Il Year Commerce PAPER VI Business Mathematics and Statistics Part A: Business Mathematics Part B : Business Statistics Unit: 1-i&1-1V SCHOOL OF OPEN LEARNING (Campus of Open Learning) University of Delhi Department of Commerce Prepared by : Dr. K.L. DahiyaGraduate Course Paper VI : Business Mathematics and Statistics CONTENTS: Part A: Business Mathematics , UNIT-I: Matrices and Determinants Lesson : Matrices and Determinants UNIT-II: Calculus Lesson 1 : Calculus Lesson 2 : Differentiation Lesson 3 : Indefinite Integration UNIT-III: Basic Mathematics of Finance Lesson 4 : Simple and Compound Interest Part B: Business Statistics UNIT-I: Descriptive Statistics for Unviariate Data Lesson 1 : Construction fo Frequency Distribution and Graphical Presentation Lesson 2 : Measures of Central Tendency Lesson 3 : Measures of Dispersion UNIT-II: Correlation and Regression Analysis Lesson 1 : Correlation Lesson 2 : Repression Analysis UNIT-III: Index Numbers Lesson : Index Numbers UNIT-IV: Time Series Analysis Lesson : Analysis of Time Series Editor: Dr. K.L. Dahiya SCHOOL OF OPEN LEARNING UNIVERSITY OF DELHI 5, Cavalry Lane, Delhi - 110007Academic Session 2013-14 ( 28000 copies © School of Open Learning Published by : Executive Director, School of Open Learning, 5, Cavalry Lane, Delhi-110 007 Printed at : Nutan Printers, F-89/12, Okhla Industrial Area, Phase-1, New Dethi-110020.UNIT -1 __ MATRICES AND DETERMINANTS” Matrix algebra is an important tool of decision making in the problems of business and economics under the assumption of linearity. Matrix is a set of elements arranged in the form of a rectangular array, such as ay m2 a; A=/a ay ay Each matrix is denoted by a single capital letter and by brackets like [ ] or ( ). Each number of the ‘matrix is called an element. Elements written horizontally form a row and vertically written elements form a column. Each element has two subscripts, first one indicates its row and the second one indicates the column of the matrix. In the above example elements a,, means element of the first row and first column: similarly a,, indicates the element of second row and the third column, Rows are always read first and columns afterwards. The number of rows and the number of columns specify the dimension of a matrix. The above matrix is of 3 rows and 3 columns. Therefore, its dimension is 3x3 (read 3 by 3). The dimension of a matrix is written as a subscript to the matrix, such as fi 4 I 9 Aime | mn Total number of elements in a matrix are equal to the product of its rows and columns. For example, matrix A is of 33order, therefore, the total number of elements in the above matrix will be 9. Similarly total number of elements in matrix C will be mn, ‘The following are some important facts about matrices a) If'a matrix has only one row it is called a row matrix of row vector. X=B27) b)_ Ifa matrix has only one column itis called a column matrix or column vector. of} iB]©) Two matrices are equal, if and only if, there corresponding elements are equal and their dimensions are the same. For example, fan an] np A= las, aun) 29 A=B if a =by =b, ay = yy 4d) Ifall the elements of a matrix are zero it is called a Null matrix (or Zero matrix). For example, 000 0 0 0) 2x3 ‘Types of Matrices 1) Square Matrix If the mumber of rows of a matrix are equal to the number of its columns ie, m = n, itis called a square matrix. For example; 34 a [i ‘| B-|5 7 6 42) 2x2 40,2) 3%3 Matrix A isa square matrix as there are only 2 rows and 2 columns, Iti ealled square matrix of 22. Similarly B is a square matrix of 3x3 Diagonal Matrix A square matrix is called a diagonal matrix when all its elements except the principal diagonal elements are zero. For example a, 0 0 A=|0 ap 0 O40 ay) 3x3 ‘Ais adiagonal matrix. Identify Matrix or Unit Matrix ‘A square matrix whose principal diagonal are 1 and all elements above and below the principal diagonal are zero is known as an Identify matrix. For example: 100 I=]0 1.0 foot} 3x3 It is an Identity matrix of 33. Scalar Matrix Ifthe diagonal elements of a matrix are equal itis called a Scalar matrtix. For example: 3 0 x 000 Es Sethe: Matrix A and X are Scalar matAlgebra of Matrices (1) Addition of Matrices : Two matrices 4y., =a, and B,,, ~b, can be added if their dimensions are same. If the addition matrix is called matrix C, then ¢ lon + B, Dimensions of matrix C will be similar to the dimensions of matrices A and B, Matrix C can be obtained by adding corresponding elements of matrix A with the elements of matrix B. For example; aon co as au U ‘Aza and B,. cannot be added 3 (a) Matrix addition is commutative, ie., A+B=B+A [provided their dimensions are same] (b) IFA, B, C are three matrices of the same dimensions, then A+(B+C)=(A+B)+C It indicates that matrix addition is associative (©) IENull matrix Oy. iS added with a matrix Aygo, We get only matrix. A, fo | i. mi 7] 0 Ojax2 [2 3Jax2 Ong +Ana = A: nun» For example o= 20 +02 (2) Subtraction of Matrices Subtraction of two matrices is possible if their dimensions are same. For example (6;)=(b5)=(4,) whered, =a, ~b, ea] al? * 4] 7 5)2x3 13 6)2x3D=A-B 7-2 0-8 al fs -8 -3 2-1 J=3..5-bh Lis 4, eo Dimensions of matrix D will be same as that of A and B. 3) Multiplication of a matrix by a Sealar When a real number is multiplied with all the elements of a matrix, it is called a scalar ‘multiplication and the number is known as a scalar (S). For example «d-[ fi39 S=Scalar=2 A=|0 75 be [2x1 2x3 2x9 2.6 18 SA=|2x0 2x7 2x5] = 0 14 10 [2x6 2x2 2x8] 12,4 16] In general SA = (Sa,),., (4) Multiplication of two matrices Ifthe columns of the first matrix are equal to the rows of the second matrix (known as Condition of conformity), the two matrices can be multiplied. TF Agen = (@,) and B,,, = (b,,) then (AB), Ci) For example ee" i eT mead eet we [sel Aand B can be multiplied becuase the columns of matrix A. are 3 and rows of matrix B are 3. The dimensions of their product AB will be 2x3. Let the Product matrix be known as matrix C. It will be arrived at by summing the products of the elements of the i* row of matrix’A and the corresponding elements of the k® column of matrix B. Each element of the Ist row of matrix A will be multiplied by each elements of the Ist column of tmatrix B, then its sum will give us the first element of the product matrix C. Then each element of the let row of A will be multiplied by all the elements of the second column of B. Their sum will give us the second element of Ist row of C. Similarly each element of Ist row of A. will be multiplied by all the elements of 3rd column of matrix B, Their sum will denote the 3rd element of Ist row of C. This process will be repeated for all the subsequent rows of A. Cu] OXD+2x5)+(7%1) Gxt) +(2x2)+(73) BX 7)+ 2x +(7%2) © (4x4) + (6x5)+@x)_ (4x1) +(6x2)+(8x3) (4x7) +61) +82). (1241047) 44421) (2142414) (16+30+8) (4412+24) (2846416) 29 cu[2 28 37 34 40 50} 9,3Mlustraion 1. A = find AB and BA, Solution : _[Sx-3)+C1x4) (Sx) +(-1« AB. [ox-3+@x4 Gxn+e _Jts-4) 6+2))_[-19 L948) @-4}7] -1 -1 _[(3x5)-0x3) @3x-1) +02) [4x5)+(-2x3) (4x-1)+(-2x2)| [(-15+3) G+2) ] “{@0-6) (4-4) BA Mustration 2. sy] ° | find AB and BA. Solution : 2x) (Say 0) : {= +0] Wy es: alien We can see : In Illustration 1 and 2, AB 4 BA 5 ESIISESSS=~§s;~ ~~Properties of Matrix Multiplication : (a) Matrix multiplication is associ WVE. Let AwgeqsBy.oand C,.,5 then [ABC)]},.9= ABO] p.y (b) Matrix multiplication is distributive. Let AversByugd Cys then A(B+C)=AB+AC AB and AC will be of the dimensions mxp. (©). Matrix multiplication is not necessarily commutative, ie., AB# BA (proved this property in Illustrations | and 2). (4) Matrix multiplication by an Identity matrix. Let A.g.,ad Ipuy then; Example : AI=A Similarly 1A will be equal to A. (©) Multiplication of a matrix by itself If Ais a square matrix, AP=AA. Similarly AA?= A.A. “A [By Associative Law] ‘Transpose of a Matrix The transpose of a matrix is obtained by interchanging its rows into columns and columns into rows. Itis denoted by.A’ or A". Let A=(a,),., then AT=(a,),.., % For example * coed j 1-13 1 2 0} an A= 4x3Properties of the Transpose of a matrix @) ay (Transpose of a Transposed matrix is the original matrix.) (b) (AB)'= Bra’ (The product of matrix AB when transposed is equal to the product of Transposed matrices taken in reverse order), (©) (A+B)'=A'+ BY (The Transposed sum of two matrices is equal to the sum of their Transposes) Symmetric and Skew Symmetric Matrices (1) IFA™=A, itis called a symmetric matrix (provided A is a square matrix), Example : Since A A is a symmetric Matrix, @) Ifa'= A will be known as a skew symmetric matrix. For example alo -4 0 4) 40 -4 0} Determinants A determinant of a square matrix is a unique number associated with it, To arrive at the determinant of a matrix itis written within vertical bars. e.g ay Bet iai-| = Ay By a8, Sn Ay: For example: 3 8 As | 27] a5 lis determinant |Al=| > |Al=@x7)-(5x2)=21-10=11 Determinant of a matrix of 33 is arrived at in the following way A=|ay a an 4 ay ayyay a . | | gig op Bove Ben | Ay ay agel 2) ~ ify XA) Ay, XAy)} +O), f,, Xs, Ay, Xa,) 5 | [4 2] ~3x2)-1 (Ix5-3x4)+4(x2-0x4) =2(-6)-I(-7) +4(2) =-124+748=3 (Note - If the matrix is of one element only its determinant will be the number itself and if the ‘number is negative then the positive of that number will be its determinant). Properties of Determinants : (@) If the rows of a determinant are changed into columns or vice versa, the value of the determinant remains unchanged, For example, Jan 2| Jay a (Note - Determinant of matrix A is equal to the determinant of A’) (®) Ina determinant if two rows (or columns) are interchanged, its absolute value remains the same but the sign changes. For example, ay, Jt tm a ay ay ay 3 My ap ay as) a ay fay tn ty (©) The determinant of a matrix will be zero if two rows (or columns) are indentical. 27] 2 7\=0 SimilarlyEE EEE (d) If all the elements of a row (or column) of a determinant are zero, the value of the determinant will also be zero. Jo 2| Jo -1 4l-o Jo 1-3] (©) Hfall the elements of a row (or column) of a determinant are multiplied by a number k, then its value isk times the original determinant, For example Jia kay kay 4 | 8n 8 ay ay fetes. "mem | ayy (8, If all the elements of a row (or a column) of a determinant are written as sum (or difference) of two or more elements, then it can be written as sum (or difference) of two or more determinants. For example Janthy an tly a, (g) If k times of all the elements a row (or a column) are added (or subtracted) to all the corresponding elements of another row or column, the value of the determinant remains the same. For example ay ay ay tka, ay kay 31 ay Mlustration 3 tt Prove that a bc |=(a-by(b~cXe-a) a ve C, and C, + €,-C,) FSO =(b-aye-a) {a 1 1 ® b+a cal = (b-aX(e-a) (cta-b-a) = (b-a)(e-ay(o-b) = (@-\(b-c)(e-a) Ilustration 4 Prove that Ja b © a-b b-c c-al=a? +b? +0?