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Notes Prepared By:

Mohammad Kamrul Arefin


Notes on Applied Mathematics

for Business and Economics Students

Table of Contents

Contents Page

Differential Calculus 1-64

Applications of Differential Calculus 65-81

Integral Calculus 82-108

Applications of Integral Calculus 109-127

Matrices and its Applications 128-142

Linear Programming & Simplex Method 143-177


Applied Mathematics

Practice Questions and Answers # 1


Problem Set 7-2:

Question No. 5:

x 1 1 1
2 2
0
lim    0
x1 x 1 11 2

Question No. 6:

x 1 1 1
2 2
2
lim   1
x1 x 1 11 2

Question No. 7:

x 5 2 5
2 2
9
lim     o r u n d e fin e d
x 2 x 2 2 2 0
A n s : L im it d o e s n o t e x is t

Question No. 9:

1 1
li m ( x  1) 3
 ( a  1) 3

x a

Question No. 10:

1 1
lim ( x  1) 2
 ( 2 4  1) 2
 25  5
x  24

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 1


Question No. 13:

4( 3 )  9 4(9 )  9
2
4x  9
2
2 4 0
lim   
x 3
2 2x  3 2( 3 )  3 33 0
2
It a p p e a r s f r o m th e a n s w e r th a t d e n o m in a to r a n d n u m e r a to r

h a v e a c o m m o n f a c to r a n d th e lim it c a n b e e v a lu a te d a f te r

e m p lo y in g th e p r o c e s s o f c a n c e lla tio n .

4x  9 (2 x)  3 ( 2 x  3)( 2 x  3)
2 2 2

lim  lim  lim  lim ( 2 x  3 )


x 3
2 2x  3 x 3
2 2x  3 x 3
2 2x  3 x 3
2

 2( 3 )3  33  6
2
A ns: 6

Question No. 14:

9( 5 )  25 9(25 )  25
2
9 x  25
2
3 9 0
lim   
x 5
3 3x  5 3( 5 )  5 3( 5 )5 0
3 3
It a p p e a r s f r o m th e a n s w e r th a t d e n o m in a to r a n d n u m e r a to r

h a v e a c o m m o n f a c to r a n d th e lim it c a n b e e v a lu a te d a f te r

e m p lo y in g th e p r o c e s s o f c a n c e lla tio n .

9 x  25 (3 x )  5 (3 x  5 )(3 x  5 )
2 2 2

lim  lim  lim  lim ( 3 x  5 )


x 5
3 3x  5 x 5
3 3x  5 x 5
3 3x  5 x 5
3

 3( 5 )  5  5  5  10
3
A ns: 10

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 2


Question No. 16:

3
x 0
lim 4

x 0 x 0
It a p p e a r s f r o m th e a n s w e r th a t d e n o m in a to r a n d n u m e r a to r

h a v e a c o m m o n f a c to r a n d th e lim it c a n b e e v a lu a te d a f te r
e m p lo y in g th e p r o c e s s o f c a n c e lla tio n .
3 3
x x 1 1
lim 4
 lim 3
    o r u n d e f in e d
x 0 x x 0 x(x ) x 0
A n s : L im it d o e s n o t e x is t

Question No. 19:

( h )( 2 x  3 h ) (0 ){2 x  3(0 )} 0
lim  
h 0 h 0 0
It a p p e a r s f r o m th e a n s w e r th a t d e n o m in a to r a n d n u m e r a to r

h a v e a c o m m o n f a c to r a n d th e lim it c a n b e e v a lu a te d a f te r

e m p lo y in g th e p r o c e s s o f c a n c e lla tio n .

( h )( 2 x  3 h )
lim  lim ( 2 x  3 h )  { 2 x  3 ( 0 ) }  2 x
h 0 h h 0

A ns: 2x

Question No. 23:

x 1 1 1
3 3
0
lim  
x1 x 1 11 0
It a p p e a rs fro m th e a n s w e r th a t d e n o m in a to r a n d n u m e ra to r

h a v e a c o m m o n fa c to r a n d th e lim it c a n b e e v a lu a te d a fte r

e m p lo y in g th e p ro c e s s o f c a n c e lla tio n .

x 1 ( x  1)( x  x  1)
3 2

 lim  lim ( x  x  1)  3
2
lim
x1 x 1 x1 x 1 x1

A ns: 3

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 3


Question No. 24:

x  2 2  2
3 3
6
lim     o r u n d e fin e d
x 2 x 2 2 2 0
A n s : L im it d o e s n o t e x is t

Question No. 25:

x 2 x2
lim (  )  lim ( )  lim (1)  1
x 2 x2 x2 x 2 x2 x 2

A ns: 1

Question No. 26:

x 1
2 2
x 1 0
lim (  )  lim ( ) 
x1 x 1 x 1 x1 x 1 0
It a p p e a rs fro m th e a n s w e r th a t d e n o m in a to r a n d n u m e ra to r

h a v e a c o m m o n fa c to r a n d th e lim it c a n b e e v a lu a te d a fte r

e m p lo y in g th e p ro c e s s o f c a n c e lla tio n .

x 1 ( x  1)( x  1)
2

lim ( )  lim  lim ( x  1)  2


x1 x 1 x1 x 1 x1

A ns: 2

Question No. 29:

x  x6 2  26
2 2
0
lim   
x  4 2  4
2 2
x 2 0
It a p p e a r s f r o m th e a n s w e r th a t d e n o m in a to r a n d n u m e r a to r

h a v e a c o m m o n f a c to r a n d th e lim it c a n b e e v a lu a te d a f te r

e m p lo y in g th e p r o c e s s o f c a n c e lla tio n .

x  x6 x  3x  2x  6 x ( x  3)  2 ( x  3)
2 2

lim  lim  lim


x  4 ( x  2 )( x  2 ) ( x  2 )( x  2 )
2
x 2 x 2 x 2

( x  3)( x  2 ) ( x  3) (2  3) 5
 lim  lim  
x 2 ( x  2 )( x  2 ) x 2 (x  2) (2  2) 4
5
A ns:
4

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 4


Applied Mathematics

Practice Questions and Answers # 2


Problem Set 7-3:

Question No. 3:

x
f (x) 
x 1
2

T h e a b o v e f u n c tio n w ill b e c o n tin u o u s f o r a ll th e v a lu e s o f x e x c e p t w h e n ,

x 1 0
2

 1
2
or, x

or, x   1 o r im a g in a r y n u m b e r
T h e r e f o r e w e c a n c o n c lu d e th a t th e a b o v e f u n c tio n h a v e n o d is c o n tin u ity .

Question No. 4:

x 2
f (x) 
x  4
2

T h e a b o v e f u n c tio n w ill b e c o n tin u o u s f o r a ll th e v a lu e s o f x e x c e p t w h e n ,

x  4  0
2

 4
2
or, x
or, x  2
T h e r e f o r e w e c a n c o n c lu d e th a t th e a b o v e f u n c tio n h a v e d is c o n tin u ity w h e n x = + 2 o r -2 .

Question No. 5:

x  4
2

f (x) 
x 2
T h e a b o v e f u n c tio n w ill b e c o n tin u o u s f o r a ll th e v a lu e s o f x e x c e p t w h e n ,

x 2  0

or, x  2

T h e r e f o r e w e c a n c o n c lu d e th a t th e a b o v e f u n c tio n h a v e d is c o n tin u ity w h e n th e v a lu e o f x = 2 .

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 5


Question No. 6:

x 2
f (x) 
x  5x  6
2

T h e a b o v e f u n c tio n w ill b e c o n tin u o u s f o r a ll th e v a lu e s o f x e x c e p t w h e n ,

x  5x  6  0
2

or, x  2 x  3x  6  0
2

o r , ( x  2 )( x  3)  0

e ith e r , ( x  2 )  0 o r ( x  3 )  0

i .e x  2 , 3

T h e r e f o r e w e c a n c o n c lu d e th a t th e a b o v e f u n c tio n h a v e d is c o n tin u ity w h e n th e v a lu e o f x = 2 o r 3 .

Question No. 7:

f ( x )  { x  1; x > 1 }

f ( x )  { x; x  1}

b e c a u s e x > 1 a n d a ls o x  1,

w e n e e d to c h e c k if th e fu n c tio n is c o n t in u o u s o r d is c o n tin u o u s a t p o in t x = 1

lim ( x  1)  2 a n d lim ( x )  1
x1 x1

h e r e , lim ( x  1)  lim ( x )
x1 x1

T h e re fo re w e c a n c o n c lu d e th a t th e fu n c tio n is d is c o n t in u o u s fo r x = 1

Question No. 8:

f ( x )  { x  1; x  1 }
f ( x )  {2; x < 1 }

b e c a u s e x  1 a n d a ls o x <1,
w e n e e d to c h e c k if th e fu n c tio n is c o n t in u o u s o r d is c o n tin u o u s a t p o in t x = 1
lim ( x  1)  2 a n d lim ( 2 )  2
x1 x1

h e r e , lim ( x  1)  lim ( x )
x1 x1

T h e re fo re w e c a n c o n c lu d e th a t th e fu n c tio n h a v e n o d i s c o n tin u ity .

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 6


Question No. 9:

f ( x )  { x  1; x   }
2

f ( x )  { x  3; x < 2 }

b e c a u s e x   a n d a ls o x < 2 ,
w e n e e d to c h e c k if th e fu n c tio n is c o n t in u o u s o r d is c o n tin u o u s a t p o in t x = 2

lim ( x  1)  2 + 1 = 5 a n d lim ( x  3 )  2  3  5
2 2

x 2 x 2

h e r e , lim ( x  1)  lim ( x  3 )
2

x 2 x 2

T h e re fo re w e c a n c o n c lu d e th a t th e fu n c t io n h a v e n o d is c o n tin u ity .

Question No. 10:

x
f (x)  {  1; x    }
2
f ( x )  { x  2; x <  2 }
b e c a u s e x    a n d a ls o x <  2 ,

w e n e e d to c h e c k if th e fu n c tio n is c o n t in u o u s o r d is c o n tin u o u s a t p o in t x =  2
x 2
lim (  1)  (  1) = 0 a n d lim ( x  2 )   2  2  0
x 2 2 2 x 2

x
h e r e , lim (  1)  lim ( x  2 )
x 2 2 x 2

T h e re fo re w e c a n c o n c lu d e th a t th e fu n c t io n h a v e n o d is c o n tin u ity .

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 7


Additional Question 1:

1 1
f (x)  {  x; 0< x< }
2 2
1 1
f (x)  { ; x  }
2 2
3 1
f (x)  {  x; <x<1}
2 2
1 1 1
because 0< x< , x  a n d a ls o < x < 1,
2 2 2
1
w e n e e d to c h e c k if th e fu n c tio n is c o n t in u o u s o r d is c o n tin u o u s a t p o in t x =
2
1 1 1
li m (  x)  (  )=0,
1
x 2 2 2
2

1 1
li m ( )  and
1
x 2 2
2

3 3 1
li m (  x)    1
1
x 2 2 2
2

1 1 3
here, li m (  x )  li m ( )  li m (  x)
1 1 1
x 2 x 2 x 2
2 2 2

1
T h e r e f o r e w e c a n c o n c lu d e t h a t t h e f u n c t i o n i s d i s c o n t i n u o s a t x 
2
Additional Question 2:

f (x)  {x ; 0<x<1}
2

f ( x )  { x ; 1  x < 2}

1
f (x)  { x ; 2  x<3}
3

4
b e c a u s e 0 < x < 1 , 1  x < 2 a n d a ls o 2  x < 3 ,

w e n e e d to c h e c k if th e fu n c tio n is c o n tin u o u s o r d is c o n tin u o u s


a t th e b re a k p o in t x = 1 a n d 2

1 1
li m ( x )  (1 ) = 1 , li m ( x )  1 a n d li m ( x ) 
2 2 3

x1 x1 x1 4 4


1
h e r e , li m ( x )  li m ( x )  li m (
2 3
x )
x1 x1 x1 4
T h e r e f o r e w e c a n c o n c lu d e t h a t t h e f u n c t i o n i s d i s c o n t i n u o s a t x  1
1
li m ( x )  ( 2 ) = 4 , li m ( x )  2 a n d li m ( x )  2
2 2 3

x 2 x 2 x 2 4
1
h e r e , li m ( x )  li m ( x )  li m (
2 3
x )
x 2 x 2 x 2 4
T h e r e f o r e w e c a n c o n c lu d e t h a t t h e f u n c t i o n i s d i s c o n t i n u o s a t x  2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 8


Additional Question 3:

f ( x )  { x ; 0 < x < 1}
f ( x )  {2  x; 1  x  2 }
1
f (x)  {x 
2
x ; x > 2}
2
b e c a u s e 0 < x < 1 , 1  x  2 a n d a ls o x > 2 ,
w e n e e d to c h e c k if th e fu n c tio n is c o n t in u o u s o r d is c o n tin u o u s
a t th e b re a k p o in t x = 1 a n d 2
li m ( x )  (1) = 1 , li m ( 2  x )  2  1  1
x1 x1

1 1 1
a n d li m ( x  x ) 1 
2 2
1
x1 2 2 2
1
h e r e , li m ( x )  li m ( 2  x )  li m ( x 
2
x )
x1 x1 x1 2
T h e r e f o r e w e c a n c o n c lu d e t h a t t h e f u n c t i o n i s d i s c o n t i n u o u s a t x  1
li m ( x )  ( 2 ) = 2 , li m ( 2  x )  2  2  0
x 2 x 2

1 1
a n d li m ( x  x )  2   0
2 2
2
x 2 2 2
1
h e r e , li m ( x )  li m ( 2  x )  li m ( x 
2
x )
x1 x1 x1 2
T h e r e f o r e w e c a n c o n c lu d e t h a t t h e f u n c t i o n i s d i s c o n t i n u o u s a t x  2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 9


Additional Question 4:

3
f ( x )  {3  2 x ;   x < 0}
2
3
f ( x )  {3  2 x ; 0  x < }
2
3
f ( x )  { 3  2 x; x  }
2
3 3 3
because   x<0, 0  x< a n d a ls o x  ,
2 2 2
w e n e e d to c h e c k if th e fu n c tio n is c o n t in u o u s o r d is c o n tin u o u s
3
a t th e b re a k p o in t x = 0 a n d
2
li m ( 3  2 x )  3 , li m ( 3  2 x )  3
x 0 x 0

a n d li m (  3  2 x )   3
x 0

h e r e , li m ( 3  2 x )  li m ( 3  2 x )  li m (  3  2 x )
x 0 x 0 x 0

T h e r e f o r e w e c a n c o n c lu d e t h a t t h e f u n c t i o n i s d i s c o n t i n u o u s a t x  0
li m ( 3  2 x )  6 , li m ( 3  2 x )  0
3 3
x x
2 2

a n d li m (  3  2 x )   6
3
x
2

h e r e , li m ( 3  2 x )  li m ( 3  2 x )  li m (  3  2 x )
3 x v 3
x x
2 2

3
T h e r e f o r e w e c a n c o n c lu d e t h a t t h e f u n c t i o n i s d i s c o n t i n u o s a t x 
2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 10


Applied Mathematics

Practice Questions and Answers # 3


Problem Set 7-4:

Apply the three steps of the delta method to determine derivatives of x for each of the
following. Then find the slope of the curve of f(x) for the stated value of x.

Question No. 1:

f (x)  3x  2

{3 ( x  h )  2}  {3 x  2}
D e r iv a tiv e o f x = f  ( x )  lim
h 0 h
3 x  3h  2  3 x  2 3h
 lim  lim  lim 3  3
h 0 h h 0 h h 0

S lo p e a t x = 1 ; f  (1)  3

Question No. 2:

f ( x )  2  0 .5 x

{ 2  0 .5 ( x  h ) }  { 2  0 .5 x }
D e r iv a tiv e o f x = f  ( x )  lim
h 0 h
2  0 .5 x  0 .5 h  2  0 .5 x  0 .5 h
 lim  lim  lim (  0 .5 )   0 .5
h 0 h h 0 h h 0

S lo p e a t x = 1 ; f  (1)   0 .5

Question No. 3:

f (x)  x  2x 1
2

{( x  h)  2 ( x  h )  1}  { x  2 x  1}
2 2

D e r i v a t i v e o f x = f  ( x )  li m
h 0 h
 2 xh  h  2 x  2h  1  x  2x 1 2 xh  h  2h
2 2 2 2
x
 li m  li m
h 0 h h 0 h
h(2 x  h  2)
 li m  li m ( 2 x  h  2 )  2 x  2
h 0 h h 0

S lo p e a t x = 1 ; f  (1)  2 (1)  2  0

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 11


Question No. 4:

f (x)  3x  12 x  2
2

{3 ( x  h )  1 2 ( x  h )  2}  {3 x  1 2 x  2}
2 2

D e r i v a t i v e o f x = f  ( x )  li m
h 0 h
 6 xh  3h  12 x  12h  2  3x  12 x  2 6 xh  3h  12h
2 2 2 2
3x
 li m  li m
h 0 h h 0 h
h (6 x  3h  1 2 )
 li m  li m ( 6 x  3 h  1 2 )  6 x  1 2
h 0 h h 0

S lo p e a t x = 3 ; f  ( 3 )  6 ( 3 )  1 2  6

Question No. 5:

1
f (x) 
x
1 1

x  h x
D e r i v a t i v e o f x = f  ( x )  li m
h 0 h
x  (x  h) x  x  h
x(x  h) x
2
 hx
 li m  li m
h 0 h h 0 h
h 1 1 1 1
 li m { . }  li m   
 hx  hx
2 2 2 2
h 0 x h h 0 x x x

1 1
S lo p e a t x = 2 ; f  ( 2 )   2
 
2 4

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 12


Question No. 6:

1
f (x)  2
x
1 1

(x  h)
2 2
x
D e r i v a t i v e o f x = f  ( x )  li m
h 0 h
 (x  h)  (x  2 xh  h )
2 2 2 2 2
x x
x (x  h)  2 xh  h )
2 2 2 2 2
x (x
 li m  li m
h 0 h h 0 h
 x  2 xh  h  2 xh  h
2 2 2 2
x
 2x h  x h  2x h  x h
4 3 2 2 4 3 2 2
x x
 li m  li m
h 0 h h 0 h
h(2 x  h) 1 2 x  h 2 x 2
 li m { . }  li m   
 2x h  x h  2x h  x h
4 3 2 2 4 3 2 2 4 3
h 0 x h h 0 x x x

2 2
S lo p e a t x =  1; f  (  1)      2
(  1) (  1)
3

Question No. 7:

f (x)  x  2 x
3

{ ( x  h )  2 ( x  h )}  { x  2 x }
3 3

D e riv a tiv e o f x = f  ( x )  lim


h 0 h
x  3 x h  3 xh  h  2 x  2 h  x  2 x 3 x h  3 xh  h  2h
3 2 2 3 3 2 2 3

 lim  lim
h 0 h h 0 h
h (3 x  3 x h  h  2 )
2 2

 lim  lim (3 x  3 x h  h  2 )  3 x  2
2 2 2

h 0 h h 0

S lo p e a t x = 2 ; f  ( 2 )  3 ( 2 )  2  1 4
2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 13


Additional Question No.1:

f (x)  x
3

(x  h)  x
3 3

D e riv a tiv e o f x = f  ( x )  lim


h 0 h
x  3 x h  3 xh  h  x 3 x h  3 xh  h
3 2 2 3 3 2 2 3

 lim  lim
h 0 h h 0 h
h (3 x  3 x h  h )
2 2

 lim  lim (3 x  3 x h  h )  3 x
2 2 2

h 0 h h 0

Additional Question No.2:

f (x)  e
x

(xh)
e
x
e
D e riv a tiv e o f x = f  ( x )  lim
h 0 h
e .e  e e ( e  1) ( e  1)
x h x x h h

 lim  lim  e lim


x

h 0 h h 0 h h 0 h
2 3
1 x x x
 e lim { ( e  1)} ; [N o te : e  {1     ..............    
x h x

h 0 h 1  
2 3
1 h h h
 e lim {1     ............ ..    1}
x

h 0 h 1  
2 3
1 h h h
 e lim {    ..............   }
x

h  0 h 1  
2
1 1 h h
 e lim    ..............   }
x
{h (
h 0 h 1  
2
h h
 e lim {1    ..............   }
x

h 0  
 e
x

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 14


Additional Question No.3:

f (x)  a
x

(xh)
a
x
a
D e riv a tiv e o f x = f  ( x )  lim
h 0 h
a .a  a a ( a  1) ( a  1)
x h x x h h

 lim  lim  a lim


x

h 0 h h 0 h h 0 h
h
a
lo g e
(e  1) a
lo g e
h
h lo g e
e

 a lim  a  a  a ]
x h .1 h
; [N o te : e
h 0 h
a
h lo g e
 1)
2 3
(e x x x
 a lim ; [N o te : e  {1     ... ...........    
x x

h 0 h 1  
2 2 3 3
1 h lo g a h (lo g a ) h (lo g a )
 a lim {1     ..............    1}
x

h 0 h 1  
2 2 3 3
1 h lo g a h (lo g a ) h (lo g a )
 a lim {    ..............   }
x

h 0 h 1  
2 2 3
1 lo g a h (lo g a ) h (lo g a )
 a lim   .............   } ]
x
[ h{
h 0 h 1  
2 2 3
h (lo g a ) h (lo g a )
 a lim { lo g a   .............   }
x

h 0  
 a lo g a
x

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 15


Additional Question No.4:

f ( x )  lo g e x

lo g ( x  h )  lo g x
D e riv a tiv e o f x = f  ( x )  lim
h 0 h
1 xh
 lim . lo g
h 0 h x
1 h 1 1 1
 lim . lo g (1  ); [N o te : lo g (1  x )  x  x  x  x  ..........   ]
2 3 4

h 0 h x 2 3 4
1 h 1 h 2 1 h 3 1 h 4
 lim .{  ( )  ( )  ( )  ..........   
h 0 h x 2 x 3 x 4 x
2 3
1 1 1 h 1 h 1 h
 lim .h {  2
 3
 4
 ..........   
h 0 h x 2 x 3 x 4 x
2 3
1 1 h 1 h 1 h
 lim {  2
 3
 4
 ..........   
h 0 x 2 x 3 x 4 x
1

x

Additional Question No.5:

f ( x )  lo g a  lo g a . lo g e x
x e

d
D e riv a tiv e o f x = f  ( x ) 
e
(lo g a . lo g e x )
dx
d
 lo g a
e
(lo g e x )
dx
1

e
lo g a
x

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 16


Applied Mathematics

Practice Questions and Answers # 4


Problem Set 7-5:

F in d f  ( x ). D o n o t le a v e n e g a tiv e e x p o n e n ts in a n s w e rs .

Question No. 1:

f (x)  2  k

d d
D e r iv a tiv e o f f ( x ) = f  ( x )  [ f ( x )]  [2  k ]
dx dx
d d
 (2)  (k )  0
dx dx

Question No. 2:

f (x)  x

d d
D e riv a tiv e o f f(x ) = f  ( x )  [ f ( x )]  [ x]  1
dx dx

Question No. 3:

f (x)  x / 2

d d
D e r iv a tiv e o f f ( x ) = f  ( x )  [ f ( x )]  [ x / 2]
dx dx
d 1 1 d 1 1
 [ .x ]  [x]  .1 
dx 2 2 dx 2 2

Question No. 4:

f (x)  2 x  3

d d
D e r iv a tiv e o f f ( x ) = f  ( x )  [ f ( x )]  [2 x  3]
dx dx
d d d
 (2 x)  (3)  2 (x)  0  2
dx dx dx

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 17


Question No. 5:

f (x)  x / 3  4

d d
D e r iv a tiv e o f f ( x ) = f ( x )  [ f ( x )]  [ x / 3  4]
dx dx
d x d 1 d 1 1
 ( ) (4)  (x)  0  .1 
dx 3 dx 3 dx 3 3

Question No. 6:

f ( x )  2 / 3  3( x / 2 )  2 / 3  3 x / 2

d d
D e r iv a tiv e o f f ( x ) = f  ( x )  [ f ( x )]  [2 / 3  3 x / 2]
dx dx
d d d 3 3 d 3
 (2 / 3)  (3 x / 2 )  0  ( x)   (x)  
dx dx dx 2 2 dx 2

Question No. 7:

f (x)  3x  2 x  5
2

d d
D e r iv a tiv e o f f ( x ) = f  ( x )  [ f ( x )]  [3 x  2 x  5 ]
2

dx dx
d d d d d
 (3 x )  (2 x)  (5 )  3 (x )  2 ( x)  0
2 2

dx dx dx dx dx
2 1
 3(2 x )  2 (1)  6 x  2

Question No. 8:

3 2
x x
f (x)    x  12
3 2
3 2
d d x x
D e r iv a tiv e o f f ( x ) = f  ( x )  [ f ( x )]  [   x  12]
dx dx 3 2
3 2
d x d x d d
 ( ) ( ) (x)  (1 2 )
dx 3 dx 2 dx dx
1 d 1 d
 (x )  (x )  1 0
3 2

3 dx 2 dx
1 3 1 1 2 1
 ) )1 x  x 1
2
(3 .x ( 2 .x
3 2
Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 18
Question No. 12:

f (x)  ax  bx  c
2

d d
D e r iv a tiv e o f f ( x ) = f  ( x )  [ f ( x )]  [ax  bx  c]
2

dx dx
d d d
 (ax )  (b x ) 
2
(c )
dx dx dx
d d
 a (x )  b (x)  0
2

dx dx
2 1
 a ( 2 .x )  b  2ax  b

Question No. 20:

d
(1 0 y  4 x  7 )
2

dy
d d d
 (1 0 y )  (4 x) 
2
(7 )
dy dy dy
d d
 10 (y ) 4 ( x)  0  10(2 y )  0  0  20 y
2

dy dy

Question No. 22:

d
(3 p w  2 p )
2 3

dx
d d
 (3 p w ) 
2 3
(2 p )
dx dx
 0 0  0

Question No. 24:

d a
 3m  5a )
2 3
(
dm m
d a d d d 1 d
 ) (3 m )  (5 a )  a )3 (m )  0
2 3 2
( (
dm m dm dm dm m dm
d 1  11 2 a
 a (m )  3 ( 2 m )  a (  1m )  6m   am  6m   2
 6m
dm m

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 19


Find the slope of the tangent to each of the following curves at the indicated value
of x:

Question No. 25:

f (x)  3

d d
S lo p e  f  ( x )  [ f ( x )]  [3]  0
dx dx
S lo p e a t x = 1 ; f  (1)  0

Question No. 29:

f (x)  3x  2 x  5
2

d d
S lo p e  f  ( x )  [ f ( x )]  [3 x  2 x  5 ]
2

dx dx
d d d
 (3 x )  (2 x)  (5 )  3 ( 2 x )  2 (1)  0  6 x  2
2

dx dx dx
S lo p e a t x = 0 .5 ; f  ( 0 .5 )  6 ( 0 .5 )  2  1

Question No. 30:

f (x)  3x  2 x  5
2

d d
S lo p e  f  ( x )  [ f ( x )]  [3 x  2 x  5 ]
2

dx dx
d d d
 (3 x )  (2 x)  (5 )  3 ( 2 x )  2 (1)  0  6 x  2
2

dx dx dx
S lo p e a t x = 0 .5 ; f  ( 0 .5 )  6 ( 0 .5 )  2  1

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 20


Question No. 33:

f (x)  8x  x
1/3

d d
S lo p e  f  ( x )  [ f ( x )]   x]
1/3
[8 x
dx dx
1 2
d d 1 1 8  8 1 8 1
 ) ( x)  8( )1 1 1 1
1/3 3 3
(8 x x x 2
3 2
dx dx 3 3 3 3 x
x3
8 1 8 1 8 1
S lo p e a t x = 8 ; f  (8 )  2
1  2
1  2
1
3 3 3 3 3.
(8 ) 3 (2 ) 3 2 3

8 1 8 1 2 5
 2
1 1 1
3 2 3 4 3 3

Find the value of x for which the slope is 0


Question No. 35:

f (x)  10  3x  3x
2

d d
S lo p e  f  ( x )  [ f ( x )]  [1 0  3 x  3 x ]
2

dx dx
d d d
 (1 0 )  (3 x )  ( 3 x )  0  3 ( 2 x )  3 (1)   6 x  3
2

dx dx dx
S lo p e  0

or, 6 x  3  0

or, 6 x  3
or, x  1 / 2

S lo p e w ill b e 0 w h e n x = 1 /2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 21


Question No. 37:

f (x)  3x  4 x; x> 0
1/3

d d
S lo p e  f  ( x )  [ f ( x )]   4 x]
1/3
[3 x
dx dx
1 2
d d 1 1  1
 ) (4 x )  3( )  4 (1)  x 4  4
1/3
(3 x x3 3
2
dx dx 3
x3
S lo p e  0
1
or, 2
 4  0
x3
1
or, 2
 4
x3
2
1
or, x 3 
4
2
.3 1
 (
3 3
or, x )
4
1

2
or, x
64
1
or, x  
8
a s x > 0 , h e n c e s lo p e is 0 w h e n x = 1 /8

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 22


Question No. 41: If the total cost of producing y yards of Yardall is,

C(y) = 0.001y2+2y+500, Find the marginal cost at outputs of a) 1,000 yards b)2,000 yards

d d
M a r g in a l C o s t  C  ( y )  [C ( y )]  [ 0 .0 0 1 y  2 y  5 0 0 ]
2

dy dy
d d d
 ( 0 .0 0 1 y )  (2 y )  ( 5 0 0 )  0 .0 0 1( 2 y )  2 (1)  0  0 .0 0 2 y  2
2

dy dy dy
a ) M a r g in a l C o s t a t o u tp u ts = 1 0 0 0 y a r d s
C  (1 0 0 0 )  0 .0 0 2 (1 0 0 0 )  2  $ 4 p e r y a r d

b ) M a r g in a l C o s t a t o u t p u ts = 2 0 0 0 y a r d s

C  ( 2 0 0 0 )  0 .0 0 2 ( 2 0 0 0 )  2  $ 6 p e r y a r d

Question No. 41: If the total cost of producing t tons of Tonal is,

C(t) = 0.0005t3-0.3t2+100t+30,000,
Find the marginal cost at outputs of a) 100 tons b)200 tons

d d
M a r g in a l C o s t  C  ( t )  [C (t )]  [ 0 .0 0 0 5 t  0 .3 t  1 0 0 t  3 0 0 0 0 ]
3 2

dt dt
d d d d
 ( 0 .0 0 0 5 t )  ( 0 .3 t )  (1 0 0 t ) 
3 2
(3 0 0 0 0 )
dt dt dt dt
 0 .0 0 0 5 ( 3 t )  0 .3 ( 2 t )  1 0 0 (1)  0  0 .0 0 1 5 t  0 .6 t  1 0 0
2 2

a ) M a r g in a l C o s t a t o u tp u ts = 1 0 0 to n s

C  (1 0 0 )  0 .0 0 1 5 (1 0 0 )  0 .6 (1 0 0 )  1 0 0  $ 5 5 p e r to n
2

b ) M a r g in a l C o s t a t o u tp u ts = 2 0 0 to n s

C  ( 2 0 0 )  0 .0 0 1 5 ( 2 0 0 )  0 .6 ( 2 0 0 )  1 0 0  $ 4 0 p e r to n
2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 23


Applied Mathematics

Practice Questions and Answers # 5


Problem Set 7-6:

F in d f  ( x ). D o n o t le a v e n e g a tiv e e x p o n e n ts in a n s w e rs .

