UNIT 4 OPTIMIZATION WITH A FUNCTION OF ONE VARIABLE

Contents
4.0 Aims and Objectives
4.1 Introduction
4.2 Absolute Maxima and Minima
4.2.1 Second Derivative Test for Absolute Extrema
4.3 Relative Maxima and Minima
4.3.1 The first Order Test for Relative Extremum
4.3.2 Second Derivative Test for Relative Extremum
4.4 The Nth Derivative Test for Relative Extremum of a Function of One
Variable
4.5 Examples on Economic applications
4.6 Summary
4.7 Answers to Check Your Progress Exercises
4.8 Model Examination Questions
4.9 References

4.0 AIMS AND OBJECTIVES

The purpose of this unit is to discuss one of the most important applications of calculus (the
use of derivatives). Since economics is a science of choice, it is common to deal with the
maximization and minimization of something in order to achieve the reestablished goals.

For example - A firm aims at maximizing profit

-Consumers want to maximize their satisfaction
-Producers want to minimize the cost of production, etc.

Hence it is necessary to introduce students with a systematic procedure of finding the relative
(absolute) maxima and minima of differentiable functions. Different techniques of finding the
extremum of a function are discussed. Students will apply the knowledge they acquire in other
fields of economics like microeconomics, labor economics, macroeconomics, etc. Therefore,
they apply the concept of derivative in order to solve such kind of problems (optimization

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problems) involving one variable only and we will extend it to more than one variable in unit
6.
After completion of this chapter students will be able to;
- Identify the difference between absolute and relative extremum.
- Find the extremum of differentiable functions by using different tests.
- Apply the techniques they learn in solving optimization problems in economics.

4.1 INTRODUCTION

In the previous unit we have learned differential calculus. Now we will apply the concept of
derivatives to problems of optimization of functions with a single variable. Concepts of
absolute and Relative extrema, the first and second order test and finally how to find the
minimum or maximum values of economic problems will be discussed. In the later chapter we
will see the case of two or more variables.

4.2 ABSOLUTE MAXIMA AND MINIMA

We are now ready to consider one of the most important applications of the derivative,
namely, the use of derivatives to find the absolute maximum or minimum and the relative
maximum or minimum value of a function. Before we deal with optimization problems we
need to discuss the concept first. Let’s start our discussion with the absolute maximum and
minimum of a function.

The absolute maximum and minimum of a function can be defined as follows.

- f(c) is an absolute maximum of the function f if for all x in the domain of f.
- f(c) is an absolute minimum of f if for all x in the domain of f.

In many practical optimization problems, the domain of the function is restricted to some
relevant interval. Hence the absolute maximum of a function on an interval is the largest
value of the function on the interval. The absolute minimum is the smallest value on the
interval.
f(x) f(x)

x
x

b) absolute minimum at x = 0, 68
a) absolute maximum at x = 0 but no absolute maximum
 f(x)
b

a
x
x1 x2

c) absolute maximum(b)and minimum(a) on a closed interval or

Figure 4.2 – c) shows absolute maximum and minimum on a closed interval. A closed interval
is an interval of the form , that is, an interval that contains both of its end points. A
function that is continuous on a closed interval attains an absolute maximum and an absolute
minimum on that interval. The following steps will help to find the absolute extrema of a
continuous function f on a closed interval .

Steps
1) Check that the function is continuous on the interval.
2) Find the critical values of the function f on the closed interval
3) Compute f (x
(x) at these critical values. Also compute f (x
(x) at the end points i.e. at x = a
and x = b.
4) Select the largest and smallest value of f (x
(x) in step 3. The largest value is an absolute
maximum and the smallest value is the absolute minimum.