—3abe bre c+a atbSolution : (R, +R, +R,) atbte atb+e atb+c Tiga it a-b b-cc~a b+c c#a at b-c c-a cta a+b (C, >, -C, and C, + C, -C,) 1-1 e-a-atd atb-b-c 1 0 0 =(a+b+e)|a—b 2b-c-a —2at+bte bre a-b ave i) tgoly vit etasbre|27e- 8 28 b HE a-b ave R, > R,+R, 2-c-a+a—b —2a+b+c+a-c =(a+b+e) a-b a-c ja+b+e)] aaa a-b a- = (atbte) [(b-c(a-c)-(b-a)(a-b)] = (atb+e) {a+b*+eab-be-ac} = altbiteSabe Product of two determinants JA |B|=|AB| (Matrices A and B should be square matrices and their dimensions should be same. Dimensions of |AB] will be equal to the dimensions of |A| or |B}.) ‘Trace of a Matrix Every square matix has its trace which is equal to the sum of its diagonal elements, For example 1 oa A=|9 -2 3 6 7 1 Trace (tr) of A= 1-2+1=0Singular and Non Singular Matrices If the determinant of a square matrix is zero it is called a singular matrix, ic. |A|= 0 When | A| #0 matrix A is called a non-singular matrix. Minors and Cofactors of a Matrix. ‘A lower order determinant obtained after deleting the row and column is called a minor. For example fau-ea 5 Aslan an ay ay ay ay, a fn Aa. i 12 the minor al ay Ay fax fora, theminoris | a. a,, 1, the minor is | Ina matrix total number of minors are equal to total number of elements, When a minor is multiplied by (-1)" of the respective element, it is known as a cofactor. The 60- factor of a, in the above matrix will be fax ay cy” lan an] Similarly the co-factor of element a,, will be Ay) Bas cn Ay) sy Again, in a matrix there will be as many co-factors as the number of elements. (When minors are alternatively multiplied by a minus sign, they form a co-factor:) Adjoint of a Matrix ‘Transpose of a co-factor matrix is known as the adjoint matrix. For example, if the following is a co-factor matrix of matrix A. fou [ou cn Sn Satan Its adjoint will be Adj =| © os Mlustraion : 5 Find the adjoint of the following matrix 2-1 -10 4 5 -2 - 1 | -5|Solution = oo [2 aa Co-factor matrix of A=| 0-1. -1 Adj A=|-5 -1 0 | to Poses Inverse of 2 Matrix Every non-singular square matrix possesses an inverse which is denoted as A~ (if the matrix is A) A” is arrived at by the following formula. 1 —(AdjA) rai) (There are other methods also for ascertaining the inverse of a matrix. They will be discussed later. ‘The above method of finding inverse of a matrix is known as adjoint method of finding inverse) Note- 1. AAT=1=A"A, 2. The inverse of a matrix is unique i.., there cannot be more than one inverse of a matrix. 3.1=h Mlustration 6. Find the inverse of the following matrix f2 4 4 1 we know A == (Adj Al rain Solution : 1 At =—— (Adj A) a Mustration 7 : Find the inverse of the following matrix 1 A=Solution = acid At =—— (Adj A) ai JA|=1G-1)-2)2-5)-1(2-15) =2+6+13=21 f2-3 5] Agas|3 * 6 =3| |-3 9 -1} 1 21 Elementary row operations and Inverse of a Matrix Row operations method is another technique of finding the inverse of a matrix. For finding the inverse, following row (or column) operations may be undertaken (a) The rows (or columns) may be inter changed. (b) All Elements of a row (or column) may be multiplied (or divided) by a non-zero constant and thus arrived row (or column) may be added or subtracted from another row (or column) (©) A row (or column) may be replaced by such row (or column) which is calculated by multiplying the original row (or column) by @ non-zero constant. For finding the inverse, we should write the matrix and an Identify matrix in augmented form. By any of the above operations, we convert the matrix into Identity matrix and the adjacent Identity matrix into the inverse matrix. For example _[a 2 HARI) 3 The augmented matrix will beMlustration 8 Find the inverse of the following matrix by Row operation method fi ss) As|o 1 fio ipta2 oi a afar R, >R,+-5, R,+R,-3R, andR, >R,-R, soRraicdiny ib $5 cliBks anf CATES Shon 5 5 5 3 5 EXERCISES find[A +B] }- fe] 2 3 2 d B=! - Js 4 ih find (A-B) Solution : 5-2 -6-3 1-2 3-9 wwf 3-4 i] E [i ee @ir ai Al and o-(} 2) fn nd 41 3 5. such that AB = BA. Also compute 3A + 5B. Solution : ape? 2)(* >)_(3a+6 3b+10) “U4 13 5)" (4043 4b+5 ‘a b)(3 2)_(3a+4d 2a+b aa-(5 }E (38 at) “ AB=BA 3a+6 3b+10)_(3a+4b 2a+b “l4a+3 ab+s)"( 29 11 3a+6=3a+4b — 3b+10=2a+b bes b-a=s 4a+3=29 4b+5=11(52 Sb) _ (5a+9 sb+6 15 25) iASMixy 28 1 2. 2 2 @ if A=/1 1 3, B=/1 -1),C=f1 0 2] 02-1 2 find AB, A’B, AC'and CB Solution : NE ae AB=|1 1° 3) ]1 -1 02 -1)[2 2 [ 1x2+0x1+2x2 Ix1+0x-1+2x2] fo 5 “lace Ixl+1x-143%x2 |=|9 6 Ox2+2x1+—-1x2 Ox1+2x-1+-Ix2] [0 -4 ee Oxl+lx-1+2x2 |=|5 3 [x24 11 40%2 Dede be 0x2) p ef 2x243x14—-1x2 Qxl43x-1+-1x2] [5 -3 1 AC'=/1 1 o2 ends =| Ixl+1x04+3x2 [=| 7 Ox1+2x0+-1x2 -2. 2 1 1-1 Pita a =[Ix2+0%142%2. 1x140%-142%2] =[6 5]Solution : (5)_ Ina certain city there are 50 colleges and 400 schools. Each school and college has 18 Peons, 5 clerks and one cashier. Each college in addition has one section officer and one librarian. The monthly salary of each of them is as follows Peon - Rs. 300, Clerks - Rs. 500, Cashier - Rs, 600 Section Officer - Rs. 700 and Librarian - Rs. 900 Using matrix notation find (1) total number of posts of each kind in schools and colleges taken together, (ji) the total monthly salary bill of all the schools and colleges taken together. No. of colleges and schools; A= [50 400],., w’wsiid No.of Employees B=|1g 5 , as Salary matrix S= [300 500 600 700 900},, wsii 4 Total no. of posts AB= [50 400] li ioe 4] = [8100 2250 450 50 50}, Total monthly salary of each college & schools is 300 st [t ttt ‘| a {i 1 — sy bes |700| (8590 Joa 900 Total monthly bill ofall colleges & schools 10,100 8500 Acas)=[50 «ool | =eUNIT - 11 LESSON-1 CALCULUS, Funetions, Limits and Continuity Function AA function is a special type of relation that expresses how one quantity depends on another quantity. For example, when money is invested at some interest rate, the interest I’ depends on the length of time, this dependence can be expressed by saying that “lis a function of t” Let A and B be two non-empty sets. A function f from A to B is a rule which associates to each element x of A a unique y of B. The element y is called the image of x under f and we write f(x) = y which is read “f of x equals y”. A is called the domain of f and B is called the co-domain of f. The set of all images of the elements of the domain is called the range of f: The elements x and y are called the independent and dependent variables respectively. Fig. 1, 2, 3, 4). The diagrams in Figure 2 show a correspondence by elements of B. Which of these diagrams define a function from Example : Let A = (a, b,c} and B which elements of A are associated wi AtoB? A ® A 8 =F (FD ral 5 2. Cy A ® A 8 xf —- Pt i 0 © Fig.2 Solution : In figure 2 (a), each element of A is associated with a unique element of B. Thus Figure 2 (a) defines a function In Figure 2 (6), not all elements in A are associated with elements in B. The element ¢ in A has no image in B. Thus Figure 2 () does not define a function. 18In Figure 2 (c), the element a of A is not mapped with exaetly one element in B, but is mapped with 1 and 3. Thus Figure 2 (c) does not define a function, In Figure 2 (d), each element in A is mapped with one element of B (the element happens to be the same for a, b and c). Thus Figure 2 (d) defines a function from A to B. Example : On a given day, a factory can produce 0 to 4 units. The daily operating cost of the factory is given by: x (number of units) 0 1 2 3 4 _y (daily operating cost): Rs.2000 5000 7000 9000 10000 Solution: To each x (number of units) there corresponds exactly one y (daily operating cost). Thus this defines a function. The domain of the function is the set A = {0, 1, 2,-3, 4} and the range is the set B = {2000, 5000, 7000, 9000, 10000}. Algebra of Function. If f and g are two functions, then (Othe sum of fand g, denoted by f + g, is the function given by F +) O)=f) +E), (ii) the difference of fand g, denoted by fg, is the function given by (-9) @) -/@)-8 0), (iii) the product of fand g, denoted by fg is the function given by ) @) = £6) 2 @), (iv) the quotient of fand g, denoted by fig is the function given by Fig) L. a(x) In each of the above operations, x is assumed to lie in the domains of both f and g. However, in the quotient, any value of x for which g(x) = 0 is ‘excluded. Example : If f(x) = 2x— | and g (x) = 3° — 4, find the following @ f+ 8) @) ) F-9) &) (©) Ga) @) (a) igi. Solution. (2) (f+ 8)(2)= f(x) +(x) = Qx-1)+(0? —4x) = 27 -2x-1, (6) (f- 92) = f@)- g(a) = (2x=1)- (2-4) = 6x-I, (©) (Rx) =f (x) g() = (2x=1) (2? = 4x) = 2x? -9x? + 4x, @ f(g) = 22-24 Special Types of Functions In this section we introduce some functions that have special forms and representations. Constam Functions. A function of the form f@)=e where c is a constant, is called a constant function. Thus to each x, f associates the same number c. For example, the functionF@) =10 is a constant function, all functional values are 10. Figure 3 shows that graph of the function f(x) = 10, a horizontal line 10 units above the X-axis. Linear Function. A function of the form S@) = a+b “ where a and b are constants and a # 0, is called a linear © Fig.3 function. For example, the function f(x) = 2x + 1 is a linear function. The graph of a linear function isa straight line. We say that the function f(x) = ax +b has slope a. Example : A manufacturer earns Rs. 4,500 in the first month and Rs. 6,000 in the second month, On plotting these points, the manufacturer observes a linear function may fit the data. (@)_ Find the linear function that fits the data. i) Using your model make a prediction of the earning for the third month. Solution, (i) Let the linear function be y = ax + , where y denotes earnings, x denotes the months and a and b are constants, From the given data, we obtain 4500=a+b Ai) 6000 =2a +b (ii) Subtracting (i) from (ii), we get a= 1500 Substituting this value in () gives b = 3000, Thus the required linear function is y= 1500x + 3000 i) Earning for the third month is: y= 1500 (3) + 3000 = Rs. 7500. Polynomial Function. 4 function of the form SO) = ay xt + az" + ta, where nm is a non-negative integer and dg,a).....a, are constants with a, #0, is called a ‘polynomial function in x of degree n, a, is called the leading co-efficient. For example, the function (x) x? —$x? + Tx-+1 is polynomial function in x of degree 3. Note that a linear function is a polynomial of degree 1 and a quadratic function is a polynomial of degree 2. The domain of any polynomial is the set ofall real numbers.