BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics

BBA101-Unit-III: Differential Calculus : Differentiation, Differentiation of a product of two function,

Differentiation of a quotient of two functions, Differentiation of a function of a function, Differentiation of a
logarithmic and exponential function, Differentiation of implicit function, Maxima and Minima, Simple problems.
(Trigonometrical function are excluded)

BBA(IB)102- Unit II: Differential Calculus :Functions, limits and continuity. Differentiation Derivative of a function
of one variable. Derivative of a power function. Derivative a product of two functions. Derivative of a quotient of
two functions; Derivative of a function of a function; Derivatives of Logarithmic functions. Logarithmic
Differentiation. Implicit functions. Local maxima and minima. Optimisation using calculus.
Unit III: Business applications: Derivative as a rate measure, elasticity of a function. Price elasticity of demand,
price elasticity of supply. Marginal cost and marginal revenue.

SOME IMPORTANT CONCEPTS & FORMULA

Constant Something or a value of something that does not change.
A value that does not change anywhere, anytime.
Variable Something or a value of something that changes.
It is denoted by a symbol (like x, y or z) that represents a quantity in a mathematical expression that may
change.
Independent When a change in one variable (first variable) results a change in another variable (second variable) then
Variable & first variable is known as independent variable & second variable is known as dependent variable.
Dependent Variable Practically, The "dependent variable" represents the output or effect & The "independent variables"
represent the inputs or causes.
Function A function is a relationship between dependent variable & independent variable. Generally, if “y” is
function of “x”, then we represent it as y=f(x).
Set of valid values of x for which function f is defined as called as domain of function and set of values of
y corresponding to set of domain is called as Range of function.
A function (say f) is an instruction for getting dependent variable
(say, Y) as output from independent variable (say, x) as input (or
it is a relationship between dependent variable & independent
variable).
Generally, if we say “y” is function of “x”, then this is represented
as y=f(x).
Complex functions may have more than one inputs we may have
function w=f(x,y,z) where w depends upon three independent
variables x,y, and z.

Rate Rate denotes ratio between measurements of dependent variable & measurement of independent
variable.
Rate of change Rate of change in dependent variable with respect to (wrt) a change in independent variable is ratio
between a change in dependent variable wrt a change in independent variable.
Differentiation & Differentiation is a method to compute the rate at which a dependent output y changes with respect to
Derivatives the change in the independent input x.
𝑑𝑦
This rate of change is called the derivative of y with respect to x and, we denote id by and some time
𝑑𝑥
by y’ in short.

By Pashupati Nath Verma 1

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics

SOME BASIC DERIVATIVES

1. Derivative of a constant 𝑑 𝑑
(𝑐) = 0 (3) = 0
𝑑𝑥 𝑑𝑥
2. Derivative of power 𝑑 𝑛
𝑥 = 𝑛𝑥 𝑛−1
𝑑𝑥
𝑑 1
√𝑥 =
𝑑𝑥 2 √𝑥
3. Derivative of exponential 𝑑 𝑥
𝑒 = 𝑒𝑥
𝑑𝑥
4. Derivative of constant raised 𝑑 𝑥
𝑎 = 𝑎 𝑥 𝐿𝑜𝑔𝑎
𝑑𝑥
to the power variable
5. Derivative of Logarithms 𝑑 1
𝐿𝑜𝑔𝑥 =
𝑑𝑥 𝑥
6. Derivative of a sum or 𝑑 𝑑𝑢 𝑑𝑣 𝑑 𝑑 𝑑 𝑥
(𝑢 ± 𝑣) = ± (2𝑥 2 ± 𝑒 𝑥 ) = (2𝑥 2 ) ± (𝑒 )
𝑑𝑥 𝑑𝑥 𝑑𝑥 𝑑𝑥 𝑑𝑥 𝑑𝑥
difference
7. Derivative of product 𝑑 𝑑𝑣
𝑑𝑥
(𝑐𝑣) = 𝑐
𝑑𝑥
d
(6Logx) = 6 d ( Logx) 𝑑
𝑑𝑥
(𝑒 𝑥 𝑥 2 ) =
dx dx
𝑑 𝑑𝑢 𝑑𝑣 𝑑 𝑑
(𝑢𝑣) = ( ) 𝑣 + 𝑢 ( ) 𝑒𝑥 𝑥2 + 𝑥2 𝑒𝑥
𝑑𝑥 𝑑𝑥 𝑑𝑥 𝑑𝑥 𝑑𝑥

