Application of Differential Calculus

Increasing and decreasing function

A function f(x) is said to be an increasing function if

f ʹ (x) > 0.

A function f(x) is said to a decreasing function if

f ʹ (x) < 0.
 Application of Differential Calculus

Maxima and Minima

A function f(x) is said have attained its maximum value

at x = a if the function ceases to increase and begins to
decrease x = a.

A function f(x) is said have attained its minimum value

at x = a if the function ceases to decrease and begins
to increase x = a.
 Application of Differential Calculus

Maxima and Minima

Draw the graph of f(x) or y = x3- 6x2 + 37

when x = 0 , f(x) or y = 37
when x = 4 , f(x) or y = 5
when x = - 1, f(x) or y = 30

Local, Global

Stationary Point
 Application of Differential Calculus

1st Derivative Test for Local Maxima and Minima

1. Set f’(x) = 0 and solve for x to determine the

stationary points.

2. Test a point just to the left xl, and a point just to the
right xr of each stationary point.

 If f ’(xl) > 0 and f ’(xr) < 0 then the stationary point is a

local maxima.

 If f ’(xl) < 0 and f ’(xr) > 0 then the stationary point is a

local minima.
 Application of Differential Calculus

Find the coordinates of all local maxima, and local

minima of y = ⅓x3 + x2 – 8x + 4

f ʹ (x) = x2 + 2x – 8

Let, f ʹ(x) = 0
⇒ x2 + 2x – 8 = 0
⇒ (x + 4) (x – 2) = 0
⇒ x = - 4, 2

Also, f(-4) = 92/3

So, stationary point is (-4, 92/3)

Now, f ʹ(- 5) = 7, which is greater than zero

and, f ʹ(- 3) = - 5, which is less than zero
therefore, local maxima occurs at (- 4, 92/3)
 Application of Differential Calculus

2nd Derivative Test for Local Maxima and Minima

1. Set f ʹ (x) = 0 and solve for x to determine the

stationary points.

2. Find f ʹʹ(x)

 If f ʹʹ(x) < 0 then the stationary point is a local maxima.

 If f ʹʹ(x) > 0 then the stationary point is a local minima.

 Application of Differential Calculus

When x units of certain goods are produced, the

average cost per unit is: 0.05x + 200/ (0.1x +5). Find
the value of x where average cost is minimum.

AC = 0.05x + 200/ (0.1x +5)

⇒ d(AC)/dx = 0.05 + 200 (-1) (0.1x + 5)-2 (0.1)
= 0.05 - 20/ (0.1x + 5)2
Putting d(AC)/dx = 0, we get 0.05 = 20/ (0.1x + 5)2
⇒ 0.05 (0.1x + 5)2 = 20
⇒ (0.1x +5) 2 =20/0.05 = 400
⇒ 0.1x + 5 = 20
 Application of Differential Calculus

Total, Average , and Marginal cost

Total Cost function, TC = f (x)

Average cost Function = TC/x = f(x)/x

Marginal cost = d(TC) / dx

 Application of Differential Calculus

Let the cost function of a firm be given by the

following equation: C = 300x – 10x2 + ⅓x3,
where x stands for output. Calculate:

i) output, at which marginal cost is minimum.

ii) output, at which average cost is minimum.

iii) output, at which marginal cost is equal to

average cost.
 Application of Differential Calculus

Profit = Total Revenue – Total Cost

⇒ Profit function, P =T R – TC

Marginal revenue, MR = d(TR) / dx

Some times it is written as: MR = d (TR) / dq

Also, profit will be maximum when MR = MC

 Application of Differential Calculus

Profit = Total Revenue – Total Cost

⇒ Profit function, P =T R – TC

Marginal revenue, MR = d(TR) / dx

Some times it is written as: MR = d (TR) / dq

Also, profit will be maximum when MR = MC

 Application of Differential Calculus

A radio manufacturer produces x sets per

week at a total cost of $(x2 + 78x + 2500). He
is a monopolist and the demand function for
his product is x = (600 – p)/8 when the price is
$p per set. Show that maximum net revenue
(profit) is obtained when 29 sets are produced
per week. What is the monopoly price?
 Application of Differential Calculus

The total cost function of a firm is C(x) = ⅓ x3 – 5x2 +

28x + 10 where C is total cost and x is output. A tax at
the rate of Tk.2 per unit of output is imposed and the
producer adds it to his cost. If the market demand
function is given by p = 2530 – 5x, where Tk. p is the
price per unit of output. Find the profit maximizing
output and price.
 Application of Differential Calculus

Q D
TC  H  S
2 Q
Annual Cost

Ordering Costs

Order Quantity (Q)

QO (optimal order quantity)

Inventory Cost
 Application of Differential Calculus

Annual Annual Purchasing

TC = carrying + ordering + cost
cost cost
Q + DS + PD
TC = H
2 Q

Economic Production Model

 Application of Differential Calculus

Annual Annual
Total cost = carrying + ordering
cost cost
Q + DS
TC = H
2 Q

EOQ Model
 Application of Differential Calculus
-1
dTC H dQ d (Q )
  DS
dQ 2 dQ dQ
H DS H DS
0  2   2
2 Q 2 Q
2 DS
 HQ  2 DS  Q 
2 2

H
2DS
 Q OP T =
H
2(Annual Demand)(Or der or Setup Cost)

Annual Holding Cost
 Application of Differential Calculus
A local distributor for a national tire company expects to
sell approximately 9,600 steel-belted radial tires of a
certain size and tread design next year. Annual carrying
cost is $16 per tire, and ordering cost is $75. The
distributor operates 288 days a year. Determine:
a. what is the EOQ?
b. how many times per year does the store reorder?
c. what is the length of an order cycle?
d. what is the total annual cost if the EOQ quantity is
ordered?

Deriving EOQ
 Application of Differential Calculus

A distributor uses 800 packing crates a month,

which it purchases at a cost of $10 each. The
manager has assigned an annual carrying cost
of 35 percent of the purchase price per crate.
Ordering costs are $28. Currently the manager
orders once a month. How much could the
firm save annually in ordering and carrying
costs by using the EOQ?

Deriving EOQ
 Application of Differential Calculus

The material demanded is 10,000 units per

year; the cost price of material is Tk.1 per unit,
the cost of replenishing the stock of material
per order regardless of the size Q of the order
is Tk.25; and the cost of storing the material is
12.5% per year on the taka value of average
quantity on hand. Find the total cost function,
economic order quantity and the total cost
corresponding to that.
Deriving EOQ
 Application of Differential Calculus

TC = 10000 + 2,50,000Q-1 + Q/16

PD = 10,000 x 1 = 10,000

OC = 10,000/Q x 25

HC = Q/2 x 12.5%

Deriving EOQ