is that value of the quantity produced and sold (x) at which the company is neither making a profit nor suffering any loss. We know that Profit: P(x) = total revenue R(x) total cost C(x) At break-even point i.e. P(x) =0 R(x) = C(x).

Solving this equation, the break-even point can be evaluated. Example 1 For a new product, a manufacturer set up an infrastructure which costs him Rs 1,40,000 and variable cost is estimated as Rs 125 for each unit of the product. The sale price per unit is fixed at Rs 160. Write down the cost function C(x), Revenue function R(x) and profit function P(x) for x units of the product. How many number of units are to be produced in the first year of production so that there may be no loss or gain during that year? Solution We are given that fixed cost = Rs 1,40,000, variable cost= Rs 125 per unit and selling price = Rs 160 per unit. Therefore Thus Cost function C(x) = 140000 +125x Revenue function R (x) = 160x Profit function P(x) = R(x) C(x) = 160x 140000 125x = 35x 140000 The point where the manufacturer suffers no profit no loss is the break-even point and here we have P(x) = 0, i.e., 35x 1,40,000 = 0 or x = 4000 Therefore, the minimum number of units which should be produced in the first year of production so that there is no loss or no profit in that year is 4000.

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Example 2 A company produced a commodity with Rs 10,000 fixed costs. The variable costs are estimated to 25% of the total revenue received on selling the product at a rate of Rs 6 per unit. Find the total revenue, total cost and profit functions. Solution If x is the number of units produced, then total Revenue, R (x) = 6x and variable cost = 25% of 6x = Also given that fixed cost = Rs 10,000 Therefore Thus total cost, C(x) = 10,000 +
3 x 2

25 3 6x = x 100 2

profit function, P(x) = R (x) C(x) = 6x 10,000 x =

3 2 9 x 10,000 2

Example 3 A profit-making company wants to launch a new product. It observes that the fixed cost of the new product is Rs 35,000 and the variable cost per unit is Rs 500. The revenue received on the sale of x units is given by 5000 x 100 x2. Find (i) profit function (ii) break-even point. Solution (i) If P(x), R(x) and C(x) denote, respectively, the profit function, the revenue function and the total cost function, then we have R(x) = 5000 x 100 x2 C(x) = 35,000 + 500 x and P(x) = R(x) C(x) = 5000 x 100x2 35,000 500x = 4500x 100x 2 35,000 (ii) For break-even value, we have P(x) = 0 i.e. or or Therefore 4500x 100x2 35,000 = 0 x 2 45x +350 = 0 (x 10) (x 35) = 0 x = 10 or 35

Hence break-even values are 10 and 35. Example 4 A company has fixed cost of Rs 10,000 and cost of producing one unit of its

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product is Rs 50. If each unit sells for Rs 75, find the break-even value. Also, find the values of x for which the company always results in profit. Solution Let P(x), R(x) and C(x) denote the profit, total revenue and total cost functions of producing and selling x units of the item. Then and C(x) =10000 + 50x R(x) = 75x P(x) = R (x) C(x) = 75 x 10000 50x = 25 x 10000 Now, at break-even point P(x) = 0, i.e., 25x 10000 = 0 Therefore
x= 10000 = 400 25

Thus, on producing and selling 400 items, the company is neither making profit nor losing money. Also, the company will always remain in profit if P(x) > 0, i.e., 25 x 10000 > 0 giving x > 400 Hence, the company will remain in profit if it produces and sells more than 400 units of the product. EXERCISE 18.1
1. A company wants to launch a new product. It invested Rs 37,500 as fixed cost and Rs 200 per unit as the variable cost of production. The revenue function for the sale of x units is given by 4825x 125x2. Find the break-even point (s). 2. A company start producing pens and finds that the production cost of each pen is Rs 10, and the fixed expenditure of production is Rs 4500. If each pen is sold for Rs 25, determine (i) Cost function (ii) Revenue function (iii) The break-even point. 3. Given the cost function and revenue function, respectively, as C = x + 40 and R = 10x 0.2x2. Find the break-even point. 4. A company paid Rs 16,100 towards rent of the building and interest on loan. The cost of producing one unit of the item is Rs 20. If each unit is sold for Rs 27, find, the break-even point. 5. A company produced a commodity with Rs 20,000 fixed costs. The variable cost is estimated to 35% of the total revenue when it is sold at a rate of Rs 6 per unit. Find the total revenue, total cost and profit functions of the revenue when it is sold. 6. A company launched a new product with fixed cost of Rs 25,000 and the variable cost per unit is Rs 1500. The revenue received on the sale of x units is given by 8500x 400x2. Find (i) Profit Function (ii) Break-even Points.

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7. The fixed cost of a product is Rs 20,000 and cost of production per unit is Rs 75. If each unit is sold for Rs 100, find the break-even value. Also, find the values of x for which the company always results in profit. 8. A firm paid Rs 25,000 as rent of its office and Rs 15,200 as the interest of the loan taken to produce x units of a commodity. If the cost of production per unit is Rs 8 and each item is sold at price of Rs 75, find the profit function. Also, find the break-even point. 9. A company sells its product at the rate of Rs 6 per unit. The variable costs are estimated to run 25% of the total revenue received. If the fixed costs for the product are Rs 4500, find (i) The total revenue function. (iii) The profit function. (ii) The total cost function. (iv) The break-even point.

(v) The number of units the company must sell to cover its fixed cost. 10. The price of selling one unit of a product when x units are demanded is given by the equation p = 4000 2x. The fixed costs of the product are Rs 20,000 and Rs 1484 per unit are paid for the product to place in a store. Find the level of sales at which the company expect to cover its costs.