“ Rational Functions. function of form _ ps) f@) ax) where p(x) and q(x) are polynomials, is called a rational function Absolute Value Function. For any real number x, the function f defined by x if x20 -x,if <0 f@aAxF is called the absolute value function. The domain of f is the set of all real numbers and the range is the set of non-negative real numbers. The graph of f(x) = |x| is shown 20Fig, 4 Exponential Functions. A function defined by Sana where a > 0 #1 and the exponent x is any real number, is called an exponential function to the base a. ‘ Fier 1 For example, ¥=2',y=3"and y -() are exponential functions. ‘The domain of an exponential function is all real numbers and the range is all positive real numbers, If.a>l, the graph of y = a' rises from left to right (Figure 5). If 0 1) can be obtained by reflecting the graph of y = a (a> 1) in the line y = x (Figure 6). The two most widely used bases for logarithms are “10” and “e”, respectively. Fig. 6 Common Logarithms. Logarithms to the base 10 are called common logarithms. og,x4a>1) Natural Logarithms. Logarithms to the base ¢ are called natural logarithms. Natural logarithms are denoted by In or log,, or simply log. This base occurs in economic analysis and many situations | involving growth or decay. ‘Some important properties of the logarithmic function, which are frequently used in calculus, are listed below : Let m, n and a be positive numbers with a #1. Then (og, (mn) = log, m+ log, n. (the logarithm of a product is a sum of logarithms). Gi) tog, (2) = log, m-- log, n. (the logarithm of a quotient isa difference of logarithms) (ii) tog, m= c log, m (for any number c). (the logarithm of a power of a number is the exponent times @ logarithm). (iv) log, 1=0 () log, a=1 (vi) 1B, m= Property (vi) is called the change of base formula, It allows conversion of logarithms from one base to another. Remark. It may be noted that log, (m+n) # log, m + log, n. Functions related to Business and Economics. \n this section we present some functions which are very useful in business and economics. Demand Function. An equation that relates price per unit and quantity demanded at that price is called a demand function. Its graph is P called a demand curve. If p is the price per unit of a certain product and x is the number of units of that product that consumers will demand during some time period at that price, then we can express the demand function as ee Ye Price per unit xf) Here x is the dependent variable © Quantity (demanded) and p is the independent variable. Since Fig.7negative prices and quantities are P meaningless, both x and p must be non- negative. Usually, an increase in price corresponds to a decrease in quantity demanded and vice versa, Figure 7 shows a demand curve which is a straight line, itis called a linear demand curve. The reader we should note that in Figure 7, the horizontal st axis is used for the dependent variable x and the vertical axis for the independent ¥ variable p. ° ‘Quantity ppd) Fig. 8 Price per unit ‘Supply Function. An equation that relates price per unit and the quantity supplied at that price is called a supply function and its graph is called a supply curve. If p denotes the price per unit and x denotes the corresponding quar supplied, then the supply function can be expressed as, x=E8@) {As before x and p are non-negative. Usually, an increase in price corresponds to an increase in the quantity supplied and a decrease in the price brings about a decrease in supply. Figure 8 shows a linear supply curve. Cost Function, Let C the total cost incurred in the production of x units of a commodity. Then a function, say, CH=CH) relating C and x is called a cost function and its graph is called a cost curve. It may be noted that total cost = fixed cost + variable cost, where fixed cost (or overhead) is the sum of all costs that are independent of the level of production, such as rent, insurance etc. and variable cost is the sum of all costs that are dependent ‘on the level of production, such as cost of material, labour, ete Revenue Function. Let R be the total revenue or income the company makes by selling x units of a product at price p per unit, Then R is given by the formula, Rep Ris called the total revenue function. Profit Function. \f R(x) and C(x) be the total revenue reveived and the total cost incurred, in the production of x units of a product, then the function P given by P (x) = R(x) -C (x) is called the profict function. Break even point, The break-even point is the level of production where the revenue from the sales is ‘equal to the cost of production. At the break-even point, the company is neither making a profit nor losing money. Consumption Function. If I denotes the total national income and C denotes the total national ‘consumption, then the funetion cfu) relating / and C is called the consumption function. The difference between J and consumption C 23is savings S. Thus S = 1—C. ‘Example : A publishing house finds thatthe cost of production directly attributed to each book is Rs, 40 and thatthe fixed costs are Rs. 25,000. If each book can be sold for Rs. 60, then determine (the cost function, Gi) the revenue funetion, Gi) the profit function, and (iv) the break-even point. ‘Solution. (i) Let number of books published by the publishing house is x. From the given information, ‘Variable cost = 40x and fixed cost = Rs. 25,000 Hence the total cost function, C (x), may be written as C(@) = 40x + 25000 (@ Since each book is sold for Rs. 60, the revenue function, R (x), is given by R(x) = 60x (ui, Profit function, P (x), is given by P(x) =R(x)- C(x) = 60x ~ 40x~ 25000 = 20x ~ 25000. (v)_At the break-even point, P (x) = 0, That is, 20x -25000=0 i.e,, x= 1250 Hence 1250 books should be produced and sold to achieve break-even point. Example. A profit making company wants to launch a new product. It observes thatthe fixed cost of the ‘new product is Rs. 35,000 and the variable cost per unit is Rs. $00. The revenue function for the safe of» units is given by S000x - 100x*, Find (i) profit function, (ii) break-even values, and (i) the values of x that result in a loss. Solution. () If R (x), C(x) and P(x) represents the revenue function, the cost function, and the profit function, then we have R(x)=5000x~100x? C(x)=35000+500x P(x)=R(x)-C(x) = $000x—100x? - 35000-S00x 10x? + 4500x-35000 Hence the profit function is P(x)=-100x + 4500x-35000 (ii) For the break-even values, we have P@)=0 ie, 10x? + 4500x~35000 = > x? =45x+350=0 or («-10Xx-35)=0 > x=lorx=35 Hence the break-even values are 10 and 35 24(iii) To find the values of x that result in a loss, we have P(x)<0 ie, —100x? + 4500x-35000<0 > x? -45x+350>0 or (x=10)-35)>0 This is possible if either x < 10 or x >35. LIMIT OF A FUNCTION Function denotes the relationship between dependent and independent variable as y = f(x), is a dependent variable and x is an independent variable. An independent variable may be assigned value in two ways viz. a fixed value as x = a or tending towards certain constant as x —> a . Value of the function when independent variable is assigned, a fixed value is known as defined value of the function, but it is known as limit of the function if independent variable is tending towards certain constant. The implication is that xis not equal toa. Mathematically limit of a function f(x) when x ->a is denoted by lim f(x). It. can be defined as limit of a function f(x) for a given value of the argument x is that constant / to which the function continuously approaches as x approaches the given value such that the difference between constant and the function may be made as small as we would like by making the argument x approaching sufficiently near to the assigned value a. Symbolically, /(x)—»/ as x» a but | (x ~ a)| > 0. In other words, the functin f(x) is said to tend to the limit / as x tends to a if € >0 is chosen arbitrarily small and it is possible to find 9 >0 such that whenever |x - al < 8, | x) - I< € ile.,,flx) can be made as close to / as we would like by taking x sufficiently close to a. It is denoted as f(x)! asx» which means f(x) is / as x tends to a. Although itis one of the most difficult concept in mathematics, itis generally used in practice. used to describe all those situations where target is such that itis possible to reach near the target, but itis not possible to achieve the target. In other words it is possible to reach near the point, but it is not possible to touch that point. For example, achieving optimum level of installed capacity or achieving optimum level of production are instances of li ‘The entire mathematical system of differential and integral calculus is based on the concept of li ‘ofa function and related conditions of continuity of a function. Evaluating limit of a function On the basis of the definition of limit, limit of a function can be obtained by putting x =a + h where ht 0 orx =a —h where h-»0. h is a constant introduced to avoid the equality of x and a. This method can be applied in all conditions and is known as evaluating limit by first principle. Itis a direct method of evaluating limit of a function, 2 Example, Evaluate lim f(x) = Solution : Applying direct method, let x = lim (1+ 4) nF gy GA ioe et Tht Tehod i L+h? +2h-1 lim"! = lim (4+2) (simplication) =2 Ans.Example, Evalute lim f(x) = xa Solution : Let ¥=lim (a+h) lim f(2) = tim 24 pe ee eae {Applying binomial expansion] +h [as all the successive terms involve h which is tending towards zero] Methods of Evaluating limit of a function This limit can be evaluated under three different conditions, viz., when x tends towards a definite quantity as x-+2or.x-»-5; when x tend toward zero and when x tends towards infinity. There are different methods which can be used for evaluating limit of a function under different conditions. (all these are over and above evaluating limit by direct method.) (a) When x tends towards a definite quantity : When independent variable tends towards a definite quantity which may be positive or negative, the limit can be evaluated by any of the following methods. (i) By putting x = a : It is the easiest metod of evaluating limit. It gives defined value as limit of the function, But it can be used only when given function is a polynomial function or a rational function and denominator is equal to zero for x = a. In addition to this the method can be used only if putting x= a does not give any indeterminant form explained in the note below. 4xt 43x 47 Solution : Since f(x) is defined for x = 1, so putting x = 1, 4) +30) 147 63 4 Note : Although this method is easy, but it can not be used if limit comes in indeterminant form. It is Example. Evaluate lim f(x) = ae Oo 6 taken as in indeterminant form if it comes in any of these form, viz., 7.— ot | where b is a constant Limit is not determinable. If the defined value of a function takes any of these forms. These results are not defined in mathematics.(ii) By factorisation method : This method is used when given function is a rational function. It involves factorising numerator and denominator to the extent possible, cancelling the common factor and putting x = a in the simplified form. Example, Evaluate Soy= BTS when x—> 2. Solution : When x= 2, wes eo so applying factorisation method : x3) aes lin S@)= Gna) [Factorisation) a2 © Sx-1 Putting x=2 lim £0) =i Ans. Kean Wiens tas Gye, mt Pade 6x43 Solution : When x = 1, f(x) is not defined, so factorising the rational function. Solution : Using factorisation method om ae f= ee a Pat ata Putting lim f(x) =a" +a"! +a"! +.....mtimes (iii) By rationalisatin method : This method is used when the given function is in the irrational form. The method involves rationalisation of the numerator or denominator as the case may be simplifying the function after rationalisation putting x = a in the simplified form. The purpose of rationalisation is to simplify by rationalising the numerator or denominator as the case may be. 27inonuit Example, Evaluate lim (3) "E>~ fay Solution : When x= 2, f(x) is not defined, so rationalising the denominator. fe- eed Vie ve Foes *fev2 + Vixed +24 V3x=2 tng —4)Wx+24+3x-2) 442-3242 atv (042) (2-2){Vre2 + Siem? ernie ee ja =2(¢=2) = + DWx+2 + V3x-2 -2 Putting x=2 lif y= M2421 . vx -4 Example. Evaluate lim f(x)= Sead Solution : Since f(x) is not defined for x = 2, Rationalising the denominator fla)= yr-4 TEES] wns Va=2] ves | V2-ve~2. =e 4)vx+| rie —2-x4+242V2-Vx-2 eel 22. _vev2 vee f2=Vx=2 " 2w2 Putting x=2 sy rep LE] =2 (b) When x tends towards zero : In case x—>0, same methods can be applied for evaluating limit depending upon nature of function. ? + 2ax+a? > Example, Evaluate lim f(x) = 0+2a(0+a? IExample. Evaluate lig 0) = Fm Solution : Rationalising the denominator, Jinn Jinx Vises Wier viex) _ sieiex 1+x-(1-x) 2x (©) When x tends towards co: In this case, limit can be evaluated by dividing all the terms of ‘numerator and denominator by the term having maximum power among all the terms of numerator and denon inator taken together. It is in the case of rational functions. A fier this putx = oo , now all the terms having x in denominator will be zero, xO 43x74 6x45 le. Evaluate tim f(x) === *— Example. Evaluate lim f(x)=" 5" Solution : Term having maximum power is x"; so dividing numerator as well as denominator by x° x 43x? +6x+5 I@)= e (42x46) [Any number divided by infinity is equal to zero] APPLICATIONS OF LIMIT IN BUSINESS AND ECONOMICS ‘The entire theory of differential and integral calculus is based on this concept which in turn have large applications in business and economics. Not only this, itis used for testing the continuity of functions. ‘The concept limit is directly and indirectly applied in business and economics. Almost all applications are based either on the interpretation of e or geometrical progression with common ratio less than unit. The important applications related with e are continuous compounding and related with geometrical progressions are explained in other applications. 