Question No. 1:

f ( x )  (6 x  5)
5

d d 5 1 d
f ( x )  [ f ( x )]  [(6 x  5 ) ]  5 (6 x  5 ) (6 x  5)
5

dx dx dx
d d
 5(6 x  5) [ (6 x ) 
4
(5 )]
dx dx
d
 5(6 x  5) [6 ( x )  0 ]  5(6 x  5) [6 ]  3 0 (6 x  5)
4 4 4

dx

Question No. 2:

f ( x)  (2 x  6)
5

d d 5 1 d
f ( x )  [ f ( x )]  [( 2 x  6 ) ]  5 ( 2 x  6 ) (2 x  6)
5

dx dx dx
d d
 5(2 x  6) [ (2 x) 
4
(6 )]
dx dx
 5(2 x  6) [2]  10(2 x  6)
4 4

Question No. 3:

f ( x)  (2 x)
3

d d 3 1 d
f ( x )  [ f ( x )]  [( 2 x ) ]  3( 2 x )
3
(2 x)
dx dx dx
 3(2 x ) (2 )  2 4 x
2 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 24


Question No. 4:

1
3
f ( x )  (6 x )
1 1
d d 1 1 d
f ( x ) 
3 3
[ f ( x )]  [(6 x ) ]  3
(6 x ) (6 x )
dx dx dx
2
1  1 2
3
 3
(6 x ) (6 )  2 2

3 2
3 (6 x )
(6 x )

Question No. 5:

f ( x)  (4 x) 2
1 1
d d 1 1 d
f ( x )  [ f ( x )]  [( 4 x ) 2 ]  (4 x) 2 (4 x)
dx dx 2 dx
1
1  1 2 2 1
 (4 x) 2
(4)  2 1
  
2 (4 x) 2 x x
(4 x) 2

Question No. 6:

f ( x )  (9 x ) 3
4 4
d d 4 1 d
f ( x )  [ f ( x )]  [(9 x ) ]  3
(9 x ) 3 (9 x )
dx dx 3 dx
4 1
4 1
 (9 x ) 3
(9 )  1 2 (9 x ) 3
3

Question No. 7:
3

f ( x )  (8 x  3 ) 2
3 3
d d 3 1 d
f ( x )  [ f ( x )]  [(8 x  3 ) ]  2
(8 x  3 ) 2 (8 x  3 )
dx dx 2 dx
3 1 1
3 1 d d 3
 (8 x  3 ) 2
{ (8 x )  (3 )}  (8 x  3 ) (8 )  1 2 (8 x  3 ) 2  1 2 8 x  3
2

2 dx dx 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 25


Question No. 8:

f ( x )  (1 2 x  9 ) 3
5 5
d d 5 1 d
f ( x )  [ f ( x )]  [ (1 2 x  9 ) 3 ]  (1 2 x  9 ) 3 (1 2 x  9 )
dx dx 3 dx
2 2
5
 (1 2 x  9 ) 3 (1 2 )  2 0 (1 2 x  9 ) 3  2 0 (1 2 x  9 )
3 2

Question No. 9:

f ( x )  (3 x  6 x  2 ) 2
2

5
d d
f ( x )  [ f ( x )]  [(3 x  6 x  2 ) 2 ]
2

dx dx
5
5 1 d
 (3 x  6 x  2 ) 2 (3 x  6 x  2 )
2 2

2 dx
3 3
5 5
 (3 x  6 x  2 ) 2 (6 x  6 )  ( 3 x  6 x  2 ) 2 6 ( x  1)
2 2

2 2
3

 1 5 ( x  1) ( 3 x  6 x  2 ) 2  1 5 ( x  1) (3 x  6 x  2 )
2 2 3

Question No. 10:

f (x)  (x  3x  6 x)3
3 2

4
d d
f ( x )  [ f ( x )]  [( x  3 x  6 x ) 3 ]
3 2

dx dx
4
4 1 d
 (x  3x  6 x)3 (x  3x  6 x)
3 2 3 2

3 dx
1
4
 ( x  3 x  6 x ) 3 (3 x  6 x  6 )
3 2 2

3
1 1
4
 ( x  3 x  6 x ) 3( x  2 x  2 )  4 ( x  2 x  2 )( x  3 x  6 x ) 3
3 2 3 2 2 3 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 26


Question No. 11:

f ( x )  (2 x  3) 2
1
d d
f ( x )  [ f ( x )]  [( 2 x  3) 2 ]
dx dx
1
1 1 d
 (2 x  3) 2 (2 x  3)
2 dx
1 1
1   1 1
 (2 x  3) 2
(2 )  (2 x  3) 2
 1

2 (2 x  3)
(2 x  3) 2

Question No. 12:

f ( x )  (3 x  5 ) 3
2

2
d d
f ( x )  [ f ( x )]  [(3 x  5 ) 3 ]
2

dx dx
2
2 1 d
 (3 x  5 ) 3 (3 x  5 )
2 2

3 dx
1 1
2   4x
 (3 x  5 ) (6 x )  4 x (3 x  5 ) 
2 3 2 3
1
3
(3 x  5 ) 3
2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 27


Question No. 13:
4 1 1
f (x)   4  4 (2 x  3)
2x  3 2x  3
d d 1 d 1
f ( x )  [ f ( x )]  [4 (2 x  3) ]  4 [( 2 x  3) ]
dx dx dx
 11 d 2
 4 (  1) ( 2 x  3 ) (2 x  3)   4 (2 x  3) (2)
dx
2 8
  8(2 x  3)  
(2 x  3)
2

A n o th e r M e th o d

d d
(2 x  3) (4)  4 (2 x  3)
d 4 dx dx
f ( x )  ( ) 
2x  3 (2 x  3)
2
dx
( 2 x  3)(0 )  4 ( 2 ) 8
  
(2 x  3) (2 x  3)
2 2

Do the following at your home:

6 9
Question No. 14: f ( x )  Question No. 17: f ( x ) 
(3 x  5 )
2
3x  5

12
Question No. 18: f ( x ) 
(2 x  10)
3

Question No. 15:


1
f (x)  (  2)
2

x
d 1 1 2 1 d 1
f ( x )    2) ]  2(  2)  2)
2
[( (
dx x x dx x
1 d 1 1  11 1 2
 2(  2) (x  2)  2(  2 )( x  0)  2(  2 )( x )
x dx x x
1 2 1 1
 2(  2 )(  x )  2 2
(  2)
x x x

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 28


Question No. 16:
1
f ( x )  (5 
3
2
)
x
d 1 1 3 1 d 1
f ( x )   [(5  ) ]  3(5  (5 
3
2 2
) 2
)
dx x x dx x
1 d 2 1  2 1
 3(5  (5  x )  3(5  ) {0  (  2 ) x
2 2
2
) 2
)
x dx x
1 3 1 1
 3(5  )  6 (5 
2 2
2
) (2 x 3 2
)
x x x

Question No. 19:


10
f (x)  5x 
(3 x  2 )
d 10 d d 10
f ( x )  [5 x  ]  (5 x )  { }
dx (3 x  2 ) dx dx (3 x  2 )
d d
(3 x  2 ) (1 0 )  1 0 (3 x  2 )
dx dx 0  1 0 (3)
 5   5 
(3 x  2 ) (3 x  2 )
2 2

30
 5 
(3 x  2 )
2

Do the following at your home:

5
Question No. 20: f ( x )  0 .1 x 
5  0 .2 x

1
f (x)  3x  1
Question No. 21:
(5  2 x ) 2

1
f (x)  1
 2x
Question No. 22: 2
(3 x  7 )

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 29


Question No. 23:
18
F i n d g ( 2 ) i f g ( x )  1 0 x 
(5  2 x )
1/ 2

d 18 d d 18
g ( x )  [1 0 x  ]  (1 0 x )  { }
(5  2 x ) (5  2 x )
1/ 2 1/ 2
dx dx dx
1 1
d d
(5  2 x ) 2 (1 8 )  1 8 { (5  2 x ) 2 }
dx dx
 10  1

{ (5  2 x ) 2 }
2

1
1 1 d
0  18 (5  2 x ) 2 (5  2 x )
2 dx
 10 
(5  2 x )
1
1 
18. (5  2 x ) 2
(2)
 10  2
(5  2 x )
18 1 18
 10  1
 10  3
(5  2 x )
(5  2 x ) 2
(5  2 x ) 2
18
g ( x )  1 0  3

(5  2 x ) 2
2
18 18 3 .2
g ( 2 )  1 0  3
 10  3
 10  3

(5  4 ) 2 2 2
(9 ) (3 ) 2
2
3 .2 2 28
 10  3
 10  
3 3 3

Do the following at your home:

4

Question No. 24: F i n d h ( 3 ) i f h ( x )  7 x 
 1)
2 1/3
(x

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 30


Applied Mathematics

Practice Questions and Answers # 6


Problem Set 7-7:

F in d f  ( x ). D o n o t le a v e n e g a tiv e e x p o n e n ts in a n s w e rs .

Question No. 1:

f ( x )  (3 x  2 )( 2 x  5 )

d d d
f ( x )  [(3 x  2 )( 2 x  5 )]  (3 x  2 ) (2 x  5)  (2 x  5) (3 x  2 )
dx dx dx
 (3 x  2 )( 2 )  ( 2 x  5 )(3)  6 x  4  6 x  1 5  1 2 x  1 1

Question No. 2:

f ( x )  (7 x  3)( 4  3 x )

d d d
f ( x )  [(7 x  3)( 4  3 x )]  (7 x  3) (4  3 x)  (4  3 x) (7 x  3)
dx dx dx
 (7 x  3)(  3)  ( 4  3 x )(7 )   2 1 x  9  2 8  2 1 x  1 9  4 2 x

Question No. 3:

f ( x )  ( x  2 )(3 x  5 )
2

d d d
f ( x )  [( x  2 )(3 x  5 )]  ( x  2 ) (3 x  5 )  (3 x  5 ) ( x  2)
2 2 2

dx dx dx
 ( x  2 )(3 )  (3 x  5 )( 2 x )  3 x  6  6 x  1 0 x  9 x  1 0 x  6
2 2 2 2

Question No. 4:

f ( x )  (3  x )(5 x  6 )
2

d d d
f ( x )  [(3  x )(5 x  6 )]  (3  x ) (5 x  6 )  (5 x  6 ) (3  x )
2 2 2

dx dx dx
 (3  x )(5 )  (5 x  6 )(  2 x )  1 5  5 x  1 0 x  1 2 x   3 (5 x  4 x  5 )
2 2 2 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 31


Question No. 5:

f ( x )  x ( x  1)
4

d d d
f ( x )  [ x ( x  1) ]  x ( x  1)  ( x  1)
4 4 4
(x)
dx dx dx
d
 4 x ( x  1) ( x  1)  ( x  1) (1)
3 4

dx
 4 x ( x  1)  ( x  1)  ( x  1) ( 4 x  x  1)  ( x  1) ( 5 x  1)
3 4 3 3

Do the following at your home: Question No. 6: f ( x )  x ( x  5 )


2 3

3 2

Question No. 7: f ( x )  x ( x  3) Question No.8: f ( x )  x ( 6 x  1)


2 2 3 3

Question No.9:

f ( x )  2 x (3 x  7 ) 3
2

1 1 1
d d d
f ( x )  [ 2 x (3 x  7 ) 3 ]  2 x (3 x  7 ) 3  (3 x  7 ) 3
2 2 2
(2 x)
dx dx dx
1 1
1 1 d
 2 x{ (3 x  7 ) 3 (3 x  7 )  (3 x  7 ) 3 ( 2 )
2 2 2

3 dx
1 1
2 1
 x{ ( 3 x  7 ) 3 (6 x )}  2 (3 x  7 ) 3
2 2

3
1 1
2 1
 x (6 x ){ (3 x  7 ) (3 x  7 ) }  2 (3 x  7 ) 3
2 3 2 2

3
1
1 1
(3 x  7 ) 3
2 2
2x
 4x { }  2 (3 x  7 )  2 (3 x  7 ) {  1}
2 2 3 2 3

(3 x  7 ) (3 x  7 )
2 2

1 1
2x  3x  7 5x  7
2 2 2

 2 (3 x  7 ) { }  2 (3 x  7 ) {
2 3 2 3
}
(3 x  7 ) (3 x  7 )
2 2

1 1
1
1
 2 (5 x  7 )(3 x  7 ) 3 (3 x  7 )  2 (5 x  7 )(3 x  7 ) 3
2 2 2 2 2

2
2 (5 x  7 )
2

 2 (5 x  7 )(3 x  7 ) 
2 2 3
2

(3 x  7 ) 3
2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 32


1

Do this your home: Question No. 10: f ( x )  3 x ( 2 x  5 )


2 3

Question No. 11:

x
f (x) 
x 1
d d
( x  1) (x)  x ( x  1)
d x dx dx
f ( x )  [ ]
dx x  1 ( x  1)
2

( x  1)(1)  x (1) x 1 x 1


   
( x  1) ( x  1) ( x  1)
2 2 2

Question No. 12:

x 2
f (x) 
x 1
d d
( x  1) ( x  2)  ( x  2) ( x  1)
d x 2 dx dx
f ( x )  [ ]
x 1 ( x  1)
2
dx
( x  1) (1)  ( x  2 ) (1) x 1 x  2 3
  
( x  1) ( x  1) ( x  1)
2 2 2

2
x
Do these at your home: Question No. 13: f ( x ) 
2x  3

3
x x
Question No. 14: f ( x )  Question No. 15: f ( x ) 
3x  5 3  2x
2

3x
Question No. 16: f ( x ) 
1 2x
2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 33


Question No. 17:

x
f (x)  1

(3 x  2 ) 2
1 1
d d
(3 x  2 ) 2 (x)  (x) (3 x  2 ) 2
d x dx dx
f ( x )  [ 1
] 1
dx
(3 x  2 ) 2 { (3 x  2 ) 2 }
2

1 1
1 1 d
( 3 x  2 ) (1)  ( x )
2
(3 x  2 ) 2 (3 x  2 )
2 dx

(3 x  2 )
1
3x
1
x 
1
(3 x  2 ) 2  1
(3 x  2 ) 2  (3 x  2 ) 2
(3)
2 2 (3 x  2 ) 2
 
(3 x  2 ) (3 x  2 )
2 (3 x  2 )  3 x
1

2 (3 x  2 ) 2 6x  4  3x 3x  4 3x  4
  1
 1
 3
(3 x  2 ) 1
2 (3 x  2 ) (3 x  2 )
2
2 (3 x  2 ) 2
2 (3 x  2 ) 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 34


Question No. 18:

2x
f (x)  1

(2 x  3) 2
1 1
d d
(2 x  3) 2 (2 x)  (2 x) (2 x  3) 2
d 2x dx dx
f ( x )  [ 1
] 1
dx
(2 x  3) 2 { (2 x  3) 2 }
2

1 1
1 1 d
(2 x  3) (2 )  (2 x )
2
(2 x  3) 2 (2 x  3)
2 dx

(2 x  3)
1
1
1 1
2 (2 x  3) 2  2 x 1

2 (2 x  3) 2
 x (2 x  3) 2
(2) (2 x  3) 2
 
(2 x  3) (2 x  3)
2 (2 x  3)  2 x 4x  6  2x 2x  6
1 1 1

(2 x  3) 2
(2 x  3) 2
(2 x  3) 2 2 ( x  3)
    1
(2 x  3) (2 x  3) (2 x  3)
( 2 x  3)( 2 x  3) 2
2 ( x  3)
 3

(2 x  3) 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 35


A n o th e r M e th o d

2x
L et Y = 1

(2 x  3) 2
2x
o r lo g Y  lo g { 1
} ; [ ta k in g lo g in b o th s id e ]
(2 x  3) 2
1

o r lo g Y  lo g ( 2 x )  lo g { ( 2 x  3 ) 2 }

1
o r lo g Y  lo g ( 2 x )  lo g ( 2 x  3 )
2
1 dy 1 d 1 1 d
or  (2 x)  (2 x  3)
Y dx 2 x dx 2 (2 x  3) d x
1 dy 1 1 1
or  (2)  (2)
Y dx 2x 2 (2 x  3)
1 dy 1 1
or  
Y dx x (2 x  3)
dy 2x  3  x
or  Y( )
dx x (2 x  3)
d 2x 2x x3
or ( 1
)  1
( )
dx x (2 x  3)
(2 x  3) 2 (2 x  3) 2
d 2x 2 ( x  3)
or ( 1
)  1
dx
(2 x  3) 2 ( 2 x  3)( 2 x  3) 2
d 2x 2 ( x  3)
or ( 1
)  3
dx
(2 x  3) 2 (2 x  3) 2

2x 1 3  5x
Do these: Question No. 19: f ( x )  20: f ( x ) 
( x  5) (x  2)
2 1/3 3 1/3

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 36


Additional Questions:
( 4 x  1)
1/ 4

f (x) 
(2 x  3) (5 x  1)
1/ 2 1/5

( 4 x  1)
1/ 4

Let Y =
(2 x  3) (5 x  1)
1/ 2 1/5

( 4 x  1)
1/ 4

o r lo g Y  lo g { } ; [ta k in g lo g in b o th s id e ]
(2 x  3) (5 x  1)
1/ 2 1/5

o r lo g Y  lo g ( 4 x  1)  lo g { ( 2 x  3 ) (5 x  1) }
1/ 4 1/ 2 1/5

o r lo g Y  lo g ( 4 x  1)  lo g ( 2 x  3 )  lo g (5 x  1)
1/ 4 1/ 2 1/5

1 1 1
o r lo g Y  lo g ( 4 x  1)  lo g ( 2 x  3 )  lo g (5 x  1)
4 2 5
1 dy 1 1 d 1 1 d 1 1 d
or  ( 4 x  1)  (2 x  3)  (5 x  1)
Y dx 4 ( 4 x  1) d x 2 (2 x  3) d x 5 (5 x  1) d x
1 dy 1 1 1 1 1 1
or  (4)  (2)  (5 )
Y dx 4 ( 4 x  1) 2 (2 x  3) 5 (5 x  1)
1 dy 1 1 1
or   
Y dx ( 4 x  1) (2 x  3) (5 x  1)
dy 1 1 1
or  Y{   }
dx ( 4 x  1) (2 x  3) (5 x  1)

( 4 x  1) ( 2 x  3 )(5 x  1)  ( 4 x  1)(5 x  1)  ( 4 x  1)( 2 x  3 )


1/ 4
dy
or  { }
(2 x  3) (5 x  1) ( 4 x  1)( 2 x  3 )(5 x  1)
1/ 2 1/5
dx

( 4 x  1) 10 x  13x  3  20 x  x  1  8 x  14 x  3
1/ 4 2 2 2
dy
or  { }
(2 x  3) (5 x  1) ( 4 x  1)( 2 x  3 )(5 x  1)
1/ 2 1/5
dx

( 4 x  1) 18 x  2 x  5
1/ 4 2
dy
or  { }
(2 x  3) (5 x  1) ( 4 x  1)( 2 x  3 )(5 x  1)
1/ 2 1/5
dx

 (1 8 x  2 x  5 )
2
dy
or 
(2 x  3) (5 x  1) ( 4 x  1)
3/2 6 /5 3/4
dx

( 4 x  1)  (1 8 x  2 x  5 )
1/ 4 2
d
i .e . { }
d x ( 2 x  3 ) (5 x  1) ( 2 x  3 ) (5 x  1) ( 4 x  1)
1/ 2 1/5 3/2 6 /5 3/4

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 37


Applied Mathematics

Additional Problems from Differentiation


1

f ( x)  ( x  3 x  5) 3
3 2
Q .1)
1 1
d 1 1 d
f ( x )  [( x  3 x  5 ) ]  ( x  3 x  5) ( x  3 x  5)
3 2 3 3 2 3 3 2

dx 3 dx
2
1  d d d
 ( x  3 x  5) (x )  3 (x ) 
3 2 3 3 2
{ (5 )}
3 dx dx dx
1 1
 {3 x  3 .2 x  0}
2
. 2
3
( x  3 x  5) 3
3 2

1 1
 .3 ( x  2 x )
2
. 2
3
( x  3 x  5) 3
3 2

(x  2 x)
2

 2

( x  3 x  5) 3
3 2

1
Q .2 ) f (x) 
4 (8 x  6 )
d 1 1 d 1
f ( x )  [ ] { }
d x 4 (8 x  6 ) 4 d x (8 x  6 )
1 d 1 1  11 d
 (8 x  6 )  (  1) (8 x  6 ) (8 x  6 )
4 dx 4 dx
1 2 2
  (8 x  6 ) (8 )  
(8 x  6 )
2
4

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 38


2
Q .3 ) f (x)  3

2 7 (1 0  3 x ) 2
3
d 2 2 d 
f ( x )  [ 3
] { (1 0  3 x ) 2
}
dx 27 dx
2 7 (1 0  3 x ) 2
3
2 3  1 d
 ( ) (1 0  3 x ) 2
(1 0  3 x )
27 2 dx
5
1  1 1
  (1 0  3 x ) 2
( 3)  . 5
9 3
(1 0  3 x ) 2
1

(1 0  3 x )
5
3

1
Q .4 ) f (x)  x  1

( 5  0 .3 x ) 3
d 1 d d 1
f ( x )  [x  1
] (x)  { 1
}
dx dx dx
( 5  0 .3 x ) 3 ( 5  0 .3 x ) 3
1 1
d d  1  1 d
 (x)  ( 5  0 .3 x ) 3
 1  ( ) ( 5  0 .3 x ) 3
( 5  0 .3 x )
dx dx 3 dx
4
1  0 .3 1
1 ( 5  0 .3 x ) 3
(  0 .3 )  1  . 4
3 3
( 5  0 .3 x ) 3
1
1
( 5  0 .3 x )
3 4
10

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 39


1

f ( x)  2 x( x  5 x) 2
3
Q .5 )
1 1
d d
f ( x )   5 x) ]  2  5 x) 2 ]
3 2 3
[2 x( x [x(x
dx dx
1 1
d d
 2[ x  5 x)  (x  5 x)2
3 2 3
(x ( x )]
dx dx
1 1
1 1 d
 2[ x .  5 x)  5 x)  (x  5 x ) 2 .1]
3 2 3 3
(x (x
2 dx
1 1
x 
 2[  5x)  5)  ( x  5 x) 2 ]
3 2 2 3
(x (3 x
2
1 1
 5)  5x
2 3
(3 x 3x
 x  2(x  5x)   2(x  5x)2
3 2 3
1 1

 5x)2  5 x)2
3 3
(x (x

 5 x  2(x  5x)  5x  2x  10 x
3 3 3 3
3x 3x
 1
 1

 5x)  5x)2
3 2 3
(x (x

 15 x  3x)
3 3
5x 5( x
 1
 1

 5x)  5x)2
3 2 3
(x (x

2x 1
Q .6 ) f (x) 
(2 x  3)
1/ 2

1 1
d d
(2 x  3) 2
( 2 x  1)  ( 2 x  1) (2 x  3) 2
d 2x 1 dx dx
f ( x )  [ ]  1
(2 x  3)
1/ 2
dx
{ (2 x  3) 2 }
2

1 1
1 1 d
( 2 x  3 ) ( 2 )  ( 2 x  1) .
2
.( 2 x  3 ) 2 (2 x  3)
2 dx

(2 x  3)
1
( 2 x  1)
1
1 
1
2 (2 x  3) 2  1
2 (2 x  3) 2  ( 2 x  1) ( 2 x  3 ) 2
(2)
2 (2 x  3) 2
 
(2 x  3) (2 x  3)
2 ( 2 x  3 )  ( 2 x  1)
1

(2 x  3) 2 4x  6  2x 1 2x  7 2x  7
  1
 3

(2 x  3) (2 x  3)
3

(2 x  3) (2 x  3) 2
(2 x  3) 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 40


 0 .4 x d
f ( x )  2 .5 e (e )  e ]
x x
Q .7 ) ; [
dx
d  0 .4 x d  0 .4 x
f ( x )  [ 2 .5 e ]  2 .5 (e )
dx dx
 0 .4 x d  0 .4 x  0 .4 x
 2 .5 e (  0 .4 x )  2 .5 e (  0 .4 )   e
dx

0 .3 x  6
Q .8 ) f ( x)  10e

d 0 .3 x  6 d 0 .3 x  6
f ( x )  [1 0 e ]  10 (e )
dx dx
0 .3 x  6 d 0 .3 x  6 0 .3 x  6
 10e ( 0 .3 x  6 )  1 0 e ( 0 .3 )  3 e
dx

 0 .3 x d
f ( x )  ( 0 .4 ) (a )  a
x x
Q .9 ) ; [ ln a ]
dx
d  0 .3 x  0 .3 x d
f ( x )  [ ( 0 .4 ) ]  ( 0 .4 ) . ln ( 0 .4 ) (  0 .3 x )
dx dx
 0 .3 x  0 .3 x
 ( 0 .4 ) . ln ( 0 .4 ) (  0 .3 )  0 .2 7 4 9 ( 0 .4 )

x d
f ( x )  5 0 0 (1 .0 8 ) ( a )  a ln a ]
x x
Q .1 0 ) ; [
dx
d x d x x d
f ( x )  [ 5 0 0 (1 .0 8 ) ]  500 [ (1 .0 8 ) ]  5 0 0 .(1 .0 8 ) . ln (1 .0 8 ) ( x)
dx dx dx
x x
 5 0 0 .(1 .0 8 ) . ln (1 .0 8 ) (  1)   3 8 .4 8 (1 .0 8 )

1 d 1
f ( x )  ln ( 2 x  5 ) ln ( 2 x  5 ); [ ( ln x ) 
1/3
Q .1 1) = ]
3 dx x
d 1 1 1 d
f ( x )  [ ln ( 2 x  5 ) ]  . (2 x  5)
dx 3 3 (2 x  5) dx
1 1 2
 . (2) 
3 (2 x  5) 3(2 x  5)
d 1
f ( x )  ln ( 2 x  6 x ); [ ( ln x ) 
3
Q .1 2 ) ]
dx x
d 1 d
f ( x )  [ ln ( 2 x  6 x ) ]  (2 x  6 x)
3 3

(2 x  6 x) dx
3
dx

 1)
2
1 1 3( x
  6)   1) 
2 2
(6 x .6 ( x
 3)  3)  3)
2 2 2
2 x(x 2 x(x x(x

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 41


1
1 d 1
Q .1 3 ) f ( x )  ln ( 3 x  2 ) 2 = ln ( 3 x  2 ); [ ( ln x )  ]
2 dx x
d 1 1 d
f ( x )  [ ln ( 3 x  2 ) ]  [ ln ( 3 x  2 ) ]
dx 2 2 dx
1 1 d 1 1 3
 . (3 x  2 )  . (3) 
2 (3 x  2 ) d x 2 (3 x  2 ) 2 (3 x  2 )

Partial Differentiation Problems

f ( x, y)  3 x  2 xy  y  4
2 2
Q .1 4 )

 
fx  [ f ( x , y )]   2 xy  y  4]  6 x  2 y
2 2
[3 x
 x  x
 
f xx  ( fx )  (6 x  2 y )  6
 x  x

 
fy  [ f ( x , y )]   2 xy  y  4]  2 x  2 y
2 2
[3 x
 y  y
 
f yy  ( fy)  (2 x  2 y )  2
 y  y

f xy  F irs t w ith re s p e c t to x th e n w ith re s p e c t to y

    
f xy  ( f )]   2 xy  y  4 )]  (6 x  2 y )   2
2 2
[ [ (3 x
 y  x  y  x  y

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 42


f ( x, y )  2 xy  3x
1/ 2 1/3
Q .1 5 ) y

 
1
1 1 y
fx  [ f ( x , y )]   3x y]  2 y  3 y.  2y 
1/ 2 1/3 1/ 2 1/ 2
[2 xy x3
 x  x
2
3
x3
 
2
y 2  1 2y
f xx  ( fx )   )   y .(  
1/ 2 3
(2 y )x
 x  x
2 5
3
3
x 3x3

  1 1 x
fy  [ f ( x , y )]   3x y ]  2 x.  3x   3x
1/ 2 1/3 1/3 1/3
[2 xy .
 y  y
1 1
2 2 2
y y
  x 1 1 x
f yy  ( fy)   3x )  x(  
1/3
( )
 y  y
1 3 3
2
2 2 2
y y 2y

f x y  F ir s t w ith r e s p e c t to x th e n w ith r e s p e c t to y

     y
f xy  ( f )]   3x y )]  
1/ 2 1/3 1/ 2
[ [ (2 xy (2 y )
 y  x  y  x  y
2

x3
1 1 1 1 1
 2 .( ). 1
 2
 1
 2
2 2 3 2
y x y x3

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 43


Applied Mathematics

Practice Questions and Answers # 7


Problem Set 8-1:

For each of the following find the coordinates of all local and endpoint optimum (maximum or
minimum) points, and all stationary inflection points.

Question No. 1:

f (x)  5x  x
2

d d d
f ( x )  [5 x  x ]  (5 x )  (x )  5  2x
2 2

dx dx dx
A t s ta tio n a r y p o in t f  ( x )  0

i .e .5  2 x  0

or, x  5 / 2
5 5 25 25 50  25 25
If x  5 / 2 th e n y = f ( 5 / 2 )  5 ( )(    
2
)
2 2 2 4 4 4
5 25
T h e r e is o n ly o n e s ta tio n a r y p o in t ( , ) o r ( 2 .5 , 6 . 2 5 )
2 4
If x  2 th e n f  ( 2 )  5  2 ( 2 )  1 , ( + v e )

T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t
If x  3 th e n f  ( 3 )  5  2 ( 3 )   1 , (  v e )

T h e f u n c tio n is d e c r e a s in g a f te r th e p o i n t

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t ( 2 .5 , 6 .2 5 ) is a
lo c a l m a x im u m a n d a s w e h a v e o n ly o n e s t a tio n a r y p o in t, th e r e is n o

m in im a o r s ta tio n a r y in f le c tio n p o in t.
Question No. 2:

f (x)  2 x  12 x  20
2

d d d d
f ( x )  [2 x  12 x  20]  2 (x )  12 ( x)  (20)  4 x  12
2 2

dx dx dx dx
A t s t a t i o n a r y p o i n t f ( x )  0

i .e .4 x  1 2  0

or, x  3

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 44


If x  3 th e n y = f ( 3 )  2 ( 3 )  1 2 ( 3 )  2 0  2
2

T h e r e is o n ly o n e s ta tio n a r y p o in t ( 3 , 2 )

If x  2 th e n f  ( 2 )  4 ( 2 )  1 2   4 , (  v e )

T h e f u n c tio n is d e c r e a s in g b e f o r e th e p o in t

If x  4 th e n f  ( 4 )  4 ( 4 )  1 2  4 , (  v e )

T h e f u n c tio n is in c r e a s in g a f te r th e p o in t

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t ( 3 , 2 ) is a

lo c a l m in im u m a n d a s w e h a v e o n ly o n e s t a tio n a r y p o in t, th e r e is n o

m a x im a o r s ta tio n a r y in f le c tio n p o in t .

Do the following at home: Q. No. 3: f ( x )  3  x Q. No. 4: f ( x )  2 x  2 0


2 2

Question No. 5:
f (x)  30 x  3x  10
2

d d d d
f ( x )  [3 0 x  3 x  1 0 ]  (3 0 x )  (3 x )  (1 0 )  3 0  6 x
2 2

dx dx dx dx
A t s ta tio n a r y p o in t f  ( x )  0

i .e .3 0  6 x  0

or, x  5

If x  5 th e n y = f ( 5 )  3 0 ( 5 )  3 ( 5 )  1 0  1 5 0  7 5  1 0  8 5
2

T h e r e is o n ly o n e s ta tio n a r y p o in t ( 5 , 8 5 )

If x  4 th e n f  ( 4 )  3 0  6 ( 4 )  6 , (  v e )

T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t

If x  6 th e n f  ( 6 )  3 0  6 ( 6 )   6 , (  v e )

T h e f u n c tio n is d e c r e a s in g a f te r th e p o i n t

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t ( 5 , 8 5 ) is a

lo c a l m a x im u m a n d a s w e h a v e o n ly o n e s t a tio n a r y p o in t, th e r e is n o

m in im a o r s ta tio n a r y in f le c tio n p o in t.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 45


Do it at home: Q. No. 6: f ( x )  x  x  1
2

Question No. 7:
f (x)  x  12 x  12
3 2

d d d d
f ( x )  [x  12 x  12]  (x )  12 (x )  (1 2 )  3 x  24 x
3 2 3 2 2

dx dx dx dx
A t s ta tio n a r y p o in t f  ( x )  0

 24 x  0
2
i .e .3 x

or , 3 x( x  8)  0

or , x( x  8)  0

E ith e r , x  0 o r, ( x  8 )  0

i .e x  0 , 8

If x  0 th e n y = f ( 0 )  ( 0 )  1 2 ( 0 )  1 2  1 2
3 2

If x  8 th e n y = f (8 )  (8 )  1 2 (8 )  1 2   2 4 4
3 2

T h e r e a r e tw o s ta tio n a r y p o in ts ( 0 , 1 2 ) a n d ( 8 ,  2 4 4 )

F ir s t le t u s c h e c k s ta tio n a r y p o in t ( 0 , 1 2 )

If x   1 th e n f  (  1)  3 (  1)  2 4 (  1)  2 7 , (  v e )
2

T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t

If x  1 th e n f  (1)  3 (1)  2 4 (1)   2 1 , (  v e )


2

T h e f u n c tio n is d e c r e a s in g a f te r th e p o i n t
T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t ( 0 , 1 2 ) is a

lo c a l m a x im u m

N o w le t u s c h e c k s ta tio n a r y p o in t ( 8 ,  2 4 4 )

If x  7 th e n f  ( 7 )  3 ( 7 )  2 4 ( 7 )   2 1 , (  v e )
2

T h e f u n c tio n is d e c r e a s in g b e f o r e th e p o in t

If x  9 th e n f  ( 9 )  3 ( 9 )  2 4 ( 9 )  2 7 , (  v e )
2

T h e f u n c tio n is in c r e a s in g a f te r th e p o i n t

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta tio n a r y p o in t ( 8 ,  2 4 4 ) is a

lo c a l m in im u m a n d a s th e r e is n o o th e r s ta tio n a r y p o in t,
th e r e f o r e th e r e is n o s ta tio n a r y in f le c t io n p o in t.

Do it at home: Q. No. 8: f ( x )  x  3 x  2
3 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 46


Question No. 9:
f (x)  3x  27
3

d d d
f ( x )  [3 x  2 7 ]  3 (x )  (27 )  9 x
3 3 2

dx dx dx
A t s ta tio n a r y p o in t f  ( x )  0

 0
2
i .e .9 x

or, x  0

If x  0 th e n y = f ( 0 )  3 ( 0 )  2 7  2 7
3

T h e r e is o n e s ta tio n a r y p o in t ( 0 , 2 7 )

If x   1 th e n f  (  1)  9 (  1) = 9 , (  v e )
2

T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t

If x  1 th e n f  (1)  9 (1) = 9 , (  v e )
2

T h e f u n c tio n is in c r e a s in g a f te r th e p o i n t

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t ( 0 , 2 7 ) is a

s ta tio n a r y in f le c tio n p o in t a n d a s th e r e is n o o th e r s ta tio n a r y p o in t,

th e r e f o r e th e r e is n o m in im a o r m a x im a .