18.4 Average and Marginal Functions In economics, variation of one quantity y with respect to change in another quantity x is usually described in terms of two concepts (i) Average concept (ii) Marginal concept The average concept expresses the variation of one quantity over a specified range of values of a second quantity. Thus, if two quantities x and y are related in a functional relation as y = f (x), then the average function may also be defined as
f ( x) . x

The marginal concept concerns with instantaneous rate of change of the dependent variable y = f (x) for every small variation of independent variable x. Thus, to find a marginal function we precisely give a very small variation x in x and we find the corresponding variation y in y. Then, the lim x 0 the marginal value of y, i.e., the derivative marginal function. Therefore, marginal function of f (x) =
d f ( x) . dx
y if exist finitely is interpreted as x

dy of a function y = f (x) w.r.t. x gives the dx

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18.5 Average and Marginal Cost If C(x) is the total cost of producing and marketing x units of a commodity, then the function C is called the total cost function. Then, the average cost which represents the cost per unit is given by Average cost =
f ( x) C = x x

(The average cost function is usually denoted as AC). Now if corresponding to small increment x in x, the increment (variation) in total cost is C, then average increase in cost per unit output is given by the ratio cost is given by Marginal cost (MC) = lim x 0
C dC = , x dx
C and the marginal x

i.e., marginal cost is the first derivative of the total cost C with respect to the level of output x. Marginal cost is also defined as the instantaneous rate of change of total cost at any level of out put. Example 5 The total cost C(x), associated with production and making of x units of an item is given by C(x) = 0.005 x3 0.02 x2 + 30x +5000. Find (j) (ii) (iii) (iv) the average cost function the average cost of output of 10 units. the marginal cost function. the marginal cost when 3 units are produced.

Solution (i) The average cost function is given by AC =

C( x) x 5000 x

i.e.

AC = 0.005x2 0.02x + 30 +

(ii) Average cost at x = 10 is

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(AC)x =10 = 0.005 (10)2 0.02(10) + 30 + = 0.5 0.2 + 30 + 500 = 530.3

5000 10

(iii) The marginal cost function (or simply the marginal cost) MC, is obtained by differentiating C with respect to x. Thus MC =

dC = 0.005 (3x2) 0.02 (2x) + 30 dx

= 0.015x2 0.04x + 30

(iv) The marginal cost when 3 units are produced is (MC)

x =3

= 0.015 (3)2 0.04(3) + 30 = 0.135 0.12 + 30 = 30.015

Hence, the required marginal cost is Rs 30.02 (nearly). Example 6 If the total cost function is given by C = a + bx + cx2, where x is the quantity of
d 1 (AC) ! (MC dx x average cost respectively.

output, show that

AC) , where MC and AC are marginal cost and

Solution We know that AC =

a C a " bx " cx 2 = = + b + cx. x x x

d C = b + 2cx. dx

Also

MC =

Therefore

1 1 a (MCAC) = [b + 2cx b cx] x x x

=

a 1 a [cx ] = c 2 x x x

(1)

and

d d a a (AC) = ( + b + cx) = 2 + c dx dx x x

(2)

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From (1) and (2), we get

d 1 (AC) = (MC AC). dx x

Example 7 The relation between total cost y and the output x is , given by y = 3x %

# x"7& ( + 5. $ x"5'

Prove that the marginal cost falls continuously by as the output increases.

# x"7& ( x 2 " 7 x) Solution We have y = 3x % + 5 = 3 +5 ( $ x"5' x"5

Differentiating w.r.t. x, we obtain

d d ( x " 5) ( x 2 " 7 x) ( x 2 " 7 x) ( x " 5) dy dx dx Marginal cost (MC) = = 3. dx ( x " 5) 2

=3 =3

( x " 5) (2 x " 7) ( x 2 " 7 x) ( x " 5) 2

( x 2 " 10 x " 35) ( x " 5) 2 " 10 10 ! 3 [1 " ] 3 = 2 ( x " 5) 2 ( x " 5) ( x " 5) 2

Now

d 60 (MC) = which is negative for all x 0 . dx ( x " 5)3

Hence, the marginal cost falls continuously as the output increases. Example 8 The average cost function associated with producing and marketing x units of

50 . Find the total cost function and marginal cost x function. Also find the range of the output for which AC is decreasing.
an item is given by AC = 2x 11 + Solution Let C(x) be the total cost function and MC be the marginal cost function. Then, we know that AC =

C , i.e., x

C = x AC

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or

C (x) = x. (2x 11 +
dC = 4x 11 dx 50 x

50 ) = 2x2 11x +50 x

Now

MC =

Given that AC = 2x 11 +

Differentiating both sides w.r.t. x, we get

50 d (AC) = 2 2 x dx

For AC to be decreasing, we have

d (AC) < 0 dx

i.e. 2

50 <0 x2

or giving

x2 25 < 0 i.e., (x + 5) (x 5) < 0 5 < x < 5.

Since x can never be negative, 0 x < 5 is the range of output for which AC is decreasing. Example 9 Prove that the slope of the average cost curve is function C(x) = ax3 +bx2 + cx + d. Solution Total cost function is C(x) = ax3 + bx2 + cx + d. Therefore AC =
1 (MC AC) for the total cost x

C d = ax2 + bx + c + x x
dAC d = 2ax + b 2 dx x

Slope of AC curve = Also Now MC =

(1)

dC = 3ax2 + 2bx + c dx
d x

MC AC = 3ax2 + 2bx + c ax2 bx c

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= 2ax2 + bx

d x

Therefore

1 d d 1 2 (MC AC) = (2ax + bx ) = 2ax + b 2 x x x x

(2)

From (1) and (2) we have

1 (MC AC) = slope of AC curve. x

Example 10 The total cost function for a production and marketing activity is given by C(x) =
3 2 x 7x + 27 4

Find the level of output (number of units produced) for which Solution Given that C(x) =
3 2 x 7x + 27 4

MC = AC. (1)

Therefore

AC =

C 3 27 = x7+ x 4 x

Differentiating both sides of (1), we get

dC 3 3 = x 7, i.e., MC = x 7 dx 2 2

Now

MC = AC
3 3 27 x7= x7+ 2 4 x
3 3 27 x x= 2 4 x

Therefore

or x2 = 36 i.e. x = 6, rejecting the ve value because output x can never be ve, we find that x = 6 is the level of output for which MC = AC

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EXERCISE 18.2
1. If a manufactures total cost function is C = 1500 + 30x + x2. Find (i) the average cost function. (ii) the marginal cost when 20 units are produced. 2. The average cost function AC for a product is given by AC = 0.0002x2 0.05x + 7 +

8000 , where x x is the output. (i) Find the marginal cost function. (ii) What is the marginal cost when 100 units are produced ?