29related with e are continuous compounding and related with geometrical progressions are explained in ‘other applications. 1. Continuous compout infinity, and ing and discounting ‘As stated above, this application is based on e interpretation. It involves compounding or discounting. In case of compounding involving interest on interest Amount = P (1 +7) where is principle, ris rate of interest in relation to | and i time in years. It gives amount due after ¢ years if interest is compounded yearly. But if interest is compounded half-yearly effective rate is half and time is doubled. aay-H) where A(2) denotes amount after interest compounded twice a year. If'interest compounded quartely — 4y=P (142 woer( If interest compounded monthly — AQ2)=P [14 (12) ( + =) If interest compounded m times - Aim)=P [uz] m If interest compounded continuously then number of times interest compounded will tend to be 30So if interest is compounded continuously A = Pe” where ¢ is a constant. The values of e” are provided by ready made tables known as exponential table values of e” corresponding to rt Example, Determine the amount at the end of 4 years of an investment of Rs. 1000 if the annual interest rate is 6 per cent being compounded @ annually Gi) half-yearly continuously. (i) Amount = P(1 +r) = 1000 (1 +0.6)* = 1000 (1-2626) [From compound interest table] =Rs, 1262-50 (i) Amount = (+5) = 1000 (1 +-03)" = 1000 (1-268) [From compound interest table} =Rs, 1266-80 ii)Amount_ = pe" = 1000 2%" = 1000 e”* = 1000 (1-2712) [From exponential table] = Rs, 1271-20. In case of discounting, itis just the reverse of compounding, r becomes rate of discount ; so P =A 2 4 (1 +1)" if discounting is annually, if itis half yearly P= 4 ( 1 *) iz and when it is continously: the number if, m is tending towards oo somm«i{1e2)"] ‘Therefore if discounting is m times pm) = ‘Value of e* are providing by exponential table according tort 31Example. Mr. X’has borrowed certain money for 3 years on the condition that he will pay Rs. 500 at the end of 3 years. Find the money borrowed if interest compounded (i) annually, (ji) continuously at 8 per cent. Solution : Let he borrows Rs. P, then 0 A=PO+tr) or, P=A(l+r)* = 500(1 +08) = 500(0: 7938) (From present value table) = Rs. 396-90. P= Ae" =500 =500¢-* = 500(-786628) (From exp. table) = Rs. 393-32 app. 2. Measurement of rate of growth It is also based on e. It is used for the measurement of rate of growth of various economic phenomenon which changes continuously as population, prices etc. In such cases A= Pe IfA, P and £ are given r can be obtained which is the rate of growth It can be simplified in two different ways. (i) APP is a constant, and is equal to e*. Find value of rt corresponding to A/P in the exponential table. Say itis x then n= (ji) Take natural log of both s 4 rt In(e)= In [é | [lin represents natural log) [as ine = I-log of any number with same base is always 1] r q r=In (value of in | i can be obtained from natural log table]Example. Population of Delhi had increased from 40 lacs during, 1970 to 80 lakhs at the end of 1980. Find the rate of growth in population, Solution : Population growth is continuous A= Pe" Oe or 80 or end Simplifying it by both the methods (i) In the exponential table e is equal to 2 when r 10 r= 695 695 or 695 per cent (i) Taking natural log of both sides 10r=In2 695 app 6931 10 =6-93 per cent app. 3. Other applications ‘These applications are based on the limit of sum ot less than unit. These are explained below. Finite terms of a geometrical progression being Example. What will be the present value of Rs. 1,000 flowing every year at 10% rate of discount for an infinite number of years. 1o00_, 1000 (14-10) 1000 [ = 1+ Solution : Total present value = 1 forming a geometrical progression with a= 1 and r=7->5, which is less than one 1000 | 1 . Total present value = 1.19 = 1000 _ Rs.10000 “10 Example. Mr. X has made an initial investment of Rs. 1,000. What will be total investment after infinite 1 numberof years if 75 of the previous is invested again and again.Example. A firm has purchased a machinary for Rs.c being depreciated at r per cent per annum on diminishing balance method. Using limit, show that sum of depreciation of all the years is equal to initial cost. (r may be used as in relation to 1) Solution : Total depreciation = cr + (c- er)r + [(e~er)~(e~ er $ cnet YE (LED = FE =P) (1 = Pr) toss Years] er [1+ (1-2) +1 =P) une Fear Total depreciation = lim for{1 + (=r) + (1 PP sane t] [1+ (=r) + [C1 =P ann years is forming a geometrical progression with a= 1 and r= (1 —r) which is less than one] 1 So total depreciation = 7 atl CONTINUITY OF FUNCTIONS Functions can also be classified as continuous and discontinuous. A function is taken as continuous if its graphical presentation gives a smooth curve. The interval for which it gives a smooth curve. Otherwise, function is known as discontinuous. The continuity of a function can be tested with the help of limit concept. There are two possible cases in this situtation, viz, continuity at a point and continuity in an interval. Both the situations are ‘explained below. Continuity at a point ty of a function at a particular value of x. It is taken as continuous at a Med (a) Defined value exists at that point, i.e, f(a) exists. (b) Limit at that point exists i¢., lim #(x) exists (c) Both defined value and limit are equal, ée., f(a) = I! It involves testing the contin point if the following conditions are ful 34is taken as discontinuous. There are different ing point discontinuity if defined inuity. But Ifany of these conditions are not fulfilled, the funet types of discontinuities based on the unfulfilled condition. Its taken as mi ee does not exist. If limit does not exist at that point, the discontinuity is taken as finite disc if both does not exist, the discontinuity is known as infinite discontinuit Example. Given f(x) =| x-1 ions 3x if x>1 Determine whether function is continuous atx= 1 ‘Solution : For continuity of the function, (1) Defind value, (1) = 3(1) = [as f(x) = 3x when x =I] (=D? 4x4, (2) Left hand limit of f(x), tim £0) = 7 +1423 Right hand limit of f(2), lim fx) =3()=3 ‘So both left hand and right hand limit are existing and equal, tim f= 3 3) Both defined value and limit are existing and equal, therefore, function is continuous at aaa Tekupll Ones fle) eee for x #2 x-2 What value should be asigned to f(x) to make f(x) continous at (x= 2) (245) (x-2) Solutio {By Factorising] lim #0) = =Q+5)=7 So f(x) must be equal to 7 for making (2) continuous atx = 2- Only then both defined value and limit will be existing and equal. 2. Continuity in an interval “The limit concept can also be used for testing the continuity ofa function in am interval. 7 his interval ray be open or close. Hence continuity in an interval may be (a) continuity in an open interval (b) continuity in a close interval (2) Continuity in an open interval: An open interval is defined as that interval in which end points are not included. Ail the values in between end points are included. Its denoted by (a ) So continuity in the open interval of (a, 6) amounts to testing continuity at all points‘ between a and b, Ifthe function is continuous at all the points in between «rand b, itis taken as ‘continuous in the given interval, otherwise not “Testing of continuity in the open interval is same as testing ata point becuase ceach point, funetion should fulfil all the three conditions for continuity It may be applied in the form of taking some points in the given interval and testing the continuity at each point separately (b) Continuity in a close interval : A close interval is that interval in which end points are also included. It is denoted by [a,b] read as close interval of a and b, The continuity of the function in this close interval requires three conditions 35.() Right hand continuity at the point a Gi) Continuity in the open interval of (a, b) (iii) Left hand continuity at the point b. (i) A function is taken as having right hand continuity at the point a if the following three conditions are fulfilled. (a) Defined value of f(x), ie. f(a) is existing, (©) right hand limit of f(x) te, lim f(@) is existing (©) F(@)= jim f(a) fany of these conditions is not fulfilled, the function is taken as discontinuous at x = a. (ii) Continuity in the open interval of (a, 6) is same as explained earlier. (ii) Left hand continuity at this point b will be existing only if (a) Defind value of f(x), ie. f(B) is existing (6) let hand limit of (2) ie, im f(2)isenisting (6) both are equal ie, (6) lim f(x) It implies that if @ function is continuous in the close interval, it is always continuous in the same open interval. (as it is one of the conditions for continuity in the the close interval). But if a function is continuous in the open interval, it may not necessarily be continuous in the close interval. It may be that function which have only one side continuity either left hand side or right hand continuity. Continuous Functions There are some functions which are always in its domain. If a function appears in any of these forms, it can be directly stated that function is continuous without applying tests. These are as follows (a) Polynomial function : A. function appearing in the form f(x)= a,x" +a, x°! 