Question No. 10:


f (x)  14  2 x
3

d d d
f ( x )  [1 4  2 x ]  (1 4 )  2 (x )  6 x
3 3 2

dx dx dx
A t s ta tio n a r y p o in t f  ( x )  0

i .e .  6 x  0
2

or, x  0

If x  0 th e n y = f ( 0 )  1 4  2 ( 0 )  1 4
3

T h e r e is o n e s ta tio n a r y p o in t ( 0 , 1 4 )

If x   1 th e n f  (  1)   6 (  1) =  6 , (  v e )
2

T h e f u n c tio n is d e c r e a s in g b e f o r e th e p o in t

If x  1 th e n f  (1)   6 (1) =  6 , (  v e )
2

T h e f u n c tio n is d e c r e a s in g a f te r th e p o i n t

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t ( 0 , 1 4 ) is a

s ta tio n a r y in f le c ti o n p o in t a n d a s th e r e is n o o th e r s ta tio n a r y p o in t,

th e r e f o r e th e r e is n o m in im a o r m a x im a .

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 47


Do these at home: Q. No. 11: f ( x )  2 1 x  2 x  6 0 x  2 0
2 3

Q. No. 12: f ( x )  6 x  x  9 x Q. No. 13: f ( x )  2 x  8 x


2 3 2

Question No. 14:


2

f (x)  9 x 3  2 x
2 2 2 1
d d d 2 1 
f ( x )  [9 x 3
 2 x]  9 (x )  23
( x)  9. (x 3
)  2  6x 3
2
dx dx dx 3
A t s ta tio n a r y p o in t f  ( x )  0
1

i .e .6 x 3
 2  0
6
or, 1
 2
x3
1
6
or,  x3
2
1

or, x 3  3
1

or, (x 3 )  3
3 3
;[ ta k in g p o w e r 3 in b o th s id e ]
or, x  27
2 2

If x  2 7 th e n y = f ( 2 7 )  9 ( 2 7 ) 3  2 ( 2 7 )  9 ( 3 ) 3  5 4
3

 9 (3 )  5 4  2 7
2

T h e r e is o n e s ta tio n a r y p o in t ( 2 7 , 2 7 )
1

If x  2 6 th e n f  ( 2 6 )  6 ( 2 6 ) 3
 2  0 .0 2 5 , (  v e )
T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t
1

If x  2 8 th e n f  ( 2 8 )  6 ( 2 8 ) 3
 2   0 .0 2 4 , (  v e )
T h e f u n c tio n is d e c r e a s in g a f te r th e p o i n t

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t ( 2 7 , 2 7 ) is a
lo c a l m a x im u m a n d a s th e r e is n o o th e r s ta tio n a r y p o in t,
th e r e f o r e th e r e is n o m in im a a n d s ta tio n a r y in f le c tio n p o in t.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 48


3 1

Do these at home: Q. No. 15: f ( x )  x  1 2 x


2 2

1 2
64
Q. No. 16: f ( x )  1 0 x  x Q. No. 17: f ( x )  4 x 
3 3

x
250
Q. No. 18: f ( x )  4 x  2
x

Question No. 19:

f (x)  x  9 x  27 x
3 2
;[ -1 ,6 ]

T h e f u n c tio n is r e s tr ic te d to a ll v a lu e s o f x

b e tw e e n -1 to 6 a n d in c lu s iv e .

d d d d
f ( x )  [x  9 x  27 x]  (x )  9 (x )  27
3 2 3 2
(x)
dx dx dx dx
 3x  18 x  27
2

A t s ta tio n a r y p o in t f  ( x )  0

i .e .3 x  1 8 x  2 7  0
2

o r , 3( x  6 x  9 )  0
2

o r , x  2 . x .3  3  0
2 2

o r , ( x  3)  0
2

or, x  3

If x  3 th e n y = f ( 3 )  3  9 ( 3 )  2 7 ( 3 )  2 7
3 2

T h e r e is o n e s ta tio n a r y p o in t ( 3 , 2 7 )

If x  2 th e n f  ( 2 )  3 ( 2 )  1 8 ( 2 )  2 7  3 , (  v e )
2

T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t

If x  4 th e n f  ( 4 )  3 ( 4 )  1 8 ( 4 )  2 7  3 (  v e )
2

T h e f u n c tio n is in c r e a s in g a f te r th e p o i n t

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t ( 3 , 2 7 ) is a

s t a tio n a r y in f le c tio n p o in t.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 49


E n d p o in t A n a ly s is :

T h e le f t h a n d e n d p o in t: x   1,

y = f (  1)  (  1)  9 (  1)  2 7 (  1)   3 7
3 2

T h e le f t h a n d e n d p o in t is (  1,  3 7 )

If x   0 .5 th e n f  (  0 .5 )  3 (  0 .5 )  1 8 (  0 .5 )  2 7  3 5 .2 5 , (  v e )
2

T h e f u n c tio n is in c r e a s in g a f te r th e p o in t
T h e r e f o r e w e c a n c o n c lu d e th a t th e le f t h a n d e n d p o in t (  1,  3 7 )

is a n e n d p o in t m in im u m .

T h e r ig h t h a n d e n d p o in t: x  6 ,

y= f (6 )  (6 )  9 (6 )  2 7 (6 )  5 4
3 2

T h e r ig h t h a n d e n d p o in t is ( 6 , 5 4 )

If x  5 th e n f  ( 5 )  3 ( 5 )  1 8 ( 5 )  2 7  1 2 , (  v e )
2

T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t
T h e r e f o r e w e c a n c o n c lu d e th a t th e r ig h t h a n d e n d p o in t ( 6 , 5 4 )

is a n e n d p o in t m a x im u m .

Question No. 20:


f (x)  x  15 x  75 x
3 2
; [ -8 ,2 ]
T h e f u n c t i o n i s r e s t r i c t e d t o a ll v a lu e s o f x
b e t w e e n -8 t o 2 a n d i n c lu s i v e .
d d d d
f ( x )   15 x  75 x]  (x )  15 ( x )  75
3 2 3 2
[x ( x)
dx dx dx dx
 3x  30 x  75
2

A t s t a t i o n a r y p o i n t f ( x )  0

 30 x  75  0
2
i .e .3 x

 10 x  25)  0
2
o r , 3( x

 2 . x .5  5  0
2 2
or, x

or , ( x  5)  0
2

or, x  5

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 50


If x   5 th e n y = f (  5 )  (  5 )  1 5 (  5 )  7 5 (  5 )   1 2 5
3 2

T h e r e is o n e s ta tio n a r y p o in t (  5 ,  1 2 5 )

If x   6 th e n f  (  6 )  3 (  6 )  3 0 (  6 )  7 5  3 , (  v e )
2

T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t

If x   4 th e n f  (  4 )  3 (  4 )  3 0 (  4 )  7 5  3 (  v e )
2

T h e f u n c tio n is in c r e a s in g a f te r th e p o i n t
T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t (  5 ,  1 2 5 ) is a

s ta tio n a r y in f le c tio n p o in t.

E n d p o in t A n a ly s is :

T h e le f t h a n d e n d p o in t: x   8 ,

y= f ( 8)  ( 8)  1 5( 8)  7 5( 8)   1 5 2
3 2

T h e le f t h a n d e n d p o in t is (  8 ,  1 5 2 )

If x   7 th e n f  (  7 )  3 (  7 )  3 0 (  7 )  7 5  1 2 , (  v e )
2

T h e f u n c tio n is in c r e a s in g a f te r th e p o in t
T h e r e f o r e w e c a n c o n c lu d e th a t th e le f t h a n d e n d p o in t (  8 ,  1 5 2 )

is a n e n d p o in t m in im u m .

T h e r ig h t h a n d e n d p o in t: x  2 ,

y= f (2 )  (2 )  1 5(2 )  7 5(2 )  2 1 8
3 2

T h e r ig h t h a n d e n d p o in t is ( 2 , 2 1 8 )

If x  1 th e n f  (1)  3 (1)  3 0 (1)  7 5  1 0 8 , (  v e )


2

T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t
T h e r e f o r e w e c a n c o n c lu d e th a t th e r ig h t h a n d e n d p o in t ( 2 , 2 1 8 )

is a n e n d p o in t m a x im u m .

Do these at home: Q. No. 21: f ( x )  x  3 2 x  1 0 0 ; [  2 , 4 ]


4

Q. No. 22: f ( x )  1 0 8 x  x ; [  1 , 5 ]
4

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 51


Question No. 23:
f (x)  4 x  3x  4 ; [  1 ,2 )
3 4

T h e f u n c t i o n i s r e s t r i c t e d t o a ll v a lu e s o f x
b e t w e e n  1 t o 2 , i n c lu d i n g  1 b u t e x c lu d i n g 2 .

d d d d
f ( x )   3x  4]  4 (x )  3 (x ) 
3 4 3 4
[4 x (4)
dx dx dx dx
 12 x  12 x
2 3

A t s t a t i o n a r y p o i n t f ( x )  0

 12 x  0
2 3
i .e .1 2 x

o r , 1 2 x (1  x )  0
2

o r , x (1  x )  0
2

E ith e r , x  0 o r ,1  x  0
or, x  1

If x  0 th e n y = f ( 0 )  4 ( 0 )  3 ( 0 )  4  4
3 4

If x  1 th e n y = f (1)  4 (1)  3 (1)  4  5


3 4

T h e r e a r e tw o s ta tio n a r y p o in ts ( 0 , 4 ) a n d (1, 5 )

F ir s t le t u s c h e c k s ta tio n a r y p o in t ( 0 , 4 )

If x   0 .5 th e n f  (  0 .5 )  1 2 (  0 .5 )  1 2 (  0 .5 )  4 .5 , (  v e )
2 3

T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t

If x  0 .5 th e n f  ( 0 .5 )  1 2 ( 0 .5 )  1 2 ( 0 .5 )  1 .5 , (  v e )
2 3

T h e f u n c tio n is in c r e a s in g a f te r th e p o i n t

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t ( 0 , 4 ) is a

s ta tio n a r y in f le c tio n p o in t.

N o w le t u s c h e c k s ta tio n a r y p o in t (1, 5 )

If x  0 .5 th e n f  ( 0 .5 )  1 2 ( 0 .5 )  1 2 ( 0 .5 )  1 .5 , (  v e )
2 3

T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t

If x  1 .5 th e n f  (1 .5 )  1 2 (1 .5 )  1 2 (1 .5 )   1 3 .5 , (  v e )
2 3

T h e f u n c tio n is d e c r e a s in g a f te r th e p o i n t

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t (1, 5 ) is a

lo c a l m a x im u m .

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 52


E n d p o in t A n a ly s is :
T h e r e is n o r ig h t h a n d e n d p o in t, h e n c e n o r ig h t h a n d e n d p o in t o p tim a

T h e le f t h a n d e n d p o in t: x   1,

y = f (  1)  4 (  1)  3 (  1)  4   3
3 4

T h e le f t h a n d e n d p o in t is (  1,  3 )

If x   0 .5 th e n f  (  0 .5 )  1 2 (  0 .5 )  1 2 (  0 .5 )  4 .5 , (  v e )
2 3

T h e f u n c tio n is in c r e a s in g a f te r th e p o i n t

T h e r e f o r e w e c a n c o n c lu d e th a t th e le f t h a n d e n d p o in t (  1,  3 )
is a n e n d p o in t m in im u m .

Do these at home: Q. No. 24: f ( x )  x  4 x  3 0 ; [  2 , 4 )


4 3

Question No. 25: When x gallons of antifreeze are produced, the average cost per gallon is
100
A(x) where, A ( x )   0 .0 4 x  1
x
a) How many gallons should be produced if average cost per gallon is to be minimized?
100
A(x)   0 .0 4 x  1
x
W e n e e d to fin d th e m in im u m p o in t (s ta tio n a ry p o in t)
to fin d o u t th e m in im u m a v e ra g e c o s t

d 100 d 1 d d
A ( x )  [  0 . 0 4 x  1]  1 0 0 ( )  0 .0 4 ( x)  (1)
dx x dx x dx dx
1
 100 2
 0 .0 4
x
A t s t a t i o n a r y p o i n t A ( x )  0
1
i .e .  1 0 0 2
 0 .0 4  0
x
1
o r ,1 0 0 2
 0 .0 4
x
 100
2
o r , 0 .0 4 x
100
  2500
2
or, x
0 .0 4
o r , x  5 0 g a llo n
When 50 gallons of antifreeze are produced, the average cost per gallon will be minimized.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 53


b) Prove (a) is minimum

W e f in d th e s ta tio n a r y p o in t w h e r e x  5 0
1
If x  4 9 th e n A  ( 4 9 )   1 0 0 2
 0 .0 4   0 .0 0 1, (  v e )
(49)
T h e f u n c tio n is d e c r e a s in g b e f o r e th e p o in t
1
If x  5 1 th e n A  ( 5 1)   1 0 0 2
 0 .0 4  0 .0 0 1, (  v e )
( 5 1)
T h e f u n c tio n is in c r e a s in g a f te r th e p o in t

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t w h e r e x  5 0 g a llo n
m a k e s th e a v e r a g e c o s t m in im u m .

c) Compute the minimum average cost per gallon.

W h e n x  5 0 g a llo n , th e m in im u m a v e ra g e c o s t p e r g a llo n

100
A (5 0 )   0 .0 4 (5 0 )  1  $ 5 p e r g a llo n
50

Question No. 26: If we use 100 linear feet of fence to enclose a rectangular plot of land, we
need 2x feet for one pair of sides ( or x feet for one of these sides), leaving (100-2x) feet for
the other pair of sides (or (50-x) feet for one of these sides. The rectangular is then x feet
by (50-x) feet and its area, A(x) is, A ( x )  x (5 0  x )  5 0 x  x
2

a) Find the value of x that maximizes the area of the plot?


A(x)  50 x  x
2

W e n e e d to fin d th e m a x im u m p o in t (s ta ti o n a ry p o in t)

to fin d o u t th e m a x im u m a re a

d d d 50-x
A ( x )  [5 0 x  x ]  50 (x) 
2 2
(x )
dx dx dx
x x
 50  2 x

A t s t a t i o n a r y p o i n t A ( x )  0 50-x
i .e . 5 0  2 x  0

o r , x  2 5 fe e t

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 54


b) Prove (a) is a maximum.
W e fin d th e s ta tio n a ry p o in t w h e re x  2 5

If x  2 4 th e n A  ( 2 4 )  5 0  2 ( 2 4 )  2 , (  v e )

T h e fu n c tio n is in c re a s in g b e fo re th e p o in t

If x  2 6 th e n A  ( 2 6 )  5 0  2 ( 2 6 )   2 , (  v e )

T h e fu n c tio n is d e c re a s in g a fte r th e p o i n t

T h e re fo re w e c a n c o n c lu d e th a t th e s ta ti o n a ry p o in t w h e re x  2 5 fe e t

m a k e s th e a re a m a x im u m .

c) What are the dimensions of the maximum area rectangle?

Length = x feet = 25 feet

Width = 50—x = 50—25 = 25 feet


i.e it’s a square

d) What is the maximum area?

W h e n x  2 5 f e e t, th e a r e a w ill b e

A ( 2 5 )  2 5 ( 5 0  2 5 )  6 2 5 s q u a r e -f e e t

Question No. 27: In many sample surveys only a small number n of a large population of
people are interviewed. Published state results state what proportion, p, of the n people
interviewed answered yes to a particular question. Inherently, because only a fraction of
the population is interviewed, the proportion p is expected to be in error by V(p), where
2
p p
V stands for variance, and V ( p )  
n n
a) Find the value of p that maximizes V(p).
2
p p
V ( p)  
n n
W e n e e d to fin d th e m a x im u m p o in t (s ta ti o n a ry p o in t)
to fin d o u t th e m a x im u m e rro r
2
d p p 1 d 1 d 1 2 p
V ( p )   ]  ( p)  )  
2
[ ( p
dp n n n dp n dp n n
A t s t a t i o n a r y p o i n t V ( p )  0
1 2 p 2 p 1
i .e .   0 or, 
n n n n
or, 2 p  1 or, p  1 / 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 55


b) Prove (a) is a maximum.
W e f in d th e s ta tio n a r y p o in t w h e r e p  1 / 2  0 . 5
1 2 ( 0 .3 ) 1  0 .6 0 .4
If p  0 .3 th e n V  ( 0 .3 )    = , (  ve)
n n n n
T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t
1 2 ( 0 .6 ) 1  1 .2  0 .2
If p  0 .6 th e n V  ( 0 .6 )    = , (  ve)
n n n n
T h e f u n c t io n is d e c r e a s in g a f te r th e p o in t
T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t w h e r e p  0 .5
m a k e s th e v a r ia n c e m a x im u m .

c) Taking n=10, find V(0.5) and V(0.1)


2
0 .5 0 .5
V ( 0 .5 )    0 .0 2 5
10 10

2
0 .1 0 .1
V ( 0 .1)    0 .0 0 9
10 10

Question No. 28: The profit realized when y gallons of distilled water are made and sold is
P ( y )  2 0 y  0 .0 0 5 y
2

a) Find the number of gallons that should be made to maximize profit.


P ( y )  2 0 y  0 .0 0 5 y
2

W e n e e d to fin d th e m a x im u m p o in t (s ta ti o n a ry p o in t)
to fin d o u t th e m a x im u m p ro fit

d d d
P ( y )  [ 2 0 y  0 .0 0 5 y ]  2 0 ( y )  0 .0 0 5
2 2
(y )
dy dy dy
 2 0  0 .0 1 y
A t s t a t i o n a r y p o i n t P ( y )  0
i .e . 2 0  0 . 0 1 y  0 o r , 0 .0 1 y  2 0
20
or, y  = 2 0 0 0 g a llo n s
0 .0 1

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 56


b) Prove (a) is a maximum.
W e f in d th e s ta tio n a r y p o in t w h e r e y  2 0 0 0
If y  1 9 9 9 th e n P  (1 9 9 9 )  2 0  0 .0 1(1 9 9 9 )  0 .0 1, (  v e )
T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t
If p  2 0 0 1 th e n P  ( 2 0 0 1)  2 0  0 .0 1( 2 0 0 1)   0 .0 1, (  v e )
T h e f u n c tio n is d e c r e a s in g a f te r th e p o in t
T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t w h e r e
y  2 0 0 0 g a llo n s m a k e s th e p r o f it m a x im u m .

c) Compute the maximum profit

P ( 2 0 0 0 )  2 0 ( 2 0 0 0 )  0 .0 0 5 ( 2 0 0 0 )  $20, 000
2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 57


Applied Mathematics

Practice Questions and Answers # 8


Problem Set 8-2:

Find the first three derivative of the function

Question No. 1:

f (x)  x  2 x  x  3
5 4 3

d 5 1 4 1 3 1
f ( x )  [ x  2 x  x  3]  5 x  2 .4 x  3x  5x  8x  3x
5 4 3 4 3 2

dx
d d
f  ( x )  [ f  ( x )]  (5 x  8 x  3 x )  2 0 x  2 4 x  6 x
4 3 2 3 2

dx dx
d d
f  ( x )  [ f  ( x )]  (20 x  24 x  6 x)  60 x  48 x  6
3 2 2

dx dx

Do these at home: Q.2: f ( x )  x  x  x  1 Q.3: f ( x )  8 x  2 x


3 2 3 2

Q.4: f ( x )  x  x  3 x  7 Q.5: f ( x )  3 x  5 x  2 x
6 4 2 4 3 2

Q.6: f ( x )  x x  5 x  x Q.7: f ( x )  ( x  5 ) Q.8: f ( x )  ( x  1) 2


2 2 3 2

3x  4 x 2
Q.9: f ( x )  Q.10: f ( x ) 
x3 x2

Question No. 11:

f (x)  x  4x  3
2

d d
f ( x )   4 x  3]  2 x  4; f  ( x )  [2 x  4 ]  2;
2
[x
dx dx
d
f  ( x )  [2]  0
dx
O p t i m u m A n a ly s i s :
A t s t a t i o n a r y p o i n t f ( x )  0

i .e .2 x  4  0

or, x  2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 58


If x  2 th e n y = f ( 2 )  ( 2 )  4 ( 2 )  3   1
2

T h e r e is o n ly o n e s ta tio n a r y p o in t ( 2 ,  1)

f  ( 2 )  2 ; [ + v e , i.e . c o n c a v e u p

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t ( 2 ,  1) is a

lo c a l m in im u m .

In f le c tio n P o in t A n a ly s is :

f  ( x )  0

or, 2  0

i .e . n o in f le c tio n p o in t
Question No. 12:

f (x)  x  10 x  9
2

d d
f ( x )   1 0 x  9 ]  2 x  1 0; f  ( x )  [2 x  1 0 ]  2;
2
[x
dx dx
d
f  ( x )  [2]  0
dx
O p t i m u m A n a ly s i s :
A t s t a t i o n a r y p o i n t f ( x )  0

i .e .2 x  1 0  0

or, x  5

If x   5 th e n y = f (  5 )  (  5 )  1 0 (  5 )  9   3 4
2

T h e r e is o n ly o n e s ta tio n a r y p o in t (  5 ,  3 4 )

f  (  5 )  2 ; [ + v e , i.e . c o n c a v e u p

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t (  5 ,  3 4 ) is a

lo c a l m in im u m .

In f le c tio n P o in t A n a ly s is :

f  ( x )  0

or, 2  0

i .e . n o in f le c tio n p o in t

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 59


Question No. 13:

f (x)  x  6x  9x 1
3 2

d
f ( x )   6x  9 x  1]  3 x  12 x  9
3 2 2
[x
dx
d
f  ( x )   1 2 x  9 ]  6 x  1 2;
2
[3 x
dx
d
f  ( x )  [6 x  1 2 ]  6
dx
O p t i m u m A n a ly s i s :

A t s t a t i o n a r y p o i n t f ( x )  0

 12 x  9  0
2
i .e .3 x

 4 x  3)  0
2
o r , 3( x

 3x  x  3  0
2
or, x

o r , ( x  3 ) ( x  1)  0

o r , x  3,1
If x  3 t h e n y = f ( 3 )  ( 3 )  6 (3)  9 (3)  1  1
3 2

If x  1 t h e n y = f (1)  (1)  6 (1)  9 (1)  1  5


3 2

T h e r e a r e t w o s t a t i o n a r y p o i n t s ( 3 , 1) a n d (1, 5 )

L e t u s c h e c k p o i n t ( 3 , 1) f i r s t ,

f  ( 3 )  6 ( 3 )  1 2  6 ; [ + v e , i .e . c o n c a v e u p ]

T h e r e f o r e w e c a n c o n c lu d e t h a t t h e s t a t i o n a r y p o i n t ( 3 , 1) i s a

lo c a l m i n i m u m .

L e t u s c h e c k p o i n t (1, 5 ) n o w ,

f  (1)  6 (1)  1 2   6 ; [  v e , i .e . c o n c a v e d o w n ]

T h e r e f o r e w e c a n c o n c lu d e t h a t t h e s t a t i o n a r y p o i n t (1, 5 ) i s a

lo c a l m a x i m u m .

In f le c t i o n P o i n t A n a ly s i s :

f  ( x )  0

or, 6 x  12  0

or, x  2

T h e n , f  ( 2 )  6  0 ; w e h a v e a n i n f le c t i o n p o i n t a t x  2

If x  2 t h e n y = f ( 2 )  ( 2 )  6 ( 2 )  9(2)  1  3
3 2

i .e . w e h a v e i n f le c t i o n p o i n t a t ( 2 , 3 )

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 60


Question No. 14:

f (x)  x  9x
3

d
f ( x )   9 x]  3x  9
3 2
[x
dx
d
f  ( x )   9]  6 x;
2
[3 x
dx
d
f  ( x )  [6 x ]  6
dx
O p t i m u m A n a ly s i s :

A t s t a t i o n a r y p o i n t f ( x )  0

 9  0
2
i .e .3 x

 3)  0
2
o r , 3( x

 3  0
2
or, x

 3
2
or, x

or, x   3  im a g in a ry o r u n re a l n o .
T h e re is n o s ta tio n a ry p o in t a n d h e n c e n o o p tim a .

In f le c t i o n P o i n t A n a ly s i s :

f  ( x )  0

or, 6 x  0

or, x  0

T h e n , f  ( 0 )  6  0 ; w e h a v e a n i n f le c t i o n p o i n t a t x  0

If x  0 t h e n y = f ( 2 )  ( 0 )  9 ( 0 )  0
3

i .e . w e h a v e i n f le c t i o n p o i n t a t ( 0 , 0 )

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 61


Question No. 15:

f (x)  x  2x  4x  3
3 2

d
f ( x )   2x  4 x  3]  3 x  4x  4
3 2 2
[x
dx
d
f  ( x )   4 x  4 ]  6 x  4;
2
[3 x
dx
d
f  ( x )  [6 x  4 ]  6
dx
O p t i m u m A n a ly s i s :

A t s t a t i o n a r y p o i n t f ( x )  0

 4x  4  0
2
i .e .3 x

 6x  2x  4  0
2
or,3x

o r , ( x  2 )(3 x  2 )  0

2
or , x  2, 
3
If x  2 t h e n y = f ( 2 )  ( 2 )  2(2)  4(2)  3  5
3 2

2 2 2 2 2
If x   th e n y = f (  )  (  2(  4( )  3  4 .4 8
3 2
) )
3 3 3 3 3
T h e r e a r e t w o s t a t i o n a r y p o i n t s ( 2 ,  5 ) a n d (  0 .6 7 , 4 .4 8 )

L e t u s c h e c k p o in t ( 2 ,  5 ) firs t,

f  ( 2 )  6 ( 2 )  4  8 ; [ + v e , i .e . c o n c a v e u p ]
T h e r e f o r e w e c a n c o n c lu d e t h a t t h e s t a t i o n a r y p o i n t ( 2 ,  5 ) i s a

lo c a l m i n i m u m .
L e t u s c h e c k p o i n t (  0 .6 7 , 4 .4 8 ) n o w ,

f  (  0 .6 7 )  6 (  0 .6 7 )  4   8 .0 2 ; [  v e , i .e . c o n c a v e d o w n ]

T h e r e f o r e w e c a n c o n c lu d e t h a t t h e s t a t i o n a r y p o i n t (  0 . 6 7 , 4 .4 8 ) i s a
lo c a l m a x i m u m .

In f le c t i o n P o i n t A n a ly s i s :
f  ( x )  0

or, 6 x  4  0

o r , x  0 .6 7
T h e n , f  ( 0 .6 7 )  6  0 ; w e h a v e a n i n f le c t i o n p o i n t a t x  0 .6 7

If x  0 .6 7 t h e n y = f ( 0 .6 7 )  ( 0 .6 7 )  2 ( 0 .6 7 )  4 ( 0 .6 7 )  3   0 .2 7 7
3 2

i .e . w e h a v e i n f le c t i o n p o i n t a t ( 0 .6 7 ,  0 .2 7 7 )

Do these at home: Q.16 f ( x )  x  3 x  9 x  3 Q.17 f ( x )   x  1 2 x  4 5 x  2


3 2 3 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 62


Do these at home: Q.18 f ( x )  x  8 x  2 4 x
4 3 2

Q.19 f ( x )  0 .1( x  1 0 )  2 5 .6 x  3 4 0 .8
4

Question No. 20:


f (x)  x  8x  18 x  27
4 3 2

d
f ( x )   8x  18 x  27]  4 x  24 x  36 x
4 3 2 3 2
[x
dx
d
f  ( x )   24 x  36 x]  12 x  4 8 x  3 6;
3 2 2
[4 x
dx
d
f  ( x )   48 x  36]  24 x  48
2
[1 2 x
dx
O p t i m u m A n a ly s i s :

A t s t a t i o n a r y p o i n t f ( x )  0

 24 x  36 x  0
3 2
i .e .4 x

 6 x  9)  0
2
or, 4 x(x

 2 . x .3  3 )  0
2 2
or, x(x

o r , x ( x  3)  0
2

or , x  0, 3

If x  0 th e n y = f ( 0 )  ( 0 )  8 ( 0 )  1 8 ( 0 )  2 7   2 7
4 3 2

If x  3 th e n y = f ( 3 )  ( 3 )  8 ( 3 )  1 8 ( 3 )  2 7  0
4 3 2

T h e r e a r e tw o s ta tio n a r y p o in ts ( 0 ,  2 7 ) a n d ( 3 , 0 )

L e t u s c h e c k p o in t ( 0 ,  2 7 ) f ir s t,

f  ( 0 )  1 2 ( 0 )  4 8 ( 0 )  3 6  3 6 ; [ + v e , i .e . c o n c a v e u p ]
2

T h e r e f o r e w e c a n c o n c lu d e th a t th e s ta ti o n a r y p o in t ( 0 ,  2 7 ) is a

lo c a l m in im u m .

L e t u s c h e c k p o in t ( 3 , 0 ) n o w ,

f  ( 3 )  1 2 ( 3 )  4 8 ( 3 )  3 6  0 ; [ te s t f a ile d ]
2

W h e n x  2 th e n f  ( 2 )  4 ( 2 )  2 4 ( 2 )  3 6 ( 2 )  8 ; [ + v e ]
3 2

T h e f u n c tio n is in c r e a s in g b e f o r e th e p o in t

W h e n x  4 th e n f  ( 4 )  4 ( 4 )  2 4 ( 4 )  3 6 ( 4 )  1 6 ; [ + v e ]
3 2

T h e f u n c tio n is in c r e a s in g a f te r th e p o i n t

T h e r e f o r e w e c a n c o n c lu d e th a t th e p o in t ( 3 , 0 ) is a

s ta t io n a r y in f le c tio n p o in t.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 63


In f le c t i o n P o i n t A n a ly s i s :

f  ( x )  0

 48 x  36  0
2
o r ,1 2 x

 4 x  3)  0
2
o r ,1 2 ( x

 3x  x  3  0
2
or, x

o r , ( x  3 ) ( x  1)  0

o r , x  3,1

T h e n , f  ( 3 )  2 4 ( 3 )  4 8  2 4  0 ; w e h a v e a n i n f le c t i o n p o i n t a t x  3

f  (1)  2 4 (1)  4 8   2 4  0 ; w e h a v e a n i n f le c t i o n p o i n t a t x  1

If x  1 t h e n y = f (1)  (1)  8 (1)  1 8 (1)  27  16


4 3 2

i .e . w e h a v e s t a t i o n a r y i n f le c t i o n p o i n t a t ( 3 , 0 ) a n d

n o n -s t a t i o n a r y i n f le c t i o n p o i n t a t (1,  1 6 )

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 64


Applied Mathematics
Applications of Differential Calculus
Question 1: A rectangular plot of land is to be enclosed by a fence. Fence for the east-west
sides cost $10 per running foot, while that for the north-south sides cost $5 per running
foot. What is the maximum area that can be enclosed if $1,500 is available for purchasing
the fence?

Answer: Let, length of East-West sides are x foot each and that of North-South sides are y foot
each. To fence the perimeter (2x+2y) of the plot we have $1,500.

2 x ($ 1 0 )  2 y ($ 5 )  $ 1 5 0 0

or, 20 x  10 y  1500
1500  20 x
or, y 
10
1500  20 x 1500 x  20 x
2

A r e a o f t h e r e c t a n g u la r p lo t A ( x ) = x y  x . 
10 10
F o r th e a re a to b e m a x im u m ,
A ( x ) = 0

1500 x  20 x
2
d
or, ( )  0 North (y)
dx 10
1 d
(1 5 0 0 x  2 0 x )  0
2
or, .
10 dx West East
1
or, (1 5 0 0  4 0 x )  0 (x) (x)
10
o r ,1 5 0 0  4 0 x  0

1500 South (y)


or, x   3 7 .5 f o o t
40
1
If x  3 7 f o o t , t h e n A ( 3 7 )  {1 5 0 0  4 0 ( 3 7 ) }  2 0 ; ( + v e )
10
1
If x  3 8 f o o t , t h e n A ( 3 8 )  {1 5 0 0  4 0 ( 3 8 ) }   2 0 ; (  v e )
10
i .e . x  3 7 .5 f o o t i s m a k i n g t h e a r e a m a x i m u m

1500  20 x
T h e re fo r e th e m a x im u m a re a  x y  x.
10
1 5 0 0  2 0 ( 3 7 .5 )
 ( 3 7 .5 )  2 8 1 2 .5 s q .f o o t
10

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 65


Question 2: A rectangular manufacturing plant with a floor area of 16,875 sq-feet is to be
built on a straight road. The front of the plant must be set back 60 feet from the road and
buffer strips (grass and trees) 30 feet on each side and 20 feet at the back must be
provided as shown in the figure. Because of the high cost of land, builders seek to
minimize the total area (plant plus buffers).

Answer:
A r e a o f th e m a n u f a c tu r in g p la n t  x y  1 6 , 8 7 5 s q  f e e t
16875
or, y 
x
A r e a o f th e to ta l p lo t A ( x )  x  80   y  60  = xy  80 y  60 x  4 800

16875 1350000
 16875  80.  60 x  4800  21675   60 x
x x
F o r th e a r e a to b e m in im u m ,

A ( x ) = 0
d 1350000
or, (21675   60 x)  0
dx x
1350000 y
30ft
or,  2
 60  0 +
x 60
x ft
1350000 20
or, 2
 60 ft y
x
y 60ft
1350000

2
or, x
60 x

 22500
2
or, x 30ft
(x+80)ft
o r , x  1 5 0 fo o t
If A (1 5 0 ) > 0 , th e n th e v a lu e o f x w ill m a k e th e a r e a m in im u m

d 1350000 1 2700000
A ( x )  ( 2
 60)  1350000(2) 3
 3
dx x x x
2700000
A (1 5 0 )  3
 0 .8 ; [+ v e , c o n c a v e u p ]
(1 5 0 )
T h e r e f o r e th e m in im u m to ta l la n d a r e a
1350000
 21675   6 0 (1 5 0 )  3 9 , 6 7 5 s q -f t
150

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 66


Question 3: In normal operations, a plant employs 100 workers working eight hours a
day for a total of 100(8)= 800 labour hours of work per day. In normal operations,
productivity averages 30 units per labour-hour worked. Thus in a normal day,
production is,

P= (Labour hours worked)(Output per labour hour)=(800)(30)=24,000 units

If the work level (labour hours) is raised over 800, management estimates that average
output per labour-hour falls off at the rate of 2.5 units for each for each extra 100 labour
hours or by 0.025 units for each labour hour in excess of 800. What will be the
appropriate labour hour (x) that would maximize output?