3. Given the total cost function for x units of a commodity as C(x) =

1 3 x + 3x2 7x + 16 3
(ii) the average cost

Find (i) the marginal cost

(iii) show that the marginal average cost is given by

x MC C( x ) x2

4. If the total cost function is given by C = 3 2x + 5x2, where x is the quantity of output show that

d 1 AC = (MC AC), where MC and AC are the marginal cost and average cost, respectively. dx x
5. The average cost function AC for a commodity is given by AC =

x 2 + 5x + 36 , x 0, in terms x

of output x. Find the total cost and marginal cost functions. Also, find the MC when x = 10. 6. If the total cost of producing and marketing x units of a certain commodity is given by C(x) = 3aex/3. Verify that the slope of AC curve is given by

MC AC x

7. Verify for the cost function C(x) = ax (

x+b ) + d , a, b, c, d > 0, b > c that the average and x+c

marginal cost curves fall continuously with increasing output. 8. If C(x) = 0.05x 0.2x2 5, find the level of output x for which the average cost AC becomes equal to the marginal cost. 9. The total cost function is given by C = x + 2x3 3.5x2. Find marginal average cost function (MAC). Also, find the points where the MC curve cuts the xaxis and yaxis.

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10. The average cost of producing x units of a commodity is given by the equation AC =

x2 x 5000 30 + . x 200 50 dAC MC AC = . dx x

Find the marginal cost (MC) function and verify that

18.6 Average and Marginal Revenues Recall that the total revenue received on selling x units of an item at a price of Rs p per unit is given by R = p.x Now, the average revenue (AR) is the revenue received per unit, which represent the price of a unit of the item. Therefore, average revenue is given by AR =
R = p (price per unit). x

Average Revenue is same as the price of per unit. Marginal Revenue (MR) indicates the rate at which Revenue changes with respect to the number of items sold at an instant. Thus
MR = dR d dp = +p px = x dx dx dx

According to economic analysis when price of a commodity is independent of the level of output x, then the business is said to be operated under pure competition . Thus, under pure competition condition p is independent of x, so we have Therefore MR = p = price per unit
dp =0 dx

In the presence of no competition the business is said to be operated as monopoly business. In case of a monopoly business, the price of the commodity depends upon the number of units of the items produced and sold. Note Our discussion in this book is confined to the assumption that p is a function of x that is the business is operating under monopoly condition, unless stated otherwise. Example 11 The demand for a certain product is represented by the equation p = 20 +5x 3x2, where x is the number of units demanded and p is the price per unit.

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(i) Find the total revenue (TR).

(ii) Find the marginal revenue (MR).

(iii) Obtain the marginal revenue when 2 units are sold. Solution (i) The total revenue is given by TR = demand price = x(20+5x3x2) = 20x + 5x2 3x3 (ii) The marginal revenue is given by
d (TR) = 20 + 10x 9x2 dx (iii)The marginal revenue at x = 2 is given by

MR =

( MR ) x = 2 = 20 + 10(2) 9(2)2 = 20 + 20 36 = 4
Hence, the marginal revenue when 2 units are sold is Rs 4. Example 12 The total revenue received from the sale of x units of a product is given by R(x) = 36x + 3x2 + 5. Find (i) (iii) (iv) the average revenue (ii) the marginal revenue the marginal and average revenue when x =5 the actual revenue from selling 50th item.
R 5 = 36 + 3x + x x dR = 36 + 6x dx

Solution Given that R(x) = 36x + 3x2 + 5 (i) Average Revenue AR =

(ii) Marginal Revenue MR = (iii) When x = 5, we have AR = 36 + 3(5) + and

5 = 52 5

MR = 36 + 6(5) = 66 = Revenue received on selling 50 item Revenue received on selling 49 items. = [36 (50) + 3(50)2 + 5] [36 (49) + 3(49)2 + 5] = 1800 + 7500 +5 1764 7203 5 = Rs 333.

(iv) The actual revenue received on selling 50th item

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Example 13 A monopolists demand function for one of its products is p(x) = ax + b He knows that he can sell 1400 units when the price is Rs 4 per unit and he can sell 1800 units at a price of Rs 2 per unit. Find the total, average and marginal revenue functions. Also find the price per unit when the marginal revenue is zero. Solution Given that p(x) = ax + b When x = 1400, p = Rs 4 4 = 1400a + b Also when x = 1800, p = Rs 2 (3) Using these values in (1), we have 2 = 1800a +b Solving (2) and (3), we get a=
1 200

(1)

Using these values in (1), we have (2)

and b = 11.
x 200

Therefore, the demand function is expressed as p = 11

x2 200

(4)

Thus

Total revenue (TR) = p.x = 11x

Average Revenue (AR) =

TR x = 11 x 200 d x TR = 11 dx 100

Marginal Revenue (MR) = When MR = 0, we have 11

x = 0 i.e., x = 1100 100

Substituting in (4), we get price p = 11

1100 = Rs 5.50 200

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Thus the price when marginal revenue vanishes is Rs 5.50 per unit. Example 14 In the production unit of a firm it is found that the total number of units (x) produced is dependent upon the number of workers (n) and is obtained by the relation x = 25 n (n3 + 36)
1 2

, the demand function of the product is p =

250 . Determine the x + 15

marginal revenue when n = 4. Solution Given p =

250 x + 15 250 x x + 15

Therefore

Total revenue R = px =

i.e.

MR =

3750 dR 250 [( x + 15) x] = = 2 ( x + 15) ( x + 15) 2 dx

Also, given that

x = 25n ( n3 + 36)

1 2

.
1 2

When

n = 4, we have

3 x = 254 [4 + 36]

100 = 10 10

3750

Therefore, when n = 4, MR = (10 + 15) 2 = 6. EXERCISE 18.3

1. The total revenue received from the sale of x units of a product is given by R(x) = 200 + Find (i) The average revenue (ii) The marginal revenue

x2 . 5

(iii) The marginal revenue when x =25. 2. A monopolists demand function is p = 300 5x. (i) Find the marginal revenue function. (ii) At what price the marginal revenue is zero ?