𝑑𝑢 𝑑𝑣 𝑑 𝑑
8. Derivative of quotient ( )𝑣 − 𝑢( ) 𝑑 𝑥 (𝑥 + 1) 𝑥 − 𝑥 (𝑥 + 1)
𝑑 𝑢 𝑑𝑥 𝑑𝑥
( ) = 𝑑𝑥 𝑑𝑥
( )=
𝑑𝑥 𝑣 𝑣2 𝑑𝑥 𝑥 + 1 (𝑥 + 1)2
9. The Chain Rule if y = f(u) and u = g(x), then 𝑑 𝑑 −2 𝑑𝑢
(2𝑥 2 + 3)−2 = 𝑢 ⋅
𝑑𝑥 𝑑𝑢 𝑑𝑥
𝑦 = 𝑓(𝑔(𝑥))

𝑑𝑦 𝑑𝑦 𝑑𝑢
& = ⋅
𝑑𝑥 𝑑𝑢 𝑑𝑥

10. Derivative of Logarithmic if u is a differentiable function of x Special case:

Functions 𝑑 1 𝑑𝑢 𝑑𝑢
𝑙𝑜𝑔𝑎 𝑢 = 𝑙𝑜𝑔𝑎 𝑒 (𝑎 > 0, 𝑎 ≠ 1) 𝑑 𝑀
𝑑𝑥
𝑑𝑥 𝑢 𝑑𝑥 1. (𝑙𝑜𝑔 𝑢) = where 𝑀 = 𝑙𝑜𝑔10 𝑒 =
𝑑𝑥 𝑢

0.43429
𝑑 1 𝑑𝑢
2. 𝑙𝑛 𝑢 = ⋅
𝑑𝑥 𝑢 𝑑𝑥

11. Derivative of Exponential If u is a differentiable function of x, then Special case:

Functions 𝑑
𝑎𝑢 = 𝑎𝑢 𝑙𝑛 𝑎
𝑑𝑢
, a>0 𝑑 𝑢 𝑑𝑢
𝑑𝑥 𝑑𝑥 𝑒 = 𝑒𝑢
𝑑𝑥 𝑑𝑥
12. Derivative of Variable with 𝑦 = 𝑢𝑣 ; 𝑢 > 0; 𝑢 + 𝑣 are functions of x,
variable exponent 𝑑 𝑣 𝑑𝑢 𝑑𝑣
(𝑢 ) = 𝑣𝑢𝑣−1 + 𝑢𝑣 𝑙𝑛 𝑢
𝑑𝑥 𝑑𝑥 𝑑𝑥

By Pashupati Nath Verma 2

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
DIFFERENTIATION
Problem 1:
𝒅𝒚 13
Find in each of the following cases: a) 𝑦 = 4𝑥 5 b) 𝑦 = c) 𝑦 = 2√𝑥
𝒅𝒙 𝑥3

Solution:
𝒅𝒚 𝒅 𝒅
a. 𝒅𝒙
= 𝒅𝒙 [𝟒𝒙𝟓 ] = 𝟒 𝒅𝒙 [𝒙𝟓 ] = 𝟒 ∗ (𝟓)𝒙𝟓−𝟏 = 𝟐𝟎𝒙𝟒

𝒅𝒚 𝒅 𝟏𝟑 𝒅 𝟏 𝒅 −𝟑𝟗
b. 𝒅𝒙
= 𝒅𝒙 [ 𝒙𝟑 ] = 𝟏𝟑 𝒅𝒙 [𝒙𝟑] = 𝟏𝟑 𝒅𝒙 [𝒙−𝟑 ] = 𝟏𝟑 ∗ (−𝟑)𝒙−𝟑−𝟏 = −𝟑𝟗𝒙−𝟒 = 𝒙𝟒

𝟏 −𝟏
𝒅𝒚 𝒅 𝒅 𝒅 𝟏 𝟏
c. = [𝟐√𝒙] =𝟐 [√𝒙] =𝟐 [𝒙𝟏/𝟐 ] = 𝟐 ∗ 𝒙𝟐−𝟏 = 𝒙 𝟐 =
𝒅𝒙 𝒅𝒙 𝒅𝒙 𝒅𝒙 𝟐 √𝒙

Problem 2: Problem 3:

Problem 4:

Exercise:

By Pashupati Nath Verma 3

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
DIFFERENTIATION OF A PRODUCT OF TWO FUNCTION
FORMULA
𝒅 𝒅 𝒅
(𝒖. 𝒗) = (𝒖) × 𝒗 + 𝒖 × (𝒗)
𝒅𝒙 𝒅𝒙 𝒅𝒙
𝒅 𝒅 𝒅 𝒅
(𝒖. 𝒗. 𝒘) = (𝒖) × 𝒗 × 𝒘 + 𝒖 × (𝒗) × 𝒘 + 𝒖 × 𝒗 × (𝒘)
𝒅𝒙 𝒅𝒙 𝒅𝒙 𝒅𝒙