Example 1: Find the absolute maximum and absolute minimum of the function
(x) = x2 + 4x
f (x 4x + 5 on the interval
Solution:
Step 1 The function is continuous on
Step 2 f1(x) = 2x
2x + 4 = 0
2x
2x + 4 = 0
2x
2x = -4 x = -2 is the critical value.
Step 3 f (-2) = (-2)2 + 4(-2) + 5 = 4 – 8 + 5 = 1
f (-3) = (-3)2 + 4(-3) + 5 = 9 – 12 + 5 = 2
f (1) = 12 + 4(1) + 5 = 1 + 4 + 5 = 10

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Step 4 The largest value in step 3 is f (1) = 10 is an absolute maximum.
The smallest value f (-2) = 1 is an absolute minimum.

Example 2: Find the absolute maximum and absolute minimum of the function
(x) = x3 + 3x
f (x 3x2 – 9x
9x – 7 ;
Solution:
Steps 1. The function is continuous
2. f1(x) = 3x
3x2 + 6x
6x – 9 = 0
x = -3 or x = 1 are the critical values.
3. f (-3) = (-3)3 + 3(-3)2 – 9(-3) – 7 = 20
f (1) = (1)3 + 3(1)2 – 9(1) – 7 = -12
At end points
f (-4) = (-4)3 + 3(-4)2 – 9(-4) – 7 = 13
f (2) = (2)3 + 3(2)2 – 9(2) – 7 = -5

Therefore, f (-3) = 20 is an absolute maximum

f (1) = -12 is an absolute minimum

Note that absolute maximum and minimum (if they exist) must always occur at critical values
or at end points.

The above procedure will not be applied if the interval is not a closed interval. One can
sketch the graph of the function to identify the absolute maximum and minimum of the
function. However, in many practical optimization problems, the interval with which you are
working will contain only one first order critical value of the function. In this case the second
derivative test can be used.

Check Your Progress Exercise -1

Find the absolute maximum and absolute minimum of the following functions

a) f (x
(x) = b) f (x) = ,

c) f (x
(x)= ;x>0

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4.2.1 Second Derivative Test for Absolute Extrema
Suppose that f is continuous on an interval on which x = a is the only first-order critical value
and that f ‘(a) = 0.

If f" (a
(a) > 0, then f(a) is the absolute minimum of f on the interval.
If f''(a) < 0, then f(a) is the absolute maximum of f on the interval.

Bear in mind that the second derivative test for absolute extrema can be applied to any
interval (open, closed or half closed). The only requirement is that the function be continuous
and have only one critical value on the interval.

Example 1. Find the absolute maximum value of the function

on the interval

Solution:
First we have to find the critical values on the interval.
interval.

The only critical value in the interval is x = 3

Next find the second derivative of f (x
(x)

Therefore, f (3) = 12 – 3 – 9/3 = 6 is the absolute maximum value of f on

Example 2. Find the absolute maximum value of the function

Solution:
Take the first derivative of the function and find the critical value.

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Therefore, f(2) = 24 – 2(2) – 8/2 = 16 is the absolute maximum value of the function

on the interval x > 0.

Example 3. Find the absolute minimum value of the function

Solution:
Solution:
As usual find the critical values of the function

But only x = 3 is the only value on the relevant interval.

Therefore, f (3) = 3(3) + 27/3 = 9 + 9 = 18 is the absolute minimum value of the function f (x
(x)
on the interval x > 0.

Check Your Progress Exercise -2

Use the second derivative test to find the absolute maximum or minimum of the following
functions.

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a) f (x) = x≠0 b)

4.3 RELATIVE MAXIMUM AND MINIMUM

A relative maximum of a function is a peak, a point on the graph of the function that is higher
than any neighboring point on the graph. A relative minimum is the bottom of a valley, a
point on the graph that is lower than any neighboring point. The relative maxima and minima
of a function are collectively called relative extrema.
extrema.

Y
C
Y = f(x)
A

D
B

Figure 4.3 shows the relative maxima and minima of a function

The above function has a relative maximum at point A and C and a relative minimum at
points B and D. Each of these points represents an extremum in the immediate neighborhood
of the point only.