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3. The total revenue function for x units of a commodity is given by

1 2 x 7 2 Find the marginal revenue when the number of unit of the commodity produced (x) is 20.
R(x) = x3 + 4. The demand for a certain product is represented by the equation p = 300 + 2x 5x2, where x is the number of units demanded and p is the price per unit. Find (i) The total revenue (TR) (ii) The marginal revenue (MR)

(iii) The marginal revenue when x = 3. 5. The demand function for a commodity is given by x = 10 3p, where x is the number of units of the commodity produced and p is the price per unit. Find the marginal revenue function and also the marginal revenue when x = 3. 6. The total revenue received from the sale of x unit of a product is given by R (x) = 20 x 0.5 x2. Find (i) The average revenue (ii) The marginal revenue (iii) The marginal revenue when x = 10 (iv) The actual revenue from selling the 15th item. 7. The total revenue function is given by R(x) = 8000x + 20x2 x3. Find (i) The average revenue (ii) The marginal revenue

(iii) The marginal and average revenues when x = 50. 8. A monopolists demand function for one of its products is p(t) = at +b, where t is the number of units produced and p is the price per unit. If on selling 5 units the price is Rs 1800 per unit and on selling 3 units the price is Rs 2000. Find the total, average and marginal revenue functions. Also, find the price per unit when the marginal revenue is zero. 9. The demand function for a commodity is given by p = aex/300, where x is the quantity demand and p is the price per unit. Given that the price is Rs 7 per unit when 600 units of the product are produced. Find the total, average and marginal revenue functions. Also, find the price per unit when the marginal revenue is zero. 10. The price p per unit of a commodity and the number of units x of the commodity are related linearly. If the consumer demands 50 units of the product when the price is Rs 10 per unit and 20 unit when the price is Rs 15 each. Find the demand function and the total, average and marginal revenue functions. 11. Find the relationship between the slopes of marginal revenue curve and the average revenue curve, for the demand function x = p per unit.

b p , where x denotes the number of units sold at the price a

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12. In a factory it is found that the total number of units (x) produced in a day depends upon the

5n
number of workers (n) and is obtained by the relation x =

n+5

. The demand function of the

product is p =

2 + x. Determine the marginal revenue when n = 20. x

b , show that the marginal revenue function is a+ x

13. For the demand function p = increasing for all b < 0, a > 0.

18.7 Maximization of Total Revenue The total revenue received on producing and selling x units of an item can be obtained when the demand function of the product is given. Thus, it is possible to determine the level of output at which the total revenue is maximum. If p = f (x) is the demand function for a firms product, then the revenue function R, of the firm is given by R = px = x f (x). Let us recall that R is maximum at that value of x for which use of this result is illustrated in the following examples. Example 15 The demand function for a manufacturers product is p = 20
x , where x is 4 the number of units and p is the price per unit. At what value of x will there be maximum revenue? What is the maximum revenue ? dR d 2R = 0 and 2 < 0. The dx dx

Solution The revenue R is given by R = px = (20

x x2 ) x = 20x 4 4

Now

dR x 1 d 2R = 20 and 2 = dx 2 2 dx dR = 0 when dx

Note that

20

x = 0 or 2

x = 40

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Also

d 2R 1 = < 0. dx 2 2 x = 40

Therefore, R is maximum when x = 40 and the maximum value of R is 20 40

( 40) 2 = 800 400 = 400 4

Hence, the maximum Revenue is 400. Example 16 The demand function for a particular commodity is y = 15 e x/3 for 0 x 8, where y is the price per unit and x is the number of units demanded. Determine the price and quantity for which total revenue is maximum. Solution Let R be the total revenue. Then Now R = (price per unit) ( number of unit sold) = 15xex/3
dR 1 x = 15 [x.ex/3 ( ) + ex/3.1] = 15ex/3 (1 ) dx 3 3 1 x 1 d 2R x/3 ( ) + (1 ) (15ex/3) ( ) 2 = 15e 3 3 3 dx

and

= 5 ex/3 (2

x ) 3

Note that

dR x = 0 when 15ex/3 (1 ) = 0 or x = 3 dx 3 d 2R 5 dx 2 = 5 e1 (2 1) = < 0 e x =3

and

Thus, R is maximum when x = 3. Substituting this value of x in demand function y = 15 ex/3, we get price y = 15 e1 = Rs
15 e

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Example 17 The unit demand function is x = demanded and p is the price per unit. Find

1 (24 2p) , where x is the number of units 3

(i) The revenue function R in terms of price p . (ii) The price and number of units demanded for which the revenue is maximum. Solution We know that total Revenue R = px =
dR 4 dp = 3 (6 p) 1 (24p 2p2) 3

Now

and

d 2R 4 = dp 2 3

Note that

dR 4 dp = 0 or 3 (6 p) = 0 or p = 6 d 2R 4 = <0 dp 2 3 p =6

and

Therefore, revenue is maximum when p = 6 Also x=

1 (24 2p) 3 1 (24 12) = 4 3

When

p = 6, x =

Thus, for demand of 4 units and price of Rs 6 per unit the revenue is maximum. 18.8 Maximization of Total Profit If R(x) and C(x) denote the total revenue recieved and the total cost incurred in the production of x units of a commodity, respectively, then the profit function P(x) is given by P(x) = R(x) C (x) Now, profit will be maximum when
dp d2p = 0 and <0 dx dx 2
2 2

i.e.

d R( x ) d C(x) dR ( x) dC ( x) = 0 and <0 dx dx dx 2 dx 2

APPLICATIONS OF CALCULUS IN COMMERCE AND ECONOMICS

879

or

d 2 R(x) d 2 C( x) MR MC = 0 and < dx 2 dx 2

In terms of economics, we can say that the necessary condition for maximizing profit is that the marginal revenue must be equal to marginal cost at the point of maximum profit. Example 18 A company has produced x items and the total cost C and total revenue R are given by the equations C = 100 + 0.015 x2 and R = 3x. Find how many items should be produced to maximize the profit. What is this profit ? Solution Let P(x) be the profit function. Then P(x) = R(x) C(x) = 3x (100 + 0.015 x2) = 3x 100 0.015 x2 Now
dp d2p = 3 0.030x and = 0.030 dx dx 2
dp = 0 or 3 0.030x = 0 or x = 100 dx

Note that

and Thus and

d2p = 0.030 < 0 dx 2 x =100

P(x) is maximum when x = 100 maximum profit = 3 100 100 0.015 (100)2 = 50

Example 19 A radio manufacturer finds that he can sell x radio per week at Rs p each,
x x2 ). His cost of production of x radio per week is Rs (120x + ). Show 4 2 that his profit is maximum when the production is 40 radio per week. Find also the maximum profit per week.