Ans:

T o ta l o u tp u t w h e n x  8 0 0 ;

P ( x )  x [ 3 0  ( x  8 0 0 ) 0 .0 2 5 ]  x ( 3 0  0 .0 2 5 x  2 0 )  5 0 x  0 .0 2 5 x
2

F o r th e o u tp u t to b e m a x im u m ,

P ( x ) = 0

d
( 5 0 x  0 .0 2 5 x )  0
2
or,
dx
o r , 5 0  0 .0 5 x  0

o r , 0 .0 5 x  5 0

50
or, x   1 0 0 0 u n its
0 .0 5
d
P  ( x )  ( 5 0  0 .0 5 x )   0 .0 5
dx
P  (1 0 0 0 )   0 .0 5 ; [  ve, concave dow n]

A s P  (1 0 0 0 ) < 0 , th e n th e v a lu e o f x w ill m a k e th e o u tp u t m a x im u m

T h e r e f o r e th e m a x im u m o u tp u t w ill b e

P (1 0 0 0 )  5 0 (1 0 0 0 )  0 .0 2 5 (1 0 0 0 )  2 5 , 0 0 0 u n its
2

Question 4: A consulting firm conducts training sessions for employees of various


companies. The charge to a company sending employees to a session is $50 per employee,
less $0.50 for each employee in excess of 10. The consulting firm further has a fixed total
charge for groups of x or more, where x is the number that maximizes the prorated group
charge. What should x be, and what is the maximum total group charge to a company?

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 67


x  N o . o f e m p lo y e e s in a g r o u p th a t m a x im iz e s th e g r o u p c h a r g e

T o ta l g r o u p c h a r g e w h e n x  1 0 ;

C ( x )  x [ 5 0  ( x  1 0 ) 0 .5 0 ]  x ( 5 0  0 .5 0 x  5 )  5 5 x  0 .5 0 x
2

F o r th e g r o u p c h a r g e to b e m a x im u m ,

C ( x ) = 0

d
( 5 5 x  0 .5 0 x )  0
2
or,
dx
or,55  x  0

o r , x  5 5 e m p lo y e e s

d
C  ( x )  (5 5  x )   1
dx
C  ( 5 5 )   1; [  ve, concave dow n]

A s C  ( 5 5 ) < 0 , th e n th e v a lu e o f x w ill m a k e th e g r o u p c h a r g e m a x im u m

T h e r e f o r e th e m a x im u m to ta l g r o u p c h a r g e w ill b e

C ( 5 5 )  5 5 ( 5 5 )  0 .5 0 ( 5 5 )  $ 1 5 1 2 .5 f o r 5 5 e m p lo y e e s o r m o r e
2

Question 5: When State College charges $195 for continuing education class in the uses of
microcomputers, it attracts 125 students. For each $10 decrease in the charge, an
additional 8 students will attend the class. Find the tuition value State College should
charge to maximize revenue and then find this maximum revenue.

x  T u i t i o n v a lu e c h a r g e d b y S t a t e C o lle g e ; w h e n x  1 9 5

195  x 195  x
R ( x )  x [1 2 5  (8 ) ]  x [1 2 5  ( 4 )]
10 5
625  780  4 x 1405 x  4 x
2

 x( ) 
5 5
F o r th e re v e n u e to b e m a x im u m ,

R ( x ) = 0

1405 x  4 x
2
d
or, ( )  0
dx 5
1
or, (1 4 0 5  8 x )  0
5
o r ,1 4 0 5  8 x  0

1405
or, x   $ 1 7 5 .6 2 5
8

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 68


d 1 1 d 8
R  ( x )  { (1 4 0 5  8 x ) }  (1 4 0 5  8 x )  
dx 5 5 dx 5
8
R  (1 7 5 .6 2 5 )   ; [  ve, concave dow n]
5
A s R  (1 7 5 .6 2 5 ) < 0 , th e n th e v a lu e o f tu itio n f e e x  $ 1 7 5 .6 2 5

w ill m a k e th e r e v e n u e m a x im u m
T h e r e f o r e th e m a x im u m r e v e n u e w ill b e

1 4 0 5 (1 7 5 .6 2 5 )  4 (1 7 5 .6 2 5 )
2

R (1 7 5 .6 2 5 )   $ 2 4 , 6 7 5 .3 1
5

Question 6: When x gallons of alcohol are produced, the average cost per gallon is A(x)
dollars, where,

200
A(x)   0 .0 5 x ; x  0
0 .1 x  5

a) Find the value of x where A(x) has a stationary point.


A t s ta tio n a r y p o in t,
A ( x )  0
d 200
or, (  0 .0 5 x )  0
d x 0 .1 x  5
d 1 d
or, 200 ( 0 .1 x  5 )  ( 0 .0 5 x )  0
dx dx
 11 d
o r , 2 0 0 (  1) ( 0 .1 x  5 ) ( 0 .1 x  5 )  0 .0 5  0
dx
2
o r ,  2 0 0 ( 0 .1 x  5 ) ( 0 .1)  0 .0 5  0
20
or,    0 .0 5
( 0 .1 x  5 )
2

20
 ( 0 .1 x  5 )
2
or,
0 .0 5
o r , ( 0 .1 x  5 )  4 0 0
2

o r , ( 0 .1 x  5 )   2 0
E ith e r , or,
( 0 .1 x  5 )  2 0 ( 0 .1 x  5 )   2 0
15 25
or, x   150 or, x   250
0 .1 0 .1
x g a llo n s c a n n o t b e n e g a tiv e , h e n c e x = 1 5 0 g a llo n s

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 69


b)
d 2 d 2 d
A  ( x )  {  2 0 ( 0 .1 x  5 )  0 .0 5}  {  2 0 ( 0 .1 x  5 ) } ( 0 .0 5 )
dx dx dx
 2 1 d
  2 0 (  2 ) ( 0 .1 x  5 ) ( 0 .1 x  5 )  0
dx
1 4
 40 ( 0 .1) 
( 0 .1 x  5 ) ( 0 .1 x  5 )
3 3

4
A  (1 5 0 )   0 .0 0 0 5 ; [ + v e , c o n c a v e u p ]
{ 0 .1(1 5 0 )  5 )
3

T h e v a lu e o f x  1 5 0 g a llo n s o c c u r s a t lo c a l m in im u m o f A ( x )
c)
200
A (1 5 0 )   0 .0 5 (1 5 0 )  $ 1 7 .5 p e r g a llo n
0 .1(1 5 0 )  5

Question 7: Based on historical data, a bus company uses the function

P ( x )  ( 3  0 .6 x ) 2  0 .1 x ; x  0 to estimate the net weekly profit, in hundreds of


dollars, if a particular bus route is x miles long. How long should the route be to
maximize the net profit, and what is the maximum net profit?

F o r th e p r o f it to b e m a x im u m ,

P ( x ) = 0
1
d
or, { ( 3  0 .6 x ) 2  0 .1 x }  0
dx
1
d d
or, { ( 3  0 .6 x ) 2 }  ( 0 .1 x )  0
dx dx
1
1 1 d
or, ( 3  0 .6 x ) 2 ( 3  0 .6 x )  0 .1  0
2 dx
1
1 
or, ( 3  0 .6 x ) 2
( 0 .6 )  0 .1  0
2
0 .3
or, 1
 0 .1
( 3  0 .6 x ) 2
1
0 .3 0
or,  ( 3  0 .6 x ) 2
0 .1
1

o r , ( 3  0 .6 x ) 2  3

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 70


1

o r , { ( 3  0 .6 x ) 2 }  (3)
2 2

o r , 3  0 .6 x  9

9  3
or, x   1 0 m i le s
0 .6
1 1
d  1  1 d
P  ( x )  { 0 .3 ( 3  0 .6 x ) 2
 0 .1}  0 .3 (  ) ( 3  0 .6 x ) 2
( 3  0 .6 x )
dx 2 dx
3
 0 .0 9
  0 .1 5 ( 3  0 .6 x ) 2
( 0 .6 )   3

( 3  0 .6 x ) 2
0 .0 9
P  (1 0 )   3
; [  ve, concave dow n ]
{3  0 .6 (1 0 ) } 2
T h e r e f o r e x  1 0 m i le s m a k e s t h e p r o f i t m a x i m u m a n d
1

t h e m a x i m u m n e t p r o f i t , P (1 0 )  {3  0 .6 (1 0 ) } 2  0 . 1(1 0 )

 2 (1 0 0 )  $ 2 0 0 p e r w e e k

Question 8: When y gallons of crude oil are produced the average cost per barrel is A(y),
where,
2500
A( y)  + 0 .1 6 y
0 .0 4 y  9
a) Find the value of y that minimizes average cost per barrel.
F o r th e a v e r a g e c o s t to b e m in im u m ,

A ( y ) = 0

d 2500
or, { + 0 .1 6 y }  0
dy 0 .0 4 y  9
d 1 d
or, { 2 5 0 0 ( 0 .0 4 y  9 ) }  ( 0 .1 6 y )  0
dy dy

 11 d
o r , 2 5 0 0 (  1) ( 0 .0 4 y  9 ) ( 0 .0 4 y  9 )  0 .1 6  0
dy
2
o r ,  2 5 0 0 ( 0 .0 4 y  9 ) ( 0 .0 4 )  0 .1 6  0
2
o r ,  2 5 0 0 ( 0 .0 4 y  9 ) ( 0 .0 4 )  0 .1 6  0

100
or,    0 .1 6
( 0 .0 4 y  9 )
2

100
 ( 0 .0 4 y  9 )
2
or,
0 .1 6
o r , ( 0 .0 4 y  9 )  6 2 5
2

o r , ( 0 .0 4 y  9 )   2 5

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 71


E ith e r , o r,

( 0 .0 4 y  9 )  2 5 ( 0 .0 4 y  9 )   2 5
25  9 25  9
or, y  or, y 
0 .0 4 0 .0 4
or, y  400 or, y  850
w e d is c a r d y   8 5 0 b e c a u s e y  0

d 2  2 1
A  ( y )  {  1 0 0 ( 0 .0 4 y  9 )  0 .1 6}   1 0 0 (  2 ) ( 0 .0 4 y  9 ) ( 0 .0 4 )
dy
8

( 0 .0 4 y  9 )
3

8
A  ( 4 0 0 )   0 .0 0 0 5 1 2 ; [+ v e , c o n c a v e u p ]
{0 .0 4 ( 4 0 0 )  9 )
3

y  4 0 0 g a llo n s w ill m a k e th e a v e r a g e c o s t p e r b a r r e l m in im u m
b) Compute the minimum average cost per barrel.
M in im u m a v e r a g e c o s t p e r b a r r e l,
2500
A(400)  + 0 .1 6 ( 4 0 0 )  $ 1 6 4 p e r b a r r e l
0 .0 4 ( 4 0 0 )  9

Do this at home: Question 9: When x gallons of olive oil are produced the average cost
per barrel is A(x), where,
4, 000
A(x)  + 0 .2 5 x ; x>0
0 .1 x  2 0
a) Find the value of x that minimizes average cost per barrel.
b) Compute the minimum average cost per barrel.

Question 10: Profit realized when x thousand gallons of antifreeze are produced and sold
is P(x) thousand dollars, where,
1

P ( x )  (1 0 0  1 0 x ) 2  0 .2 x
a) Find the value of x that leads to maximum profit.
F o r th e p r o f it to b e m a x im u m ,

P ( x ) = 0
1
d
or, { (1 0 0  1 0 x ) 2  0 .2 x }  0
dx
1
d d
or, (1 0 0  1 0 x ) 2  ( 0 .2 x )  0
dx dx
1
1 1 d d
or, (1 0 0  1 0 x ) 2 (1 0 0  1 0 x )  ( 0 .2 x )  0
2 dx dx

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 72


1
1 
or, (1 0 0  1 0 x ) 2
(1 0 )  0 .2  0
2
5
or, 1
 0 .2
(1 0 0  1 0 x ) 2

1
5
or,  (1 0 0  1 0 x ) 2
0 .2
1

o r , (1 0 0  1 0 x ) 2  2 5

o r , (1 0 0  1 0 x )  6 2 5

625  100
or, x   5 2 .5 th o u s a n d g a llo n s
10
1 1 3
d  1  1 
P  ( x )  {5 (1 0 0  1 0 x ) 2
 0 .2}  5 (  ) (1 0 0  1 0 x ) 2
(1 0 )   2 5 (1 0 0  1 0 x ) 2

dx 2
3

P  ( 5 2 .5 )   2 5{1 0 0  1 0 ( 5 2 .5 ) } 2
  0 .0 0 1 6 ; [  v e , c o n c a v e d o w n ]
T h u s x  5 2 .5 th o u s a n d g a llo n s le a d s to m a x i m u m p r o f it

b) Compute the maximum profit.


1

P (5 2 .5 )  {1 0 0  1 0 (5 2 .5 )} 2  0 .2 (5 2 .5 )  1 4 .5 th o u s a n d d o lla rs  $ 1 4 , 5 0 0

Question 11: A company operates a fleet of delivery trucks. Study shows that gallons of
fuel consumed per mile of driving, F(x), is related to the speed at which a truck is driven,
x miles per hour, by the function
k1
F (x)   k2 x; 10  x  80
x
w h e r e k 1 a n d k 2 a r e p a r a m e te r s th a t v a r y s o m e w h a t f r o m tr u c k to tr u c k .
a) Find and write the expression for the speed, x that will lead to minimal fuel
consumption per mile of driving.
F o r th e f u le c o n s u m p tio n to b e m in im u m ,

F ( x ) = 0

d k1
or, {  k 2 x}  0
dx x
d 1 d
o r , k1 ( )+ k 2 (x)  0
dx x dx
d 1 d
o r , k1 (x )+ k 2 (x)  0
dx dx
 11
o r ,  k1 x +k2  0
2
o r ,  k1 x +k2  0

k1
or,  2
+k2  0
x

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 73


k1
or, k2  2
x
k1

2
or, x
k2

k1
or, x 
k2
d 2 3 2 k1
F  ( x )  (  k1 x + k 2 )   k1 (  2 ) x  3
; [+ v e , a s x is a lw a y s p o s itiv e ; c o n c a v e u p ]
dx x

k1
T hus x  w ill m a k e th e fu e l c o n s u m p tio n m in im u m
k2

b) What speed will provide minimal fuel consumption per mile of driving for a truck
having k1=4.9 and k2=0.004?
k1 4 .9
x    3 5 m ile s p e r h o u r
k2 0 .0 0 4

Question 12: When a 3-ton truck is driven at a speed of x miles per hour, it travels m(x)
miles per gallon of fuel consumed, where,
x
m (x) 
5 .7 6  0 .0 0 3 6 x
2

a t w h a t s p e e d s h o u ld a tr u c k b e d r iv e n i f m ( x ) is to b e m a x im iz e d ?
F o r m ( x ) to b e m a x im u m ,

m ( x ) = 0

d x
or, { } 0
d x 5 .7 6  0 .0 0 3 6 x
2

d d
( 5 .7 6  0 .0 0 3 6 x ) ( x)  x ( 5 .7 6  0 .0 0 3 6 x )
2 2

dx dx
or,  0
( 5 .7 6  0 .0 0 3 6 x )
2 2

( 5 .7 6  0 .0 0 3 6 x )  x ( 0 .0 0 7 2 x )
2

or,  0
( 5 .7 6  0 .0 0 3 6 x )
2 2

o r , 5 .7 6  0 .0 0 3 6 x  0 .0 0 7 2 x  0
2 2

o r , 5 .7 6  0 .0 0 3 6 x  0
2

o r , 5 .7 6  0 .0 0 3 6 x
2

5 .7 6
  1600
2
or, x
0 .0 0 3 6
o r , x  4 0 m ile s p e r h o u r

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 74


(5 .7 6  0 .0 0 3 6 x )  x ( 0 .0 0 7 2 x ) 5 .7 6  0 .0 0 3 6 x
2 2
d d
m  ( x )  [ ] [ ]
(5 .7 6  0 .0 0 3 6 x ) d x (5 .7 6  0 .0 0 3 6 x )
2 2 2 2
dx
d d
(5 .7 6  0 .0 0 3 6 x ) (5 .7 6  0 .0 0 3 6 x )  (5 .7 6  0 .0 0 3 6 x ) (5 .7 6  0 .0 0 3 6 x )
2 2 2 2 2 2

dx dx

(5 .7 6  0 .0 0 3 6 x )
2 4

(5 .7 6  0 .0 0 3 6 x ) (  0 .0 0 7 2 x )  2 (5 .7 6  0 .0 0 3 6 x )(5 .7 6  0 .0 0 3 6 x )( 0 .0 0 7 2 x )
2 2 2 2


(5 .7 6  0 .0 0 3 6 x )
2 4

 0 .0 0 7 2 x (5 .7 6  0 .0 0 3 6 x ){5 .7 6  0 .0 0 3 6 x  2 (5 .7 6  0 .0 0 3 6 x )}
2 2 2


(5 .7 6  0 .0 0 3 6 x )
2 4

 0 .0 0 7 2 x {3 (5 .7 6 )  0 .0 0 3 6 x }  1 2 4 4 1 6 x  0 .0 0 0 0 2 5 9 2 x
2 3

 
(5 .7 6  0 .0 0 3 6 x ) (5 .7 6  0 .0 0 3 6 x )
2 3 2 3

 0 .1 2 4 4 1 6 ( 4 0 )  0 .0 0 0 0 2 5 9 2 ( 4 0 )
3

m  ( 4 0 )    0 .0 0 2 1; [  v e , c o n c a v e d o w n ]
{5 .7 6  0 .0 0 3 6 ( 4 0 ) }
2 3

x  4 0 m ile s p e r h o u r m a k e s th e m ( x ) m a x im u m
Question 13: If the proportion of defective transistors in a very large stock of transistors
is P, then the proportion of good transistors is (1-P). If the probability that the first
defective is the 10th one is C(P), where,
C ( p )  p (1  p )
9

w h a t v a lu e o f p w ill m a x im iz e C ( p )?
F o r C ( p ) to b e m a x im u m , C  ( p )  0
d
{ p (1  p ) }  0
9
or,
dp
d d
(1  p )  (1  p ) ( p)  0
9 9
or, p
dp dp
d
o r , 9 p (1  p ) (1  p )  (1  p )  0
8 9

dp

o r ,  9 p (1  p )  (1  p )  0
8 9

o r , (1  p ) (  9 p  1  p )  0
8

o r , (1  p ) (  1 0 p  1)  0
8

E ith e r , o r,

(1  p )  0  10 p  1  0
8

or, p  1 o r , p  0 .1

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 75


d d d
C  ( p )  [ (1  p ) (  1 0 p  1) ]  (1  p ) (  1 0 p  1)  (  1 0 p  1) (1  p )
8 8 8

dp dp dp

 (1  p ) (  1 0 )  8 (  1 0 p  1) (1  p )   1 0 (1  p )  8 (  1 0 p  1) (1  p )
8 7 8 7

  (1  p ) [1 0 (1  p )  8 (  1 0 p  1) ]   (1  p ) [1 0  1 0 p  8 0 p  8 ]
7 7

  (1  p ) (1 8  9 0 p )
7

If p  1, C  (1)   (1  1) (1 8  9 0 )  0 ;
7
[ te s t f a il]

If p  0 .5 , th e n C  ( 0 .5 )  (1  0 .5 ) {  1 0 ( 0 .5 )  1) }   0 .0 1 5 ; [  v e ]
8

If p  1 .5 , th e n C  (1 .5 )  (1  1 .5 ) {  1 0 (1 .5 )  1) }   0 .0 0 0 2 1; [  v e ]
8

A t p  1 w e h a v e a s ta tio n a r y in f le c tio n p o i n t

If p  0 .1, C  ( 0 .1)   (1  0 .1) {1 8  9 0 ( 0 .1) }   4 .3 0 4 ; [  ve, con cave dow n]


7

T h u s p  0 .1 m a k e s C ( p ) m a x im u m

Question 14: Profit per tree grown and sold, by a tree grower depends upon the height of
a tree at the time of sale. Taking h as tree height in inches, the profit per tree, in dollars,
is approximated by,
1

P ( h )  (1 0  2 h ) 2  0 .1 h

a) What tree height provides maximum profit per tree?


F o r P ( h ) to b e m a x im u m , P  ( h )  0
1
d
or, { (1 0  2 h ) 2  0 .1 h }  0
dh
1
d d
or, (1 0  2 h ) 2  ( 0 .1 h )  0
dh dh
1
d d
or, (1 0  2 h ) 2  ( 0 .1 h )  0
dh dh
1
1 1 d
or, (1 0  2 h ) 2 (1 0  2 h )  0 .1  0
2 dh
1
1 
or, (1 0  2 h ) 2
( 2 )  0 .1  0
2
1
or, 1
 0 .1
(1 0  2 h ) 2
1
1
or,  (1 0  2 h ) 2
0 .1
o r ,1 0 0  1 0  2 h

100  10
or, h   4 5 in c h e s
2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 76


1 3 3
d  1  
P  ( h )  { (1 0  2 h ) 2
 0 .1}   (1 0  2 h ) 2
( 2 )   (1 0  2 h ) 2

dh 2
3

P  ( 4 5 )   {1 0  2 ( 4 5 )} 2
  0 .0 0 1; [  ve, concave dow n]
T h u s , tre e h e ig h t, h  4 5 in c h e s p ro v id e s m a x im u m p ro fit p e r tre e

b) What is the maximum profit per tree?


1

P ( 4 5 )  {1 0  2 ( 4 5 ) } 2  0 .1( 4 5 )  $ 5 .5 p e r tr e e

Question 15: Unilever Bangladesh estimates the total potential number of customers for a
new product is 1,000,000. It plans to operate a promotional campaign to sell the product
and uses the response function,
 0 .0 1 t
r ( t )  0 .2 5  0 .2 5 e
as a measure of the proportion of total customer potential responding to the promotion
after it has been in operation for t days. On the average, one response generates $5 in
revenue. Campaign costs consist of a fixed cost of $15,000 plus a variable cost of $1,000
per day of operation.

 0 .0 1 t
R e v e n u e  5 ( 1 ,0 0 0 ,0 0 0 ) { r ( t ) }  ( 5 , 0 0 0 , 0 0 0 ) { 0 .2 5  0 .2 5 e }

T o ta l c o s t  F ix e d c o s t + V a r ia b le c o s t  1 5 0 0 0 + 1 0 0 0 t
 0 .0 1 t
P r o f it  R e v e n u e  T o ta l c o s t  ( 5 , 0 0 0 , 0 0 0 ) { 0 .2 5  0 .2 5 e }  (1 5 0 0 0 + 1 0 0 0 t)
 0 .0 1 t
 1250000  1250000e  15000  1000t
 0 .0 1 t
P r o f it P ( t )  1 2 3 5 0 0 0  1 0 0 0 t  1 2 5 0 0 0 0 e

a) How long should the campaign continue if profit is to be maximized?


F o r p r o f it to b e m a x im u m , P  ( t )  0

d  0 .0 1 t
or, {1 2 3 5 0 0 0  1 0 0 0 t  1 2 5 0 0 0 0 e }  0
dt
 0 .0 1 t
or, 1000  1250000e (  0 .0 1)  0
 0 .0 1 t
or, 1000  12500e  0
 0 .0 1 t
o r ,1 2 5 0 0 e  1000

 0 .0 1 t 1000
or, e   0 .0 8
12500
 0 .0 1 t
o r , ln e  ln ( 0 .0 8 ) ; [ ta k in g lo g e o r L n in b o th s id e s ]

o r ,  0 .0 1 t ( ln e )  ln ( 0 .0 8 ) ; [ ln e  lo g e e  1]

o r ,  0 .0 1 t  ln ( 0 .0 8 )

ln ( 0 .0 8 )
or,t   2 5 2 .5 7 3 d a y s
 0 .0 1

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 77


d  0 .0 1 t  0 .0 1 t  0 .0 1 t
P  ( t )  (1000  12500e )  12500e (  0 .0 1)   1 2 5 e
dt
 0 .0 1 ( 2 5 2 .5 7 3 )  2 .5 2 5 7 3
P  ( 2 5 2 .5 7 3 )   1 2 5 e  125e   1 0; [  ve, co n cave d o w n ]

T h u s th e c a m p a ig n s h o u ld c o n tin u e fo r t  2 5 2 .5 7 3 d a y s fo r th e p ro fi t to b e m a x im u m

b) What is the maximum profit?


 0 .0 1 ( 2 5 2 .5 7 3 )
P (2 5 2 .5 7 3 )  1 2 3 5 0 0 0  1 0 0 0 ( 2 5 2 .5 7 3)  1 2 5 0 0 0 0 e  $ 8 8 2 , 4 2 7 .1 3
Question 16: An oil deposit contains 1,000,000 barrels of oil, which after being pumped
from the deposit, yields revenue of $12 per barrel. The proportion of the deposit that will
have been pumped out after t years of pumping is
 0 .1 6 t
0 .9  0 .9 e
Operating costs are $345,600 per year.
 0 .1 6 t
R e v e n u e  1 2 ( 1 ,0 0 0 ,0 0 0 ) {0 .9  0 .9 e }

O p e r a tin g c o s t  3 4 5 6 0 0 t
 0 .1 6 t
P r o f it  R e v e n u e  c o s t  1 2 ( 1 ,0 0 0 ,0 0 0 ) {0 .9  0 .9 e }  345600t
 0 .1 6 t
P r o f it P ( t)  1 0 8 0 0 0 0 0  1 0 8 0 0 0 0 0 e  345600t
a ) H o w lo n g s h o u ld p u m p in g b e c o n tin u e d to m a x im iz e p r o f it ?

F o r p r o f it to b e m a x im u m , P  ( t )  0

d  0 .1 6 t
or, {1 0 8 0 0 0 0 0  1 0 8 0 0 0 0 0 e  3 4 5 6 0 0 t}  0
dt
 0 .1 6 t
or, 10800000e (  0 .1 6 )  3 4 5 6 0 0  0
 0 .1 6 t
o r ,1 7 2 8 0 0 0 e  345600

 0 .1 6 t 345600
or, e 
1728000
 0 .1 6 t
or, e  0 .2
 0 .1 6 t
o r , ln e  ln ( 0 .2 ) ; [ ta k in g lo g e o r L n in b o th s id e s ]

o r ,  0 .1 6 t ( ln e )  ln ( 0 .2 ) ; [ ln e  lo g e e  1]

o r ,  0 .1 6 t  ln ( 0 .2 )

ln ( 0 .2 )
or,t   1 0 .0 6 y e a r s
 0 .1 6
d  0 .1 6 t  0 .1 6 t  0 .1 6 t
P  ( t )  (1 7 2 8 0 0 0 e  345600)  1728000e (  0 .1 6 )   2 7 6 4 8 0 e
dt
 0 .1 6 (1 0 .0 6 )  1 .6 0 9 6
P  (1 0 .0 6 )   2 7 6 4 8 0 e  276480e   5 5 2 8 7 .0 3; [  v e , c o n c a v e d o w n ]
T h u s th e p u m p in g s h o u ld b e c o n tin u e d fo r t  1 0 .0 6 y e a rs fo r th e p ro fit to b e m a x im u m

b ) W h a t is th e m a x im u m p ro fit ?
 0 .1 6 (1 0 .0 6 )
P (1 0 .0 6 )  1 0 8 0 0 0 0 0  1 0 8 0 0 0 0 0 e  3 4 5 6 0 0 (1 0 .0 6 )= $ 5 ,1 6 3 ,6 1 4 .0 8 1

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 78


Question 17: When x ounces of seed costing $2 per ounce are sown on a plot of land the
crop yield is ln(2x+1) bushels worth $25 per bushels. How many ounces should be sown if
the worth of the crop minus the cost of the seed is to be maximized?

P ro fit, P ( x )  2 5{ ln ( 2 x  1)}  2 x
F o r p r o f it to b e m a x im u m , P ( x )  0 

d
or, [ 2 5{ ln ( 2 x  1) }  2 x ]  0
dx
d d
or, 25 { ln ( 2 x  1) }  (2 x)  0
dx dx
1
or, 25 (2)  2  0
2x 1
50
or,  2
2x 1
or, 2 x  1  25

or , x  12 ounces of seed

d 50 d 1  11 d
P  ( x )  (  2)  50 ( 2 x  1)  5 0 (  1) ( 2 x  1) ( 2 x  1)
dx 2x 1 dx dx
2 100
  5 0 ( 2 x  1) (2)  
( 2 x  1)
2

100
P  (1 2 )     0 .1 6 ; [(  v e ), c o n c a v e d o w n ]
( 2 4  1)
2

T h u s x  1 2 o u n c e s o f s e e d w ill m a k e th e p r o f it m a x im iz e d .

Do the followings at home

Question 18: The revenue from, and the cost of, operating an undertaking for t years are,
respectively, in millions of dollars,
R (t )  3e a n d C ( t )  1 .5 e
0 .0 5 t 0 .0 8 t

a) How long should operations continue if profit is to be maximized?


b) Compute maximum profit.

Question 19: The total potential audience for a promotional campaign is 10,000
customers. Revenue averages $3 per response to the campaign. Campaign costs are a
fixed amount of $500, plus $300 per day the campaign continues. The proportion of the
total audience responding by time t days is
 0 .2 5 t
1 e
a) How long should the campaign continue if profit is to be maximized?
b) Compute maximum profit.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 79


Question 20: The total potential audience for a promotional campaign is 2,000 customers.
Revenue averages $5 per response to the campaign. Campaign costs are a fixed amount of
$100, plus $105.36 per day the campaign continues. The proportion of the total audience
responding by time t days is
1  ( 0 .9 )
t

a) How long should the campaign continue if profit is to be maximized?


b) Compute maximum profit.

Marginal Propensity to Consume and the Multiplier:

The major parts of the income people have available for their use is spent on food,
clothing, shelter, medical care, transportation, recreation, and so on and this is called
consumption expenditure. The remaining amount after consumption expenditure is saved
in one form or another. Both consumption and saving depends on or function of income
(Y).

Marginal Propensity to Consume (MPC) is the rate at which consumption changes for
each additional $1 of income received. MPC is the part of each extra dollar of income that
is spent.

Marginal Propensity to Save (MPS) is the part of each extra dollar of income that is
saved.

d
M a r g in a l P r o p e n s it y t o C o n s u m e M PC   [ C (Y ) ]
dY
d d
M a r g in a l P r o p e n s it y t o S a v e M PS   [Y  C (Y ) ]  1  [ C (Y ) ]  1  M P C
dY dY

Multiplier: The rate, at which income increases for each additional $1 of investment or
savings, is called multiplier.