Check Your Progress Exercise -3

Differentiate between absolute and relative extremum.
…………………………………………………………………………………………………
…………………………………………………………………………………………………
…………………………………………………………………………………………………

4.3.1 The first order Test for Relative Extrema

(x), then the first derivative, f1(x) plays a major role in our search of its extreme
Given y = f (x
values. This is due to the fact that if a relative extremum of the function occurs at x = xo, then
either

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 1) The first derivative value of the function at the critical value is equal to zero i.e.
f1(xo) = 0
2) The first derivative at the critical value, f1(xo), does not exist.

But we rule out the possibility of the second condition since we assume that f (x
(x) is
continuous and possess a continuous derivative. Therefore, we will not deal with sharp
points.

The value of the function at the critical value, x0, f (x

(x0) will be

a) a relative maximum if the derivative f1(x) changes its sign from positive to
negative from the immediate left of the point x0 to its immediate right.
b) a relative minimum if f1(x) changes its sign from negative to positive from the
immediate left of x0 to its immediate right.
c) neither a relative maximum nor a relative minimum if f1(x) has the same sign on
both the immediate left and right of point xo.
Y
Y
+ - y = f(x)

- + R

X
0 x1 x2 X
0 x1

(a) (c)
(b)
Figure 4.3 Y
y = f(x)

X
0 x1

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In figure 4.3 (a) the values x1 and x2 are critical values of f (x
(x). The value of the function at x1,
(x1), is a relative minimum because the sign of the first derivative f1(x) changes its sign from
f (x
negative to positive. The value of the function at x2, f (x
(x2), is a relative maximum because the
sign of the first derivative f1(x) changes its sign from positive to negative.

(b) Shows that the value of the first derivative at x1, f1 (x1) is zero, the derivative does not
change its sign from one side of x = x1, to the other side. Point A is called an inflection point.
(c) Shows that the slope of the function is maximum at point R, but it is not zero.

The value of the function f (x

(x) at the critical value is called a stationary value of y.
y. The point
(x1. f (x
(x1)) and (x
(x2, f (x
(x2)) are called a stationary points.
points.

Note that a relative extremum must be a stationary value, but a stationary value may be
associated with either a relative extremum or an inflection point.

Look at the following examples on how to find the relative maximum and minimum of a
function.

Example 1: Find the relative extrema of the function

f (x) = x2 – 4x + 5
Solution:
First find the first derivative of the function;
f1(x) = 2x
2x – 4, then equate f1(x) to zero
f1(x) = 2x
2x – 4 = 0
2x
2x = 4, x = 2 is the only critical value.
Now check the sign of f1(x) by taking numbers from the immediate left and right of x = 2
Let's take 1.9 from the left and 2.1 from the right.

f1(x) = 2x
2x – 4.
At x = 1.9,
f1(x) = 2(1.9) – 4 = 3.8 – 4 = -0.2 < 0
At x = 2.1
f1(x) = 2(2.1) – 4 = 4.2 – 4 = 0.2 > 0

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Therefore, the sign of f1(x) changes from negative to positive. Hence f(2) = 1 is a relative
minimum.

Example 2: f(x) = x3 – 12x

12x2 + 36x
36x + 8
Solution:
The first derivative of f (x) is
f1(x) = 3x2 – 24x
24x + 36 equating this to zero,
3x2 – 24x
3x 24x + 36 = 0
x1 = 2 and x2 = 6 are the critical values.

Next check the signs of f1(x) by taking numbers from the immediate left and right of x = 2 and
x=6
x = 1.9 and x = 2.1
At x = 1.9, f1(x) = 3(1.9)2 – 24(1.9) + 36 = 1.23
At x = 2.1, f1(x) = 3(2.1)2 – 24(2.1) + 36 = -1.17

Since the sign of f1(x) changes from positive to negative, f(2) = 40 is a relative maximum.

At x = 5.9, f1(x) = 3(5.9)2 – 24(5.9) + 36 = -1.17

At x = 6.1, f1(x) = 3(6.1)2 – 24(6.1) + 36 =1.23

Since f1(x) changes its sign from negative to positive, f(6) = 8 is a relative minimum.