4a,x°? +..c4a,x° where n is a non-negative integer, is known as polynomial function of n™ degree. Such functions are always continuous for all the interval because defined value and limit at all points exist and are equal. So if the given function is a polynomial function, it can be taken as continuous in the given interval. (b) Rational function : A rational function appearing in the form of division of two functions is taken as continuous for all the interval if it does not include any point where denominator is equal to zero. If it includes any point where denominator is equal to zero, neither defined value not limit will exist, so function will be discontinuous. It can be applied in the form as to put the denominator of rational function equal to zero and solve for x. If the given interval consists of that value of x function is taken as discontinuous, otherwise continuous. e+ Example. Given f(x) determine all values of x for which f(x) is continuous. x9 Solution : The given f(x) is a rational function, so putting denomination x? — continuous forall intervals excluding -3 and +3. x= 3 so f(x) is Example. Given. f(x) =x? -9X eR Determine its continuity in the interval (20,3), (~20,-3), (3,+ 2), (3, +20), (~ 36Solution ; The given function f(x) is defined for all values except for less than 3 and greater than ~3 excluding both. For all values in between -3 and + 3, it becomes root of negative which is not defined in real number system. So limit will also not exist and function is discontinuous for value between -3 and 3 According to the given intervals. () (<,-3), funetion is continuous ii) (-c,-3), function is continuous (iii) @, +), function is continuous (vi) (, +), finetion is continuous (¥) (3,3), function is discontinuous S 1 Example. Let G(x) #2, xeR Tell for what interval the function G (x) is continuous. Solution. Ifx is a real number denominator it is defined only when x > 2 G(x) is Continuous for the interval (2, oo ) APPLICATIONS IN BUSINESS AND ECONOMICS ‘The same continuity of function is also relevant in business and economies, It can be directly applied for testing whether a function is continuous at a point or in given interval. In addition to this, itis necessary that a function must be continuous for differentiation which in turn has number of applications. Example. An electric company charges from its customers the following amount for services; Rs. 3.00 for the first 20 kilowatts hours or less, Rs. 0.10 per kilowatt hour for the next 80 kilowatt hours; and 0.08 per kilowatt hour for any hours above 100 kilowatt hours. Determine the total cost function of x kilowatt hours, 7C(x) and test its continuity ilowatt hour and x = 100 kilowatt hours. Solution : Accordingly, 3 if0100 At x=20 Defined value, TC (20) stim, C(x) =3 (Comparing left hand and right hand limit) So both are existing and equal, TC(x) is continuous. Atx= 100 Defined value, 7C(100)= 11 lim 7C(x)=11 (comparing left hand and right hand limit) Function is continuous at x = 100,Example. The total cost function of a firm stating total cost at different levels of output is defined as, 20x if 0200 Test where the function is continuous in the intervals (100, 200), (100, 200), (100, 200). Solution : For open interval (100, 200), TC(x) is defined as 18x which is polynomial function so it is continuous, (ii) For the close interval (100, 2000), 7C(x) is defined as 20x for x= 100 but its right hand limit is given 18x, soit is not continuous at x= 100 and function is discontinuous for this interval (iii) For the interval (100, 200), 7C(x) is defined as 18x which is continuous.LESSON 2 DIFFERENTIATION ferentiation Meaning of The term ‘calculus’ means method of calculation. This meaning does not have much relevance in the practical use of the term in relation to differentiation, Calculus is classified as differential and integral Differential calculus is related with average rate of change. The method involved is known as differentiation and the result obtained is known as derivative or differential co-efficient. Practically derivative can be defined as the ratio of change in the value of function to change in the value of independent variable where the change in the latter is tending towards zero. Technically, ify = f(x), in 2 then Jim “is the derivative of y with respect to where Ay denotes change in y ‘Ax denotes change in x 4 This derivative is often denoted by Sofi) ory Therefore, derivation is the rate of change in the value of function when limit of change in the value of independent variable is approaching zero The steps involved in differentiation are given below : (9 introduces certain change Ax (delta x) in the dependent variable x and find the corresponding change in the value of function. Technically, if y = fix), then introducing Ax change in x and Ay change in y. yt dy=fle+ ax) Ayer Ax)-y =f + ax) =f) (ii) divide both sides by x giving the ratio of change in value of a function to change in the value of an independent variable. The same is also called as average rate of change fy wforAr)= £0) av ae Therefore Gi) Lastly, take its limit when Ax > 0, This limit must exist for the derivative. Therefore jim 4 = jim LE* A= Se) ars Ax ard Ax Fy Aig LE+A) FO) im or Cs) ax‘The same is the derivative of with respect to x and itis known as derivative by first principle. Example. If,y = x’, find its derivative by first principle. Solution : Give y =x. then y+ Ay=(x+ar)) (introducing change) Ay= (x tary -¥ Ay = (tary bey=x'] (apply bionomial distribution) nn-1) Ay aan" act (simplifying) Dividing both sides by ax Derivative as Instantaneous Rate of Change This derivative is defined both mathematically and geometrically. According to mathematical interpretation, derivative is used both as velocity of the function and instantaneous rate of change, In physical sciences, it is used as velocity of the function giving rate of movement. In commerce and economics, derivative is used as instantaneous rate of change. Instantaneous rate of change denotes the rate of change in the value of a function at a particular value of independent variable. Derivative gives the same as it is the rate of change in y when limit of rate of change in x is tending towards zero which amounts to a particular value of x. P Example, The demand function of a commodity is x = 20. Find the rate of change in quantity demanded, Solution ; Given x= 20P+aP then x4 Ax=20~ which is constant at all prices. Example. The total cost of producing x units of a commdity is TC(x) = x + 100. Show that rate of change in total cost is varying at all levels. Solution : Given TC(x) = x’ + 100 Introducing Ax change in x TCC) + ATC (x) = (e+ Ax) +100 ATC @)= (x + Ax)? + 100~ (2 + 100) ‘Taking its limit when Ax — 0 tim S7CO) 2, ao os atc) ‘ar which implies itis changing at all values of x. ‘Standard Forms of Differentiation There are some standard forms of differentiation which can be used for obtaining the derivatives of the functions appearing in different forms, All these standard forms are based on the first principle of differentiation. (Proofs have been omitted). These are applicable to all forms of functions. dy Lif y= it) —=0 y=c(aconstant) ak 2 y=ef(x) otto) Bt y= fla) a) BGO) 480) (Summation form)yl de (Product form) 4.1 y= f(@).8() Eta tal 8) su y-L) a 45 (Quotient form) a) 6.1f y= f(u)and u = g(x), dy_dy du ade Chain ral a du def a 7. Implicit Functions : Functions are also classified as explicit and implicit function. Explicit functions are characterised as those where one variable can be expressed as a function of another variable only as y = Ax). Otherwise it is taken as implicit function as fix, ») = 0. For example, y = x + 2x + 4 is an explicit function whereas x° + 2xy +)? = 0 is an implicit function. The derivative of implicit function is obtained using chain rule. For example derivative of * with respect to x can be obtained assuming u =’, then du _ du dy dk dy de (On this basis, the rule is that all terms involving y will be first differentiated with respect to y and tip t by ©. After this solve it for imitiply it by After this solve it for $* 8. Inverse Functions : Two functions are taken as inverse ifthe independent variable of one function becomes the dependent variable of the other and vice-versa. For example, if y = 2), then x = /19). dy de aot Then ke dy oa de a Derivative of Algebraic Functions Algebraic functions are defined as those functions where quantities are related by mathematic operations such as +, , %,+, power and square root only. For example, if ysyx'+100y or ‘The rule of differentiation of algebraic functions is multiply the power of x in the base and reduce the power by one, It is based on the first principle. a then yo Flt VET pe that nt +e Example. If paieet ear eerie taal Solution : Given aVet event e+1+VE=1 (pationalising the denominator) vxtl—vx- Ax+l+vx-1 eH1ee-1e2VP a1 arse x+l-x+1 2 (Rationalisation) (Quotient form)Derivative of Exponential Function ‘Another type of non-algebraic function used in business and economics is exponential functions, These functions are defined as those where independent variable appears as power of some constant base. For example y = 10° or y = e*. These functions are classified as natural and other exponential functions. Ifthe base is e ( basis of natural log system having an approximate value of 2.7183), the function is known as natural exponential, otherwise other exponential function. Such functions are often used to denote continuous growth Derivative of natural exponential functions is based on the rule if dy y=e", then & yee’, then It can be proved by first principle (proof ignored). Derivative of the other exponential function can be obtained easily with the help of logarithmic differentiation which is explained in the next section. Example. Differentiate y = x" e*"* with respect to x. Solution : Given y =x e*"* Ce ee ate e ax fare] Example. Differentiate the following with respect tox @ y=xe’, Gi) y=, (iv) y= 10xe*™, ) y=Qr+2)e? Solution : (i) y= xe"(iv) y=10xe""”® dy [> a in #] da 2-10 ae [3] Derivative of a Logarithmic Function Logarithmic Functions are also used for denoting functions used in business and economics. Such functions are defined as those whose independent variable appears with log ratio as y= log ax or ) = log, x. Such functions are also classified as natural logarithmic functions, common logarithmic functions and other logarithmic functions based on the base of log. In case of natural log, base is e {a constant with approximate value of 2.7183) as y= log, also denoted by y = Inx. Bu if base of log is 10, it is known as common log as y ~ log,.x also denoted by log x. If base of log is other than 10 and e, it is known as other logarithmic function sy log.x and a # 10 +e. In such cases base must be specified. = Its also possible to change the base of log as if y = mx with , then with base 10 it becomes y = 2 whose log eis a constant. a Derivative can be obtained directly for only natural logarithmic functions as if x = inx, then eee (Proof has been omitted). So if other than natural log function is given, first change its base to e and then differentiate. The standard forms are applicable in the same way. Example. Differentiate the following with respect to x. Oyen +d, Gdysin(Vier) Gide (wan) (iv) y=x-Inx Solution : (i) y= In (x? + 1) dle’ +1 45Gi) y=n View) eo dfin(x+1)] dx de _2in(x+1) x+l (iv) y=x-Inx fest at a ooo upvc dk xl de fx-1 1 ex)" (x=I)-@+1) 2 -\srl (1? : pee" Vest (+1) (@-1P 1 (e+) (@e-)) xl In addition to this, logarithmic differetiation can be used in different ways. It is based on the derivative of logarithmic function. It basically involves three steps (i) taking natural log of both the sides, 4 Gi) Differentiating implicitly both sides with respect tox, and (ii) solving for a ‘Some forms based on these are giver. below (a) Derivative of natural exponential function as y=e'. Taking natural log of both sides Iny = xIne Une =1] Iny =x 46* Differentiating