Mathematical Problems –Unit-II

and Rules of Differentiation

 Equilibrium
• Given the demand function Qd = 700 – 100P
and supply function Qs = -100 + 100P, find P
and Q.
• Logic: At equilibrium Qd = Qs,
thus by equating the two equation we get
800-200P = 0
P=4 and Q= 300
 Price Elasticity
• If the price of a product rises from 11 to 12,
the Qd falls from 7 to 6. Find price elasticity co-
efficient.
• substitute the following in the formula
• Q1 = 7 and Q2 = 6
• P1 = 11 and P2 = 12
(Ans. is -1.77)
 Income elasticity
• Given a rise in the income level of an
individual increases from Rs. 80,000/- to
Rs.81,000/- the Qd of y rises from 3000 units
to 3050 units . Find Income Elasticity.
EI is 1.33
• By substituting the following
• Q1 = 3000 and Q2 = 3050
• I1 = 80,000 and I2 = 81,000
 Cross Elasticity
• The price of desktop computer was slashed
from Rs. 50,000 to Rs. 25,000. It was observed
that the sale of printers went up from 50
printers pm to 150 printers pm. Find cross
Elasticity.
• Exy = 1.5
• By substituting
• Qx1 = 50 and Qx2 = 150
• Py1 = 50000 and Py2 = 25000
 Concept of the Derivative

The derivative of Y with respect to X is

equal to the limit of the ratio Y/X as X
approaches zero.
 Rules of Differentiation

Constant Function Rule: The derivative of a

constant, Y = f(X) = a, is zero for all values of
a (the constant).

Y  f (X )  a

dY
0
dX
 Rules of Differentiation

Power Function Rule: The derivative of a

power function, where a and b are
constants, is defined as follows.

Y  f (X )  aX b

dY
 b  a X b 1
dX
 Rules of Differentiation

Sum-and-Differences Rule: The derivative of

the sum or difference of two functions, U and
V, is defined as follows.
U  g(X ) V  h( X ) Y  U V

dY dU dV
 
dX dX dX
 Rules of Differentiation

Product Rule: The derivative of the

product of two functions, U and V, is
defined as follows.
U  g(X ) V  h( X ) Y  U V

dY dV dU
U V
dX dX dX
 Rules of Differentiation

Quotient Rule: The derivative of the

ratio of two functions, U and V, is
defined as follows.
U
U  g(X ) V  h( X ) Y
V

dY


V dU
dX  
 U dV
dX 
2
dX V
 Rules of Differentiation

Chain Rule: The derivative of a function that is

a function of X is defined as follows.

Y  f (U ) U  g(X )

dY dY dU
 
dX dU dX
Optimization with Calculus

Find X such that dY/dX = 0

Second derivative rules:
If d2Y/dX2 > 0, then X is a minimum.
If d2Y/dX2 < 0, then X is a maximum.
 Univariate Optimization

Given objective function Y = f(X)

Find X such that dY/dX = 0
Second derivative rules:
If d2Y/dX2 > 0, then X is a minimum.
If d2Y/dX2 < 0, then X is a maximum.
 Example 1
• Given the following total revenue (TR)
function, determine the quantity of output (Q)
that will maximize total revenue:
• TR = 100Q – 10Q2
• dTR/dQ = 100 – 20Q = 0
• Q* = 5 and d2TR/dQ2 = -20 < 0
 Example 2
• Given the following total revenue (TR)
function, determine the quantity of output (Q)
that will maximize total revenue:
TR = 45Q – 0.5Q2
dTR/dQ = 45 – Q = 0
Q* = 45 and d2TR/dQ2 = -1 < 0
 Example 3
• Given the following Total cost function (TC),
determine the quantity of output that will
minimize TC:
TC = 3Q2 – 16Q + 57
dTC/dQ = 6Q - 16 = 0
Q* = 2.67 and d2 TC /dQ2 = 6 > 0
 Example 4
• Given
TR = 45Q – 0.5Q2
TC = Q3 – 8Q2 + 57Q + 2
• Determine Q that maximizes profit (π):
π = 45Q – 0.5Q2 – (Q3 – 8Q2 + 57Q + 2)
 Example 4: Solution
• Method 1
dπ/dQ = 45 – Q - 3Q2 + 16Q – 57 = 0
-12 + 15Q - 3Q2 = 0
• Method 2
MR = dTR/dQ = 45 – Q
MC = dTC/dQ = 3Q2 - 16Q + 57
Set MR = MC: 45 – Q = 3Q2 - 16Q + 57
• Use quadratic formula: Q* = 4
 Quadratic Formula
• Write the equation in the following form:
aX2 + bX + c = 0
• The solutions have the following form:

 b  b  4ac
2

2a
 Multivariate Optimization
• Objective function Y = f(X1, X2, ...,Xk)
• Find all Xi such that ∂Y/∂Xi = 0
• Partial derivative:
∂Y/∂Xi = dY/dXi while all Xj (where j ≠ i) are held
constant
 Example 5
• Determine the values of X and Y that maximize
the following profit function:
π = 80X – 2X2 – XY – 3Y2 + 100Y
• Solution
∂π/∂X = 80 – 4X – Y = 0
∂π/∂Y = -X – 6Y + 100 = 0
Solve simultaneously
X = 16.52 and Y = 13.92