where p = 2(100

Solution The price per radio is p = 2(100

x ) 4

Therefore

Revenue R = px = 2x (100

x x2 ) = 200x 4 2

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MATHEMATICS

Also

Cost function is given by C(x) = 120x +

x2 2

The profit function is given by P(x) = R(x) C(x) = 200x

x2 x2 120 x = 80 x x2 2 2

Now

dP( x) d 2 P( x) = 80 2x and =2 dx dx 2
dP ( x ) = 0 i.e. 80 2x = 0 dx

Note that

or x = 40

and Therefore Also

d 2 P( x) =2<0 dx 2 x =40

When x = 40, the profit of the seller will be maximum. Maximum profit = 80 (40) (40)2 = Rs 1600
50 x

Example 20 For a monopolists product, the demand function is p = cost function AC = 0.50 +

and the average

1000 . Find the profit maximizing price and output. At this level, x show that marginal revenue is equal to marginal cost.

Solution The demand function is p =

50

50 x

Therefore

Revenue R(x) = px =

x = 50 x

Let C denotes total cost function, then given that Average cost = 0.50 + Thus
1000 x

C(x) = x AC = x (0.50 +

1000 ) = 0.50x + 1000 x

APPLICATIONS OF CALCULUS IN COMMERCE AND ECONOMICS

881

Now, the profit is given by P(x) = R(x) C(x) = 50 x 0.50x 1000 Therefore
25 25 dP( x) d 2 P( x) 50 = 0.50 = 0.50 and = 2 2x3/ 2 dx x dx 2 x dP( x) =0 dx

Note that

i..e.

25 x

0.50 = 0

x = 2500

and

d 2 P( x ) 25 25 1 = = = <0 dx 2 3/ 2 x = 2500 2(2500) 2 125000 10000

Therefore, maximum profit is obtained when x = 2500 and the corresponding price is
50

p=

2500

= Re 1
25 dR = dx x

Also

Marginal Revenue (MR) =

and

Marginal cost (MC) =

dC = 0.50 dx

When x = 2500, we have MR = Thus

25 2500

25 = 0.50 and MC = 0.50 50

MR = MC when x = 2500

18.9 Minimization of Average Cost We know that, if C = f(x) is the total cost of producing and marketing x units of a product, then the average cost (AC) is given by AC =
C x

An important problem in economics is to find the level of output for which the average cost is minimum. Using the condition of maxima and minima, the average cost is minimum, at that level of output, when

882

MATHEMATICS

d 2 AC dAC = 0 and >0 dx dx 2

Here, again we solve the equation

dAC = 0 and reject the ve or fractional roots. Then, we dx

d 2 AC d 2 AC check the sign of for remaining values. The value at which is positive is the dx 2 dx 2

price for which AC is minimum. Example 21 The manufacturing cost of an item consists of Rs 1000 as overheads, material cost Rs 2 per unit and the labour cost Rs
x2 for x units produced. Find how many units of 90 the item should be produced so that the average cost is minimum.

Solution The total cost C is given by C = 1000 + 2x +

x2 90

and the average cost is given by AC =

C 1000 x = +2+ x x 90

Now

1000 dAC 1 d 2 AC 2000 = 2 + and = 3 dx 90 x x dx 2 dAC =0 dx

Note that giving and

1000 1 + =0 x2 90

x2 = 90000, i.e., x = 300

d 2 AC 2000 = (300) 3 > 0 dx 2 x =300

Hence, AC is minimum when x = 300. Example 22 Let the cost function of a firm be given by the following equation C = 300x 10x2 +
1 3 x , where C stands for cost and x for output. Calculate 3

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883

(i) Output, at which the marginal cost is minimum (ii) Output, at which the average cost is minimum. (iii) Output, at which the average cost is equal to the marginal cost. Solution The cost function is given as C = 300x 10x2 + x3
C 1 = 300 10x + x2 x 3 dC = 300 20x +x2 dx 1 3

Therefore

Average cost AC =

and

Marginal cost MC =

(i) We have

dMC d 2 MC = 20 + 2x and =2 dx dx 2
dMC = 0 or 20 + 2x = 0 or x = 10 dx

Note that

and

d 2 MC =2>0 dx 2 x =10

Therefore, the output at which the marginal cost is minimum is 10 units. (ii) We have
dAC 2 2 d 2 AC = 10 + x and = 2 dx 3 3 dx
dAC =0 dx

Note that

or 10 +

2 x = 0 or x = 15 3

and

d 2 AC 2 = >0 dx 2 x =15 3

Thus, when the output level is 15 units the average cost is minimum. (iii) AC = MC or 300 10x +
1 2 x = 300 20x + x2 3

884

MATHEMATICS

or

2 2 x 10x = 0 or x = 0 or x = 15 3

But x can not be zero, therefore, x = 15 is the level of output where marginal cost become equal to the average cost. Example 23 The cost function of a firm is C = 5x2 + 28x +5, where C is the cost and x is level of output. A tax at the rate of Rs 2 per unit output is imposed and the producer adds it to his cost. Find the minimum value of the average cost. Solution The tax per unit of output is Rs 2 and so, for x units the tax added to the cost is Rs 2x . Therefore Total cost = 5x2 + 28x +5 + 2x or C(x) = 5x2 + 30x +5 Now Average cost (AC) =
dAC 5 =5 2 dx x C 5 = 5x + 30 + x x 10 d 2 AC =+ 3 2 dx x

giving

and

Note that

dAC 5 = 0 or 5 2 = 0 or x = 1. dx x

Rejecting ve value we have x = 1 and

d 2 AC 10 dx 2 = 3 > 0 x =1 1

Thus at x = 1, the average cost is minimum and the minimum average cost (MAC) is given by MAC = 5(1) + 30 +
10 = 45 1

Example 24 A Harmonium manufacturer produces x sets per week so that the total cost of production is given by the relation C (x) = x3 315x2 + 27,000x + 20,000. Find how many harmonia should be manufactured to minimize the total cost? Solution Given that C(x) = x3 315x2 + 27,000x + 20,000 Now
dC d 2C = 3x2 630x + 27,000 and = 6x 630 dx dx 2