both sides with respect to x ative of othier exponential functions as y = a". Taking natural log of both sides Iny = xJna—__[Ina'is. a constant] Differentiating both sides with respect to x. (©) Derivative of a function raised to the power another function as y = [/(x)}**. It can be differentiated only with the help of logarithmic differentiation. Taking natural log of both sides. Iny = g (x) * In FQ. Differentiating both sides with respect to x Le aL. 4¢x)+In fox) 8°60 Fae ONG LO) +h fos £6) & | 8) ys 1) - [2 Ste) +in 02): 8" | iy “ Fo) F@HMIEY- 2 » Loot Logarithmic differentiation can also be applied for differentiating algebraic and exponential functions if these appears in combined forms. Example. Differentiate the following with respect to x : @y=s? y= a. Gil) y= () y = 5° . Taking natural log of both sides ny = (x + 2) Ins. Differentiating both sides with 7Gi) yeatex® % Bg AO), oo da") ae rs =a" ax"! +x". Ina Rielle tale ina] Taking natural log of both sides and differentiating Iny =e Inx wef ime] a” optim Application based on derivation as instantaneous rate of change : Whenever we want to find out the rate of. change in the function at a particular level then find the derivative of the function and evaluate it for that I level. Some examples are given below to explain this Example : A firm has a revenue function given by TR(x) = 10x where x is the units demanded and TR(x) is gross revenue with a production cost function given by [_x TC(x)=1,00,000+ ae } Find the rate of change in profit if x= 1,00,000 units, Solution : Given TR(x): Ox, TC (x)=1,00,000+50 al is * ny lis Profit function, n(x) =7R (x) -7C (x) eT =10x~1,00,000-50 |_*_] (0x —1,00,000. | Feo0| Rate of change in profit at x will be: Putting x= 1,00,000 units =10—1:00,000 _ 10,000 So rate of change in profit at ,00,000 is zero indicating that profit is constant at this level 48I Example. The demand function of a commodity at_x=/200 — p? where x units are demanded when price is Rs. p per unit. Determine the level of output where rate of change in total revenue is zero. ae Solution Given x= 200- p? or P=¥200=%° TR (x)= P-x=( J200=2" x Rate of change in TR(x) will be: faa +x 100-2} 2x Putting it equal to zero and solving for x 200-2x? a ¥200—x? 200-2x? =0 or x? =100 or x =10 units ‘Therefore rate of change in total revenue is zero at x = 10 units APPLICATIONS ‘The applications based on simple differentiation (derivative concept) are explained below : 1, Measurement of price elasticity of demand Price elasticity of demand is an important economic concept. It is based on law of demand. Law of demand states the quantitative relationship between price and quantity demanded and if price is high, quantity demanded is low and vice-versa. The same quantitative relationships are quantified by price elasticity of demand. It is always negative because of negative relationships between price and quantity stated by law of demand. In economics, it is defined as _r, ~ Relative change in quantity demanded Relative change in price Symbolically, if demand function is x = f(p). ar =A 2 where Ap change in price and Ax change in quantity demanded. pp x P This gives the price elasticity of demand for certain Apchange in price. But if price elasticity of red at given price p instead of certain change then limit of Ap will tend towards zero and 49ax , E, = tim “2 ata price p ab aps =#2 [a5 tin MS] dp x |" 9 dp dp Ifa demand function is given and price elasticity of demand is required ata price, iti given by ieee a x a where 7 isthe derivative of demand function wit respect top, pis the price at which elasticity is required, and x is the quantity demanded at that price. Example : The demand function of a commodity is x= 100—p” . Determine the price elasticity of demand (i) when price decreases from Rs. 8 to Rs. 6, (ii) at price Rs. 8. Solution : ())Given J100— p" when p=Rs.8 r= 6units andwhen = p= R86 x=Buits ‘Therefore Ap=Rs.2 Av=~2 8 6 3 (ii) Atp=Rs. 8, x= 6 units 64 16 3D Example, The linear demand function of a commodity shows that qunatity demanded is nil when pri Rs. 50 per unit and itis just 1000 units when price is zero. Determine the pasarund quantity where price elasticity and demand is unit. Solution : Linear demand function can be obtained using intercept form as.imercefftam agp (6: 1000 units and on y-axis is Rs. 50 [given]. or x+20P =1000 or x=1000-20P. O}Corresponding E, = a £ Pp -20P x {unit means ~1 for £,,] (0.50) or x =20P “LG Solving (i) and (ii) simultaneously for P bei 1000-20 P= 20P x or 40 P=1000 P=Rs.25 Corresponding x = 20(25) = 500 unit. So it has unit elasticity when P= Rs, 25 and x= $00 unit 2. Measurement of Price elasticity of supply Price elasticity of supply at a price can be measured with the help of simple differentiation in the same way as price elasticity of demand. This concept is based on the law of supply which states the positive relationship between price and quantity supplied (from firm's point of view). It is defined for a supply function : x= g (P) as Relativechange in quadtties supplied Relative change in price 2 where Ap is change in price, IRIE Sz At given price, price elasticity of supply is piven by = E,=tim &.2 ° amd Ap x ae where ps the derivative of supply function with respect top. It always takes postive value because of positive relationship between price and quantity supplied. Example. The weekly supply of butter (x kg) depends on the price (Rs. p per ke) according to x =100 fp=12 +150 Determine the price elasticity of supply at p = Rs. 21 Solution : Given x=100 fp—12 +150 whenp=Rs.21, x= 450 units eee 311 KP =100-—(p-12% 2 Pry = _—50p___50(21) _7 (p-12)x 3(450) 9 3. Measurement of Price elasticity of demand and supply at equilibrium price In case demand and supply functions for a commodity are given, it is possible to measure both price elasticity of demand and supply at equilibrium price using simple differentiation. The first step is the determination of equilibrium price and quantity using demand and supply function. Equilibrium price is the ice at which both quantity demanded and supplied are equal and corresponding quantity is known as equilibrium quantity, so X= f(p) (demand function) and X= g(p) (Supply function) Then put fip) = g(p) and some for p, this gives equilibrium price putting this in either demand function or supply function and solving for x gives us equilibrium quantity. At this equilibrium price, price elasticity of demand is obtained by using demand function and price elasticity of supply is obtained by using supply function. The only difference in this application and the previous two is that these elasticities are calculated at equilibrium price only whereas the earlier two were ‘calculated at any arbitrary price (given). Example : A firm has the following demand and supply functions P=100-~X? (Demand) 10+2P (Supply) Determine the price elasticity of demand and supply at equilibrium price. Solution : Given p = J100— xX? or X =100—P? or P? =100-Xx? For equilibrium condition , Put X= -10 +2? in the demand function P? =100-[-10+ 2?) P* =100-100+40P—4P? or SP? -40P =0 P-8=0 (equilibrium price) ».P=8 Corresponding equilibrium quantity X= -10 +2 (8) = 6 units So price elasticity of demand at P = Rs. 8 with X= 6 units will be ax P_dyioo-P? P ap Xx aP x wa P Pt an ee ((00-p?)"? 2p. + 1 a 52_4(-10+2P) P “x ae 3 Example : A firm finds that both quantity demanded and supplied are 30 units when market price is Rs. 8 per unit. It is known that demand is nt if price is increased to Rs. 12 per unit and firm is not willing to supply if price is reduced to Rs. 5 per unit. Determine the firm’s price elasticity of demand and supply at equilibrium price assuming linear relationship between price and quantity in both cases. Solution ; The demand equation being straight line, so its (9.5) equation can be obtained as P-12_X-0 12-8 0-30 or ~30(P—12)= 4x (0,12) or ¥=90-P (Demand) Similarly supply function will be P-5_X-0 -8 0-30 or ~30 (P-5)=-3x or X=10P +50 (supply). Price elasticity of demand and supply at equilibrium price, P = Rs. 8 will be x15 _-15@) 2 X 20) ga. P_10P_10(8)_8 at xX 30 8 4. Derivation of marginal revenue function [MR(x)] from total revenue function TR(x) Total revenue function, 7R(x), gives the total revenue of x units sold. It can be obtained from the demand function as TR(x)=P.x where p is the price when x units are demanded. On the other hand, ‘marginal revenue function, MR(x) gives the additional revenue of xth unit. In economies, marginal revenue is defined as change in total revenue caused by change in number of units sold as additional revenue of xth unit = 7R¢&) ~ TR(x-1). It has an important relationship with total revenue as total revenue will increase till marginal is positive, it will be zero if marginal is zero and decrease if marginal is negative. 3‘MR(xJcan be obtained with the help of simple differentiation if TR(x) is given. MR(x) gives the rate of change in total revenue which in turn is also given by derivative of total revenue function. Therefore, ‘MR(x) is equal to simple derivation of TR(x) Ma(a) = FRED = 100—p’ . Determine the corresponding. ‘marginal revenue function and find marginal revenue when x= 6 units. or p=Vi00—% (corresponding inverse function) rats)=p.2~( a=) x a{ w=) « a Example : The demand function of a commodity is Solution : Given Now MR(x)=47R@) = Vi00=# +x: 000-27 % 28 100-22? MR(x) = Vio Mn(6) = O=2O 28.7 2s,3.50 yioo-(6 8 2 Example. A firm can sell 100 units if it charges Rs. 5 per unit. It knows that for each Rs. 0.10 reduction in price, it can sell 20 more units. Determine the firm's marginal revenue function. Use it to determine marginal revenue when x = 100 units Solution : Given P=Rs.5, Quantity demanded, x = 100 units 2. when P=Rs.4, ‘quantity demanded, 00 units (as for each Rs. 0.10 reduction, quantity demanded increases by 20 units, so if price declines 10 times to Rs. 4, quantity demanded also increases 10 times to 300 units) Using two point form 3-4 100-300 or = -200(P-5) = -100 34a i a a aa a a or -x=-200P +1100 When X =100 units u ‘MR(100) =— => 2 100 ‘5. Measurement of Price elasticity in terms of average revenue and marginal revenue Price elasticity of demand is the ratio of relative change in quantity demanded and relative change in price. In economics there are three important methods of its measurement, viz (total expenditure method, (i) point method, (iii) are method, According to point method, price elasticity of demand at a point on the demand curve is equal to lower half of the tangent at that point divided by upper half of his tangent, price elasticity of demand at B isa 1 BC equal 9 5 The same result, if further analysed using relationship between average revenue and marginal revenue gives elasticity of demand ‘The same result can be provided using simple differentiation, TR(X)=P.X aTR(X) ax [Using product form} ap (x)= P+ xP aa) aw oP XP ¥ae. a x-E, [P=AR] [+ &, isalways negative] ap Altematively, MR=P+X=7> ps =P+P. aP 2 =P+P--T [dividing and multiply second form by p} Example. The demand equation of a commodity is when marginal revenue is Rs. 4.00 60 - P*. Determine the price elasticity of demand Solution : Given X= 60 - p* and MR=Rs. 4.00 So price elasticity of demand requires average revenue when marginal revenue is Rs. 4. It can be obtained only if x is known at which MR = Rs. 4.00 P= J60-x TR(x) =P X =(V60—z) x TR (x) a =Ve0=a + 260 _2(60-X)-X - 2.460-X 2P?