S a v in g s  I  Y  C ( Y )
d d d
or, (I )  (Y )  [ C (Y ) ]
dI dI dI
dY d C (Y ) d Y
o r ,1   .
dI dY dI
dY d C (Y )
o r ,1  [1  ]
dI dY
dY
o r ,1  [1  M P C ]
dI
1 dY
or, 
[1  M P C ] dI
dY 1 1
o r , M u lt ip lie r   
dI [1  M P C ] M PS

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 80


Question 21: Suppose Y is family income in tens of thousands of dollars so that, for
example, Y=2 means $20,000 and suppose

 0 .4 Y
C ( Y )  6  0 .6 Y  e
represents the family consumption function.

a) Find MPC for families with $10,000 and $20,000 of income.


d
M a r g in a l P r o p e n s ity to C o n s u m e M PC   [ C ( Y )]
dY
d  0 .4 Y  0 .4 Y  0 .4 Y
 ( 6  0 .6 Y  e )  0 .6  (  0 .4 ) e  0 .6  0 .4 e
dY
M PC 
 0 .4 (1 )
If Y  1; (1 0 th o u s a n d ),  0 .6  0 .4 e  0 .8 6 8 1

M PC 
 0 .4 ( 2 )
If Y  2 ; ( 2 0 th o u s a n d ),  0 .6  0 .4 e  0 .7 7 9 7

b) Suppose Y is trillions of dollars. Find the multiplier at an income level of $0.8 trillions.
M PC 
 0 .4 ( 0 .8 )
If Y  0 .8;  0 .6  0 .4 e  0 .8 9 0 4

dY 1 1 1
M u lt ip lie r      9 .1 2
dI [1  M P C ] M PS 1  0 .8 9 0 4

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 81


Applied Mathematics

Practice Questions and Answers # 9

Integral Calculus

1)  (3 z  2 z  5  m ) d z  3  z d z  2  z d z  5  dz  m 
3 3
dz
3 1 11 4 2
z z z z
 3  2  5z  mz  c  3  2  5z  mz  c
31 11 4 2
4
3z
  z  5z  mz  c
2

2 )  (7 x  5) d x
2

L e t, 7 x  5  z
d d d
or, (7 x )  (5 )  (z)
dx dx dx
dz
or, 7 
dx
dz
or, dx 
7
2 1 3
dz 1 1 z 1 z
 (7 x  5) dx  z   z dz  .  c  .  c
2 2 2

7 7 7 2 1 7 3
(7 x  5)
3

  c
21

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 82


dx 3
3)    (5 x  6 ) dx
(5 x  6 )
3

L e t, 5 x  6  z

d d d
or, (5 x )  (6 )  (z)
dx dx dx
dz
or,5 
dx
dz
or, dx 
5
 3 1 2
3 3 dz 1 3 1 z
1 z
 (5 x  6 ) dx  z 5

5
 z dz  .
5 3  1
 c  .
5 2
 c

1 1
   c    c
1 0 (5 x  6 )
2 2
10 z

Problem Set 10-1:


Question No. 7:

 (2 x  3 x  4)dx  2  x dx  3 x dx  4 
2 2
dx
2 1 11 3 2
x x 2x 3x
 2 3  4x  c    4x  c
2 1 11 3 2

Question No. 8:

 (3 y  4 y  1) d y  3  y d y  4  y d y  1 dy
3 3

3 1 11 4 2
y y 3y 4y
 3  4  y  c    y  c
31 11 4 2

Question No. 9:

 p dq  p  dq  pq  c

Question No. 10:

q dp  q  dp  pq  c

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 83


Question No. 11:

11 2
p p q
 pq dp  q  p dp  q
11
c 
2
c

  ( x  x  1) d x
3 4
Do these at home: Q.12: p q d q Q.13:

 ( y  y  1) d y Q.15:  (3 y  5 y  1) d y
2 5 2 4
Q.14:

dy

2 3
Q.16:  ( 4 x  6 x  1) d x Q.17:  
3 5
x d x Q.18: 7 d y Q.19: 3
y

dx
Q.20:  x
4

Question No. 21

 3 1
3 3 y
 (5  2 y )dy  5 dy  2  y dy  5 y  2
3  1
c

2
y 1
 5y  2  c  5y  2
 c
2 y

4
1
Do these at home: Q.22:  (7  3 x ) d x Q.23:  (2 x 
x
2
 1) d x

1 1 4
2 

(y   1) d y
 q  3x
2 3 3
Q.24: 3 Q.25: p d p Q.26: d q Q.27: dx
y


3 1 2 2 1
Q.28:  5y 2
d y Q.29:  (2 
x
2
 5
) d x Q.30:  (2 x 
x
3
 4
) dx
3x3 4x3

Question No. 31:


2 1 3 1
x x
12(x  x ) d x  1 2  ( x  x ) d x  1 2[  x d x  x d x ]  1 2[  ] c
2 3 2 3 2 3

2 1 31
3 4
x x
 1 2[  ] c  4x  3x  c
3 4

3 4

 3( x  2 x )d x
2
Do these at home: Q.32:

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 84


Question No. 33:

3 1
3 3 (2 x  9) 1
 16(2 x  9) dx  16  (2 x  9) dx  16 31 2
 c

(2 x  9)
4
1
 16  c  2(2 x  9)  c
4

4 2

5 2

Do these at home: Q.34:  3 0 (3 x  5 ) d x Q.35:  (3 x  9 ) dx

4

Q.36:  (2 x  3) dx

Question No. 37:

1 1
 1
1
dx  (5  3 x ) 2
1 (5  3 x ) 2 1
   (5  3 x ) dx  .(  )  c   .  c
2
1
1 3 1 3
(5  3 x ) 2  1
2 2
(5  3 x ) 2 (5  3 x )
   c    c
3 3
2

dw
Do these at home: Q.38:  (7  2 w ) 3

Question No. 39:

1
 1
1
8dx  (2 x  5) 3
1
  8 (2 x  5) dx  8  c
3
1
.
1 2
(2 x  5) 3  1
3
2 2
2
(2 x  5) 3
3(2 x  5) 3
 4  c  4  c  6(2 x  5) 3  c
2 2
3

12dx
Do these at home: Q.38:  1

(3 x  7 ) 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 85


Applied Mathematics

Practice Questions and Answers # 10

Integral Calculus
1

F in d th e a r e a u n d e r f ( x )  x 3  5 o v e r th e in te r v a l x  1 to x  8
8 1

 (x  5)dx
3

1
1
1 1
x3
H e re , ( x 3  5 ) d x   x 3 d x  5 dx   5x  c
1
1
3
4 4
3
x 3x3
  5x  c   5x  c
4 4
3
8
     
4 4 4
8 1 3 3 3
 3 x   3 (8 )   3 (1 ) 
 (x  5)dx   5x  c   5 (8 )  c   5 (1)  c
3

 4   4   4 
  1    
1

3 (8 ) 3 3 3
  5 (8 )  c   5  c  47   4 6 .2 5
4 4 4

Problem Set 10-2:


Question No. 1:

2 d x   2 x  c    2 (5 )  c    2 ( 2 )  c   6
5

 2
2

Question No. 2:

3 3

 3 d x  3  d x   3 x  c    3 (3 )  c    3 (1)  c   6
3

1
1 1

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 86


Question No. 3:

4 4
4 4 11
 x   x 
2

 2 x d x  2  x d x   2

 c    2  c 
1 1  1 1  1  2  1
4
  x  c    ( 4 )  c    (  1)  c   1 5
2 2 2
  1    

Do this at home: Q.4:  3x dx


3

Question No. 5:

6 6
6 6 6 11
 x  x 
2

 ( x  1) dx  x d x  1 dx    x  c    x  c
2 2 2 1  1 2  2 2
6
x   (6 )   (2) 
2 2 2

   x  c    (6 )  c     (2)  c   20
 2 2  2   2 

Question No. 6:

3 3 3 3
 x 
2
3

 ( 2 x  1) dx  2  x dx  1  dx  2.  x  c  x  x  c
2
  1
1 1 1  2  1

  ( 3 )  ( 3 )  c    (  1)  (  1)  c   4
2 2
   

Question No. 7:

8 8
 2 1   5  
5

8

 x3   x3 
8 2 3
3x 
x dx    c    c   c
3

2 5  5 
 1   
  0
0

3 0  3 0

   
5 5
3 3
 3 (8 )   3 ( 0 ) 
  c   c  1 9 .2
 5   5 
   

9 1

x
2
Do this at home: Q.8: dx
0

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 87


Question No. 9:

2 2 2 2

 (x  3 x  5) dx  x dx  3 x dx  5 dx
2 2

1 1 1 1

2 2
2 1 11
 x  x 
3 2
x 3x
   3.  5x  c     5x  c
2 1 11 1  3 2 1

 (2)   (1) 
3 2 3 2
3(2 ) 3 (1)
    5(2)  c      5 ( 2 )  c   2 .8 3
 3 2   3 2 

3 8 1

 (x  5 x  2 ) d x Q.12:
2
 (1  2 y
3
Do this at home: Q.10: ) dy
0 1

Question No. 11:

9 9
 1
 1
  1 
   
9 1 9 9 1 2 2
  y y
 (5  ) dy  5 dy   dy  5 y   c   5 y   c
2 2
y y
1 1
1 1 1   1   
 2 1  2 1
9
     
1 1 1

  5 y  2 y 2  c    5 (9 )  2 (9 ) 2  c    5 (1)  2 (1) 2  c   4 4
 1    
Question No. 13:

6 6
 1
1
  3 
 (2 x  3) 2   (2 x  3) 2 1 
6 1
1
 (2 x  3) dx   .  c   .  c
2

1 2 3 2
2  1   
 2 2  2 2
6 6
   
3 3

 2 ( 2 x  3 ) 2
1   ( 2 x  3 ) 2

 .  c   c
 3 2   3 
  2   2

   
3 3

 { 2 ( 6 )  3}   { 2 ( 2 )  3}
2 2

  c   c  8 .6 7
 3   3 
   

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 88


8 1

 (5 x  4 )
2
Do this at home: Q.14: dx
1

Question No. 15:

6 6 6
60 1 2
 (3 x  2 ) 2
dx  60
(3 x  2 )
2
d x  6 0  (3 x  2 ) dx
1 1 1

6 6 6
 2 1 1
 (3 x  2 ) 1   (3 x  2 ) 1   1 
 60  .  c   60  .  c   60   c
 2  1 3 1  1 3 1  3(3 x  2 ) 1

 1   1 
 60   c    c
  3{3 ( 6 )  2}   3{3 (1)  2} 
1 1 1 1
 60(  c  c)  60(  )  3
60 15 15 60

6 b d
20
  3x 
2 3
3
dx dx 4x dx
Do this at home: Q.16: Q.17: Q.18:
0
( 4 x  1) 2 a c

n 1

Q.19:  ( x  1) dx
Q.20:  ( 2 x  1) dx
1 n

Find the area under the curve of the following functions over the given x
intervals:

Question No. 21: f ( x )  2 x ; x  1 to x  2

2
2 2 11
 x  2

 2x dx  2 x dx  2.  c    x  c    ( 2 )  c    (1)  c   3
2 2 2
 1    
1 1  11 1

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 89


Do this at home: Q.22: f ( x )  3 x ; x  1 to x  5

Q.23: f ( x )  3 x  2 ; x  1 to x  2 Q.24: f ( x )  2 x  3 ; x   1 to x  1

6 4
Q.25: f ( x )  2
; x  1 to x  3 Q.26: f ( x )  3
; x  1 to x  2
x x

40 2
Question No. 27: f ( x )   4 0 ( 2 x  1) ; x  0 to x  2
( 2 x  1)
2

2
2 2 2 1
2 2
 ( 2 x  1) 1 
 4 0 ( 2 x  1) d x  4 0  ( 2 x  1) dx  40.
2  1
.  c
0 0  2 0
2

1
2  20 
   2 0 ( 2 x  1)  c    c
 0
 ( 2 x  1) 0

 20   20 
   c    c   16
 { 2 ( 2 )  1}   { 2 ( 0 )  1} 

50
f (x)  ; x  1 to x  2 5
Do this at home: Q.28: 3

x2

Find the areas described in each of the following problems:


Question No. 29: Find the area bounded by the axis and

f ( x )  1 0  0 .5 x

The point where the function touches the x –axis, f(x)=0

f ( x )  1 0  0 .5 x  0

10
or, x   20
0 .5

The point where the function touches the y –axis, x=0

W e h a v e to f in d th e a r e a u n d e r th e c u r v e w h e r e ,

f ( x )  1 0  0 .5 x ; x  0 to x  2 0

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 90


20 20 20 20
 
2
x
 (1 0  0 .5 x ) dx   10 dx   0 .5 x d x  1 0 x  0 .5  c
0 0 0  2 0
20
  1 0 x  0 .2 5 x  c 
2
 0

  1 0 ( 2 0 )  0 .2 5 ( 2 0 )  c   1 0 ( 0 )  0 .2 5 ( 0 )  c   1 0 0
2 2
   

Question No. 30: Find the area bounded by the axis and

f (x)  5  x

The point where the function touches the x –axis, f(x)=0

f (x)  5  x  0

or, x  5

The point where the function touches the y –axis, x=0

W e h a v e to f in d th e a r e a u n d e r th e c u r v e w h e r e ,

f ( x )  5  x ; x  0 to x   5

0 0 0 0
 
2
x
 (5  x) dx  5 dx   x dx  5 x   c
5 5 5  2  5

   (5) 
2 2
(0 )
 5(0 )   c   5(5)   c   1 2 .5
 2   2 

Question No. 31: Find the area bounded by the x-axis and

f (x)  30 x  3x
2

The point where the function touches the x –axis, f(x)=0

f (x)  30 x  3x  0
2

o r , 3 x (1 0  x )  0
E ith e r , 3 x  0 o r ,(1 0  x )  0

or, x  0 or, x  10

The function touches the x –axis, at x=0, 10

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 91


W e h a v e to fin d th e a re a u n d e r th e c u rv e w h e re ,

f ( x)  30 x  3 x ; x  0 to x  1 0
2

10 10 10 10
 
2 3
x x
 (3 0 x  3 x ) dx   30 x dx   3x dx  30  3.  c
2 2

0 0 0  2 3 0
10
  1 5 x  x  c    1 5 (1 0 )  (1 0 )  c    1 5 ( 0 )  ( 0 )  c   5 0 0
2 3 2 3 2 3
 0    

Do these at home:

Q. 32: Find the area bounded by the x-axis and f ( x )  4 x  x  21


2

Q. 33: Find the area bounded by the x-axis and f ( x )  x  3 x  x3


3 2

Q. 34: Find the area bounded by the x-axis and f ( x )  x  5x  4


4 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 92


Applied Mathematics

Practice Questions and Answers # 11

Integral Calculus

1 1
 (m x  b) dx   (m x  b )dx
L e t, m x  b  z

d d d
or, (m x)  (b )  (z)
dx dx dx
dz
or, m 
dx
dz
or, dx 
m
1 1 1 dz 1 1 1
 (m x  b) dx   (m x  b) dx   z m

m
 z
dz 
m
( ln z )  c

1
 ln ( m x  b )  c
m

3 3 3
4dx 1  1 
  2 ln ( 2 x  3 )  c 
3

 2x  3
 4
2x  3
d x  4 . ln ( 2 x  3 )  c
 2


 1
1
1 1

  2 ln ( 9 )  c    2 ln (1)  c   2 ln ( 9 )  2 ln (1)  4 .3 9

3 3 3
6dx 1  1 
  2 ln ( 3 x  2 )  c 
3

 3x  2  6
3x  2
d x  6 . ln ( 3 x  2 )  c
 3


1
1
1 1

  2 ln ( 7 )  c    2 ln (1)  c   2 ln ( 7 )  2 ln (1)  3 .8 9

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 93


Problem Set 10-5:
Question No. 1:

1 1
 x dx  
x
d x  ln x  c

Question No. 2:

dx 1
 x

x
d x  ln x  c

Question No. 3:

2dx 1
 x
 2
x
d x  2 ln x  c

1 1
Do this at home: Q.4:  3 x dx 3 d x  3 ln x  c
x

Question No. 5:

 2 1 1
2 x x 1 1
 x dx 
2  1
 c 
1
 c  x  c  
x
 c

Question No. 6:

 2 1 1
dx 2 x x 1 1
 x
2
 x dx 
2  1
 c 
1
 c  x  c  
x
 c

Question No. 7:

dx 1 1
 5x  4 
5x  4
dx 
5
ln (5 x  4 )  c

Question No. 8

1
3 x
d x   ln (3  x )  c

1 1
Question No. 9:  3  0 .2 x dx  
0 .2
ln (3  0 .2 x )  c   5 ln (3  0 .2 x )  c

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 94


Question No. 10:

1 1 1
 2 ( 0 .5 x  1) dx  2 
( 0 .5 x  1)
dx  2
0 .5
ln ( 0 .5 x  1)  c

 4 ln ( 0 .5 x  1)  c

Question No. 11:

 2 1
dx 2 1 ( 2 x  1)
 ( 2 x  1) 2
  ( 2 x  1) dx  .
2 2  1
 c

1 1 1
  ( 2 x  1)  c    c
2 2 ( 2 x  1)

Question No. 12:

2 1
10dx 2 1 (5 x  3)
 (5 x  3) 2
1 0  ( 5 x  3 ) d x 1 0 .
5 2  1
c

1 2
  2 (5 x  3)  c    c
(5 x  3)

Question No. 13:

10 10
dx 1
d x    ln x  c    ln (1 0 )  c    ln (1)  c   2 .3 0
10

 x
  x
1
1 1

Question No. 14:

e e
1
d x    ln x  c    ln ( e )  c    ln (1)  c   1
1 e

 x dx   x
1
1 1

2 2
dx  1 
  2 ln ( 0 .5 x  4 )  c 
2

 0 .5 x  4


 0 .5
ln ( 0 .5 x  4 )  c

0
0
0
Question No. 15:
  2 ln ( 5 )  c    2 ln ( 4 )  c   0 .4 4 6

10
1
Do this at home: Q.16:  (
0 .6 x  1
) dx
5

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 95


e dx  e  c
x x

(mxb)
(mxb) 1 (mxb) e
e dx 
m
e  c 
m
 c

10 10 10
 1 
 30e dx 30  e dx  30e  c
0 .0 6 x 0 .0 6 x 0 .0 6 x
.
 
0 0  0 .0 6 0
10
 500e  c   500e  c   500e  c
0 .0 6 x 0 .0 6 (1 0 ) 0 .0 6 ( 0 )
 0    
 4 1 1 .0 5

2 2 2
2 x 1  2 x 1 1   1 2 x 1 
e dx  e


.  c
2 
1

2

e c

1
1

1 3  1 1 
 e  c  e  c  8 .6 8 3
2  2 
   

x
a
a dx   c
x

ln a

mxb mxb
mxb 1 a a
a dx 
m
.
ln a
 c 
m ln a
 c

2
2 2 x 1
2 x 1
 ( 0 .9 ) 1 
 ( 0 .9 ) dx   .  c
1  ln ( 0 .9 ) 2 1

 ( 0 .9 )   ( 0 .9 ) 
3 1

   c    c   0 .8 1 1
 2 ln ( 0 .9 )   2 ln ( 0 .9 ) 

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 96


4 4 4
 (6 )   2 (6 ) 
0 .5 x 0 .5 x
1
 dx    c    c
0 .5 x
(6 ) .
2  ln ( 6 ) 0 .5 2  ln ( 6 ) 2

 2 (6 )   2 (6 ) 
2 1

   c    c   3 3 .4 8 7
 ln ( 6 )   ln ( 6 ) 

Problem Set 10-6:


Question No. 1:

e d x e  c
x x

Question No. 2:

x
2
2 dx   c
x

ln 2

Question No. 3:

x
x 3
3 dx  
ln 3
 c

Question No. 4:

x x
 e dx   e c

Question No. 5:

1
 dx   c  2e c
0 .5 x 0 .5 x 0 .5 x
e e
0 .5
Question No. 6:

0 .2 x 0 .2 x 1  0 .2 x
1 5 5 5
5 dx   c  5  c   c
0 .2 x
.
0 .2 ln 5 ln 5 ln 5

Question No. 7:
1  0 .4 x 1  0 .4 x
1  0 .4 x 1 ( 0 .5 ) ( 0 .5 )
 ( 0 .5 ) dx  
0 .4
.
( ln 0 .5 )
 c   2 .5
( ln 0 .5 )
 c

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 97


2  0 .5 x 1 2  0 .5 x 2  0 .5 x
Question No. 8:  e dx  
0 .5
.e  c  2e c

3  0 .1 x 1 3  0 .1 x 3  0 .1 x
Question No. 9:  2e dx  
0 .1
2e  c  20e c

5  0 .2 x 1 5  0 .2 x 5  0 .2 x
Question No. 10:  4e dx  
0 .2
4e  c  20e  c

Question No. 11:


x
dx x ( 0 .8 ) 1
 ( 0 .8 ) x
  ( 0 .8 ) dx  
( ln 0 .8 )
 c   x
( 0 .8 ) ( ln 0 .8 )
 c

1  0 .5 x 1  0 .5 x 2
Question No. 12: e 0 .5 x
dx   e dx  
0 .5
e c  
e
0 .5 x
c

Question No. 13:

5 5
1  0 .2 x  1  0 .2 x 1  1  0 .2 x
5

 2e dx  2e . c  10e  c
   0
0  0 .2 0
11
 10e  c     1 0 e  c   1 7 .1 8 2
1
   

Question No. 14:

2 2
2  0 .5 x  2  0 .5 x 1  2  0 .5 x
2

 4e dx  4e .  c   8e  c
   1
1  0 .5 1

 8e  c    8e  c   1 4 .1 0 7
1 1 .5
   

Question No. 15:

2 2
 
x
( 0 .5 )
  
x
1 0 ( 0 .5 ) d x  1 0 c 
1  ln ( 0 .5 ) 1

   
2 1
( 0 .5 ) ( 0 .5 )
 1 0  c   1 0  c   3 .6 0 6
 ln ( 0 .5 )   ln ( 0 .5 ) 

Question No. 16:

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 98


2 2
 ( 0 .9 ) 
x

 5 ( 0 .9 ) d x   5  c
x

0  ln ( 0 .9 ) 0

 ( 0 .9 )   ( 0 .9 ) 
2 0

 5  c   5  c   9 .0 1 7
 ln ( 0 .9 )   ln ( 0 .9 ) 

Problem Set 10-7:


Question No. 1:

x x
d 2 2
 x .2 dx x  2 dx   { dx (x) 2 d x}d x  x   ln 2 d x
x x x

ln 2
x x x x
x2 1 x2 1 2 2
  2 dx    c  { x (ln 2 )  1}  c
x
. 2
ln 2 ln 2 ln 2 ln 2 ln 2 (ln 2 )

Question No. 2:

6x
 2x 1
dx

L e t, 2 x  1  z a g a in ,

or,
d
(2 x) 
d
(1) 
d
(z) 2x 1  z
dx dx dx
or, 2 x  z  1
dz
or, 2 
dx or, 6 x  3z  3
dz
or, dx 
2

6x 1 1 dz 1 1
 2x 1
dx   2x 1
6 x dx   z
(3 z  3)
2

2
 z
(3 z  3) d z

1 3 1 3 1

2
 (3 
z
)dz 
2
[ 3 dz   z
dz] 
2
[ 3 z  3 ln z ]  c

3 3 3 3
 z  ln z  c  ( 2 x  1)  ln ( 2 x  1)  c
2 2 2 2
3 3 3
 3x   ln ( 2 x  1)  c  3 x  ln ( 2 x  1)  c
2 2 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 99


Question No. 3:

2x
 ( 0 .5 x  1) 2
dx

L e t, 0 .5 x  1  z

d d d a g a in ,
or, ( 0 .5 x )  (1)  (z)
dx dx dx 0 .5 x  1  z
dz
o r , 0 .5  o r , 0 .5 x  z  1
dx
1 dz or, 2 x  4 z  4
or, 
2 dx
or, dx  2dz

2x 1 1 1
 ( 0 .5 x  1) 2
dx   ( 0 .5 x  1) 2
2 x dx   z
2
(4 z  4)2dz  
z
2
(8 z  8 ) d z

 2 1
8 2 z 1
  z
dz  8 z d z  8 ln z  8
2  1
 c  8 ln z  8
z
c

8 1
 8 ln ( 0 .5 x  1)   c  8[  ln ( 0 .5 x  1) ]  c
( 0 .5 x  1) ( 0 .5 x  1)
Question No. 4:

d
 x .e d x  x  e d x  { ( x )  e d x}d x  x e  e
x x x x x
dx
dx
 x e  e  c  e ( x  1)  c
x x x

Question No. 5:

2  0 .5 x 2  0 .5 x d 2  0 .5 x
 x .e dx x  e dx  { dx
(x) e d x}d x

1 2  0 .5 x 1 2  0 .5 x 2  0 .5 x 1 2  0 .5 x
 
0 .5
xe 
0 .5
 e dx   2 xe  2
0 .5
e c

2  0 .5 x 2  0 .5 x 2  0 .5 x
  2 xe  4e  c  2e (x  2)  c

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 100
Question No. 6:

9x
 (3 x  4 ) 2
dx
a g a in ,
L e t, 3 x  4  z
3x  4  z
d d d
or, (3 x )  (4)  (z) or,3x  z  4
dx dx dx
dz o r , 9 x  3( z  4 )
or,3 
dx or,9 x  3z  12
1
or, dx  dz
3

9x 1 1 dz 1
 (3 x  4 ) 2
dx   (3 x  4 ) 2
9 x dx   z
2
(3 z  1 2 )
3

z
2
( z  4)dz

 2 1
1 4 1 1 z 1
  (
z

z
2
)dz   z
dz  4
z
2
d z  ln z  4
2  1
 c  ln z  4
z
c

4
 ln ( 3 x  4 )   c
(3 x  4 )

Question No. 7:

2
 x ( 0 .5 x  1)
dx

2 ( 0 .5 x  1  0 .5 x ) 2 ( 0 .5 x  1) 2 ( 0 .5 x )
 { x ( 0 .5 x  1)
}d x  { x ( 0 .5 x  1)

x ( 0 .5 x  1)
}d x

2 1 2 1
 { x

( 0 .5 x  1)
}d x   x
dx   ( 0 .5 x  1) d x
1
 2 ln x  ln ( 0 .5 x  1)  c  2 ln x  2 ln ( 0 .5 x  1)  c
0 .5
x
 2{ ln x  ln ( 0 .5 x  1) }  c  2 ln  c
( 0 .5 x  1)

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 101
Question No. 8:

0 .4 x  1 0 .4 x  1 d 0 .4 x  1
 2 x .e dx  2 x  e dx  { dx
(2 x) e d x}d x

1 0 .4 x  1 2 0 .4 x  1 0 .4 x  1 5 0 .4 x  1
 2x
0 .4
e 
0 .4
 e dx  5 xe 
0 .4
e  c

0 .4 x  1 0 .4 x  1
 5 xe  1 2 .5 e  c

Question No. 9:

2x a g a in ,
 5 x  3 dx
5x  3  z
L e t, 5 x  3  z

d d d
or,5 x  z  3
or, (5 x )  (3)  (z)
dx dx dx z3
or, x 
dz
or,5  5
dx
2z  6
dz or, 2 x 
or, dx  5
5

2x 1 1 2 z  6 dz 1 1
 5x  3 dx   5x  3 2 x dx   z
.
5
.
5

25
 z
(2 z  6)dz

1 6 1 6 1

25
 (2 
z
)dz 
25
{ 2 dz   z
d z} 
25
{ 2 z  6 ln z }  c

1 2 3 6
 { 2 ( 5 x  3 )  6 ln ( 5 x  3 ) }  c  x  ln ( 5 x  3 )  c
25 5 25 25
2 6 x 3
 x ln ( 5 x  3 )  c  2[  ln ( 5 x  3 ) ]  c
5 25 5 25

Question No. 10:

6
 x (3 x  2 )
dx

3 (3 x  2 )  9 x ) 3 (3 x  2 ) 9x
 { x (3 x  2 )
}d x  { x (3 x  2 )

x (3 x  2 )
}d x

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 102
3 9 3 9 1
 { x

(3 x  2 )
}d x   x
dx   (3 x  2 ) d x  3 ln x  9 .
3
ln (3 x  2 )  c

x
 3 ln x  3 ln (3 x  2 )  c  3[ln x  ln (3 x  2 )]  c  3 ln c
(3 x  2 )
Question No. 11:

2
0 .1 x  2
 x .e dx 

L e t, 0 .1 x  2  z
2

d d d
( 0 .1 x )  (2) 
2
or, (z)
dx dx dx
dz
o r , 0 .2 x 
dx
dz
or, x dx   5dz
0 .2

2 2
0 .1 x  2 0 .1 x  2
 x .e dx   5e dz  5e  c  5e c
z z

Question No. 12:

dx
1 e 0 .2 x

L e t, 1  e  z
0 .2 x

d d d
(1)  ) 
0 .2 x
or, (e (z)
dx dx dx
dz

0 .2 x
o r , 0 .2 e
dx
dz dz
or, dx  
0 .2 ( z  1)
0 .2 x
0 .2 e

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 103
Applied Mathematics

Practice Questions and Answers # 12

Integral Calculus

F in d th e a r e a b o u n d e d b y th e f u n c tio n s

f (x)  15  2 x  x
2
and

g (x)  9  x
b

A re a , A   [ f (x)  g ( x )]d x
a

T h e v a lu e s o f a a n d b a r e th e x -c o o r d in a te s o f th e p o in ts o f

in te r s e c tio n o f f ( x ) a n d g ( x )

A t th e p o in t o f in te r s e c tio n , f ( x )  g ( x )

o r ,1 5  2 x  x  9 x
2

o r ,1 5  2 x  x  9  x  0
2

or,  x  x  6  0
2

or, x  x  6  0
2

or, x  3x  2 x  6  0
2

o r , ( x  2 )( x  3)  0

or , x  2, 3
b 2

A re a , A   [ f ( x )  g ( x )]d x   [1 5  2 x  x  ( 9  x ) ] d x
2

a 3

2 2
2 2 1 11
 x   x 
3 2
x x
  [  x  x  6 ]d x      6 x  c     6x  c
2

3  2 1 11  3  3 2  3

 2   ( 3) ( 3) 
3 2 3 2
2
    12  c      6 ( 3)  c 
 3 2   3 2 

 2   ( 3) ( 3) 
3 2 3 2
2
    12  c      6 (  3 )  c   2 0 .8 4
 3 2   3 2 

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 104
F in d th e a r e a b e tw e e n th e c u r v e s

f ( x)  3 x  3 x and
3

g (x)  x
b

A re a , A   [ f (x)  g ( x )]d x
a

T h e v a lu e s o f a a n d b a r e th e x -c o o r d in a te s o f th e p o in ts o f

in te r s e c tio n o f f ( x ) a n d g ( x )

A t th e p o in t o f in te r s e c tio n , f ( x )  g ( x )

or,3x  3x  x
3

or,3x  4 x  0
3

o r , x (3 x  4 )  0
2

E ith e r , o r,

x  0 (3 x  4 )  0
2

4

2
o r,x
3
2
o r,x  
3
2 2
or, x   , 0, 
3 3
o r , x   1 .1 5 5 , 0 ,  1 .1 5 5
b 1 .1 5 5

A re a , A   [ f (x)  g ( x )]d x  2  [3 x  4 x ]d x
3

a 0

1 .1 5 5 1 .1 5 5
3 1 11
 x  3x 
4
x
 2 3  4  c  2  2x  c
2

 31 11 0  4 0

 3 (1 .1 5 5 )   3(0 ) 
4 4

 2{   2 (1 .1 5 5 )  c     2 ( 0 )  c }
2 2

 4   4 
 2 (  1 .3 3 3 4 )   2 .6 7

A r e a c a n n o t b e n e g a tiv e , h e n c e a r e a  2 .6 7

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 105
Problem Set 10-3

Question No:3

F in d th e a r e a b o u n d e d b y th e f u n c tio n s

f ( x )  x  1 and
2

g (x)  10
b

A re a , A   [ f (x)  g ( x )]d x
a

T h e v a lu e s o f a a n d b a r e th e x -c o o r d in a te s o f th e p o in ts o f
in te r s e c tio n o f f ( x ) a n d g ( x )

A t th e p o in t o f in te r s e c tio n , f ( x )  g ( x )

or, x  1  10
2

or, x  9  0
2

or, x  3
3
b 3 2 1
 x 
A re a , A   [ f ( x )  g ( x )]d x   [x  9 ]d x    9x  c
2

a 3 2 1  3
3
x  3   ( 3) 
3 3 3

   9x  c    9 (3)  c     9 ( 3)  c 
 3  3  3   3 
 36
A r e a c a n n o t b e n e g a tiv e , h e n c e A r e a  3 6

Do this at home: Question No:4

F in d th e a re a b o u n d e d b y th e fu n c tio n s

f (x)  34  x
2
and

g (x)  9

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 106
Question No:5

F in d th e a r e a b o u n d e d b y th e f u n c tio n s

f ( x)  x  8 x  20 and
2

g (x)  14  x
b

A re a , A   [ f (x)  g ( x )]d x
a

T h e v a lu e s o f a a n d b a r e th e x -c o o r d in a te s o f th e p o in ts o f

in te r s e c tio n o f f ( x ) a n d g ( x )

A t th e p o in t o f in te r s e c tio n , f ( x )  g ( x )

or, x  8 x  20  14  x
2

or, x  8 x  20  14  x  0
2

or, x  7 x  6  0
2

or, x  6 x  x  6  0
2

o r , ( x  6 ) ( x  1)  0

or , x  6, 1
b 6

A re a , A   [ f (x)  g ( x )]d x   [x  7 x  6 ]d x
2

a 1

6 6
2 1 11
 x  x 
3 2
x 7x
  7  6x  c     6x  c
2 1 11 1  3 2 1

 (6 )   (1) 
3 2 3 2
7 (6 ) 7 (1)
    6 (6 )  c      6 (1)  c 
 3 2   3 2 
  2 0 .8 4

A r e a c a n n o t b e n e g a tiv e , h e n c e A r e a  2 0 .8 4

Do this at home: Question No:9

F in d th e a re a b o u n d e d b y th e fu n c tio n s

f (x)  x
3
and

g (x)  x

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 107
Question No:6

F in d th e a r e a b o u n d e d b y th e f u n c tio n s
f ( x )  20  2 x and

g (x)  12 x  2 x
2

A re a , A   [ f (x)  g ( x )]d x
a

T h e v a lu e s o f a a n d b a r e th e x -c o o r d in a te s o f th e p o in ts o f
in te r s e c tio n o f f ( x ) a n d g ( x )
A t th e p o in t o f in te r s e c tio n , f ( x )  g ( x )

or, 20  2 x  12 x  2 x
2

or, 20  2 x  12 x  2 x  0
2

or, 2 x  14 x  20  0
2

or, 2(x  7 x  10)  0


2

or, x  5 x  2 x  10  0
2

o r , ( x  5 )( x  2 )  0
o r , x  5, 2
b 5

A re a , A   [ f (x)  g ( x )]d x   [2 x  1 4 x  2 0 ]d x
2

a 2

5 5
2 1 11
 x  2x 
3
x
 2  14  20 x  c     7 x  20 x  c 
2

 2 1 11 2  3 2

 2 (5 )   2(2) 
3 3

   7 (5 )  2 0 (5 )  c     7(2)  20(2)  c 
2 2

 3   3 
 9
A r e a c a n n o t b e n e g a tiv e , h e n c e A r e a  9

Do this at home: Question No:4

F in d th e a re a b o u n d e d b y th e fu n c tio n s

f ( x )  x  5 x + 4 and g ( x)  4
4 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 108
Applied Mathematics

Applications of Integral Calculus


Question1: The total amount of coal a country will consume in a period of years depends
upon the rate of consumption, and this rate increases as time, t years increases. Suppose it
is estimated that the consumption rate, t years from now will be,

r  ( t )  2 0  1 .2 t m illio n to n s p e r y e a r

a) Compute the total amount of coal the country will consume in the next 10 years.
10
10 11
m illio n to n s  t 
 [ 2 0  1 .2 t ] d t ( y e a r)   2 0 t  1 .2
11
 c  m illio n to n s
0
year  0
10
  2 0 t  0 .6 t  c  m illio n to n s
2
 0

  2 0 (1 0 )  0 .6 (1 0 )  c    2 0 ( 0 )  0 .6 ( 0 )  c  m illio n to n s
2 2
   
 2 6 0 m illio n to n s

b) How much coal will be consumed in the following 10 years, that is during the
second decade from now?
20
20

 [ 2 0  1 .2 t ] d t   2 0 t  0 .6 t  c  m illio n to n s
2
  10
10

  2 0 ( 2 0 )  0 .6 ( 2 0 )  c    2 0 (1 0 )  0 .6 (1 0 )  c  m illio n to n s
2 2
   
 3 8 0 m illio n to n s

c) If the total supply of coal available to the country now and in the future is 2,500
million tons, how long will it be until the total supply is exhausted?
Let us assume, we can use the total supply (2,500 million tons) of coal up to X
years from now.
x

 [ 2 0  1 .2 t ] d t  2500
0

x
o r ,  2 0 t  0 .6 t  c   2 5 0 0
2
 0

o r ,  2 0 ( x )  0 .6 ( x )  c    2 0 ( 0 )  0 .6 ( 0 )  c   2 5 0 0
2 2
   
o r , 2 0 x  0 .6 x  2500
2

o r , 3 x  1 0 0 x  1 2 5 0 0 ;[ m u ltip ly in g e a c h s id e b y 5 ]
2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 109
or,3x  250 x  150 x  12500  0
2

o r , x (3 x  2 5 0 )  5 0 (3 x  2 5 0 )  0

o r , (3 x  2 5 0 )( x  5 0 )  0

250
or, x   years, 50 years
3
Y e a r s c a n n o t b e n e g a tiv e , h e n c e , x  5 0 y e a r s

T h e s u p p ly w ill b e e x h a u s te d in 5 0 y e a r s

Question2: Maintenance cost on a new machine is at the rate of 100t dollars per year at
time t years.

c  ( t )  1 0 0 t d o lla rs p e r y e a r

a) Compute total maintenance cost for the first 4 years.