(x3 – 1) 4
Example 3: f(x) = (x
Solution:
The critical values of the function
f1(x) = 4(x
4(x3 – 1)3 (3x
(3x2) = 0
(x3 – 1)3 = 0 or 3x
(x 3x2 = 0
x3 = 1 or x = 0
x = 1 or x = 0 are the critical values.

Take numbers to the immediate right and left of x = 1, ex. 0.8 and 1.1
f1(0.8) = 4( (0.8)3 – 1)3 (3 (0.8)2 ) = -0.8925<0
f1(1.1) = 4( (1.1)3 – 1)3 (3 (1.1)2 ) = 0.52656>0

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Therefore, since the sign of f1(x) changes from negative to positive, f(1) = 0 is a relative
minimum.

The next thing to do is to check whether the other critical value x = 0 corresponds to the
maximum or minimum or saddle point of the function. Take numbers from the immediate
right and left of x = 0, say –0.1 and 0.1

f1(-0.1) = 4( (-0.1)3 – 1)3 (3 (-0.1)2 )= -0.12

f1(0.1) = 4( (0.1)3 – 1)3 (3 (0.1)2 )= -0.119

Since f1(x) does not change its sign, f(0) = 1 is neither a relative maximum nor a relative
minimum. It is a saddle point.

Check Your Progress Exercise -4

1. Define an inflection point
2. For the following functions
i) Find the critical values of f
ii) Find the relative extremum by using first order test

a) b)
c)

4.3.2 Second Derivative Test for Relative Extremum

The second derivative can be used to find the relative maxima or relative minima of a
function. This test is more convenient than the first derivative test, because it does not require
us to check the derivative sign to both the left and the right of x0.

If the first derivative of a function f at x = x0 is f1(x0) = 0, then the value of the function at x0,
f(x0), will be

a) A relative maximum if the second derivative value at x0 is f11 (x

(x0) < 0.
b) A relative minimum if the second derivative value at x0 is f11 (x
(x0) > 0.

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But if f11 (x
(x0) = 0, the stationary value f(x0) can be either a relative maximum, or a relative
minimum, or even an inflection value. In this case we must revert to the first derivative test,
or to another test. Let's see the following examples:

4x2 –x
Example 4: Find the relative extremum of the function f(x) = 4x –x by using the second
derivative test.
Solution:
First find the first derivative of the function and then the critical value
f1(x) = 8x
8x – 1 x = 1/8 is the critical value
Then find the second derivative
f11(x) = 8 and check the sign of the second derivative at the critical value
f11 (1/8) = 8 > 0

Therefore, f (1/8) = -1/16 is the relative minimum

Example 5: y = g(x) = x3 – 3x
3x2 + 2
Solution:
First derivative of the function
g1(x) = 3x
3x2 – 6x
6x, equating this to zero, we get
3x2 – 6x
6x = 0 x(3x
(3x – 6) = 0 x = 0 or x = 2 are critical values.

Stationary values are g(0) = 2 and g(2) = -2

To check whether these are the relative maximum or minimum values, find the second
derivative
g''(x
''(x) = 6x
6x – 6
g'' (0) = 6(0) – 6 = -6 < 0, hence g(0) =2 is a relative maximum
g'' (2) = 6(2) – 6 = 6 > 0, hence g(2) = -2 is a relative minimum.

Students may follow the following steps for finding a min/max value by using second
derivative test.

1.Find the first derivative, f ' (x

(x) for the given function y = f(x)
2.Find the critical values of the function (values of x that make f ' (x
(x) = 0)

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3.Find the second derivative, f '' (x
(x) or of the function y = f(x)

4.Put x = x0 in step 3 (i.e. evaluate f'' (x

(x) at x0).

From step 4, if f'' (x

(x0) > 0, f (x
(x0) is a relative minima.
If f'' (x
(x0) < 0, f (x
(x0) is a relative maxima.