-x MR(x)= MR(x)= =4 Given) or = 8P=2P?-X or = -x=2P?_-8PUsing (i) and (ii) equations 60 - P? = 2p? 8p or 3P-8P-60=0 3P?— 18P + 10P-60=0 3P [P—6]+10(P-6)=0 (GP +10)(P-6)=0 10 Socither P=—~ (not possible, therefore it is ignored) or = P=Rs.6 or AR= Rs. 6 when MR = Rs. 4 AR 6 ’ AR-MR 6-4 3 6, Derivation of marginal cost function from total cost function : Total cost function gives the functional relationship between total cost and number of units produced, Marginal cost function gives the additional cost of last unit. It can be obtained from total cost function with the help of simple differentiation ATC (X) ieee MC(X) ae Example. A firm’s total cost function is 7C (X) = X° +2000. Determine the corresponding average cost function, A(X) marginal cost function, M(X) and also determine the level of output where average cost equals marginal cost. Solution : Given TC(X) = X° + 2000 gy REGO: ys , 2000 So AC(X) =——— = X?7 + 30 AC(X) x ae and MC (X) = 27COD _3,y2 aK (Putting both equal and solving for X X? +200 x or 2X? =2000 X* =1000 X =10 units,MAXIMA AND MINIMA. In calculas, extreme values of a function are of two types, viz., relatively extreme and absolutely extreme. Relatively extreme values are also known as local extreme values. They are extreme in relation to surounding values of a function. Some are described as maxima and minima, Absolutely extreme values are extreme in the entire range of the function. These values are also known as global extreme values of maximum and minimum. These may be more than one relatively extreme values of a function but there is only one absolutely extreme value of a function in the figure, ‘ f() has relatively maximum values at B and D and sf(x) D relatively minimum at point 4 and C. But it has absolutely ‘maximum at B and absolutely minimum at C. Calculas gives only relatively extreme values.If a profit function is given or average cost function is given, objective is to determine the level of output where cost per unit is minimum, Absolutely extreme values can be obtained from relatively extreme values by simple comparison. If a function has two relatively maximum values, then absolutely maximum can be obtained by comparing both relatively maximum, values ofa function. But if the function has only one relatively extreme value it becomes absolutely extreme also. ‘The relatively extreme values can be obtained using calculas in the same way as explained in the determination of relatively extreme values under Successive Differentiation, ay (If y= (2), then put 7 = 0 and solve itfor x. a (ii) At this values of x, if me > 0,y takes relatively minimum value, ), y becomes point of inflection, and 2, if a8 <0, takes relatively maximum value. Example. If f(x) = ax’ + bx + ¢, a + 0, prove that the point isarelatively maximum ifa <0 and is arelatively minimum ifa>0. Solution : Given fix) = ax’ +b +c Putting it equal to zero and solving it forx for relatively extreme value Jar +b=0 x=-b/2aAtrexe 2a 2 270) 5, a It will be positive ifa> 0, so taking relatively minimum value of ata] fast Itwill be negative if < 0, so taking relatively minimum value of 4ac—b* 2a Applications in business and economics There are a number of important applications in business and economics based on maximum and minima. Some of these involves maximisation, others minimisation depending on the nature of the function, ‘Some of the important applications are explained below : 1. Maximisation of total revenue function : If a firm’s demand function is given, it is possible to determine the corresponding level of output ‘whose total revenue is maximum using maxima and minima. But it will be possible only if firm is operating under imperfect competition (where price decreases as firm sells more units). In case of perfect . price is constant for a firm resulting in total revenue as an increasing function. The total (ii) The value of x, where 4 TR(x) is maximum Example. The demand function of a commodity is p =15e"*” for 0 =1 Therefore, total revenue is maximum when the manufacturer produces 800 pairs of high grade and 100 pairs of low grade. 2. Minimisation of Average cost function Maxima and minima can also be used for determining the level of output where per unit cost is minimum corresponding to given total or average cost function. I is often used in economic analysis. It gives the optimum level of output. PAC aa ‘and solve it for x (ii) the value of x for which — >0,,per unit cost. is (i) Put minimum corresponding average cost can be obtained by puting this x in AC(x). Example. A machin lly costs Rs. 6,400 with no scrap value. The cost of operating is Rs. 500 in the first year and increases to Rs. 800 in each successive year. Determine (i) the number of years it should be ‘operated for minimising total operating cost per year, and (ii) corresponding cost per year. Solution. Capital cost = Rs. 6400 Operating cost = Rs.500 + Rs. 1300 + Rs. 2100.....upto x years. =F [26500) +(x - 1) 800] [Second x term ofan A.P] x = 5 [800 +200] = 4oox’ + 100% C(x) = operating cost + capital cost =400x? + 10x + 6,400, Corresponding per year cost function will be = 4002 +100 + 400 z 4c) = For minimising it, take its derivate wart. x or x=4 years d@? AC(x)_ 12800. ik Atx=4 years, dy therefore cost per year-is minimum if machine is operated for - of6400 4 years. Then AC(x) = 400(4) + 100+ = Rs. 3300 3. Maximixation of profit function Ifa firm's demand function with total cost function is given, it is possible to determine the firm's equilibrium by maximizing the corresponding profit function. It is taken as profit, function a(x)=TR(x)-TC(2). jy put 2703) For maximizing (i) put 270). ing (i) pul * (and solve for x, (ii) the value of x for which eae <0, profit is ‘maximum corresponding profit can be obtained by putting in (x) Example. The total cost function of a firm is TC(x) =x? —Sx? +28x+10 3 where TC(x) is the total cost of x units. A tax at the rate of Rs. 2 per unit of output is imposed and the producer adds it to his cost. Ifthe market demand function is given by P=2530-5x where P is the price per unit of output, determine the profit maximising price and output. Solution : Given P = 2530 - 5x TC(x) = =x’ - 5x? +28x+10 corresponding TR(s) = Px After tax TO(x)= 537 ~ Sx? + 283+ 10+2x = = (2530- 5x)x = 2530x - 5x? x (%) = TR(x) - TC(x) =2530x-52? Le +5x—30x-10 =-}x" +25008—10 For maximising (x), take its derivative w. dn(x) x° +2500 de Putting it equal to zero and solving for x =x! +2500=0 Atx= 50 units, .. profitis maximum when x= 50 units,Corresponding P=2530-5 (50) = Rs. 2280. Example. The relationship between sales, TR(x) and advertising cost, Rs. x is given by. 32000x 500+x TR(x)= It is known that gross profit is 25 per cent of the sales. Determine (i) the corresponding net profit as a function of xxand (x) (ii) the value of x which maximises (x) and (iii) maximized (x) 32000x 500+x TR(x) = i) Form maximizing it, take its first derivative w.r.t.x, d(x) _ (500+) 8000-8000x _ de (500+x)° = 8000 (500) _ (500+x) Putting it equal to zero and solve for x 8000 (500) _ ~"(600+x) 1 0 (500 + x¥ = 8000 (500) 500 + x= 2000 x= Rs. 1500 a At x= Rs.1500, aa) So (x) is maximum when4. Minimisation of Total Cost Usually, total cost function gives the functional relationship between total cost and the number of nits produced. It means itis an increasing function, so minimisation of this is not possible. But sometimes, the total cost is defined in such a way that it decreases upto certain level and then increases. Only in such ‘cases, this application is relevant. The steps involved for minimisation are as follows = and solve for x aTC(x) a) (ii) The value of x for which C(x) is minimum, 40 Example. A cylinder with a capacity of cubic ft. is made of two types of material, The cost of, ‘material of the top and bottom is Rs. 6 per sq. ft and the sides material cost Rs. 4.80 per sq. ft. Determine the dimensions of the cylinder which minimizes total cost and minimized total cost 440 Solution ; Given Volume == cubie ft. So mh = Se cubic f. - 4 440, Tar’ 440 7 * 2 Corresponding cost of material of top and bottom = [Total area of top and bottom] x Rate = (2nr?)6=Rs.12 Cost of sides =[Total area of sides) x Rate = (nh) . Rs4.80 = Rs.9.60%rh Total cost of material=12nr? + 9.60 rh [2] TC(r)=120r* + 9.60" LF =12nr? + aFor minimising, TC(r), take its first derivative w.rt. 7 Putting it equal to zero and solving it for r 1920 24ar — 0 So at r = 2 ft, TC(x) is minimum 20 Corresponding h = — Sft. ponding h= as = 5 and minimised TC (2)= 484 +967 = Rs.144e ‘The theory of maxima and minima can also be used for maximizing tax revenue. The method used is same as in case of optimizing other functions as total revenue function, total cost function ete. The only difference is that the level of output sold is a function of the rate of tax. Therefore total tax revenue is ‘equal to rate of tax multiplied by units sold. The units sold is obtained considering the production tax imposed at the rate of Rs. t per unit. It will be different in case of perfect competition and monopoly. In the case of perfect competition, output sold is given by equilibrium price whereas in the second case, it is same as profit maximizing output given by A P=((x)+g P= atx) Figure 1 65equality of marginal revenue and marginal cost. ‘Therefore in the case of perfect competition, the tax imposed is added in the supply function whik will shift the supply function upward and increase the equilibrium price fo some output (depending on the elasticity of demand) and reduces the equilibrium quantity as shown in figure 1. if P = f(x) (Demand function) and P = g(x) (Supply function before tax) then P = g(x) + ¢(Supply function after tax) Equilibrium output is given by putting fix) = g(x) + ¢ and solving it for x. It will give x as a function of tax rate t Total tax revenue = ¢ x7 Therefore for maximizing tax take its derivative wrt. f, put it equal to zero and solve for ¢. @TRO) value of ¢ for which <0; tax revenue is maximum, x MC (x) +t In the case of monopoly, the firm adds it to the marginal cost function as shown in Figure 2 The profit maximizing output is given by setting MR(x) = MC'(x) + 1 and solving it for x. At this profit must be minimum. It is same as xf. Total tax Revenue, TR() =. x which can be maximized in the ‘same way as explained above, Example. An industry operating under competition has the demand function P = 10 - x with the + 5 Determine (i) the equilibrium quantity before tax; (ii) the equilibrium quantity after tax if tax at the rate of Rs. ¢ per unit is imposed ; (iii) the value of ¢ which maximizes tax revem (iv) maximized tax revenue. Solution : (i) Given P= 10-x (Demand function) supply function P and P= (Supply function before tax) -. Equilibrium quantity will bex lo-x=44 5 or 4 units Corresponding equilibrium price will be, P= 10-4 =Rs. 6 (i) After tax supply function becomes P= 4+ 3 +t. So new equilibrium after tax will be to-z-4s Ear a - 2 Gil if x14 5, total tax revenue will be Tax Revenue (1) = (4-5 9) For maximizing it, take its first derivative wrt. d tax Revenuelt) _4 4 , at 3 Patting it equal to zero and solving for or = Rs. 3 perunit. Ate= Rs. 3 per unit. ? tax Revenue(?) __ 4 Ctx Royoowel) 8 <0 ar 3 So tax revenue