4
4 11
d o lla r s  t 
 [1 0 0 t ] d t ( y e a r )  1 0 0
11
 c  d o lla r s
0
year  0
4
 5 0t  c   5 0 (4 )  c   5 0 (0 )  c   $ 8 0 0
2 2 2
 0    

b) How many years will it take for total maintenance cost to amount to $5,000?

Let us assume, it will take up to X years from now for total maintenance cost to
amount to $5,000.
x

 [1 0 0 t ] d t  5000
0

x
or ,  50t  c   5000
2
 0

o r , 5 0 ( x )  c   5 0 (0 )  c   5 0 0 0
2 2
   
or,50(x)  5000
2

 100
2
or, x

o r , x  1 0 ye a rs
It will take up to 10 years from now for total maintenance cost to amount to $5,000.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 110
Question3: The fixed cost incurred when g gallons of paint are produced is $2,500 and
marginal cost at g gallons of output is

c  ( g )  0 .0 0 0 4 5 g  0 .1 8 g  2 0
2

Find the total cost of producing 100 gallons

100

T o ta l C o s t  F ix e d c o s t    0 .1 8 g  2 0 ] d g
2
[ 0 .0 0 0 4 5 g
0

100
2 1 11
 g g 
 $ 2 5 0 0   0 .0 0 0 4 5  0 .1 8  20 g  c 
 2 1 11 0
100
 $ 2 5 0 0   0 .0 0 0 1 5 g  0 .0 9 g  20 g  c 
3 2
 0

 $ 2 5 0 0   0 .0 0 0 1 5 (1 0 0 )  0 .0 9 (1 0 0 )  2 0 (1 0 0 )  c 
3 2
 

  0 .0 0 0 1 5 ( 0 )  0 .0 9 ( 0 )  2 0 ( 0 )  c 
3 2
 
 $2500  $1250  $3750

Question4: Marginal cost at output level p pounds of nails is,

1

c  ( p )  1  ( p  1) 2

and fixed cost is $400. Find the total cost of making 399 pounds of the product.

399 1

T o ta l C o s t  F ix e d c o s t   [1  ( p  1) 2
]d p
0

399
 1
 1
 399
   
1
( p  1) 2
 $400   p    $ 4 0 0   p  2 ( p  1) 2  c 
1
  1   0
 2 0

   
1 1

 $ 4 0 0   3 9 9  2 ( 3 9 9  1) 2  c    0  2 ( 0  1) 2  c 
   
 $400  $437  $837

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 111
Question5: Suppose that an operation provided a company income at the rate of I ( t )

dollars per day at time t days, where,

1 1

I ( t )  1 1 0  4 t 2 E ( t )  2 0  7 t 2

The operation was started at an initial fixed expense of $2,000. Variable expense at the
rate of E  ( t ) per day is incurred at time t days. From a profit maximization viewpoint, the
operation should be continued as long as income per day I  ( t ) exceeds expense per day
I ( t ) . Calculate net maximum profit.

P r o f it is m a x im u m till,
I ( t )  E ( t )
1 1

o r ,1 1 0  4 t 2
 20  7t 2
1 1

or , 7t 2  4t 2  90
1

o r , 3t 2  9 0
1

or,t 2  30

or,t  30  900 days


2

900 900

N e t P r o f it   [ I ( t ) ] d t   [ E  ( t ) ] d t  F ix e d c o s t
0 0

900

  [ I ( t )  E ( t ) ] d t  $ 2 0 0 0
0

900 1 1

  [1 1 0  4 t  2 0  7 t 2 ]d t  $ 2 0 0 0
2

900
 1
1

 
900 1 2
t
  [9 0  3t 2 ]d t  $ 2 0 0 0   9 0 t  3  c  $2000
1
0  1 
 2 0
900
 90t  2t  c  $2000
1 .5
 0

  9 0 (9 0 0 )  2 (9 0 0 )  c   9 0 (0 )  2 (0 )  c   $2000
1 .5 1 .5
   
 $ 2 5, 0 0 0

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 112
Question6: Maintenance cost of newly purchased equipment is expected to cost ( 2  0 .1t )
thousand dollars per year at time t years.
a) Compute total maintenance cost during the first 6 years.
6
6 11
 t  6
 
       
2
[ ( 2 0 .1 t ) ] d t  2 t 0 .1 c  2 t 0 .0 5 t c
 0
0  11 0

  2 ( 6 )  0 .0 5 ( 6 )  c    2 ( 0 )  0 .0 5 ( 0 )  c 
2 2
   
 $ 1 3 .8 th o u s a n d d o lla r s

= $ 1 3 .8 ( 1 0 0 0 ) = $ 1 3 ,8 0 0
b) Compute total maintenance cost during the second 6 years.
12
12 11
 t  12
 
       
2
[ ( 2 0 .1 t ) ] d t  2 t 0 .1 c  2 t 0 .0 5 t c
 6
6  11 6

  2 (1 2 )  0 .0 5 (1 2 )  c    2 ( 6 )  0 .0 5 ( 6 )  c 
2 2
   
 $ 1 7 .4 th o u s a n d d o lla r s

= $ 1 7 .4 ( 1 0 0 0 ) = $ 1 7 ,4 0 0
c) At what time t, will the total spent on maintenance cost reach $60 thousand?
t

 [ ( 2  0 .1 t ) ] d t  60
0

t
11
 t 
o r ,  2 t  0 .1  c   60
 11 0
t
o r ,  2 t  0 .0 5 t  c   6 0
2
 0

o r ,  2 ( t )  0 .0 5 ( t )  c    2 ( 0 )  0 .0 5 ( 0 )  c   6 0
2 2
   
o r , 2 t  0 .0 5 t  60
2

o r , 0 .0 5 t  2 t  6 0  0
2

o r , 0 .0 5 t  3 t  t  6 0  0
2

o r , 0 .0 5 t ( t  6 0 )  1( t  6 0 )  0
o r , ( t  6 0 ) ( 0 .0 5 t  1)  0

E ith e r , o r,
t  60  0 0 .0 5 t  1  0
or,t  60 o r,t  2 0

t y e a r s c a n n o t b e n e g a tiv e , h e n c e a f te r 2 0 y e a r s th e
to ta l m a in te n a n c e c o s t w ill r e a c h $ 6 0 th o u s a n d .

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 113
Question7: A currently new product is expected to be sold at the rate of ( 2 0  0 .4 t )
thousand dollars per year at time t years, t<50.
a) Compute total sales during the first 10 years.
10
10 11
 t  10
 
       
2
[ ( 2 0 0 .4 t ) ] d t  2 0 t 0 .4 c  2 0 t 0 .2 t c
 0
0  11 0

  2 0 (1 0 )  0 .2 (1 0 )  c    2 0 ( 0 )  0 .2 ( 0 )  c 
2 2
   
 $ 1 8 0 th o u s a n d d o lla r s

= $ 1 8 0 (1 0 0 0 )= $ 1 8 0 0 0 0
b) Compute total sales during the second 10 years.
20
20 11
 t  20
 
       
2
[ ( 2 0 0 .4 t ) ] d t  2 0 t 0 .4 c  2 0 t 0 .2 t c
 10
10  11 10

  2 0 ( 2 0 )  0 .2 ( 2 0 )  c    2 0 (1 0 )  0 .2 (1 0 )  c 
2 2
   
 $ 1 4 0 th o u s a n d d o lla r s

= $ 1 4 0 (1 0 0 0 )= $ 1 4 0 0 0 0
c) At what time t, will total sales reach $375 thousand?
t

 [ ( 2 0  0 .4 t )] d t  3 7 5
0

t
11
 t 
o r ,  2 0 t  0 .4  c   375
 11 0
t
o r ,  2 0 t  0 .2 t  c   3 7 5
2
 0

o r ,  2 0 t  0 .2 t  c    2 0 ( 0 )  0 .2 ( 0 )  c   3 7 5
2 2
   
o r , 2 0 t  0 .2 t  3 7 5
2

o r , 0 .2 t  2 0 t  3 7 5  0
2

o r , 0 .2 t  1 5 t  5 t  3 7 5  0
2

o r , 0 .2 t ( t  7 5 )  5 ( t  7 5 )  0

o r , ( t  7 5 )( 0 .2 t  5 )  0

E ith e r, o r,

t  75  0 0 .2 t  5  0

or,t  75 o r, t  2 5

W e w ill ta k e th e s m a lle s t fig u re b e c a u s e w e w a n t to a c h ie v e s a le s ta rg e t

a t e a rlie s t p o s s ib le tim e , h e n c e a fte r 2 5 y e a rs s a le s w ill re a c h $ 3 7 5 th o u s a n d .

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 114
Question8: An industry consumes fuel at rate of ( 2  0 .6 t ) million barrels per year at
1/ 2

time t years. How much fuel will the industry consume in 25 years.
25
 1
1

 
25 2
t 25

 [ ( 2  0 .6 t ) ] d t   2 t  0 .6 1  c    2 t  0 .4 t  c  0
1/ 2 1 .5

0  1 
 2 0

  2 ( 2 5 )  0 .4 ( 2 5 )  c    2 ( 0 )  0 .4 ( 0 )  c
1 .5 1 .5
   
 1 0 0 m illio n b a r r e ls

Question9: An oil rig pumps oil from a well at the rate of ( 3 6 0  7 2 t ) barrels per year
1/ 2

at time t years. How much oil will be pumped in the next 9 years.
9
 1
1

 
9
t2 9
 
       
1/ 2 1 .5
[ ( 3 6 0 7 2 t ) ] d t  3 6 0 t 7 2 c  
3 6 0 t 4 8 t c
0
1
0  1 
 2 0

  3 6 0 (9 )  4 8 (9 )  c   3 6 0 (0 )  4 8(0 )  c
1 .5 1 .5
   
 1 9 4 4 b a r r e ls
Question10: At time t years, an industry consumes fuel at the rate of ( 2 t  9 ) million
1/ 2

barrels per year. If the total supply of fuel available to the industry now and in the future
is 63 million barrels, how many years will the supply last.
t

 [(2t  9 ) ]d t  6 3
1/ 2

t
 1
1

 1 (2t  9) 2 
or,  .  c   63
2 1
 1 
 2 0
t
 (2t  9) 
1 .5

or,   c   63
 3 0

 (2t  9)   (9 ) 
1 .5 1 .5

or,   c    c   63
 3   3 

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 115
(2t  9)
1 .5

or,  9  63
3
or , (2t  9)  216
1 .5

1 1
1 .5
or , (2t  9) 1 .5
 2 1 6 1 .5
or , 2t  9  36

o r , t  1 3 .5 y e a r s
Question11: At time t years, sales of a currently new product are expected to be
10 1/ 2
 1 0 ( 0 .5 t  1 6 )
( 0 .5 t  1 6 )
1/ 2

million dollars per year. How many years will it take for total sales to amount to $40
million?
t
1/ 2
 [1 0 ( 0 .5 t  1 6 ) ]d t  4 0
0

t
 1
 1

 ( 0 .5 t  1 6 ) 2

o r ,  1 0 .2 .  c   40
1
  1 
 2 0
t
o r ,  4 0 ( 0 .5 t  1 6 )  c   40
0 .5
 0

o r ,  4 0 ( 0 .5 t  1 6 )  c    4 0 (1 6 )  c   40
0 .5 0 .5
   
o r , 4 0 ( 0 .5 t  1 6 )  4 0 (1 6 )  40
0 .5 0 .5

o r , ( 0 .5 t  1 6 )  5
0 .5

o r , ( 0 .5 t  1 6 )  5
0 .5 x 2 2

o r , 0 .5 t  1 6  2 5

o r , t  1 8 ye a rs
Question12: The population of a trading area is currently 100 thousand. At time t years
from now population will be growing at the rate of
20 1/ 2
 2 0 ( 0 .5 t  9 )
( 0 .5 t  9 )
1/ 2

thousand per year. What will total population be 14 years from now?

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 116
14
 1
 1

 
14
1/ 2 ( 0 .5 t  9 ) 2

 [ 2 0 ( 0 .5 t  9 ) ] d t   2 0 .2 .
1
 c 
0   1 
 2 0
14
  8 0 ( 0 .5 t  9 )  c
0 .5
 0

  8 0{0 .5 (1 4 )  9}  c    8 0{0 .5 ( 0 )  9}  c   80
0 .5 0 .5
   
P o p u la tio n w ill in c re a s e 8 0 m illio n fro m n o w .
T h e re fo re a fte r 1 4 y e a r s p o p u la tio n w ill b e  1 0 0  8 0  1 8 0 m illio n

Question13: A fixed cost of $2 thousand has been incurred in setting up an advertising


campaign. Variable cost is expected to be at the rate of ( 3  0 .0 6 t 1 / 2 ) thousand dollars per
month at time t months. Estimate total cost if the campaign runs 25 months.
25

T o ta l c o s t  F ix e d c o s t   [ (3  0 .0 6 t
1/ 2
)] d t
0

25
 1
1

 
25 2
(t ) 25
 
       
1/ 2 1 .5
[ (3 0 .0 6 t )] d t  3 t 0 .0 6 c  
3 t 0 .0 4 ( t ) c
0
1
0  1 
 2 0

  3 ( 2 5 )  0 .0 4 ( 2 5 )  c    3 ( 0 )  0 .0 4 ( 0 )  c   80
1 .5 1 .5
   
T o ta l c o s t  2  8 0  $ 8 2 th o u s a n d
Question14: When t tons of steel are produced, marginal cost in dollars per ton is
( 0 .0 0 6 t  1 .2 t  5 0 ) . If fixed cost is $1,600, find the total cost of producing 100 tons.
2

100

T o ta l c o s t  F ix e d c o s t   [ ( 0 .0 0 6 t  1 .2 t  5 0 ) ] d t
2

100
100 2 1 11
 (t ) t 
 [ ( 0 .0 0 6 t  1 .2 t  5 0 ) ] d t   0 .0 0 6  1 .2  50t  c 
2

0  2 1 11 0
100
  0 .0 0 2 t  0 .6 t  5 0 t  c 
3 2
 0

  0 .0 0 2 (1 0 0 )  0 .6 (1 0 0 )  5 0 (1 0 0 )  c    0 .0 0 2 ( 0 )  0 .6 ( 0 )  5 0 ( 0 )  c 
3 2 3 2
   
 $1000

T o ta l c o s t  $ 1 6 0 0  $ 1 0 0 0  $ 2 6 0 0

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 117
Do this at home: Question15: When b barrels of whiskey are produced, marginal cost in
dollars per barrel is ( 0 .0 0 4 5 b 2  1 .8 b  2 0 0 ) . If fixed cost is $4,000, find the total cost of
producing 200 barrels.

Question16: A fixed cost of $50 thousand was incurred in setting up an operation. At time
t months thereafter, the operation yields income at the rate of ( 2 0  0 .3 t ) and incurs
expense at the rate of (1 0  0 .1 t ) where both rates are in thousands of dollars per month.
a) What is the optimal time to terminate the operation?

Profit will be maximum till income per day exceeds expenses per day.

( 2 0  0 .3 t )  (1 0  0 .1 t )
o r , 0 .2 t  1 0

o r , t  5 0 y e a rs

Optimal time to terminate the operation is 50 years

b) What will total profit be at the optimal time of termination?


P ro fit  T o ta l in c o m e  o p e ra tin g c o s t  F ix e d c o s t
50 50

 [ ( 2 0  0 .3 t ) ] d t   [ (1 0  0 .1 t ) ] d t  5 0
0 0

50 50

  [ ( 2 0  0 .3 t )  (1 0  0 .1 t ) ] d t  5 0   [ ( 2 0  0 .3 t  1 0  0 .1 t ] d t  5 0
0 0

50
50 11
 t  50
  [ (1 0  0 .2 t ] d t  5 0   1 0 t  0 .2  c   5 0  1 0 t  0 .1 t  c   5 0
2
 0
0  11 0

  1 0 ( 5 0 )  0 .1( 5 0 )  c    1 0 ( 0 )  0 .1( 0 )  c   5 0
2 2
   
 $ 2 0 0 th o u s a n d

Do this at home: Question17: A fixed cost of $4,100 was incurred in setting up an


operation. At time t months thereafter, the operation yields income at the rate of
(2000  100t
1/ 2
) and incurs expense at the rate of ( 2 0 0 0  2 0 0 t
1/ 2
) where both rates
are in dollars per month.
a) What is the optimal time to terminate the operation?
b) What will total profit be at the optimal time of termination?

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 118
Question18: If new reserves of fuel are discovered at the rate of
100
0 .2 t  1
million barrels per year at time t years, find the total amount of fuel that will be
discovered in the next 25 years.

Answer:
25 25 25
100 1  1 
 [ 0 .2 t  1 ] d t   [1 0 0
0 .2 t  1
] d t  1 0 0 . ln ( 0 .2 t  1)

 0 .2
c

0
0 0

  5 0 0 ln ( 0 .2 t  1)  c 
25

  5 0 0 ln (5  1)  c    5 0 0 ln (1)  c   8 9 5 .8 8 m illio n b a rre ls

Question19: A company projects its cost of providing medical care to workers to be at the
0 .0 3 t
rate of 1 5 e thousand of dollars per year at time t years.
a) Compute total medical care cost for the next 10 years.
10 10
 1  10

 [1 5 e ]d t  1 5 e c  500e  c
0 .0 3 t 0 .0 3 t 0 .0 3 t
   0
0  0 .0 3 0

 500e  c   500e  c   $ 1 7 4 .9 3 th o u s a n d
0 .0 3 (1 0 ) 0 .0 3 ( 0 )
   
b) How long will it be until total cost amounts to $250 thousand?
t

 [1 5 e ]d t  2 5 0
0 .0 3 t

t
 1 
 c  250
0 .0 3 t
or , 15e
 
 0 .0 3 0
t
or , 500e  c   250
0 .0 3 t
 0

or , 500e  c   500e  c   250


0 .0 3 t 0 .0 3 ( 0 )
   
 500  250
0 .0 3 t
or,500e

 1 .5
0 .0 3 t
or, e

 ln (1 .5 )
0 .0 3 t
o r , ln e

o r , 0 .0 3 t ln e  ln (1 .5 )
o r , 0 .0 3 t  ln (1 .5 )

ln (1 .5 )
or,t   1 3 .5 1 y e a r s
0 .0 3

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 119
Do this at home: Question20: The total supply of a fuel available now and in the future is
1,000 million barrels. At time t years from now, fuel will be consumed at the rate of
0 .0 5 t
10e million barrels per year.
a) How much fuel will be consumed in the next 20 years.
b) How long will the supply of fuel last?

Do this at home: Question21: At time t years, the cost of maintaining a facility is at the
0 .0 8 t
rate of 1 2 e thousands of dollars per year.
a) Find total maintenance cost for the next 10 years.
b) How long will it take for total maintenance cost to reach $300 thousand?

Do this at home: Question22: At time t years, interest on a bank account is at the rate of
0 .0 6 t
600e dollars per year.
a) What will be the total interest accumulation in 12 years?
b) How long will it take for total interest accumulation to reach $5,000?

Do this at home: Question23: Sales of a product are projected to be at the rate of


 0 .2 t
15e million pounds per year at time t years.
a) Find total sales in the next 5 years?
b) How long will it take for total sales to reach 60 million pounds?

 0 .2 t
Question24: Sales of wheat at time t years are projected to be at the rate of 5  1 5 e
million pounds per year. Find total sales in the next 5 years?
5 5
 0 .2 t   0 .2 t 1   0 .2 t
5

 [5  1 5 e ]d t  5 t  1 5 e c  5t  7 5e  c
   0
0   0 .2 0
 0 .2 ( 5 )  0 .2 ( 0 )
  5 (5 )  7 5 e  c   5(0 )  7 5e  c   7 2 .4 1 m illio n p o u n d s
   
Do this at home: Question25: Sales of milk at time t years are projected to be at the rate
 0 .4 t
of 1 0  2 0 e million gallons per year. Find total sales in the next 5 years?

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 120
Consumers’ Surplus: Consumers’ Surplus is the amount of dollars left in the hands of
consumers due to the market settling at an equilibrium point because of competition; it is
the difference between what consumers expected to pay and what they actually paid.
Price per unit
qm
Pd(q)

 [P d
( q )] d q  p m q m
0

Consumers’
Surplus

E (qm, pm)

Demand
Curve

q
0 qm

Question26: At market equilibrium, consumers demand 625,000 gallons of kerosene,


which has the demand function,

Pd ( q )  2 5  0 .6 q 2

Where q is in thousands of gallons and Pd ( q ) is price of kerosene in dollars per gallon.


Compute consumers’ surplus.

Answer: First we determine the equilibrium point (qm, pm).

At market equilibrium, consumers demand qm = 625 thousand gallons

Pm  2 5  0 .6 ( 6 2 5 ) 2  $ 1 0 p e r g a llo n

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 121
625 1

T h e n c o n s u m e r s ' S u r p lu s =  [ 2 5  0 .6 q 2 ] d q  1 0 ( 6 2 5 )
0

625
 1
1
 625
   
2 3
q
  2 5 q  0 .6  c  6 2 5 0   2 5 q  0 .4 q 2  c   6250
1
 1   0
 2 0

  2 5 ( 6 2 5 )  0 .4 ( 6 2 5 )  c    2 5 ( 0 )  0 .4 ( 0 )  c   6250
1 .5 1 .5
   
 $ 3 1 2 5 th o u s a n d

= $ 3, 1 2 5 , 0 0 0

Question27: At market equilibrium, consumers demand 100,000 tons of SAE 90


lubricating oil, which has the demand function,

Pd ( q )  1 1 0  0 .5 q

Where q is in thousands of tons and Pd ( q ) is price of SAE 90 lubricating oil in dollars per
ton. Compute consumers’ surplus.

Answer: First we determine the equilibrium point (qm, pm).

At market equilibrium, consumers demand qm = 100 thousand tons

Pm  1 1 0  0 .5 (1 0 0 )  $ 6 0 p e r to n

100

T h e n c o n s u m e r s ' S u r p lu s =  [1 1 0  0 .5 q ] d q  6 0 (1 0 0 )
0

100
11
 q  100
  1 1 0 q  0 .5  c  6 0 0 0  1 1 0 q  0 .2 5 q  c   6000
2
 0
 11 0

  1 1 0 (1 0 0 )  0 .2 5 (1 0 0 )  c    1 1 0 ( 0 )  0 .2 5 ( 0 )  c   6 0 0 0
2 2
   
 $ 2 5 0 0 th o u s a n d

= $2, 500, 000

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 122
Do this at home: Question28: The demand function for a product is
Pd ( q )  7 5  0 .6 q where q is in millions of barrels and Pd ( q ) is price of the
product in dollars per barrel. Market equilibrium occurs at a demand of 100 million
barrels. Compute consumers’ surplus.

Do this at home: Question29: The demand function for a product is

80
Pd ( q ) 
( 0 .1 q  0 .2 )
2

where q is in millions of tons and Pd ( q ) is price of the product in dollars per ton. Market
equilibrium occurs at a demand of 18 million tons. Compute consumers’ surplus.

Do this at home: Question30: The demand function for a product is

50
Pd ( q ) 
0 .5 q  1

where q is in millions of pounds and Pd ( q ) is price of the product in dollars per pound.
Market equilibrium occurs at a demand of 18 million pounds. Compute consumers’
surplus.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 123
Producers’ Surplus: Producers’ Surplus is the amount of additional dollars received by
producers due to the market settling at an equilibrium point because of competition; it is
the difference between what producers actually receive and what they expected to receive.

Price per unit qm


Ps (q)
pm qm   [P s
( q )] d q
0

Producers’
Surplus

E (qm, pm)

Supply
Curve

q
0 qm

Question31: At market equilibrium, consumers demand 625,000 gallons of kerosene,


where the supply function,

Ps ( q )  2 .5  0 .3 q 2

Where q is in thousands of gallons and Ps ( q ) is price of kerosene in dollars per gallon.


Compute producers’ surplus.

Answer: First we determine the equilibrium point (qm, pm).

At market equilibrium, consumers demand=Producer’ supply= qm = 625 thousand


gallons

Pm  2 .5  0 .3 ( 6 2 5 ) 2  $ 1 0 p e r g a llo n

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 124
625 1

T h e n p r o d u c e r s ' S u r p lu s =1 0 ( 6 2 5 )   [ 2 .5  0 .3 q 2 ] d q
0

625
 1
1
 625
   
2 3
q
 1 0 ( 6 2 5 )   2 .5 q  0 .3  c  6 2 5 0   2 .5 q  0 .2 q 2  c 
1
 1   0
 2 0

 6 2 5 0   2 .5 ( 6 2 5 )  0 .2 ( 6 2 5 )  c    2 .5 ( 0 )  0 .2 ( 0 )  c
1 .5 1 .5
   
 $ 1 5 6 2 .5 th o u s a n d

= $ 1, 5 6 2 , 5 0 0

Do this at home: Question32: The supply function for a product is

Ps ( q )  5  0 .2 q

where q is in millions of tons and Ps ( q ) is price of the product in dollars per ton. Market
equilibrium occurs at a demand of 50 million tons. Compute producers’ surplus.

Do this at home: Question33: The supply function for a product is

Ps ( q )  ( 4  0 .2 q ) 2

where q is in thousands of truckloads and Ps ( q ) is price of the product in dollars per


truckload. Market equilibrium occurs at a demand of 60 thousand truckloads. Compute
producers’ surplus.

Do this at home: Question34: The supply function for a product is Ps ( q )  5  e


0 .0 2 q

where q is in thousands of pounds and Ps ( q ) is price of the product in dollars per pound.
Market equilibrium occurs at a demand of 40 thousand pounds. Compute producers’
surplus.

Do this at home: Question35: The supply function for a product is Ps ( q )  1 0  2 e


0 .0 5 q

where q is in thousands of gallons and Ps ( q ) is price of the product in dollars per gallon.
Market equilibrium occurs at a demand of 20 thousand gallons. Compute producers’
surplus.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 125
Question36: The supply and demand functions for SAE 90 lubricating oil are
Ps ( q )  1 0  0 .5 q and Pd ( q )  1 1 0  0 .5 q ,where q is in thousands of tons and P ( q )
is price of SAE 90 lubricating oil in dollars per ton.

a) Find the equilibrium point


A t e q u i li b r i u m p o i n t , D e m a n d = S u p p ly
i .e . Pd ( q )  Ps ( q )

o r , 1 1 0  0 .5 q  1 0  0 .5 q
o r , 0 .5 q  0 .5 q  1 1 0  1 0

o r , q  1 0 0 th o u s a n d s o f to n s

E q u i li b r i u m P r i c e , Pm  1 1 0  0 .5 (1 0 0 )  $ 6 0 p e r t o n

E q u i li b r i u m p o i n t ( q m , p m ) = (1 0 0 , 6 0 )
b) Compute consumers’ surplus.
100

T h e n c o n s u m e r s ' S u r p lu s =  [1 1 0  0 .5 q ] d q  6 0 (1 0 0 )
0

100
11
 q  100
  1 1 0 q  0 .5  c  6 0 0 0  1 1 0 q  0 .2 5 q  c   6000
2
 0
 11 0

  1 1 0 (1 0 0 )  0 .2 5 (1 0 0 )  c   1 1 0 ( 0 )  0 .2 5 ( 0 )  c   6 0 0 0
2 2
   
 $ 2 5 0 0 th o u s a n d

= $2, 500, 000


c) Compute producers’ surplus.

100

T h e n P ro d u c e rs ' S u rp lu s = 6 0 (1 0 0 )   [1 0  0 .5 q ] d q
0

100
11
 q  100
 6 0 0 0  1 0 q  0 .5  c  6 0 0 0  1 0 q  0 .2 5 q  c 
2
 0
 11 0

 6 0 0 0  1 0 (1 0 0 )  0 .2 5 (1 0 0 )  c   1 0 ( 0 )  0 .2 5 ( 0 )  c 
2 2
   
 $ 2 5 0 0 th o u s a n d

= $2, 500, 000

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 126
Do this at home: Question37: The supply and demand functions for a product are
Ps ( q )  1 0  0 .1 q and Pd ( q )  1 1 0  0 .2 q ,where q is in thousands of tons and P ( q )
is price of the product in dollars per ton.

a) Find the equilibrium point


b) Compute consumers’ surplus.
c) Compute producers’ surplus.

Do this at home: Question38: The supply and demand functions for a product are
Ps ( q )  1  0 .0 2 q and Pd ( q )  6  0 .0 8 q ,where q is in millions of pounds and P ( q )
is price of the product in dollars per pound.

a) Find the equilibrium point


b) Compute consumers’ surplus.
c) Compute producers’ surplus.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 127
Applied Mathematics

Matrices and its applications

Problem set: 2-4

3 1 2  1 5 2   3  1 1 5 2 2
     
1 4 1   3 2 4  1  3 4 2 1 4 

Question9:  4 4 0
  
 2 6 5

Question11:

1 3 2  2 5 3   4 12 8  6 15 9 
4   3   
5 1 3  1 2 1   20 4 12   3 6 3 

 46 12  15 8  9   2 27 17 


  
 20  3 46 12  3   17 2 9 

Question12:

1 23 0 5
    ( 2 x 2 )( 2 x 3 )  ( 2 x 3 )
3 51 2 0

 1 x 3  2 x1  5 1x0  2 x  2  4 1x5  2 x0  5 
  
 3 x 3  5 x1  1 4 3x0  5 x  2  10 3 x5  5 x0  15 

 5 4 5 
  
14 10 15 

Question13:

1 2
 
5 6 7 0

3  (1 x 3 ) ( 3 x 2 )  (1 x 2 )

3 1 

  5 x1  6 x 0  7 x 3  2 6 5 x 2  6 x 3  7 x1  3 5 

  26 35

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 128
Question21: Interest at the rates 0.06, 0.07 and 0.08 is earned on respective investments of
$3,000, $2,000 and $4,000.

a) Express the total amount of interest earned as the product of a row vector and a
column vector.
 3000 
 
 0 .0 6 0 .0 7 0 .0 8  2 0 0 0
 
 4000 
 
b) Compute the total interest by matrix multiplication.
 3000 
 
 0 .0 6 0 .0 7 0 .0 8  2 0 0 0   0 .0 6 x 3 0 0 0  0 .0 7 x 2 0 0 0  0 .0 8 x 4 0 0 0 
 
 4000 
 
 $640

Question22: Two canned meat spreads, Regular and Superior, are made by grinding
beef, pork, and lamb together. The numbers of pounds of each meat in a 15 pound batch
of each brand are as follows:

Pounds of
Brand
Beef Pork Lamb
Superior 8 2 5
Regular 4 8 3
a) Suppose we wish to make 10 batches of Superior and 20 of Regular. Multiply the
meat matrix in the table and the batch vector (10 20) and interpret the result.
8 2 5
1 0 20   
4 8 3

 1 0 x 8  2 0 x 4  1 6 0 10 x 2  20 x8  180 10 x5  20 x3  110 

 1 6 0 180 110 

We will need 160 pounds of Beef, 180 pounds pork and 110 pounds of lamb to
process all those bathces.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 129
b) Suppose that the per pound prices of beef, pork, and lamb are $2.50, $2.00 and
$3.00, respectively. Multiply the price vector and the meat matrix and interpret
the results.