Example 6: Find the relative extrema of the function f(x) = x4 + 2x

2x3 – 3x
3x2 – 4x
4x + 4
Solution:
Follow the above steps

Step 1:
1: f ' (x 4x3 + 6x
(x) = 4x 6x2 – 6x
6x –4
Step 2:
2: f '(x 4x3 + 6x
'(x) = 4x 6x2 – 6x 2x3 + 3x
6x – 4 = 0 2x 3x2 – 3x
3x –2 = 0
By solving this equation we get
x0 = 1, x0 = -1/2 and x0 = -2. These are the critical values.
Step 3:
3: f ''(x 12x2 + 12x
''(x) = 12x 12x – 6
Step 4:
4: At x0 = 1, f '' (1) = 12 + 12 –6 = 18 > 0
At x0 = -1/2, f '' (-1/2) = 12(1/4) + 12(-1/2) – 6 = -9 < 0
At x0 = -2, f ''(-2) = 12(-2)2 + 12(-2) – 6 = 18 > 0

Therefore, f (x
(x) has a relative minimum at x = 1, f (1) = 0 and x = -2, f (-2) = 0. It has a relative
maximum at x = -1/2, f (-1/2) = 81/16

Check Your Progress Exercise -5

1. Use the second derivative test to find the relative extremum of the following functions.

a) b)

c) d)

4.4 THE NTH-DERIVATIVE TEST FOR RELATIVE EXTREMUM OF A FUNCTION

OF ONE VARIABLE

If the first derivative of a function f (x

(x) at x0 is f ' (x
(x0) = 0 and if the first non-zero derivative
value at x0 encountered in successive derivation is that of the N th derivative, then
the stationary value f(x0) will be

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 a) a relative maximum if N is an even number and f(N) (x
(x0) < 0.
b) a relative minimum if N is an even number but f(N) (x
(x0) > 0.
c) an inflection point if N is odd.

It should be clear from the above statement that the N th derivative test can work if and only if
the function f(x) is capable of yielding, sooner or later, a non zero derivative value at the
critical value x0.

If f(x) is a constant function, for instance, then obviously f '(x

'(x) = f ''(x
''(x) = --- = 0, so that no non
zero derivative value can ever be found. This, however, is a trivial case, since a constant
function requires no test for extremum any way.

Example1: (x – 4)6
Example1: Find the relative extremum of the function y = (x
Solution:

Step 1: f ' (x 6(x-4)5, when f ' (x

(x) = 6(x (x) = 0
6(x-4)5 = 0, x = 4 is the critical value
Step 2: 6(x
f ''(x 30(x – 4)4, f ''(4) = 0
''(x) = 30(x

We now go on differentiating until we met a non zero derivative value at the point x = 4
f'''(x 120(x – 4)3 at x = 4, f'''(4) = 0
'''(x) = 120(x
f4(x) = 360 (x
(x – 4)2 at x = 4, f4(4) = 0
f5(x) = 720(x
720(x – 4) at x = 4, f5(4) = 0
f6(x) = 720 at x = 4, f6(4) = 720

Therefore, f6(4) = 720 is a relative minimum. This is because n = 6 is even and f6(4) = 720 >
0.

Example 2: Find the relative extremum of the function y = (7 – x)4.

Solution:
'(x) = 4(7 – x)3 (-1) = 0
f '(x

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x = 7 is the critical value for testing, with y = 0 as the stationary value of the function. We
should continue on derivation of the function until we encounter a non zero derivative value at
the critical value x = 7

''(x) = 12(7 – x)2, so that f'' (7) = 0

f ''(x
f'''(x
'''(x) = -24(7 – x) , so that f'''(7) = 0
f4(x) = 24 , so that f4(7) = 24

Therefore, since 4 is an even number and f(4) (7) is positive, we conclude that the point (7,0)
represents a relative minimum.

Check Your Progress Exercise -6

1. Use the Nth derivative test to find the relative extremum of the following functions.
a) =-(x+13)4
b) y =-(x (2x-7)3
c) y = (2x

4.5 SOME EXAMPLES ON ECONOMIC APPLICATIONS

In this section we will try to see the application of calculus in solving economic problems by
the help of the following examples.