APPLICATIONS OF CALCULUS IN COMMERCE AND ECONOMICS

885

Note that

dC =0 dx

i.e. or When

3x2 630x + 27,000 = 0 (x150) (x60) = 0 x = 150 or 60. x = 60,

d 2C = 6 60 630 = 270 < 0 dx 2

Therefore, C is not minimum at this value When x = 150,

d 2C = 6 150 630 = 270 > 0. dx 2

Thus, the total cost C is minimum at x = 150. Example 25 A manufacturer produces computers data storage floppies at the rate of x units
x3 10x2 + 15 x +30). 3 Find the optimal number of floppies produced per week at which the marginal cost and average variable cost attain their respective minima.

per week and his total cost of production and marketing is C(x) = Rs (

Solution Given that C(x) =

x3 10x2 + 15 x +30 3

Now

dC = x2 20x +15 dx

Therefore

MC = x2 20x +15 and

dMC = 2x 20 dx

Note that

dMC = 0 2x 20 = 0 or dx d 2 MC =2>0 dx 2 x =10

x = 10

and

Therefore, when 10 floppies are produced and marketed the marginal cost will be minimum. We know that the total cost is sum of the variable cost and fixed cost.Therefore, variable

886

MATHEMATICS

cost =

1 x3 10x2 + 15 x and Average Variable Cost (AVC) = (Variable cost) x 3

1 x3 x2 10 x + 15 ( 10x2 + 15 x) = x 3 3

Now

dAVC 2 d 2 AVC 2 = x 10 and = dx 3 3 dx 2 2 dAVC = 0 or x 10 = 0 or x = 15 dx 3

d 2 AVC 2 = >0 dx 2 x =15 3

Note that

and

Hence, when 15 floppies are produced the average variable cost is minimum. EXERCISE 18.4
1. The demand equation for a manufacturers product is p =

180 x , where x is the number of 4

units and p is the price per units. At what value of x will there be maximum revenue ? What is the maximum revenue ? 2. The revenue function of a production is given by the relation y = 60,00,000 (x 2000)2, where y is the total revenue and x is the number of units sold. (i) Find what number of units sold maximizes total revenue. (ii) What is the amount of maximum revenue ? 3. A radio manufacturer produces x sets per week at a total cost of Rs (

x2 + 3x + 100). He is a 25

monopolist and the demand for his product is x = 75 3p, where p is the price in rupees per set. Show that maximum net profit is obtained when about 30 sets are produced per week. What is the monopoly price ? 4. If the demand function is p = maximum ? 5. A supplier charges packaging cost of Rs 620 for a digital diary on order of 50 or less set. The charge is reduced by Rs 5 per set if the order exceeds 50. Find the optimal number of digital diary order, the supplier should allow so as to receive a maximum revenue.

6 x , find at what level of output, x, the total revenue will be

APPLICATIONS OF CALCULUS IN COMMERCE AND ECONOMICS

887

6. Given the cost function is C(x) = x3 57x2 + 315x +20. Find the level of output for which the cost is minimum. 7. If C = 0.01x2 + 5x + 100 is a cost function, find the average cost function. At what level of production, x, is there minimum average cost ? What is this minimum ? 8. Suppose a manufacturer can sell x items per week at a price p = 20 0.001x rupees each when it costs y = 5x +2000 rupees to produce x items. Determine the number of items he should produce per week for maximum profit: 9. Given that x = 200 10 p and AC = 10 +

x , where x represents the units of output, p, the price 25

and AC, the average cost. Find the profit maximizing output level. 10. Given that demand function y = 21 4x and the average cost function AC = 2. Determine the profit maximizing output. What would be the impact of a tax of Rs t per unit of output on profit. 11. The demand function and total cost function of a monopolist are given as p = 13 5x and C = x3 + 3x2, respectively. At what level of price will there be maximum profit ? What is the maximum profit ? 12. The profit of a monopolists is given by P(x) = is maximum. Also, find the maximum profit. 13. The demand function for a product is given by p = 15900 9x 2x2. Find the level of output at which the total revenue is maximum.

8000x x . Find the value of x for which the P(x) 500 + x

18.10 Applications of Integration to Commerce and Economics In previous sections we have seen that the marginal function is obtained by differentiating the total function. We were given the total cost or revenue and we obtained the marginal cost or marginal revenue. Now we shall investigate the applications of integration in obtaining the total function when the marginal function is given. 18.10.1 Determination of cost function and average cost function If C denotes the total cost function then the marginal cost function (MC) is given by MC =
dC , using integration dx

as inverse of differentiation, we obtain C = MC dx + k, where k is the constant of integration, which is equal to the fixed costs. After obtaining total cost (C), we can also find the average cost as AC =
C . x

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MATHEMATICS

Example 26 The marginal cost function of manufacturing x units of a commodity is 6 + 10x 6x2. The total cost of producing one unit of the commodity is Rs 12. Find the total and average cost functions. Solution We are given that marginal cost MC = 6 + 10x 6x2 Now Cost function C = MC dx + k = (6 + 10 x 6 x 2 )dx + k = 6x + 5x2 2x3 + k (1)

Given that cost of producing one unit is Rs 12, i.e., when x = 1, C = 12. Substituting in (1), we get 12 = 6 1 + 5 12 2 13 + k i.e. k = 3 Hence, the total cost function is C= 6x + 5x2 2x3 +3 and AC =
C 3 = 6 + 5x 2x2 + . x x 2

and 4x + 9 the fixed cost is Rs 2000. Find the total cost and the average cost of producing 4 units of the output. Example 27 The marginal cost function MC for a product is given by MC = Solution Given MC =
2 4x + 9

Therefore

Total cost function C = MC dx + k =

2( 4 x + 9)1/ 2 + k = 4x + 9 + k 1 4 2

2 4x + 9

dx + k

i.e.,

C=

Given fixed cost = Rs 2000, i.e., when x = 0, C = 2000. Substituting in (1), we get 2000 = 3 + k or k = 1997 Thus and The total cost function C = 4 x + 9 + 1997 The average cost function AC =

C 1997 4x + 9 = + x x x

APPLICATIONS OF CALCULUS IN COMMERCE AND ECONOMICS

889

When x = 4

Total cost = 16 + 9 + 1997 = Rs 2002 and average cost =

1001 16 + 9 1997 + = Rs 4 2 4

Example 28 Given that marginal cost MC and the average cost AC are equal. Show that the total cost C is a linear function of number of units (x) produced. Solution Let C be the total cost. Then MC = AC, i.e.,
dC C = , dx x

(1)

where x is the number of units produced. From (1) we have

dC dx = C x

Integrating both sides, we get log C = log x + k.Let k = log k Therefore or or log C = logx + log k log C = log xk C = x k, where k is a constant.