is maximum when {= Rs. 5 per unit (jv) Maximized tax revenue =¢. x, oe anit 21) =Rs.6LESSON 3 ~ INDEFINITE INTEGRATION Calculus is an important branch of mathematics. It is broadly classified as differential and integral calculus. Differential calculus gives the derivative of a function used as an instantaneous rate of change Integral calculas, on the other hand, deals with the total rate of change. Integral calculus is reverse of the process of differentiation (also known as antidifferentiation) had its own applications in business and economics. Two important applications are; obtaining the original function from its derivative function and the measurement of area under curve ‘The integral of a function is denoted by sign [ (known as integral) Integration is also related to a variable just like differentiation. So function is always followed by dx or du or any variable in relation to which function is integrated. Integration of a function can be technically defined as reverse of differentiation Lety = f(s) and its derivative pee ere) Putting it equal to f(x), s f(x) Ms Then [f(x)de= f(a) +e. Left hand side denotes the integral of f"(x) with respect to x and right hand side states it as equal to f(x) + c, where f(x) is the original function and ¢ is an arbitrary constant. The same is known as integration and the result obtained is described as indefinite integral of /"(x) with respect to x. Indefinite integral is used for obtaining the original function from its derivative. Integration is reverse of the process of differentiation. In case of differentiation, the power of variable is multiplied to the base and the power is reduced by one for algebraic function. So integral process involves increasing the power of the variable by one and dividing by the increased power. For example, if x? +2x-5, =2x42 or dy =(2x+2)dx ‘Then f(2x+2)de ax42rte. where ¢ is an arbitrary constant. This provides for that constant which has been ommitted by differentiation, The value of c can be obtained under conditions as in the above example if y value is given for certain value of x. Different Methods of Integration ‘There are different methods of integration used in different conditions. Some of these are as discussed below : 68 — ————(a) Simple integration. It ust involves the reversing process of differentiation for obtaining integral (i) Algebraic function : Ifthe function to be integrated is an algebraic function, the integral can be obtained by increasing the power of variable by one and dividing the varible by increased power. Some standard forms of simple integration are as follows Litdy = f'@) dr, [f@).de= fe 2. If dy = a [f'(x)de] where a is a constant, forse de=a [fae aflare. 3. dy= f (+ Ala Ji + hem )ir= fi aes [erde =A@)+ hte. ditdyest ds, fet de= 2 +e Example. Find the integral of the following ( fade Gi) fae (ii) Ve ae. 1 iv v) [(x-29 de (2 (v) fx-2y Solution. 2 @ frat +e (ii) far= fi-de=x+e ea wie eran yt v) [le-2yhde= flo? —4e + ax a2 2x? 44x40. 3(ii) Logarithmic function : If a logarithmic function where independent ‘ariable appears with a log ratio is given as y = Inx (In denotes natural log with the base e). Its derivative, gt therefore the x integral of with respect :o xis Inx or fp dx= Inx +c, Therefore, it can be generalised that whenever in a rational function, numerator is the derivative of the denominator or is equal to some constant mulitplied by numerator, the integral of the function is the natural log of denominator. For example In ft x, | the numerator is the derivative of the x appearing in denominator; therefore, its integral is Ine +c Example. Evaluate the following : [ftt8 a ay plea 42x nO 43x41 +3 +5 Solution : (i) Let y=3°+ 38+ 1 we rts It shows that numerator is 2(2x +3) ; so applying log form : parse (2x43) n(x? 43x41) +e Feared en? Feeney rane vara (ii) Lety=P +3245, 2 Base +6 IB Ieshows that numerator is 5 Bx? +6x] Applying log form. +2 ‘ 43x45 430745 Gili) Lety =x" 28 +2, * Ba ae ar 1 It shows that numerator is 3 [4x -4x) So applying log form :a i i i (iii) Exponential function : All those functions where independent variable appears as a power of constant base, are known as exponential function. If the base is equal to ¢, the function is known as natural exponential function as y = e'. If derivative, 4 =e" Soits integral, fe* de=e* +c. : i pg ll deme Similarly if y = es be™ and Joe de =e™ +0. Example. Evaluate the following fade de (ii) faer* ae Git) ((2e" ede Solution: (i) Put u=br, = or de = a& b Making this substitution: a “ fever tt foctduna frau =ae™ +e. du ii) Putting us-x,—=-1 or de=—di (i Putting Sheol or de=—du Making this substitution : ber em foet(md)=—4 [et du ~4e" +0 Gi) ff se*)dem oo de fede (b) Integration by substitutio + In case of composite functions, the integral can be obtained by making substitution. For example. Jltenfaxcan be obtained by substituting w = ftx), and dx Ls Pi [tect £0), Sp, onda (x) f@) J+ f(x) must be a constant, otherwise it is not possible. The substitution is made in such a way that the integral can be simplified to the possible extent Example. Find the integral ofthe following @ fiaxva de Gi) fx6430" ae 42x asses nSolution : (i) Let u=3x+4, Making this substitution, Jiirv4 dem fn ak ia > du du ji) Let =543x, = 6x or de = & Oe de * 6x Milking hi subtution ae fas 32°y! de= fro = Jo’ du as 69 (4327) “Sa (iii) Let u =x" +3x? +1, or f x? 42x 2 2 (eaarae (©) Integration by parts : Integration can also be done by parts. This method is used whgn function involves product of two or more functions. The integration of such functions is based on reversing the process of differentiation of product form. Let y = wv. (both w and v are taken as functions of x) a nIntegrating both sides fu a fo w =Judv+}v.du furdv=uv— fu-du Ifa function is a product of two functions, one is taken as u and other equal to dv. Normally the function which can be differentiated easily is taken as wand which can not be integrated easily is taken as dv. Example. Evaluate the following, ( fre” de (ii) finxade (iii) fr" Inx dx yunxt s, Harvorde= Solution = = Making this substitutionGi Jinx. de= fl-inx de Using integration by parts fidnxde= xn feta Inx=x+e =afnx-l]+e. (ii) For integration by parts fet insae Let u=Inx, du=— ntl Applications of Indefinite Integral in Business and Economics Integration is broadly classified as definite and indefinite integration. Both these have their own applications. The most important application of integration, i.e., measurement of area under a curve, is based on definite integration, but indefinite integration has its own applications. These are in the form of obtaining original function from its derivative function. For example, finding total cost function from the ‘marginal cost function. Some of these are explained below .) Derivation of total cost function and average cost function from the marginal cost function : If marginal cost function, MC(x) is integrated with respect to x, it will give total cost function, TC(x) [since MC(x) is the derivative of TC(x)]}. Therefore, Joc (ay de=70 (x) + where TC'(x) is denoting the integral of MC(x) and C is arbitrary constant which was eliminated from C(x) in the process of differentiation. 7C'(x) is same as total variable cost function. ”“The value of C can be obtained if the total cost of some units of xis given. Put the value of x in TC) = TC'G) + C= given cost and solve for C. So TC (x)= TC (x) + C (ave obtained). This C is the Fics) ost part of total cost and is same as total cost at zero level of output. Therefore t can be obtained by setting x = 0 in such cases. IF the total cost function is obtained, average cost funetion can be obtained just be dividing the TC (4) by x (as average cost i the total cost divided by number of units produced). Therefore Ac (x)= Example. The marginal cost function of manufacturing x pais of shoes is MCU) & 6 + 10x - 6x, The eaarnre of producing one pair of shoes is Rs. 12.00. Determine the total and average cos function Solution : Given MC(x) = 6 + 10x - 63° TC(x) = fMC(x). de = f(6+10x-6x") dx =6x 45x" - 2x" +C, Given TC(1) = 6(1)+5()-20) +€ C=3. Putting C=3inTC(x) TC(x) = 6x45" and AC(x)= 22) x ¥ =645x-207 +2 x MC(x) = axe +400 Example. The marginal cost of producing an item is given by where x represents the unit produced. Determine its total cost function and average cost function if cost at zero level of output is Rs. 900. ation: MC(X) == ai J? +400 TC) = ie +400 Using substitution method, let w= 7 + 400Given total cost at zero level is Rs.900, TC(0) = 10+ 400 + C =900 cC=880 Putting C = Rs.880 in TC(x), Te(x) = Vx? +400 +880 (x? +400 + 880 AC(x) = Example. The cost of producing xth unit is given by MC(x) = 20 e°*. Determine the corresponding total cost function and average cost function if total cost at zero level is Rs. 80. Solution : Given MC(x) = 20 e* » TC(x) = [200° ae 2068 OS = 406" +C. +. Using TC(0) = Rs. 80 TC(0) = 40 £85+ C= 80 Rs. 40 Putting C=Rs. 40 TC(x) = 40 6 +40 Aca) = Mee +40 (b) Derivation of total revenue function and average revenue function from marginal revenue funetion : This indefinite integration can also be applied for obtaining total revenue function, TR(x) from marginal revenue function. MR(x), which in tum can be used for deriving average revenue function, AR(x) also known as demand function. It is as follow. TR(x) = [MR (x) dx =7R(x)+C where TR'(x)is simply the integral of MR(x)and C is the arbitrary constant. The value of C is ‘evaluated assuming total revenue at zero level is zero. So setting 7R(0) = 0, value of C is obtained. 76Me ee en ee ee aT Corresponding to the 7R(x), TR(x) AR) = Example. The additional revenue of xth unit is given by MR(x) = x - 12x + 27. Determine its total revenue function and average revenue function, Solution : Given MR(x) = x! - 12x + 27 TRO) = (x? 2x +27) de 6x? +27x+C. Assuming —TR(0) =0 TR(Q) = 0+C c=0. TR(x) = %— 6x? 4 27x ~~ 6x7 427% x P=*_ 65427, Example. Find the total revenue function 7R(x) and demand function of the marginal revenue funct [C, is arbitrary constant] Putting ax —-Cx (simplified form) stband of, Example. The additional revenue of xth unit of a commodity is given by MRO Determine the corresponding total revenue function and demand function. Solution : Given MR(x) = ay 100 TR(x) = |— - de = Fra =100Infx+2)+C ‘Assuming —TR(0)=0 TR(0) = 100 [In2]+C = C=-100In2 So, TR(x)=100n(x+2)—100 In 2 Corresponding, AR) =— DEFINITE INTEGRATION Integration is broadly classified as indefinite and definite integration. Indefinite integration involves antderivtive ofa function Its basically used for obtaining original funtion from its derivative function. t is known as indefinite because the constant of integration, ¢ is arbitrary Definite integral is one step ahead of indefinite integral. It is mainly used for the measurement of area under a curve. Ifa function f(x) is continuous in the close interval (a, 6), then the symbol JF C2) cedenotes the value of definite integral of F over the interval (a, 8] ‘According to this theorem, if fx) is a continuous function in the close interval (a, 6), then the area under the curve between a and b is given by evaluating the integral of lx) with respect t0 with the timits a and B, (These are known as lower bound and upper bound respectively), Tt is shown in figure 1 Its value can be obtained in this way. 8