8 2 5
 2 .5 2 3   (C o s t x T y p e o f M e a t )(B ra n d x T y p e o f M e a t)
4 8 3

 (1 x 3 )( 2 x 3 )  N o t p o s s ib le

8 4
 
 2 .5 2 3 2

8  (C o s t x T y p e o f M e a t )(T y p e o f M e a t x B ra n d )

5 3 

 (1 x 3 )(3 x 2 )  (1 x 2 )  (C o s t x B ra n d )

  2 .5 x 8  2 x 2  3 x 5  3 9 2 .5 x 4  2 x 8  3 x 3  3 5 

 39 35 
The total cost of a batch of Superior is $39 and a batch of Regular is $35

Question23: Three jewellery salespeople each regularly buy a certain quantity of watches,
rings, necklaces, and ear-rings from their respective wholesale supplier and sell certain
quantities of each item to a retailer. Their respective buying and selling transactions
during a particular month are given by the following vectors:

B1  1 0 20 30 4 0  B 2  1 5 25 35 45  B3   20 10 45 35 

S1  8 20 25 3 5  S 2  1 5 20 30 4 0  S 3  1 5 10 40 35 

where the first entry in each vector represents the number of watches, the second entry
the number of rings, the third entry the number of necklaces, the forth entry the number
of sets of earrings. The buying prices were $50 per watch, $40 per ring, $25 per necklace,
and $10 per set of earrings; whereas the selling prices were, respectively, $75, $55, $30,
and $15.

a) Write the buying prices as a column vector B and the selling prices as a column
vector S.
 50   75 
   
40 55
B   S   
 25   30 
   
 1 0   1 5 
b) Find the amount of revenue each salesperson expended in buying.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 130
 50 
 10 20 30 40     1 0 x 5 0  2 0 x 4 0  3 0 x 2 5  4 0 x1 0  2 4 5 0 
  4 0
   1 5 x 5 0  2 5 x 4 0  3 5 x 2 5  4 5 x1 0  3 0 7 5 
15 25 35 45 
   25   
 20 3 5    
 10 45   2 0 x 5 0  1 0 x 4 0  4 5 x 2 5  3 5 x1 0  2 8 7 5 
 10 

 2450 
 
 3075
 
 2875 
 
Salespeople expended $2450, $3075 and $2875 respectively in buying.

c) Find the amount of revenue each salesperson collected in selling.


 75 
 8 20 25 35     8 x 7 5  2 0 x 5 5  2 5 x 3 0  3 5 x1 5  2 9 7 5 
  5 5
   1 5 x 7 5  2 0 x 5 5  3 0 x 3 0  4 0 x1 5  3 7 2 5 
15 20 30 40 
   30   
15 3 5    
 10 40   1 5 x 7 5  1 0 x 5 5  4 0 x 3 0  3 5 x1 5  3 4 0 0 
 15 

 2975 
 
 3725
 
 3400 
 
Salespeople collected $2975, $3725 and $3400 respectively in selling.
d) Find the amount of profit each salesperson realized (assuming, for simplicity, that
the unsold jewellery can not be returned or otherwise sold).
 2975   2450   2975  2450   525 
       
P r o f it  3 7 2 5  3 0 7 5  3 7 2 5  3 0 7 5  6 5 0
       
 3400   2875   3400  2875   525 
       

Salespeople realized $525, $650 and $525 profit respectively.

Determinant

Determinant is a value associated with a square matrix.


1 2 13 3
D e te r m in a n t o f A   is D e te r m in a n t o f B   is
3 5  4 1

A  1x5  3 x 2  1 B  1 3 x1  3 x 4  1

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 131
2 3 1
 
D e te rm in a n t o f A 1 4 2 is
 
5 6 4 

A  2{ ( 4 x 4 )  ( 6 x 2 )}  3{ (1 x 4 )  (5 x 2 )}  1{ (1 x 6 )  ( 4 x 5 )}  1 2

Inverse Matrix

Gauss-Jordan Method:

3 2
F in d th e in v e r s e o f A  
1 1

3 2 1 0  1 0 1 2 
A u g m e n te d m a tr ix , A I      [ R 1  R 1  R 2 (  2 )
1 1 0 1  1 1 0 1 

1 0 1 2 
   [ R 2  R 2  R 1 ]
0 1 1 3 

 1 2 
A  
1

 1 3 

7 3
F in d th e in v e r s e o f A  
2 1

7 3 1 0 1 0 1 3 
A u g m e n te d m a tr ix , A I      [ R 1  R 1  R 2 (  3 ) ]
2 1 0 1 2 1 0 1 

1 0 1 3 
   [ R 2  R 2  R 1 (  2 ) ]
0 1 2 7 

 1 3 
A  
1

 2 7 

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 132
0 1
F in d th e in v e r s e o f A  
2 3

0 1 1 0 2 3 0 1
A u g m e n te d m a tr ix , A I      [ R 1  R 2 , R 2  R 1 ]
2 3 0 1 0 1 1 0

1 1 .5 0 0 .5  1 0  1 .5 0 .5 
   1
[ R   R 1
/ 2 ]    [ R 1  R 1  R 2 (  1 .5 ) ]
0 1 1 0  0 1 1 0 

  1 .5 0 .5 
 A
1
   
 1 0 

Cofactor and Ad-joint Matrix Method:


0 1
F in d th e in v e rs e o f A  
2 3
Step 1: Find the determinant

0 1
D e te rm in a n t o f A   , D  0 x 3  2 x1   2
2 3

Step 2: Find the cofactors and cofactor matrix:

  A1 1  A1 2 
 
  A21  A22 
A1 1  3 A1 2   2

A21   1 A22  0

 3 2 
T h e c o f a c to r m a tr ix ,  A 
c

 1 0 

S te p 3 : F in d th e a d jo in t m a tr ix ( tr a n s p o s e o f c o f a c to r m a tr ix )

 3 1
T h e a d jo in t m a tr ix ,  A   A 
T
 
c
adj 
 2 0 

S te p 4 : F in d th e in v e r s e m a tr ix

 3 1 
1
T h e in v e r s e m a tr ix ,  A
1 1  3  
 A 
T
1
      2
c
2
D 2  2 0  
 1 0 

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 133
2 3 1
 
1 4 2
Find the inverse matrix of  
5 6 4 

Step 1: Find the determinant
D  2{ ( 4 x 4 )  ( 6 x 2 )}  3{ (1 x 4 )  (5 x 2 )}  1{ (1 x 6 )  ( 4 x 5 )}  1 2

Step 2: Find the cofactors and cofactor matrix:

  A1 1  A1 2  A1 3 
 
 A21  A22  A23
 
A  A3 2  A 3 3 
 31

4 2 1 2 1 4
A1 1   4 A1 2    (6)  6 A1 3   14
6 4 5 4 5 6

3 1 2 1 2 3
A21    6 A22   3 A23     (  3)  3
6 4 5 4 5 6

3 1 2 1 2 3
A3 1   2 A3 2    3 A3 3   5
4 2 1 2 1 4

 4 6 14 
 
T h e c o f a c to r m a tr ix ,  A   6
c
3 3
 
 2 3 5 

S te p 3 : F in d th e a d jo in t m a tr ix ( tr a n s p o s e o f c o f a c to r m a tr ix )

 4 6 2 
 
T h e a d jo in t m a tr ix ,  A   A 
T
 3
c
6 3
adj  
 14 3 5 

S te p 4 : F in d th e in v e r s e m a tr ix

 1 1 1 
  
3 2 6
 4 6 2   
1 1    1 1 1 
T h e in v e r s e m a tr ix ,  A  A 
T
1
 3  
c
6 3
D 1 2    2 4 4 
 14 3 5   
7 1 5
  
 
 6 4 12 

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 134
3 2 1
 
1 1 0
Find the inverse matrix of  
2 0  1 

Step 1: Find the determinant


D  3 (1  0 )  2 (  1  0 )  1( 2 )  3
Step 2: Find the cofactors and cofactor matrix:

  A1 1  A1 2  A1 3 
 
 A21  A22  A23
 
A  A3 2  A 3 3 
 31

1 0 1 0 1 1
A1 1  1 A1 2   1 A1 3   2
0 1 2 1 2 0

2 1 3 1 3 2
A21    2 A22   1 A23    4
0 1 2 1 2 0

2 1 3 1 3 2
A31   1 A3 2    1 A3 3   5
1 0 1 0 1 1

 1 1 2 
 
T h e c o f a c to r m a tr ix ,  A   2 1
c
4
 
 1 1  5 

S te p 3 : F in d th e a d jo in t m a tr ix ( tr a n s p o s e o f c o f a c to r m a tr ix )

1 2 1 
 
T h e a d jo in t m a tr ix ,  A   A 
T
 1 1 1
c
adj  
2 4  5 

S te p 4 : F in d th e in v e r s e m a tr ix

 1 2 1
  
3 3 3
1 2 1   
1 1   1 1 1
T h e in v e r s e m a tr ix ,  A  A 
T
1
  1 1   
c
1
D 3    3 3 3
2 4  5   
2 4 5
  

 3 3 3

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 135
7 3 2 2 9 4  1 1
Find the inverse matrix of 1)   2)   3)   4)  
2 1 3 5 2 1  1 2 

1 3 2 5 0 1 0 3
5)   6)   7)   8)  
2 0 3 4 2 3 2 5

 2 8 11 2 2 3 1 1 1 2 1 4
       
9) 1 5 7 10) 0 1 1 11) 1 1 1 12) 3 0 2
       
 1 2  3  4 0 3  2 2 2  1 2 3 
   

 5 1 
  
 1 3  4 2  1 4  2 1
 
Answers: 1)   2) 3)   4)  
 2 7   3 1 
 2 9  1 1
 
 4 2 

 1   4 5   5 1 
0     3 1   

2
 
7 7
   
6 2

5) 1 6) 7)  2 2
 8) 1
 1   3 2   
       1 0   0 
3 6   7 7   3 

 4 5 2 
 3 1    
 3   9 9 9
1 2 1  2 2  
     7 2 8 
9) 4 5 3 10)  2 3 1  11) inverse does not exist 12) 
   9 9 9 
3  2  
 4 2 4 1   
  
2 1 1
     
 3 3 3

Find the solution:

2 x1  3 x 2  1 7

x1  2 x 2  1 0

W e c a n w r ite th e a b o v e e q u a tio n s in th e m a tr ix f o r m a s f o llo w s :

2 3   x1   1 7 
     
1 2   x2   10 

 x1   2 3 17 
or,    
x
 2  1 2 10 

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 136
2 3 17  1 1 7 
     [ R 1  R 1  R 2 ]
1 2 10  1 2 10 

1 1 7
   [ R 2  R 2  R 1 ]
0 1 3

1 0 4
   [ R 1  R 1  R 2 ]
0 1 3

 x1   4 
    
 x2   3 
i .e . x 1  4 , x2  3

Find the solution:

7 x1  3 x 2  5

2 x1  x 2  7

W e c a n w r ite th e a b o v e e q u a tio n s in th e m a tr ix f o r m a s f o llo w s :

7 3   x1   5 
     
2 1   x2   7 

 x1   7 3 5
or,    
x
 2 2 1 7

7 3 5 1 0 16 
     [ R 1  R 1  R 2 (  3 ) ]
2 1 7 2 1 7 

1 0 16 
   [ R 2  R 2  R 1 (  2 ) ]
0 1 39 

 x1    1 6 
    
x
 2  3 9 
i .e . x 1   1 6 , x2  39

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 137
Find the solution:

2 x1  2 x 2  3 x 3  3

x2  x3  2

x1  x 2  x 3  4

W e c a n w r ite th e a b o v e e q u a tio n s in th e m a tr ix f o r m a s f o llo w s :

2 2 3   x1   3 
    
0 1 1 x2  2
    
1 1 1   x 3   4 
 

 x1   2 2 3 3
   
or , x2   0 1 1 2
 
 x  1 1 1 4 
 3 

2 2 3 3 1 1 2 1
   
0 1 1 2  0 1 1 2  [ R 1  R 1  R 3 ]
1 1 1 4   1 1 1 4 

1 1 2 1 
 
 0 1 1 2 [ R 3  R 1  R 3 ]
 
0 0 1  5 

1 1 2 1 
 
 0 1 0 7  [ R 2  R 2  R 3 ]
0 0 1  5 

1 0 2 8 
 
 0 1 0 7  [ R 1  R 1  R 2 ]
0 0 1  5 

1 0 0 2 
 
 0 1 0 7  [ R 1  R 1  R 3 (  2 ) ]
0 0 1  5 

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 138
 x1   2 
   
x2  7
   
 x   5 
 3  
i .e . x 1  2 , x2  7, x3   5

Question: Suppose a company makes liquid products in three grades (Lowgrade,


Midgrade, and Highgrade) which contain different amounts of additives, A1, A2 and A3
per gallon as shown in the following table:

Gallons Pounds of Additive per Gallon


Liquid
Made A1 A2 A3
Lowgrade 1 1 1
x1
Midgrade 1 2 1
x2
Highgrade 2 0 1
x3
20 30 20
x1  x 2  2 x 3  2 0

x1  2 x 2  0 x 3  3 0

x1  x 2  x 3  2 0

W e c a n w r ite th e a b o v e e q u a tio n s in th e m a tr ix f o r m a s f o llo w s :

1 1 2   x1   2 0  1 1 2  x1   20 
          
1 2 0 x2  3 0 , h e re , A  1 2 0 , X  x2 , B  30
          
1 1     
1   x3   2 0  1 1 
1    
   x3   20 
o r , A.X  B
1
or, X  A .B

1 1 2
 
F ir s t w e n e e d to f in d th e in v e r s e m a tr ix o f A  1 2 0
 
1 1 1 

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 139
Step 1: Find the determinant
D  1( 2  0 )  1(1  0 )  2 (1  2 )   1
Step 2: Find the cofactors and cofactor matrix:

2 0 1 0 1 2
A1 1   2 A1 2    1 A1 3   1
1 1 1 1 1 1

1 2 1 2 1 1
A21   1 A22   1 A23    0
1 1 1 1 1 1

1 2 1 2 1 1
A3 1   4 A32    2 A33  1
2 0 1 0 1 2

 2 1 1
 
T h e c o f a c to r m a tr ix ,  A   1 1
c
0
 
 4 2 1 

S te p 3 : F in d th e a d jo i n t m a tr ix ( tr a n s p o s e o f c o f a c to r m a tr ix )

 2 1 4 
 
T h e a d jo in t m a tr ix ,  A   A 
T
 1 1
c
2
adj  
 1 0 1 

S te p 4 : F in d th e in v e r s e m a tr ix

 2 1 4   2 1 4 
1    
T h e in v e r s e m a tr ix ,  A  A 
T
1
 1 1 1 2  1 2
c
1
D    
 1 0 1   1 0  1 

 2 1 4   20   2 x20  1x30  4 x20  10 


1       
A .B  1 1 2 30  1x20  1x30  2 x20  10
      
 1 0  1   2 0   1 x 2 0  0 x 3 0  1 x 2 0
    0 
   
 x1  10 
  1  
X  x2  A .B  1 0
   
x   0 
 3  
x1  1 0 , x 2  1 0 x3  0

10 gallons of Lowgrade, 10 gallons of Midgrade, and 0 gallons of Highgrade product will


be produced.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 140
Using Cramer’s Rule:

x1  x 2  2 x 3  2 0

x1  2 x 2  0 x 3  3 0

x1  x 2  x 3  2 0

1 1 2

D  1 2 0  1( 2  0 )  1(1  0 )  2 (1  2 )   1
1 1 1

20 1 2

D x1  3 0 2 0  2 0 ( 2  0 )  1( 3 0  0 )  2 ( 3 0  4 0 )   1 0
20 1 1

1 20 2

D x2  1 30 0  1( 3 0  0 )  2 0 (1  0 )  2 ( 2 0  3 0 )   1 0
1 20 1

1 1 20

D x3  1 2 3 0  1( 4 0  3 0 )  1( 2 0  3 0 )  2 0 (1  2 )  0
1 1 20

D x1 10
x1    10
D 1
D x2 10
x2    10
D 1
D x3 0
x3    0
D 1

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 141
Find the solution:

8 x1  5 x 2  2 8 5
D   16  15  1
3 x1  2 x 2  1 3 2

2 5 8 2
D x1   4  5  1 D x2   86  2
1 2 3 1

D x1 1 D x2 2
x1    1 x2    2
D 1 D 1

Find the solution for the following (using Gauss-Jordan Method, Inverse Matrix Method,
and Cramer’s rule method)

4 x1  3 x 2  2 6 x1  8 x 2  3
1) 9 x1  7 x 2  3 2) 2 x1  3 x 2  1

3 x1  0 x 2  5 x 3  3 7 x1  3 x 2  1

2 x1  2 x 2  5 x 3  7 3 x2  5 x3  2
3) 4)
0 x1  x 2  x 3  2 x1  x 2  x 3  3

x1  2 x 2  x 3  3

2 x1  x 2  x 3  0
5)
3 x1  2 x 3  3

Answers: Q1) ( x 1 , x 2 )  ( 5 ,  6 ) Q2) ( x 1 , x 2 )  ( 0 .5 , 0 )

Q3) ( x1 , x 2 , x 3 )  ( 6 , 5 ,  3 ) Q4) ( x1 , x 2 , x 3 )  ( 3 7 ,  8 6 , 5 2 )

Q5) ( x 1 , x 2 , x 3 )  (  3, 0 , 6 )

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 142
Applied Mathematics

Linear Programming and Simplex Method


Question1: A steel manufacturing company produces two different types of steel products
in three manufacturing divisions. The following table illustrates per unit time required in
each manufacturing division, the available hours in each division and the contribution
per unit of each product:

Product X Product Y Constraints


Manufacturing Available
Hours per Hours per
Division Hours
unit unit
A 8 10 11,000 8 x  1 0 y  1 1, 0 0 0
B 4 10 9,000 4 x  10 y  9, 000
C 12 6 12,000 12 x  6 y  12, 000
Contribution/unit $4 $8
Find the optimal production plan (maximize contribution) for the company.

Objective function, maximize contribution, z  4 x  8 y

Drawing Graph:

x y x y x y
0 1100 0 900 0 2000
2250 0 1000 0
1375 0

Let us assume an iso-contribution line of contribution=$3200


Y

x y
0 400
800 0 Division C

x y Division A

0 2000
E Contribution
1000 0 Line
F
Feasible G Division B
Region

H X

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 143
The optimum point is found by drawing an example of an iso-contribution line on the
diagram (any value of Z will do) and then placing a ruler against it. Then, by moving the
ruler away from the origin (in the case of a maximization problem) or towards the origin
(in the case of a minimization problem) by keeping it parallel to the iso-contribution line,
the last corner it touches of the feasible region represents the optimum solution.

The optimum corner is F, the intersection of Division A and Division B.

8 x  1 0 y  1 1, 0 0 0

4 x  10 y  9, 000
or, 4 x  2000

or, x  500
and , y  700

The optimum production plan is to produce 500 units of product X and 700 units of
product Y.

The maximum contribution we can get =4x+8y=$7,600

Shadow Prices and Slack:

Slack is the amount by which a resource is under-utilized. It will occur when the optimum
point does not fall on a given resource line. Slack is important because unused resources
can be allocated for other use.

The shadow price of a resource can be found by calculating the increase in value (extra
contribution or extra profit) which would be created by having available one additional
unit of a limiting resource at its original cost.

Shadow price therefore represents the maximum premium that the firm should be willing
to pay for one extra unit of each constraint.

The optimum corner F is found in the intersection of Division A and Division B.


Therefore hours available at Division A and B are fully utilized and are referred to as
critical constraints. We can calculate shadow prices for the critical constraints.

However there is unutilized hours available at Division C which is referred to as non-


critical constraint and can be allocated for other use. Non-critical constraints will have
zero shadow prices as slack exists already.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 144
Shadow price calculation:

Division A and B is Critical constraint.

Shadow price for Division A:

Adding one extra hour for Division A, while leaving the other critical constraint
unchanged.

8 x  1 0 y  1 1, 0 0 1

4 x  10 y  9, 000
or, 4 x  2001

o r , x  5 0 0 .2 5
a n d , y  6 9 9 .9

The increased contribution =4x500.25+8x699.9—$7,600=$0.2

The increase of $0.20 is the shadow price or the premium that the company would be
willing to pay for each extra hour in Division A.

Similarly we can calculate shadow price for Division B. There is no shadow price for
Division C as slack is available there.

Microsoft Solver Outputs:

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 145
Objective Cell (Max)
Original
Cell Name Value Final Value
$C$2 Max. Contribution z 0 7600

Variable Cells
Original
Cell Name Value Final Value Integer
$A$2 x 0 500 Contin
$B$2 y 0 700 Contin

Constraints
Cell Name Cell Value Formula Status Slack
Not
$B$11 Non-neg 500 $B$11>=0 Binding 500
Not
$B$13 Non-neg 700 $B$13>=0 Binding 700
$B$5 Division A 11000 $B$5<=11000 Binding 0
$B$7 Division B 9000 $B$7<=9000 Binding 0
Not
$B$9 Division C 10200 $B$9<=12000 Binding 1800
Binding: Critical Constraints (resource or hours fully utilized)

Non-binding: Non-critical constraints (Division C: slack- 1800 hours available or no


shadow price)

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$11 Non-neg 500 0 0 500 1E+30
$B$13 Non-neg 700 0 0 700 1E+30
$B$5 Division A 11000 0.2 11000 750 2000
$B$7 Division B 9000 0.6 9000 2000 1000
$B$9 Division C 10200 0 12000 1E+30 1800

Shadow price for Division A=$0.2 and Division B=$0.6

Variable Lower Objective Upper Objective


Cell Name Value Limit Result Limit Result
$A$2 x 500 0 5600 500 7600
$B$2 y 700 0 2000 700 7600

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 146
Simplex Method

Objective function, maximize contribution, z  4 x  8 y

8 x  1 0 y  1 1, 0 0 0

Constraints: 4 x  1 0 y  9 , 0 0 0
12 x  6 y  12, 000

Converting inequality constraints into equality by adding slack variables:

0  8 x  1 0 y  1 S 1  0 S 2  0 S 3  1 1, 0 0 0

0  4 x  1 0 y  0 S1  1S 2  0 S 3  9 , 0 0 0

0  12 x  6 y  0 S1  0 S 2  1S 3  1 2 , 0 0 0

z  4x 8y  0 S1  0 S 2  0 S 3  0

Z X Y S1 S2 S3 value Row Operation


S1 0 8 10 1 0 0 11000
S2 0 4 10 0 1 0 9000
S3 0 12 6 0 0 1 12000
Z 1 -4 -8 0 0 0 0
The entering variable column for a maximization problem is always the one that has
the most negative value in the Z row. Here, column Y is the entering variable column.
Leaving variable or point row is S2 because 9000/10 < 11000/10<12000/6, hence Y will
replace S2.
S1 0 8 10 1 0 0 11000
Y 0 0.4 1 0 0.1 0 900 R 2  R 2 / 1 0
S3 0 12 6 0 0 1 12000
Z 1 -4 -8 0 0 0 0

S1 0 4 0 1 -1 0 2000 R 1  R 1  R 2 (  1 0 )
Y 0 0.4 1 0 0.1 0 900
S3 0 9.6 0 0 -0.6 1 6600 R 3  R 3  R 2 (  6 )
Z 1 -0.8 0 0 0.8 0 7200 R 4  R 4  R 2 (8 )
Here, column X is the entering variable column now. Leaving variable or point row is
S1 because 2000/4 <6600/9.6< 900/0.4, hence X will replace S1.
X 0 1 0 0.25 -0.25 0 500 R 1  R 1 / 4
Y 0 0.4 1 0 0.1 0 900
S3 0 9.6 0 0 -0.6 1 6600
Z 1 -0.8 0 0 0.8 0 7200

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 147
Z X Y S1 S2 S3 value Row Operation
X 0 1 0 0.25 -0.25 0 500
Y 0 0 1 -0.1 0 0 700 R 2  R 2  R 1 (  0 .4 )

S3 0 0 0 -2.4 -3 1 1800 R 3  R 3  R 1 (  9 .6 )

Z 1 0 0 0.2 0.6 0 7600 R 4  R 4  R 1 ( 0 .8 )

The optimum production plan is to produce 500 units of product X and 700 units of
product Y. The maximum contribution we can get =$7,600. Shadow price for Division A
and B are $0.2 and $0.6 respectively. Division C: slack- 1800 hours available or no
shadow price.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 148
Question2: Partex Furniture manufactures office furniture and home furniture and each
of these products passes through a cutting process and assembly process. One office
furniture, which makes average contribution of $50, takes six hours cutting time and four
hours assembly time; while one home furniture makes an average contribution of $40,
and takes three hours cutting time and eight hours assembly time. There is a maximum of
36 cutting hours and 48 assembly hours available each week. Cutters are paid $10 per
hour and assembly workers $15 per hour. Find the optimal production plan (maximize
contribution) for the company including shadow prices for cutting hours and assembly
hours.

Objective function, maximize contribution, z  5 0 x  4 0 y

C u ttin g h o u r s , 6 x  3 y  3 6
Constraints:
A s s e m b ly h o u r s , 4 x  8 y  4 8

Drawing Graph:

x y x y x y
0 12 0 6 0 5
6 0 12 0 4 0
Y

Cutting Hours

Feasible
Region

A Contribution
Line
B

Assembly
Hours

C
X

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 149
The optimum point is found by drawing an example of an iso-contribution line on the
diagram (any value of Z will do) and then placing a ruler against it. Then, by moving the
ruler away from the origin (in the case of a maximization problem) by keeping it parallel
to the iso-contribution line, the last corner it touches of the feasible region represents the
optimum solution.

The optimum corner is B, the intersection of cutting hours and assembly hours.

6 x  3 y  36

4 x  8 y  48

or, x  4

and , y  4

The optimum production plan is to produce 4 units of product X and 4 units of product
Y.

The maximum contribution we can get =50x4+40x4=$360

Shadow Prices and Slack:

The optimum corner B is found in the intersection of cutting hours and assembly hours.
Therefore cutting hours and assembly hours are fully utilized and are referred to as
critical constraints. We can calculate shadow prices for the critical constraints. There is
no slack or unutilized resources available.

Shadow price for cutting hours:

Adding one extra hour for cutting, while leaving the other critical constraint unchanged.

6 x  3 y  37

4 x  8 y  48

o r , x  4 .2 2

a n d , y  3 .8 9

The increased contribution =50x4.22+40x3.89—$360=$6.6

The increase of $6.6 is the shadow price or the premium that the company would be
willing to pay for each extra hour of cutting.

Similarly we can calculate shadow price for assembly hours as well.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 150
Microsoft Solver Outputs:

Objective Cell (Max)


Original Final
Cell Name Value Value
$C$2 Max. Contribution z $0.00 $360.00

Variable Cells
Original Final
Cell Name Value Value Integer
$A$2 x 0 4 Contin
$B$2 y 0 4 Contin

Constraints
Cell Name Cell Value Formula Status Slack
Not
$B$11 Non-neg 4 $B$11>=0 Binding 4
$B$5 Cutting Hours 36 $B$5<=36 Binding 0
$B$7 Assembly Hours 48 $B$7<=48 Binding 0
Not
$B$9 Non-neg 4 $B$9>=0 Binding 4
Binding: Critical Constraints (resource or hours fully utilized)

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$11 Non-neg 4 0 0 4 1E+30
$B$5 Cutting Hours 36 6.666666667 36 36 18
$B$7 Assembly Hours 48 2.5 48 48 24
$B$9 Non-neg 4 0 0 4 1E+30
Shadow price for cutting hours=$6.67 and for Assembly hours=$2.5

Variable Lower Objective Upper Objective


Cell Name Value Limit Result Limit Result
$A$2 x 4 0 160 4 360
$B$2 y 4 0 200 4 360

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 151
Simplex Method

Objective function, maximize contribution, z  5 0 x  4 0 y

C u ttin g h o u r s , 6 x  3 y  3 6
Constraints:
A s s e m b ly h o u r s , 4 x  8 y  4 8

Converting inequality constraints into equality by adding slack variables:

0  6x  3 y  1 .S 1  0 S 2  3 6

0  4x  8 y  0 S 1  1 .S 2  4 8

Z  5 0 x  4 0 y  0 S 1  0 .S 2  0

Z X Y S1 S2 value Row Operation


S1 0 6 3 1 0 36
S2 0 4 8 0 1 48
Z 1 -50 -40 0 0 0
The entering variable column for a maximization problem is always the one that has
the most negative value in the Z row. Here, column X is the entering variable column.
Leaving variable or point row is S1 because 6/36 < 4/48, hence X will replace S1.
X 0 1 0.5 0.167 0 6 R 1  R 1 / 6

S2 0 1 2 0 0.25 12 R 2  R 2 / 4
Z 1 -50 -40 0 0 0

X 0 1 0.5 0.167 0 6
S2 0 0 1.5 -0.167 0.25 6 R 2  R 2  R 1

Z 1 0 -15 8.34 0 300 R 3  R 1 ( 5 0 )  R 3


Here, column Y is the entering variable column now.
Leaving variable or point row is S2 because 6/1.5 < 6/0.5, hence Y will replace S2.
X 0 1 0.5 0.167 0 6
Y 0 0 1 -0.111 0.167 4 R 2  R 2 / 1 .5
Z 1 0 -15 8.34 0 300

X 0 1 0 0.222 -0.083 4 R 1  R 1  R 2 (  0 .5 )
Y 0 0 1 -0.111 0.167 4
Z 1 0 0 6.67 2.5 360 R 3  R 2 (1 5 )  R 3
The optimum production plan is to produce 4 units of product X and 4 units of product
Y. The maximum contribution we can get =$360. Shadow price for cutting hours and
assembly hours are $6.67 and $2.5 respectively.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 152
Question3: Millennium Cycle manufactures mountain bike and racing bike and apart
from raw materials it requires a mix of skilled and semi-skilled labours. The supply of
skilled and semi-skilled labour is limited to 2000 hours/month and 2500 hours/month
respectively. One mountain bike needs 10 hours of skilled and 5 hours of semi-skilled
labour hours while one racing bike needs 10 hours of skilled and 25 hours of semi-skilled
labour hours. The company receives average contribution of $50 from Mountain bikes
and $40 from racing bikes while skilled labours are paid $15 per hour and semi-skilled
labours are paid $10 per hour. At present, maximum demand for mountain bike and
racing bike is expected to be 150 units/month and 80 units/month respectively. Find the
optimal production plan (maximize contribution) for the company including shadow
prices for skilled labours and semi-skilled labours.

Objective function, maximize contribution, z  5 0 x  4 0 y

S k ille d L a b o u r , 1 0 x  1 0 y  2 0 0 0

S e m i-s k ille d L a b o u r , 5 x  2 5 y  2 5 0 0
M o u n ta in B ik e , x  1 5 0
Constraints:
R a c in g B ik e , y  8 0
N o n -n e g a tiv ity , x  0 ; y  0

Drawing Graph:

x y x y x y
0 200 0 100 0 50
200 0 500 0 40 0
Y

Feasible Region=ABCDE

Skilled

x≤150

y≤80
B C

Semi-skilled
D
CL E
X
Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 153
The optimum point is found by drawing an example of an iso-contribution line on the
diagram (any value of Z will do) and then placing a ruler against it. Then, by moving the
ruler away from the origin (in the case of a maximization problem) by keeping it parallel
to the iso-contribution line, the last corner it touches of the feasible region represents the
optimum solution.

The optimum corner (last corner) is D, the intersection of skilled labour and x≤150.

x  150

10 x  10 y  2000

and , y  50

The optimum production plan is to produce 150 units of mountain bikes and 50 units of
racing bike.

The maximum contribution we can get =50x150+40x50=$9500

Shadow Prices and Slack:

The optimum corner D is found in the intersection of skilled labour and x≤150. Therefore
skilled labours are fully utilized and are referred to as critical constraints. We can
calculate shadow price for the skilled labour. There is slack or unutilized hours available
for semi-skilled labours; hence no shadow price for semi-skilled labour.

Shadow price for skilled labour:

Adding one extra hour for skilled labour, while leaving the other constraint unchanged.

x  150
10 x  10 y  2001

a n d , y  5 0 .1

The increased contribution =50x150+40x50.1—$9500=$4

The increase of $4 is the shadow price or the premium that the company would be willing
to pay for each extra hour of skilled labour.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 154
Microsoft Solver Outputs:

Objective Cell (Max)


Original
Cell Name Value Final Value
$C$2 Max. Contribution z $0.00 $9,500.00
Variable Cells
Original
Cell Name Value Final Value Integer
$A$2 x 0 150 Contin
$B$2 y 0 50 Contin
Constraints
Cell Name Cell Value FormulaStatus Slack
Not
$B$11 y 50 $B$11<=80 Binding 30
Not
$B$14 Non-neg 150 $B$14>=0 Binding 150
Not
$B$16 Non-neg 50 $B$16>=0 Binding 50
$B$5 Skilled Labours 2000 $B$5<=2000 Binding 0
Not
$B$7 Semi-skilled Labours 2000 $B$7<=2500 Binding 500
$B$9 x 150 $B$9<=150 Binding 0
Binding: Critical Constraints (skilled labours are fully utilized),

Non-binding or non-critical constraints: 500 hours of slack or unutilized hours available


for semi-skilled labours.