Example 1: Find the relative extremum of the average cost function by using the first
derivative test
AC = f(Q) = Q2 – 5Q
5Q + 8 where Q is the level of output
Solution:
The first derivative of the function is
f1(Q) = 2Q
2Q – 5 equating this to zero
2Q
2Q – 5 = 0 Q = 5/2 = 2.5

Taking numbers from the immediate left and right of Q = 2.5, say Q = 2.4 and Q = 2.6,
f1(2.4) = 2(2.4) – 5 = 4.8 – 5 = -0.2 < 0
f1(2.6) = 2(2.6) – 5 = 5.2 – 5 = 0.2 > 0

Therefore, since f1(Q) changes its sign from negative to positive AC = Q = f(2.5) is a relative
minimum.

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Note that since the graph of the average cost function is U – shaped curve, the relative
minimum already found is also the absolute minimum.

Example 2: Let the R(Q) and C(Q) be the revenue and cost functions respectively and
R(Q) = 1200Q 2Q2
1200Q – 2Q
C(Q) = Q3 – 61.25Q
61.25Q2 + 1528.5Q
1528.5Q + 2000

Then
a) find the profit maximizing level of output
b) what is the maximum profit

Solution: There are two ways to solve this problem

i) use the second derivative test or
ii) by using the marginal revenue-marginal cost approach.
Let's solve the problem by using (i)
Profit = Total Revenue – Total Cost
= TR – TC
= R(Q) – C(Q)

= 1200Q 2Q2 – (Q
1200Q – 2Q (Q3 – 61.25Q
61.25Q2 + 1528.5Q
1528.5Q + 2000)
-Q3 + 59.25Q
= -Q 59.25Q2 – 328.5Q
328.5Q – 2000

Next find the critical values from the profit function

'(Q -3Q2 + 118.5Q
'(Q) = -3Q 118.5Q – 328.5 = 0
Q = 3 or Q = 36.5 are the critical values
Then check the sign of the second derivative at Q = 3 and Q = 36.5

At x = 3,

At x = 36.5,

Therefore, Q = 36.5 is the profit maximizing level of output.

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b) The maximum profit can be found by directly substituting Q = 36.5 in to the
profit function
= -(36.5)3 + 59.25(36.5)2 – 328.5(36.5) – 2000 = 16318.44

Note: The above problem can also be solved by MR – MC approach (ii). This requires
equating MR and MC and solving for Q (the profit maximizing level of output). Students
may need to consult introduction to economics (Econ. 101) on the rules of profit
maximization.

Example 3: Suppose the total cost of producing a certain commodity is given by

a). Find the level of output at the smallest value of the average cost.
b). Find the level of output, which equates the average cost and marginal cost.

Solution:

a).

Equating the first derivative of the average cost function to zero,

, for

Then find the second derivative of the average cost function

is positive when is minimal on when , when 4 units are

produced.

b) First find the average cost and marginal cost function of the total cost function and equate
them.

or , the same as that point in part (a) for which average cost is minimal.

Derivation of the relationship between Elasticity and Revenue

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Let’s start from the revenue equation,
. where R is the total revenue, p is price and q is the quantity.
Differentiate both sides with respect to

To get the elasticity , multiply the expression on the right

hand side by as follows:

If (inelastic), then and

i.e. the derivative of with respect to is positive, and so revenue is an

increasing function of price.

If 1(elastic), then (again, since is negative) and

, which implies that revenue is a decreasing function of price.

Example1: Suppose the demand and price for a certain commodity are related by the
equation (for )

a) Determine where the demand is elastic, inelastic, and of unit elasticity with respect to
price.
b) Use the results of part (a) to describe the behavior of the total revenue as a function of
price.
c) Find the total revenue function explicitly and use its first derivative to determine its
intervals of increase and decrease and the price at which revenue is maximized.

Solution:
a) The elasticity of demand is

The demand is of unit elasticity when i.e.

