Quantitative Methods Decision Making

Calculus-Based Optimization
Learning Objectives (1 of 2)

After completing this module, students will be able to:

3 Find derivatives for several common types of

functions.
4 Find the maximum and minimum points on curves.
5 Use derivatives to maximize total revenue and other
functions.
Introduction
• Calculus and derivatives are helpful in finding the best
solution to some business problems

• Basically, differential calculus is use to either minimize cost

or maximize profit
Some Common Derivatives (1 of 4)
Table M6.1 Some Common Derivatives

FUNCTION DERIVATIVE

Y =C Y = 0
Y equals C. Y prime equals 0.

Y  = nX n –1
Y equals X super n. Y prime equals n X super n minus 1.

n
Y=X
Y equals c X super n. Y prime equals c n X super n minus 1.

Y = cX n
Y  = cnX n –1
–n
Y equals 1 over X super n. Y prime equals negative n over X super n minus 1.

1 Y  = n +1
Y= X
Xn
Y  = g ( x ) + h( x )
Y equals g of x plus h of x. Y prime equals g prime of x plus h prime of x.

Y = g ( x ) + h( x )
Y  = g ( x ) – h( x )
Y equals g of x minus h of x. Y prime equals g prime of x minus h prime of x.

Y = g ( x ) – h( x )
Some Common Derivatives (2 of 4)
1. If Y = c, then Y  = 0
c = constant
2. If Y = X n, then Y  = nX n –1

if Y = X 2, then Y  = 2 X 2–1 = 2 X
if Y = X 3, then Y  = 3 X 3 –1 = 3 X 2
if Y = X 9, then Y  = 9 X 9 –1 = 9 X 8

3. If Y = cX n, then Y  = cnX n –1

if Y = 4 X 3, then Y  = 4(3) X 3 –1 = 12 X 2
if Y = 2 X 4, then Y  = 2(4) X 4 –1 = 8 X 3
Some
4. Common Derivatives (3 of 4)

1 –n
If Y = n , then Y  = – nX – n –1
= n +1
x X

1 –3
if Y =
X3

or Y = X –3

, then Y  = –3 X –3–1
= –3 X –4
=
X4
2 –8
if Y = 4 , then Y  = 2  –4  X –4–1
= 5
X X
Some Common Derivatives (4 of 4)
5. If Y = g ( x ) + h( x ), then Y  = g ( x ) + h( x )

if Y = 2 X 3 + X 2, then Y  = 2(3) X 3 –1 + 2 X 2 –1 = 6 X 2 + 2 X
if Y = 5 X 4 + 3 X 2, then Y  = 5(4) X 4 –1 + 3(2) X 2 –1 = 20 X 3 + 6 X

6. If Y = g ( x ) – h( x ), then Y  = g ( x ) – h( x )

if Y = 5 X 3 – X 2, then Y  = 5(3) X 3 –1 – 2 X 2 –1 = 15 X 2 – 2 X
if Y = 2 X 4 – 4 X 2, then Y  = 2(4) X 4 –1 – 4(2) X 2 –1 = 8 X 3 – 8 X
Second Derivatives
• The second derivative of a function is the derivative of
the first derivative
• Denoted as Y  or d 2Y ÷ dX 2
If
Y = 64 X 4 + 4 X 3

dY
Y = = 6(4) X 4–1 + 4(3) X 3–1
dX
= 24 X 3 +12 X 2
d 2Y
Y  = = 24(3) X 3–1
+12(2) X 2–1

dX 2
= 72 X 2 + 24 X
Maximum and Minimum (1 of 4)
Figure M6.4 Graph of Curve with Local Maximum and Local
Minimum
Maximum and Minimum (2 of 4)
• Find a local optimum by taking the first derivative of the
function, set it equal to 0, and solve for X
• Critical point
for at X = 2,
1 3 Y  = 2(2) – 8 = –4
Y= X – 4 X 2 +12 X + 3
3
negative number = local maximum
Y  = X 2 – 8 X +12 = 0
( X – 2)( X – 6) = 0 at X = 6,
Y  = 2 X – 8 Y  = 2(6) – 8 = 4

Critical points when X = 2 positive number = local minimum

and X = 6
Maximum and Minimum (3 of 4)
Figure M6.5 Graph
of Function with Point
of Inflection at X = 0
Maximum and Minimum (4 of 4)
for
Y = X3
Y  = 3X 2 when X = 0, Y  = 6(0) = 0
Critical point, X = 0 • Neither minimum nor maximum
Y  = 3(2) X 2–1 = 6 X • Point of inflection

Critical point will be

1. A maximum if the second derivative is negative
2. A minimum if the second derivative is positive
3. A point of inflection if the second derivative is zero
Partial Differentiation

• It is used in cases where functions involve two or three

independent variables
• Eg. Price per unit may depend on direct material cost,
direct labour cost, quality , overheads etc.
• In this case, we have it 4 independent variables.
• Suppose we have a function Z, involving 2 independent
variables x and y , we have;
• Z = f (x, y)
Partial differentiation
• The partial differential of Z with respect to x means
differencing Z with respect to x, keeping y constant and is
written mathematically

• = lim

• Partial differencial offZ with respect to y;

• = lim
Partial differentiation

• Note the following

• fx = , f xx = = )

• fy = , f yy = = )

• fxy = = )
Partial differentiation

•Fxy = fyx

•=)
 Competitive and Complementary
Products

• Given that products A and B with demand functions Qa

and Qb representing A and B are competitive if

• ,

• A and B are complementary if

• ,
Maxima and Minimum Points

• A necessary condition for maximum or minimum is

• = 0, =0
• solve the resulting equations for the turning points
• A sufficient condition for maximum or minimum is
• ( ) ( )= ) - 0
• and when
• 0, 0 we have a MINIMUM
Maxima and Minimum Points
• If
• 0, 0 we have a MAXIIMUM
Example

• Given f(x, y) = y + -
• Find fx , fxx, fy, fyy, fyx
• Solution
• fx= = 4xy + -

• fxx = ) = (4xy + - ) = 4y +

• Same for fy and fyy

Example

• fxy = = ) = (4xy + - )

• fxy = 4x + 2y – 4xy
• fyx = = ) = ( + 2xy - y)

• Fyx = 4x + 2y – 4xy

• Therefore fxy = fyx

Example 2

• The demand function for products A and B are given by

• +
• = 500 + -

• Determine whether A and B are competitive or

• complementary
• solution
Example 2

• +
• = 2 , Positive
• Also,
• = 500 + -
• = 4, Positive
• Since 0, 0

• The products are competitive

Example 3

• The production function Q is given by

• Q = 0.540.02 - 0.9 where L and K are units of labour and
capital respectively, and Q is quantity of output produced.
• Find the amounts of L and K that will maximize Q

• Solution : take home against next week