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$11 y 50 0 80 1E+30 30
$B$14 Non-neg 150 0 0 150 1E+30
$B$16 Non-neg 50 0 0 50 1E+30
$B$5 Skilled Labours 2000 4 2000 200 500
$B$7 Semi-skilled Labours 2000 0 2500 1E+30 500
$B$9 x 150 10 150 50 25
Shadow price for skilled labours =$4

Cell Variable Lower Objective Upper Objective


Cell Name Value Limit Result Limit Result
$A$2 x 150 0 2,000 150 9,500
$B$2 y 50 0 7500 50 9500
When X=0, Y=50, Max contribution=$2000, and when Y=0, X=150, Max
contribution=$7500

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 155
Simplex Method

Objective function, maximize contribution, z  5 0 x  4 0 y

S k ille d L a b o u r , 1 0 x  1 0 y  2 0 0 0

S e m i-s k ille d L a b o u r , 5 x  2 5 y  2 5 0 0
M o u n ta in B ik e , x  1 5 0
Constraints:
R a c in g B ik e , y  8 0
N o n -n e g a tiv ity , x  0 ; y  0

Converting inequality constraints into equality by adding slack variables:

0  1 0 x  1 0 y  1S1  0 S 2  0 S 3  0 S 4  2, 0 0 0

0  5x  2 5 y  0 S1  1S 2  0 S 3  0 S 4  2 , 5 0 0

0  1x 0y  0 S1  0 S 2  1S 3  0 S 4  1 5 0

0  0x 1y  0 S1  0 S 2  0 S 3  1S 4  8 0

z  50 x  40 y  0 S1  0 S 2  0 S 3  0 S 4  0

Z X Y S1 S2 S3 S4 value Row Operation


S1 0 10 10 1 0 0 0 2000
S2 0 5 25 0 1 0 0 2500
S3 0 1 0 0 0 1 0 150
S4 0 0 1 0 0 0 1 80
Z 1 -50 -40 0 0 0 0 0
The entering variable column for a maximization problem is always the one that has the
most negative value in the Z row. Here, column X is the entering variable column.
Leaving variable or point row is S3 because 150/1<2000/10 < 2500/5, hence X will replace
S3.
S1 0 0 10 1 0 -10 0 500 R 1  R 1  R 3 (  1 0 )

S2 0 0 25 0 1 -5 0 1750 R 2  R 2  R 3 (  5 )
X 0 1 0 0 0 1 0 150
S4 0 0 1 0 0 0 1 80
Z 1 0 -40 0 0 50 0 7500 R 5  R 5  R 3 (5 0 )
Here, column Y is the entering variable column now. Leaving variable or point row is S1
because 500/10 <1750/25< 80/1, hence Y will replace S1.
Y 0 0 1 0.1 0 -1 0 50 R 1  R 1 / 1 0
S2 0 0 25 0 1 -5 0 1750
X 0 1 0 0 0 1 0 150
S4 0 0 1 0 0 0 1 80
Z 1 0 -40 0 0 50 0 7500

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 156
Z X Y S1 S2 S3 S4 value Row Operation
Y 0 0 1 0.1 0 -1 0 50 R 1  R 1 / 4
S2 0 0 0 -2.5 1 20 0 500 R 2  R 2  R 1 (  2 5 )
X 0 1 0 0 0 1 0 150
S4 0 0 0 -0.1 0 1 1 30 R 4  R 4  R 1

Z 1 0 0 4 0 10 0 9500 R 5  R 5  R 1 ( 4 0 )

The optimum production plan is to produce 150 units of product X (Mountain Bike) and
50 units of product Y (Racing Bike). The maximum contribution we can get=$9,500.
Shadow price for skilled labour is $4 while semi-skilled labour has a slack of 500 hours
available, hence no shadow price.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 157
Question4: ACI Agro can buy two types of fertilizer which contain the following
percentage of chemicals:

Nitrates Phosphates Potash


Type 1 18 5 2
Type 2 3 2 5

For a certain crop ACI need minimum 100 kg of Nitrates, 50 kg of Phosphates and 40 kg
of Potash. ACI currently buys 1000 kg of each type of fertilizer where type 1 costs $10/kg
and type 2 costs $5/kg. Find the optimal purchase plan (minimize cost) for the company.

Objective function, minimize cost, z  1 0 x  5 y

N itr a te s , 0 .1 8 x  0 .0 3 y  1 0 0
x y
P h o s p h a te s , 0 .0 5 x  0 .0 2 y  5 0 0 4000
Constraints: P o ta s h , 0 .0 2 x  0 .0 5 y  4 0 2000 0
N o n -n e g a tiv ity , x  0 ; y  0

Drawing Graph:

x y x y x y
0 3333.34 0 2500 0 800
556 0 1000 0 2000 0

Feasible Region
A
Nitrates Outside ABCD

Iso-cost line

Phosphates

Potash
C

X
D

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 158
The optimum point is found by drawing an example of an iso-cost line on the diagram
(any value of Z will do) and then placing a ruler against it. Then, by moving the ruler
towards the origin (in the case of a minimization problem) by keeping it parallel to the
iso-cost line, the last corner it touches of the feasible region represents the optimum
solution.

The optimum corner (last corner) is C, the intersection of potash and phosphates.

5 x  2 y  5000

2 x  5 y  4000

x  8 0 9 .5

a n d , y  4 7 6 .2

The optimum purchase plan is to acquire 809.5 kg of type 1 and 476.2 kg of type 2
fertilizer.

The minimized cost we can get =10x809.5+5x476.2=$10,476

The current plan cost =10x1000+5x1000=$15,000

Cost saved=$15,000—$10,476=$4,524

Shadow price for Phosphates:

Reducing one extra kg requirement for Phosphates, while leaving the other constraint
unchanged.

5 x  2 y  4900

2 x  5 y  4000

x  7 8 5 .7 1

a n d , y  4 8 5 .7 1

The minimized cost we can get =$10x785.71+$5x485.71=$10,285.69

Cost would be saved=$10,476—$10,285.69=$190.3

The reduction of $190.3 is the shadow price or the discount that the supplier would be
willing to give for each extra kg reduction in the requirement of Phosphates.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 159
Microsoft Solver Outputs:

Variable Cells
Original
Cell Name Value Final Value Integer
$A$2 x 0 810 Contin
$B$2 y 0 476.1904762 Contin

Constraints
Cell Name Cell Value Formula Status Slack
Not
$B$11 Non-neg 809.5238095 $B$11>=0 Binding 809.5238095
Not
$B$13 Non-neg 476.1904762 $B$13>=0 Binding 476.1904762
Not
$B$5 Nitrates 160 $B$5>=100 Binding 60
$B$7 Phosphates 50 $B$7>=50 Binding 0
$B$9 Potash 40 $B$9>=40 Binding 0
Binding: Critical Constraints (we have exactly the minimum quantities required of
Phosphates and Potash)

Non-binding or non-critical constraints: We have 60 kg more than the minimum


quantities required of Nitrates.

Variable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$A$2 x 809.5238095 0 10 2.5 8
$B$2 y 476.1904762 0 5 20 1

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$11 Non-neg 809.5238095 0 0 809.5238095 1E+30
$B$13 Non-neg 476.1904762 0 0 476.1904762 1E+30
$B$5 Nitrates 160 0 100 60 1E+30
$B$7 Phosphates 50 190.4761905 50 50 15
$B$9 Potash 40 23.80952381 40 60 20

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 160
Simplex Method

Objective function, minimize cost, z  1 0 x  5 y

N itr a te s , 0 .1 8 x  0 .0 3 y  1 0 0

P h o s p h a te s , 0 .0 5 x  0 .0 2 y  5 0
Constraints: P o ta s h , 0 .0 2 x  0 .0 5 y  4 0

N o n -n e g a tiv ity , x  0 ; y  0

Surplus Variable Constraints

P1 0 .1 8 x  0 .0 3 y  100
P2 0 .0 5 x  0 .0 2 y  50
P3 0 .0 2 x  0 .0 5 y  40
Min 10 x  5y Z

Now converting the minimization problem into dual problem (maximization problem):

0 .1 8 P1  0 .0 5 P2  0 .0 2 P3  1 0

0 .0 3 P1  0 .0 2 P2  0 .0 5 P3  5

Objective function, maximize, 1 0 0 P1  5 0 P2  4 0 P3  z

Converting inequality constraints into equality by adding slack variables:

0 + 0 .1 8 P1  0 .0 5 P2  0 .0 2 P3  1 S 1  0 S 2  1 0

0 + 0 .0 3 P1  0 .0 2 P2  0 .0 5 P3  0 S 1  1 S 2  5

z  1 0 0 P1  5 0 P2  4 0 P3  0 S1  0 S 2  0

Z P1 P2 P3 S1 S2 value Row Operation


S1 0 0.18 0.05 0.02 1 0 10
S2 0 0.03 0.02 0.05 0 1 5
Z 1 -100 -50 -40 0 0 0
The entering variable column for a maximization problem is always the one that has
the most negative value in the Z row. Here, column P1 is the entering variable column.
Leaving variable or point row is S1, hence P1 will replace S1.
P1 0 1 0.2778 0.111 5.556 0 55.556 R 1  R 1 / 0 .1 8
S2 0 0.03 0.02 0.05 0 1 5
Z 1 -100 -50 -40 0 0 0

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 161
Z P1 P2 P3 S1 S2 value Row Operation
P1 0 1 0.2778 0.111 5.556 0 55.556
S2 0 0 0.0116 0.046 -0.166 1 3.3333 R 2  R 2  R 1 (  0 .0 3 )

Z 1 0 -22.22 -28.88 555.55 0 5555.6 R 3  R 3  R 1 (1 0 0 )


Here, column P3 is the entering variable column now. Leaving variable or point row is
S2, hence P3 will replace S2.
P1 0 1 0.2778 0.111 5.556 0 55.556
P3 0 0 0.252 1 -3.6 21.74 72.46 R 2  R 2 / 0 .0 4 6
Z 1 0 -22.22 -28.88 555.55 0 5555.6

P1 0 1 0.25 0 5.955 -2.41 47.51 R 1  R 1  R 2 (  0 .1 1 1)

P3 0 0 0.252 1 -3.6 21.74 72.46


Z 1 0 -14.94 0 451.58 627.85 7648.24 R 3  R 3  R 2 ( 2 8 .8 8 )
Here, column P2 is the entering variable column now. Leaving variable or point row is
P1, hence P2 will replace P1.
P2 0 4 1 0 23.82 -9.64 190.04 R 1  R 1 / 0 .2 5
P3 0 0 0.252 1 -3.6 21.74 72.46
Z 1 0 -14.94 0 451.58 627.85 7648.24

Z P1 P2 P3 S1 S2 value Row Operation


P2 0 4 1 0 23.82 -9.64 190.04
P3 0 -1 0 1 -9,6 24.17 24.57 R 2  R 2  R 1 (  0 .2 5 2 )

Z 1 59.76 0 0 807.45 483.82 10487.43 R 3  R 3  R 1 (1 4 .9 4 )


The value of S1=X=807 units, and the value of S2= Y=483 units and the minimized
cost=$10,487.43

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 162
Question5: Pure Gasoline Company operates two refineries with different production
capacities. Refinery A can produce 4,000 gallons per day of Super Unleaded gasoline,
2,000 gallons per day of Regular Unleaded gasoline, and 1,000 per day of Diesel fuel. On
the other hand Refinery B can produce 1,000 gallons per day of Super Unleaded, 3,000
gallons per day of Regular Unleaded, and 4,000 gallons per day of Diesel fuel. The
company has made a contract with an automobile manufacturer to provide 24,000 gallons
of Super Unleaded, 42,000 gallons of Regular Unleaded, and 36,000 gallons of Diesel fuel.
Determine 1) the number of days the company should operate each refinery in order to
meet the terms of the contract most economically, 2) the minimum cost, and 3) what
grade(s) of fuel would be overproduced if the cost of running Refinery A is $1,500 per day
and Refinery B is $2,400 per day. Objective function, minimize cost, z  1 5 0 0 x  2 4 0 0 y

S u p e r U n le a d e d , 4 0 0 0 x  1 0 0 0 y  2 4 , 0 0 0

R e g u la r U n le a d e d , 2 0 0 0 x  3 0 0 0 y  4 2 , 0 0 0
Constraints: D ie s e l, 1 0 0 0 x  4 0 0 0 y  3 6 , 0 0 0

N o n -n e g a tiv ity , x  0 ; y  0

Surplus Variable Constraints

P1 4000x  1000 y  24, 000

P2 2000x  3000 y  42, 000

P3 1000x  4000 y  36, 000

Min 1500 x  2400 y Z

Now converting the minimization problem into dual problem (maximization problem):

4 0 0 0 P1  2 0 0 0 P2  1 0 0 0 P3  1 5 0 0

1 0 0 0 P1  3 0 0 0 P2  4 0 0 0 P3  2 4 0 0

Objective function, maximize, 2 4 , 0 0 0 P1  4 2 0 0 0 P2  3 6 0 0 0 P3  z


Converting inequality constraints into equality by adding slack variables:

0 + 4 0 0 0 P1  2 0 0 0 P2  1 0 0 0 P3  1S1  0 S 2  1 5 0 0

0 + 1 0 0 0 P1  3 0 0 0 P2  4 0 0 0 P3  0 S1  1S 2  2 4 0 0

z  2 4 , 0 0 0 P1  4 2 0 0 0 P2  3 6 0 0 0 P3  0 S 1  0 S 2  0

Z P1 P2 P3 S1 S2 value Row Operation


S1 0 4000 2000 1000 1 0 1500
S2 0 1000 3000 4000 0 1 2400
Z 1 -24000 -42000 -36000 0 0 0
The entering variable column for a maximization problem is always the one that has
the most negative value in the Z row. Here, column P2 is the entering variable column.
Leaving variable or point row is S1, hence P2 will replace S1.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 163
Z P1 P2 P3 S1 S2 value Row Operation
P2 0 2 1 0.5 0.0005 0 0.75 R 1  R 1 / 2 0 0 0
S2 0 1000 3000 4000 0 1 2400
Z 1 -24000 -42000 -36000 0 0 0

P2 0 2 1 0.5 0.0005 0 0.75


S2 0 -5000 0 2500 -1.5 1 150 R 2  R 2  R 1 (  3 0 0 0 )

Z 1 60000 0 -15000 21 0 31500 R 3  R 3  R 1 ( 4 2 0 0 0 )

Here, column P3 is the entering variable column. Leaving variable or point row is S2,
hence P3 will replace S2.
P2 0 2 1 0.5 0.0005 0 0.75
P3 0 -2 0 1 -0.0006 0.0004 0.06 R 2  R 2 / 2 5 0 0

Z 1 60000 0 -15000 21 0 31500

P2 0 3 1 0 0.0008 -0.0002 0.72 R 1  R 1  R 2 (  0 .5 )

P3 0 -2 0 1 -0.0006 0.0004 0.06


Z 1 30000 0 0 12 6 32400 R 3  R 3  R 2 (1 5 0 0 0 )

The value of S1=X=12 days, and the value of S2= Y=6 days and the minimized
cost=$32,400. The company should operate Refinery A for 12 days and Refinery B for 6
days to fulfil the contract with associated minimum cost of $32,400.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 164
Question6: In a chair manufacturing company Lounge chairs and Swivel chairs are made
using the equipment of two departments: I and II. It requires one hour in each
department to make a lounge chair, but making a swivel chair takes one hour in
department I and two hours in department II. Department I has four hours of time
available, and II has six hours available. Each Lounge chair made and sold contributes $1
to profit, and each Swivel chair contributes $0.50 to profit. Find the optimal production
plan (maximize contribution) for the company.

Dept 1 Dept 2 objective

4.5

3.5

2.5

1.5

0.5

0
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6

Objective Cell (Max)


Cell Name Original Value Final Value
$A$11 Objective 0 4
Variable Cells
Cell Name Original Value Final Value Integer
$A$2 x 0 4 Contin
$B$2 y 0 0 Contin
Constraints
Cell Name Cell Value Formula Status Slack
$A$7 Dept1 4 $A$7<=4 Binding 0
$A$9 Dept 2 4 $A$9<=6 Not Binding 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 165
Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$A$7 Dept1 4 1 4 2 4
$A$9 Dept 2 4 0 6 1E+30 2

Question7: Ace Rubber Company manufactures two types of tires: Model P (the
premium) and Model R (the regular). Model P sells for $95 per tire and costs $85 per tire
to make, whereas Model R sells for $50 per tire and costs $42 per tire to make. To make
one model P tire, it requires two hours on machine A and four hours on machine B. On
the other hand, to make one model R tire, it takes 9 hours on machine A and three hours
on machine B. Production scheduling indicates that during the coming week Machine A
will be available for at most 36 hours and machine B for at most 42 hours. How many of
each tire should the company make in the coming week in order to maximize its profit?
What is this maximum profit?

Objective Cell (Max)


Cell Name Original Value Final Value
$A$11 Objective 0 106
Variable Cells
Cell Name Original Value Final Value Integer
$A$2 x 0 9 Contin
$B$2 y 0 2 Contin
Constraints
Cell Name Cell Value Formula Status Slack
$A$7 MachineA 36 $A$7<=36 Binding 0
$A$9 Machine B 42 $A$9<=42 Binding 0
$A$2 x 9 $A$2>=0 Not Binding 9
$B$2 y 2 $B$2>=0 Not Binding 2
Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$A$7 MachineA 36 0.066666667 36 90 15
$A$9 Machine B 42 2.466666667 42 30 30

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 166
Machine A Machine B Objective

16

14

12

10

0
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Question8: Star Insulating Company manufactures two types of storm windows: Model
H (the heavy duty) and Model R (the regular). Model H sells for $45 per window and cost
$36 per window to make, whereas Model R sells for $35 per window and costs $27 per
window to make. To make one model H window, it requires 4 hours on machine A and 3
hours on machine B. On the other hand, to make one model R window, it takes 5 hours
on machine A and 2 hours on machine B. Production scheduling indicates that during the
coming week Machine A will be available for at most 30 hours and machine B for at most
19 hours. How many of each window should the company make in the coming week in
order to maximize its profit? What is this maximum profit?

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 167
Machine A Machine B Objective

10

0
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5

Objective Cell (Max)


Cell Name Original Value Final Value
$A$11 Objective 0 66
Variable Cells
Cell Name Original Value Final Value Integer
$A$2 x 0 5 Contin
$B$2 y 0 2 Contin
Constraints
Cell Name Cell Value Formula Status Slack
$A$7 MachineA 30 $A$7<=30 Binding 0
$A$9 Machine B 19 $A$9<=19 Binding 0
$A$2 x 5 $A$2>=0 Not Binding 5
$B$2 y 2 $B$2>=0 Not Binding 2
Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$A$7 MachineA 30 0.571428571 30 17.5 4.666666667
$A$9 Machine B 19 2.571428571 19 3.5 7

Question9: Safety Lock Company makes two kinds of locks: Model SS (Super safe) and
Model S (safe). Each model SS lock sells for $24 and costs $19 to make, while each model
S lock sells for $18 and costs $15 to make. Model SS requires 3 hours on machine A and 2
hours on machine B, whereas model S requires 7 hours on machine A and 1 hour on
machine B. During the coming week machine A will be available for no more than 42
Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 168
hours and machine B for no more than 17 hours. Determine the number of each kind of
lock to be made in the coming week for the company to maximize its profit. What is this
maximum profit?

Machine A Machine B Objective

18

16

14

12

10

0
10.5

11.5

12.5

13.5
1.5

7
0

9
0.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5
10

11

12

13

14
Objective Cell (Max)
Cell Name Original Value Final Value
$A$9 Obj 0 44
Variable Cells
Cell Name Original Value Final Value Integer
$A$2 x 0 7 Contin
$B$2 y 0 3 Contin
Constraints
Cell Name Cell Value Formula Status Slack
$A$5 Machine A 42 $A$5<=42 Binding 0
$A$7 Machine B 17 $A$7<=17 Binding 0
$A$2 x 7 $A$2>=0 Not Binding 7
$B$2 y 3 $B$2>=0 Not Binding 3
Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$A$5 Machine A 42 0.090909091 42 77 16.5
$A$7 Machine B 17 2.363636364 17 11 11

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 169
Question10: XYZ Steel Company manufactures two kinds of wrought-iron rails: Model E
(the elegant) and Model D (the distinctive). Model E rails sell for $59 and cost $50 to
make, whereas Model D rails sell for $48 and cost $41 to make. To make one model E rail
requires 2 hours on machine A, 1 hour on machine B and 4 hours on machine C. On the
other hand, to make one model D rail requires 1 hour on machine A, 2 hours on B, and 5
hours on C. Production scheduling indicates that, during the coming week machine A will
be available for at most 30 hours, machine B for at most 24 hours, and machine C for at
most 72 hours. Find the number of each kind of rail to be made in the coming week in
order for the company to maximize its profit. What is this maximum profit? At the
maximum, which machines, if any are not fully utilized?

Question11: A special food for athletes is to be developed from two foods: Food X and
Food Y. The new food is to contain at least 16mg of vitamin A, at least 20 mg of vitamin
B, and at least 12mg of vitamin C. Each pound of food X costs $1.5 and contains 1mg of
vitamin A, 5mg of vitamin B and 1mg of vitamin C. On the other hand each pound of
food Y costs $2.5 and contains 2mg of vitamin A, 1mg of vitamin B and 1mg of vitamin C.
How many pounds of each food should be used in the mixture in order to meet the
preceding requirements at a minimum cost? What is this minimum cost?

Question12: Repeat problem 11 if, in addition, the amount of food Y in the mixture must
be no more than one and half the amount of food X.

Objective Cell (Min)


Cell Name Original Value Final Value
$A$12 Obj 0 22
Variable Cells
Cell Name Original Value Final Value Integer
$A$2 x 0 8 Contin
$B$2 y 0 4 Contin
Constraints
Cell Name Cell Value Formula Status Slack
$A$10 Mixture 16 $A$10>=0 Not Binding 16
$A$4 Vit A 16 $A$4>=16 Binding 0
$A$6 Vit B 44 $A$6>=20 Not Binding 24
$A$8 Vit C 12 $A$8>=12 Binding 0
$A$2 x 8 $A$2>=0 Not Binding 8
$B$2 y 4 $B$2>=0 Not Binding 4
Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$A$10 Mixture 16 0 0 16 1E+30
$A$4 Vit A 16 1 16 3.2 4
$A$6 Vit B 44 0 20 24 1E+30
$A$8 Vit C 12 0.5 12 4 2

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 170
Vit A Vit B Vit C Mixture Obj

25

20

15

10

0
10.5

11.5

12.5

13.5

14.5

15.5
0

9
0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5
10

11

12

13

14

15

16

Question13: Strong Steel Company operates two steel mills with different production
capacities. Mill I can produce 1,000 tons per day of AAA steel, 3,000 tons per day of AA
steel, and 5,000 tons per day of A steel. Mill II can produce 2,000 tons per day of each
grade of steel. The company has made a contract with the construction firm to provide
24,000 tons of AAA steel, 32,000 tons of AA steel, and 40,000 tons of A steel. The cost of
running mill I and II are $1,400 per day and $1,000 per day. Find the optimal production
plan.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 171
25 AAA Steel AA Steel A Steel Objective

20

15

10

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 172
Objective Cell (Min)
Cell Name Original Value Final Value
$A$13 Obj 0 15600
Variable Cells
Cell Name Original Value Final Value Integer
$A$2 x 0 4 Contin
$B$2 y 0 10 Contin
Constraints
Cell Name Cell Value Formula Status Slack
$A$10 A Steel 40000 $A$10>=40000 Binding 0
$A$4 AAA Steel 24000 $A$4>=24000 Binding 0
$A$7 AA Steel 32000 $A$7>=32000 Binding 0
Not
$A$2 x 4 $A$2>=0 Binding 4
Not
$B$2 y 10 $B$2>=0 Binding 10

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$A$10 A Steel 40000 0 40000 -1.81899E-12 1E+30
$A$4 AAA Steel 24000 0.05 24000 0 13333.33333
$A$7 AA Steel 32000 0.45 32000 40000 0

Question14: ABC dairy company wishes to make a new cheese from two of its current
cheeses: Cheese X and Cheese Y. The mixture is to weigh to more than 4 pounds and is to
contain at least 6 ounces of the sharpness ingredient S. Each pound of X costs $4 and
contains 3 ounces of S, whereas each pound of Y costs $1 and contain 1 ounce of S. How
many pounds of each cheese should be used in the mixture in order to meet these
requirements at a minimum cost? What is this minimum cost?

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 173
Mixture Ingredient S Obj
18

16

14

12

10

0
0 0.5 1 1.5 2 2.5 3 3.5 4

Objective Cell (Min)


Cell Name Original Value Final Value
$A$13 Obj 0 6
Variable Cells
Cell Name Original Value Final Value Integer
$A$2 x 0 0 Contin
$B$2 y 0 6 Contin
Constraints
Cell Name Cell Value Formula Status Slack
$A$4 Mixture 6 $A$4>=4 Not Binding 2
$A$7 Ingredient S 6 $A$7>=6 Binding 0
$A$2 x 0 $A$2>=0 Binding 0
$B$2 y 6 $B$2>=0 Not Binding 6

Question15: A wholesaler has 9,600 feet of space available, and $5,000 to buy
merchandise of types A, B and C. Type A costs $4 per unit and requires 4 feet of storage
space in the warehouse. B costs $10 per unit and requires 8 feet of space. C costs $5 per
unit and requires 6 feet of space. Only 500 units of type A are available to the wholesaler.
Assuming that the wholesaler expects to make a profit of $1 on each unit of A bought and
stocked, $3 per unit on B, and $2 per unit on C, how many units of each should be bought
and stocked in order to maximize his profit, and what is this maximum profit?

Question16: A merchant plans to sell two models of home computers at costs of $250 and
$400, respectively. The $250 model yields a profit of $45 and the $400 model yields a
profit of $50. The merchant estimates that the total monthly demand will not exceed 250
units. Find the number of units of each model that should be stocked in order to
maximize profit. Assume that the merchant does not want to invest more than $70,000 in
computer inventory.
Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 174
Question17: A fruit grower has 150 acres of land available to raise two crops, A and B. It
takes one day to trim an acre of crop A and two days to trim an acre of crop B, and there
are 240 days per year available for trimming. It takes 0.3 day to pick an acre of crop A
and 0.1 day to pick an acre of crop B, and there are 30 days per year available for
picking. Find the number of acres of each fruit that should be planted to maximize profit,
assuming that the profit is $140 per acre for crop A and $235 per acre for B.

Question18: A grower has 50 acres of land for which she plans to raise three crops. It
costs $200 to produce an acre of carrots and the profit is $60 per acre. It costs $80 to
produce an acre of celery and the profit is $20 per acre. Finally, it costs $140 to produce
an acre of lettuce and the profit is $30 per acre. Use the simplex method to find the
number of acres of each crop she should plant in order to maximize her profit. Assume
that her cost cannot exceed $10,000.

Question19: A fruit juice company makes two special drinks by blending apple and
pineapple juices. The first drink uses 30% apple juice and 70% pineapple, while the
second drink uses 60% apple and 40% pineapple. There are 1000 liters of apple and 1500
liters of pineapple juice available. If the profit for the first drink is $0.60 per liter and
that for the second drink is $0.50, use the simplex method to find the number of liters of
each drink that should be produced in order to maximize the profit.

Question20: A manufacturer produces three models of bicycles. The time (in hours)
required for assembling, painting, and packaging each model is as follows.

Model A Model B Model C


Assembling 2 2.5 3
Painting 1.5 2 1
Packaging 1 0.75 1.25
The total time available for assembling, painting, and packaging is 4006 hours, 2495
hours and 1500 hours, respectively. The profit per unit for each model is $45 (Model A),
$50 (Model B), and $55 (Model C). How many of each type should be produced to obtain
a maximum profit?

Question21: Suppose in Exercise 25 the total time available for assembling, painting, and
packaging is 4000 hours, 2500 hours, and 1500 hours, respectively, and that the profit per
unit is $48 (Model A), $50 (Model B), and $52 (Model C). How many of each type should
be produced to obtain a maximum profit?

Question22: A company has budgeted a maximum of $600,000 for advertising a certain


product nationally. Each minute of television time costs $60,000 and each one-page
newspaper ad costs $15,000. Each television ad is expected to be viewed by 15 million
viewers, and each newspaper ad is expected to be seen by 3 million readers. The
company’s market research department advises the company to use at most 90% of the
advertising budget on television ads. How should the advertising budget be allocated to
maximize the total audience?

Question23: Rework Exercise 27 assuming that each one-page newspaper ad costs


$30,000.

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 175
Question24: An investor has up to $250,000 to invest in three types of investments. Type
A pays 8% annually and has a risk factor of 0. Type B pays 10% annually and has a risk
factor of 0.06. Type C pays 14% annually and has a risk factor of 0.10. To have a well-
balanced portfolio, the investor imposes the following conditions. The average risk factor
should be no greater than 0.05. Moreover, at least one-fourth of the total portfolio is to be
allocated to Type A investments and at least one-fourth of the portfolio is to be allocated
to Type B investments. How much should be allocated to each type of investment to
obtain a maximum return?

Question25: An investor has up to $450,000 to invest in three types of investments. Type


A pays 6% annually and has a risk factor of 0. Type B pays 10% annually and has a risk
factor of 0.06. Type C pays 12% annually and has a risk factor of 0.08. To have a well-
balanced portfolio, the investor imposes the following conditions. The average risk factor
should be no greater than 0.05. Moreover, at least one-half of the total portfolio is to be
allocated to Type A investments and at least one-fourth of the portfolio is to be allocated
to Type B investments. How much should be allocated to each type of investment to
obtain a maximum return?

Question26: An accounting firm has 900 hours of staff time and 100 hours of reviewing
time available each week. The firm charges $2000 for an audit and $300 for a tax return.
Each audit requires 100 hours of staff time and 10 hours of review time, and each tax
return requires 12.5 hours of staff time and 2.5 hours of review time. What number of
audits and tax returns will bring in maximum revenue?

Question27: A small petroleum company owns two refineries. Refinery 1 costs $20,000
per day to operate, and it can produce 400 barrels of high-grade oil, 300 barrels of
medium-grade oil, and 200 barrels of low-grade oil each day. Refinery 2 is newer and
more modern. It costs $25,000 per day to operate, and it can produce 300 barrels of high-
grade oil, 400 barrels of medium-grade oil, and 500 barrels of low-grade oil each day. The
company has orders totaling 25,000 barrels of high-grade oil, 27,000 barrels of medium-
grade oil, and 30,000 barrels of low-grade oil. How many days should it run each refinery
to minimize its costs and still refine enough oil to meet its orders?

Question28: A small petroleum company owns two refineries. Refinery 1 costs $20,000
per day to operate, and it can produce 400 barrels of high-grade oil, 300 barrels of
medium-grade oil, and 200 barrels of low-grade oil each day. Refinery 2 is newer and
more modern. It costs $25,000 per day to operate, and it can produce 300 barrels of high-
grade oil, 400 barrels of medium-grade oil, and 500 barrels of low-grade oil each day. The
company has orders totaling 25,000 barrels of high-grade oil, 27,000 barrels of medium-
grade oil, and 30,000 barrels of low-grade oil. How many days should it run each refinery
to minimize its costs and still refine enough oil to meet its orders?

Question29: Two dietary drinks are used to supply protein and carbohydrates. The first
drink provides 1 unit of protein and 3 units of carbohydrates in each litre. The second
drink supplies 2 units of protein and 2 units of carbohydrates in each litre. An athlete
requires 3 units of protein and 5 units of carbohydrates. The first drink costs $4 per litre
and the second costs $2 per litre. Find the amount of each drink the athlete should
consume to minimize the cost and still meet the minimum dietary requirements.
Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 176
Question30: An athlete uses two dietary drinks that provide the nutritional elements
listed in the following table.

Drink Protein Carbohydrates Vitamin D


I 4 2 1
II 1 5 1
Drink I costs $7 per litre and drink II costs $4 per litre. Find the combination of drinks of
minimum cost that will meet the minimum requirements of 4 units of protein, 10 units of
carbohydrates, and 3 units of vitamin D.

Question31: A company has three production plants, each of which produces three
different models of a particular product. The daily capacities (in thousands of units) of
the three plants are as follows.

Model 1 Model 2 Model 3


Plant 1 8 4 8
Plant 2 6 6 3
Plant 3 12 4 8
The total demand for Model 1 is 300,000 units, for Model 2 is 172,000 units, and for
Model 3 is 249,500 units. Moreover, the daily operating cost for Plant 1 is $55,000, for
Plant 2 is $60,000, and for Plant 3 is $60,000. How many days should each plant be
operated in order to fill the total demand, and keep the operating cost at a minimum?

Question32: The Company in Exercise 29 has lowered the daily operating cost for Plant 3
to $50,000. How many days should each plant be operated in order to fill the total
demand, and keep the operating cost at a minimum?

Question33: A small petroleum company owns two refineries. Refinery 1 costs $25,000
per day to operate, and it can produce 300 barrels of high-grade oil, 200 barrels of
medium-grade oil, and 150 barrels of low-grade oil each day. Refinery 2 is newer and
more modern. It costs $30,000 per day to operate, and it can produce 300 barrels of high-
grade oil, 250 barrels of medium-grade oil, and 400 barrels of low-grade oil each day. The
company has orders totaling 35,000 barrels of high-grade oil, 30,000 barrels of medium-
grade oil, and 40,000 barrels of low-grade oil. How many days should the company run
each refinery to minimize its costs and still meet its orders?

Question34: A steel company has two mills. Mill 1 costs $70,000 per day to operate, and it
can produce 400 tons of high-grade steel, 500 tons of medium-grade steel, and 450 tons of
low-grade steel each day. Mill 2 costs $60,000 per day to operate, and it can produce 350
tons of high-grade steel, 600 tons of medium-grade steel, and 400 tons of low-grade steel
each day. The company has orders totaling 100,000 tons of high-grade steel, 150,000 tons
of medium-grade steel, and 124,500 tons of low-grade steel. How many days should the
company run each mill to minimize its costs and still fill the orders?

Mohammad Kamrul Arefin, MSc. in Quantitative Finance, University of Glasgow Page | 177

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