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 or .
But only is in the relevant interval .
If ,

and hence demand is inelastic

If

and hence demand is elastic.

b) The total revenue is an increasing function of when demand is inelastic, that is on the
interval , and a decreasing function of when demand is elastic, that is on the interval
. At the price of unit elasticity, the revenue function has a relative
maximum.
c) The revenue function is

is zero when , of which only is in the relevant interval .

If , is positive and so is increasing.
If , is negative and so is decreasing.
At the critical value , stops increasing and starts decreasing and hence has a
relative maximum.

R(p)

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 0 10 Price

Check Your Progress Exercise -7

1. For the total cost function C(Q) = Q3-5Q
-5Q2 + 60Q
60Q
a) Find the average cost function (AC)
b) Find the minimum average cost

2. Given the total revenue function R(Q) = 4350Q-13Q2 and the total cost function
4350Q-13Q
C(Q) = Q3-5.5Q
C(Q -5.5Q2 + 150Q
150Q + 675
a) Find the critical value(s) of the profit function
b) Calculate the maximum profit (Check by using second derivative test)

3. If the demand function is given by Q = 36-2p

36-2p, find the marginal revenue function

4. The total revenue and cost function of a firm are given as follows
R(Q) = 1400Q 7.5Q2
1400Q - 7.5Q
C(Q) = Q3- 6Q
6Q2 + 140Q
140Q + 750

a) Use the MR-MC approach to find the level of output that maximizes profit.
b) Check the second order conditions

4.6 SUMMARY

Absolute maximum and minimum

Absolute extrema on closed intervals
Relative maximum and minimum
Critical values
First order test

If a relative extremum of the function occurs at x = xo, then either

1. f1(xo) = 0 or
2. f1(xo) does not exist.

Therefore, f(x0) will be

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 a) a relative maximum if f1(x) changes its sign from positive to negative from the
immediate left of the point x0 to its immediate right.
b) a relative minimum if f1(x) changes its sign from negative to positive from the
immediate left of x0 to its immediate right.
c) neither a relative maximum nor a relative minimum if f1(x) has the same sign on
both the immediate left and right of point xo.

Second order test

If f1(x0) = 0, then f(x0) will be
a) A relative maximum if f11 (x
(x0) < 0.
b) A relative minimum if f11 (x
(x0) > 0.

But if f11 (x
(x0) = 0, the stationary value f(x0) can be either a relative maximum, or a relative
minimum, or even an inflection value.
Inflection point, stationary points
The Nth derivative test
MR-MC approach
Relationship between revenue and elasticity

4.7 ANSWERS TO CHECK YOUR PROGRESS EXERCISES

Check Your Progress Exercise - 1

a) f (0) = 2 is an absolute maximum, f (2) = is an absolute minimum.

b) f (2) = 46 is an absolute maximum, f (5) = 32.5 is an absolute minimum.
c) f (1) = 2 is an absolute minimum but it has no absolute maximum.

Check Your Progress Exercise -2

a) f(2) =10 is the absolute minimum.
b) f(2)=6 is the absolute maximum, f(3) = -37 is the absolute minimum.

Check Your Progress Exercise - 4

2. a) The critical values are x =1 and x =3 .The function has a relative minimum at

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 x =3 and f(x) =1 and a relative maximum at x =1 and f(x) = 5

b) The critical values are x =1, x = -1 and x = 0. The function has a relative minimum at
x = 0 and f(x) = 0 and a relative maximum at x =1 and x =-1 and f(x) =1 in both cases.

c) f(x) has no relative extrema. The sign of the first derivative does not change.

Check Your Progress Exercise - 5

a) f(x) has a relative minimum point at ( )

b) f(x) has no relative extrema.
c) f(x) has a relative minimum point at(4,8) and a relative maximum point(-4,-8)
d) f(x) has a relative minimum point at(2,3)

Check Your Progress Exercise - 6

a) f(0) = 5 is a relative minimum b) f(-13) = 0 is a relative maximum
c) f(3.5) = 0 is an inflection point

Check Your Progress Exercise -7

1. a) AC = Q2-5Q
-5Q + 60. b) The minimum average cost is AC(2.5) = 53.75

2. a) Q = -40 and Q = 35 are the critical values.

b) The maximum profit is 94262.5

3. MR =18-Q
=18-Q

4.a) Q = -21 and Q = 20 are the critical values. But we ignore the negative critical values.
b) When you check the second order condition you will get = -123<0. Hence the
result in (a) is a relative maximum.

