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Session 3
Business Mathematics
Business Mathematics
Slide 2 of 29
Rules of calculus
Let Y = 7
Thus:
dy/dx = 0
0
Business Mathematics
X
3
26
Thus:
dy/dx = 13
Rule 2
13
Business Mathematics
x
4
dy
n 1
n ax
dx
Example:
Let y = 4x3
Thus:
dy / dx 12 x
Rule 3
Business Mathematics
Power functions
6
(g)
(f)
dx dx
dx
Example:
Let y = (4x)(3x2)
Thus:
dy/dx = (4)(3x2) + (6x)(4x) = 36x2
Business Mathematics
Rule
4
Rule 5
Rule 5: The derivative of the sum of
functions is equal to the sum of the
derivatives.
If y = f(x) + g(x), then:
dy/dx = df/dx + dg/dx
Example:
Let: y = .1x2 2x3
Thus:
dy/dx = .2x 6x2
Business Mathematics
dx
g2
Example
Suppose we have: y = x/(8 + x)
Thus:
dy/dx = [1 (8 + x) 1 (x)]/ (8 + x)2 = 8/(8 + x)2
Business Mathematics
Rule 6
Business Mathematics
10
Differentiation
Differentiation can be thought of as
a
process which transforms one
function into a different one. The
new function is known as the
derivative of the original one.
The derivative of the simple
function,
dy
b
1
b
y = ax is given by abx
dx
Business Mathematics
Slide 11 of 29
Slide 12 of 29
dy
0
equation,
dx
Solving the
will identify the turning points of a
function.
The second derivative can then be
used to indicate whether the
turning point is a maximum or
minimum.
when the second derivative is positive,
it signifies a minima.
when the second derivative is
negative, it signifies a maxima.
Business Mathematics
Slide 13 of 29
Use of differentiation in a
business context
In any commercial environment,
the profit can be considered as a
simple function of the difference
between the revenue obtained
from the sale of a number of
products and the costs involved in
their production.
Profit = Revenue - Cost
Business Mathematics
Slide 14 of 29
Cost function
The cost involved in standard
processes can be normally
categorised as follows:
fixed cost
variable cost
special/optional cost
Slide 15 of 29
Total cost
Average cost =
total quantity
dC
cost, dx
Marginal
is defined as the
extra cost incurred of producing
another item at activity level x.
Business Mathematics
Slide 16 of 29
Business Mathematics
Slide 17 of 29
Revenue function
R(x) = x . Pr (x)
where x is the quantity of items
demanded (supplied or produced).
Pr (x) is the fixed cost associated with
the product.
Business Mathematics
Slide 18 of 29
Business Mathematics
Slide 19 of 29
Business Mathematics
Slide 20 of 29
dR
Marginal revenue,dx
is the extra
revenue obtained from producing another
item at activity level x.
Business Mathematics
Slide 21 of 29
Profit function
difference between revenue
function and cost function, P =
Revenue cost
dP
Profit maximisation
or
dx
minimisation occur when
=
0.
The maximum
dR profit
dC point for
be found by
some process can
dx dx
solving the equation:
Business Mathematics
Slide 22 of 29
Break-even point
It is the level of production where profit
is zero or when the total revenue for a
period will equal the total costs for the
same period. i.e. R = C
Hence, Pq = F + Vq
F
fixed cost
q
P V contributi on/unit
Slide 23 of 29
Break-even chart
It is a graphical representation of
the cost and revenue associated
with different levels of output.
It is useful in business decisionmaking as it enables companies to
identify the level of output which,
given the prevailing cost and
revenue function, maximises profit.
Business Mathematics
Slide 24 of 29
Business Mathematics
25
2Q 0.1Q 3.6
2
26
Business Mathematics
27
Profit
4.0
2.0
0.0
-2.0
-4.0
0.0
2.0
4.0
6.0
-6.0
Quantity
Business Mathematics
=(2*a3)-(.1*a3^2)-3.6
Quantity
(000s)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Profit
(000s)
-3.6
0.0
2.8
4.8
6.0
6.4
6.0
4.8
2.8
0.0
-3.6
29