Hence, total cost C is a linear function of x. EXERCISE 18.5

1. The marginal cost function of manufacturing x units of a product is given by MC = 3x2 10x +3. The total cost of producing one unit of the product is Rs 7. Find the total and average cost function . 2. Assume that the marginal cost (in thousand rupees) of producing x units of a commodity is given by MC = 3e0.3x + 5. Find the total cost function and the cost of production when x = 5, if fixed cost is Rs 7000. 3. The marginal cost function of a firm is MC = 33 log x. Find the total cost function when the cost of producing one unit is Rs 11. 4. The marginal cost of production is MC = 20 0.04x + 0.003x2, where x is the number of units produced. The fixed cost of production is Rs 7000. Find the total cost and average cost function.

14,000
5. The marginal cost function MC for a commodity is given by MC =

7x + 4

and the fixed cost

is Rs 18,000. Find the total cost and the average cost of producing 3 units of the output.

890

MATHEMATICS

6. The marginal cost C is given to be a constant multiple of number of units (x) produced. Find the total cost and the average cost functions if the fixed cost is Rs 1000 and the cost of producing 30 units is Rs 2800. 7. The marginal cost of producing x units of an electronic appliance is given by MC = x The cost of producing 3 units of the appliance is Rs 7800. Find cost function. 8. Given that the marginal cost MC and the average cost AC of a product are directly proportional to each other. Find the total cost function so that the cost of producing 2 units is Rs 8 and of producing 4 units is Rs 64. 9. The marginal cost (in lakhs) of producing x units of a product is MC = total cost of production when x = 2, if the fixed cost is Rs 8 lakh.

x +1 .

3 -x e + 5x2 + 4. Find the 2

p
10. If marginal cost function is given by MC =

px + q , where p, q are constants and the fixed

cost of production is zero, find total cost function.

18.10.2 Determination of revenue function and the demand function from marginal revenue function We know that where and MR =
dR dx

(1)

MR : Marginal revenue function R x : Total revenue function : the number of units produced.

To find R, we integrate (1) , getting R =

MRdx + k, where k is a constant of integration

and is determined by using the fact that R = 0, when x = 0. After obtaining R, the corresponding demand function can be obtained by using the result R = px or p =
R . x

Example 29 The marginal revenue function for a commodity is given by

ab

MR = ( x b ) 2 C. Find the total revenue function and the demand function.

APPLICATIONS OF CALCULUS IN COMMERCE AND ECONOMICS

891

ab Solution Given MR = ( x b) 2 C

Therefore

R = MRdx + k

x b)

ab

C dx + k

1 Cx + k = ab xb

ab Cx + k xb

When x = 0, R = 0

or

0=

ab 0 + k or k = a b

Hence, the total revenue function is given by

ab R = ( x b) Cx a

But

p=

R 1 ab Cx a ] = [ x x xb

ab a a = x (b x ) C x = b x C

Hence, the demand function is p =

a C bx

Example 30 If the marginal revenue function for a commodity is MR = 9 6x2 +2x, find the total revenue and the corresponding demand function. Solution Given MR = 9 6x2 +2x Now R = MRdx + k ,

where k is a constant of integration.

892

MATHEMATICS

Therefore

R = ( 9 6 x 2 + 2 x ) d x + k = 9x 2x3 + x2 + k.

We know that when x = 0, R = 0 which gives k = 0 Therefore R = 9x 2x3 + x2

Thus, the corresponding demand function is p=

R = 9 2x2 + x, x

where p is the price when number of units sold is x. EXERCISE 18.6

6 1. If the marginal revenue function is given by MR = 5 + ( x + 2) 2 , find the total revenue function.
Also, find the total revenue earned when the number of units produced is 4. 2. If the marginal revenue function of a commodity is MR =

1 + 2, find the total revenue ( x + 1) 2

function. Also, find the total revenue when the price is Rs 2.20. 3. The marginal revenue function of a commodity is given by MR = 92x+4x2, find the demand function . Find the total revenue function and the demand function for following marginal revenue functions in the exercises 4 to 10. 4. MR =

1 3 x +1
1 x x + b ( x + b) 2

5.

MR =

4 1 ( 2 x + 3) 2

6. MR = a +

7.

MR = 100 9x2

8. MR =

ab C ( x + b) 2

9.

MR = 20ex/10 (1

x ) 10

10. MR = log (x+1).

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893

MISCELLANEOUS EXAMPLES
Example 31 Find the relationship between the slopes of marginal revenue curve and the average revenue curve for the demand function p = a bx. Solution Given p = a bx

Therefore R = px = ax bx2 Now AR = p = a bx

Therefore Slope of AR curve = Also MR =

d ( AR ) =b dx

(1)

dR = a 2bx dx
dMR = 2b dx
(2)

Thus

Slope of MR curve =

From (1) and (2), we have

dMR d =2 AR dx dx
i. e., slope of MR curve is 2 times the slope of AR curve. Example 32 A cable TV operator has 5000 subscribers, each of them pays Rs 100 per month. The operator proposes to increase the subscription and he found that for every increase of Rs 0.50, 10 subscribers will discontinue the service. Find what increase in the subscription rate will increase maximum revenue and what will be maximum revenue ? Solution Let the operator increases Rs x in monthly subscription. Then, the rate per subscriber is given by p = 100 + x Since for each increase of Rs 0.50, 10 subscriber will discontinue the service. Therefore, for increase of Rs x in monthly subscription the number of subscribers who will discontinue the service is

10 x = 20x 0.50
Therefore Total number of subscribers = 5000 20x R = Rate number of subscribers = (100 + x) (5000 20x) = 500000 + 3000x 20x2 (1)