4.8 MODEL EXAMINATION QUESTIONS

1. Find the relative extrema of the following functions

a) f(x) = x3 – 6x
6x2 + 9x
9x +1 b) f(x) = x4 + 2x
2x3 – 3x
3x2 – 4x
4x + 4
f(x) = x3 – 9x
c) f( 9x2 + 24x
24x – 10 2x3 + 4
d) f(x) = 2x
e) f(
f(x) = 2 – 6x 2x3
6x – 2x f) f(x) = x + 4/x
4/x

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2. Use second derivative test to find the relative maxima and minima for each function
below.
a) f(x) = x3 – 6x
6x2 + 9x
9x + 1 1/6x6 – 4x
b) f(x) = 1/6x 4x5 + 25x
25x4
c) f(x) = x + 16/x
16/x d) f(x) = x4 – 8x
8x2 + 10
(2-x)3 + 1
e) f(x) = (2-x f) g)

h)

3. Find the stationary values of the following functions by using the Nth derivative test:
(x-2)4
a) f(x) = (x (3-x)6 + 7
b) f(x) = (3-x
(5-x)3
c) f(x) = (5-x
4. If the relationship between price (birr per unit) and the demand Q (units per week) is
given by P = 1,296 – 0.12 Q2 , 0 < Q < 80
The weekly revenue can be approximated by
0.12Q3 , 0 < Q < 80
R(Q) = PQ = 1296 Q - 0.12Q
a) Find the relative extrema for the revenue function.
b) Find the relative extrema for the profit function.

5. Given the cost function c (x 0.25x2, where x is the number if items

(x) = 1,600 + 0.25x
produced, find the minimum average cost?

6. A company manufactures and sells x transistor radios per week. If the weekly cost and
price-demand equations are
c(x
c(x) = 5,000 + 2x
2x
P = 10 – 0.001x
0.001x, 0 x 10,000
Find a) the maximum revenue b) the maximum profit

7. The total cost of producing x units per month is given by C (x

(x) = 4,000 + 10x 0.1x2
10x + 0.1x
Find the minimum average cost.

8. Assume that the total cost of producing a certain commodity x is

a). Find the level of output x at the minimum value of the average cost.
b). Find the level of out put x which equates the AC and MC

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9. Suppose the price-demand equation for x units of a commodity is determined from
empirical data to be P = 100 e-0.05x
-0.05x
. Where x units are sold per day at a price of birr P
each. Find the production level and price that maximize revenue. What is the maximum
revenue?

10. A manufacturer can produce tape recorders at a cost of $20 apiece. It is estimated that if
the tape recorders are sold for x dollars apiece, consumers will buy 120- x of them each
month. Use calculus the determine the price at which the manufacturer's profit will be the
greatest.

11. The gross national product (GNP) of a certain country was N(t) = t2 + 5t
5t + 106 billion
dollars t years after 1980.

a) At what rate was the GNP changing with respect the time in 1988?
b) At what percentage rate was the GNP changing with respect to time in 1988?

40x – x2
12. Suppose a revenue function R is given by R(x) = 40x for 0 < x < 40
Find the marginal revenue at 10.

4.9 REFERENCES

Abiy Kifle and Bisrat Dilnesahu: A first course in calculus.

calculus.

Barnett and Ziegler: Applied Calculus for Business, Economics, Life Sciences, and
Sciences, 6thed.
Social Sciences,

economics, 3rd ed.

Chiang, Alpha c.: Fundamental methods of mathematical economics,

Applications, 5th ed.

Hoffman and Bradley: Brief calculus with Applications,

Schaum,s Outlines: Introduction to Mathematical Economics,

Economics, 3rd ed.

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