Now, the total revenue R of the operator is given by

894

MATHEMATICS

Now

dR d 2R = 3000 40x and = 40 dx dx 2

dR =0 dx
or 3000 40x = 0 or x = 75

Note that

and

d 2R = 40 < 0 dx 2 x =75

Therefore R is maximum when x = 75. Substituting x = 75 in (1), we get Maximum revenue = Rs [500000 + 3000 75 20(75)2] = Rs 612500. Example 33 A chartered plane has 200 seats and charges of Rs 3000 are taken per seat with an additional charge of Rs 150 for each subsequent cancellation. Determine the total revenue function in terms of the number of cancellations before the departure of the plane. Also, find number of cancellations for which total revenue is maximum. Solution Let number of cancellations before the departure of the plane be x. Then, the number of seats reserved is 200 x. Amount to be paid for each seat = 3000 + 150x Therefore Total revenue (R) = (200 x) (3000 + 150x) = 6,00,000 + 27,000x 150x2 Now

d 2R dR = 27,000 300 x and = 300 dx dx 2

Note that

dR = 0 or 27000 300x = 0 i.e. x = 90 dx d 2R = 300 < 0 dx 2 x =90

Now

Therefore, R is maximum for x = 90 Thus, for 90 cancellations, the revenue of the agent will be maximum. Example 34 The total cost of producing and marketing x units of an item is given by

APPLICATIONS OF CALCULUS IN COMMERCE AND ECONOMICS

895

C(x) = x2 22x + 160. The government imposes a tax at the rate of Rs 2 per unit. What will be the level of output for minimum cost before and after tax ? Why does the producer found it better to add tax in his cost ? Solution Now Given C (x) = x2 22x + 160.

d 2C dC = 2x 22 and =2 dx dx 2 dC = 0 or 2x 22 = 0 or x = 11 and dx d 2C =2>0 dx 2 x =11

Note that

Thus, the level of output for which the cost is minimum before imposition of tax is 11 units. After imposition of tax of Rs 2 per unit the total cost becomes C(x) = x2 22x + 160 + 2x = x2 20x + 160 Now

dC d 2C = 2x 20 and =2 dx dx 2
dC = 0 or 2x 20 = 0 dx

Note that

or

d 2C x = 10 and 2 =2>0 dx x=10

Therefore, the level of output for which the cost is minimum after imposition of tax is 10 units. Thus on including tax in the total cost the maximum number of units produced is less than the number of units required to be produced to keep the cost minimum, before the imposition of tax. Hence, the producer preferred the addition of tax in the total cost. Example 35 A firm suffers a loss of Rs 144 if one of its special product does not sell. The marginal revenue is approximated by MR = 27 5 x and marginal cost by MC = 4 x 27. Determine the total profit function and the break-even points. Solution If R and C denote the total revenue and total cost , respectively, then the total profit function P can be obtained as P(x) = R(x) C(x), where x denotes the number of units produced and sold. Differentiating both sides with respect to x we get

896

MATHEMATICS

dP dR dC = dx dx dx
i.e. MP = MR MC where MP = marginal profit; MR = marginal revenue and MC = marginal cost. We are given that MR = 27 5x and Therefore MC = 4x 27. MP = 27 5x ( 4x 27) = 54 9x Now the total profit is given by P(x)=

x MP dx = (54 9 x ) d x = 54 x 9 2
P = 144 when x = 0

+k

(1)

Since a loss of Rs 144 occurs when there was no sales, so we have From (1) we get k = 144 Thus the total profit function P(x) = 144 + 54 x For break-even point i.e. or i.e. P(x) = 0

9 2 x 2

144 + 54 x
x2 12x +32= 0 x = 4 or 8

9 2 x =0 2

Thus the break-even point are x = 4, 8

MISCELLANEOUS EXERCISE ON CHAPTER 18

1. The total cost function is C= 2x3 5x2 + 7x, find the marginal average cost function (MAC). Whether the MAC increases or decreases with increase in outputs? 2. The cost function C for a commodity is given by C= x2 + 5x + 36, where x is the number of units produced. Find the output for which average cost AC is increasing and the output for which AC is decreasing, with increasing output. Also, find the marginal cost function. 3. A steel plant is capable of producing x tonnes per day of a low-grade steel and y tonnes per day

APPLICATIONS OF CALCULUS IN COMMERCE AND ECONOMICS

897

of a high-grade steel, where y =

5 x 40 . If the fixed market price of low-grade steel is one-third x 10

of that of high-grade steel, find the level of output of low-grade steel per day, for maximum revenue. 4. The total cost function of a product is C = a + bx + cx2, where a, b average and marginal cost are equal at minimum average cost.

0 and c > 0. Show that the

5. A car is driven on CNG (Compressed Natural Gas). The consumption of gas per y kg per km, is related to the speed x km/h at which the car is driven by the equation y = speed at which the car be given to minimize gas consumption. 6. The total cost (C) of a product is given by C(x) =

5 x + . Find the 4x 2000

x3 5x2 + 30x + 10, where x is the number of 3

units produced. If the price per unit under the perfect competition is Rs 6, find the number of units produced and sold so as to maximize the profit. 7. A travel agent arranges a tour from Delhi to Shimla and back. He has 60 seats in a special bus at booking amount of Rs 450 per seat provided all seats will be occupied. However for every increase of Rs 15 in the booking amount one seat will remain vacant. He also plans to provide a mineral water bottle and snacks costing Rs 60 per seat. Find the relationship between profit and number of seats remained vacant. What is the number of vacant seats for which profit is maximum? 8. The cost function of producing x units of a product is given by C(x) = ax + b , a and b are positive. By using derivatives show that the average and marginal cost curves fall continuously with increasing output. 9. A company has MR = 30x + 15 x2 and MC = 64 16 x +

3 2 x . Find out the profit function and the 2

output x > 0 when there is no profit if the fixed cost is zero. 10. The marginal revenue MR and marginal cost MC of a product are approximated as MR = 16x x2 and MC = 81 20x +2x2 , respectively. If the fixed cost is zero, determine the profit maximizing output and the total profit at the optimal output. 11. If the marginal revenue and the marginal cost for an output x of a product are given as MR = 3 + 2x and MC = 5 4x + 3x2 and if the fixed cost is zero, find the profit function and the profit when the output is x = 2.