Illustration 1: Illustration 2:
If y=X4lof x then

Illustration 3:

Illustration 4:

By Pashupati Nath Verma 4

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
DIFFERENTIATION OF A QUOTIENT OF TWO FUNCTIONS
FORMULA
𝑑 𝑢 𝑢′𝑣 − 𝑢𝑣′
( )=
𝑑𝑥 𝑣 𝑣2

Problem 5:

Problem 6:

𝑥2 + 𝑥 + 1
𝑦=
𝑥2 − 𝑥 + 1

By Pashupati Nath Verma 5

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
Problem 7:

Problem 8:

By Pashupati Nath Verma 6

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
Problem 9:

By Pashupati Nath Verma 7

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
DERIVATIVE OF FUNCTION OF A FUNCTION - CHAIN RULE.
If y is a function of u and u is a function of x , then
𝑑𝑦 𝑑𝑦 𝑑𝑢
=
𝑑𝑥 𝑑𝑢 𝑑𝑥
If y is a function of u , u is a function of v and v is a function of x then
𝑑𝑦 𝑑𝑦 𝑑𝑢 𝑑𝑣
= 𝑑𝑢 𝑑𝑣 𝑑𝑥
𝑑𝑥
and so on
Illustration 1:
If y=Log(Log x), find first order derivative
Solution:
Let u=Log x and hence y=Log u
Then
𝑑𝑦 𝑑𝑦 𝑑𝑢 𝑑 𝑑 11 1 1 1 1
= = (𝐿𝑜𝑔 𝑢). (𝐿𝑜𝑔 𝑥) = = =
𝑑𝑥 𝑑𝑢 𝑑𝑥 𝑑𝑢 𝑑𝑥 𝑢 𝑥 𝐿𝑜𝑔 𝑥 𝑥 𝑥 𝐿𝑜𝑔 𝑥
Illustration 2:

By Pashupati Nath Verma 8

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
Illustration 3:
Illustration5 :
Differentiate
𝑒 𝑥 +𝑒 𝑥
𝐿𝑜𝑔 with respect to x
𝑒 𝑥 −𝑒 𝑥

Illustration 4:

By Pashupati Nath Verma 9

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
IMPLICIT DIFFERENTIATION:
The functions of the type y = f (x) are called explicit functions. The functions of the form f ( x,y) = c where c is constant are called
implicit functions.
Illustrations:

By Pashupati Nath Verma 10

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
Problem 1:
𝑑𝑦
Find 𝑑𝑥 for 𝑥 2 + 𝑥𝑦 + 𝑦 2 = 8,
Solution: Differentiating wrt x
𝑑 2 𝑑 𝑑 2 𝑑
(𝑥 ) + (𝑥𝑦) + (𝑦 ) = (8)
𝑑𝑥 𝑑𝑥 𝑑𝑥 𝑑𝑥
𝑑𝑦 𝑑𝑦
2𝑥 + 𝑦 + 𝑥 + 2𝑦 =0
𝑑𝑥 𝑑𝑥
𝑑𝑦
(𝑥 + 2𝑦) = −2𝑥 − 𝑦
𝑑𝑥
𝑑𝑦 −2𝑥−𝑦
= (Then one can calculate the value of the derivative at a given point by plugging in the x and y values at that
𝑑𝑥 𝑥+2𝑦
point.)

Problem 2:
𝑑𝑦
Find 𝑑𝑥 𝑓𝑜𝑟 𝒙𝟐 + 𝒚𝟐 − 𝟑𝒙 + 𝟒𝒚 = 𝟔
Solution
dy dy
Differentiating implicitly: 2x + 2y −3+4 =0
dx dx
dy
( 2 y + 4 ) dx = 3 − 2 x
dy 3−2x
=
dx 2y + 4
Problem 3:

By Pashupati Nath Verma 11

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics

DETERMINING MAXIMA & MINIMA

A stationary point of a function f(x) is a point where the derivative of f(x) is equal to 0. These points are called “stationary” because
at these points the function is neither increasing nor decreasing. Graphically, this corresponds to points on the graph of f(x) where
the tangent to the curve is a horizontal line.
To find the coordinates of maximum/ minimum points on a curve y=f(x):
𝑑𝑦
1) Differentiate y wrt x & find
𝑑𝑥
𝑑𝑦
2) Put = 0 and solve it for value of x.
𝑑𝑥

𝑑𝑦 𝑑2𝑦
3) Again differentiate wrt x and find at the values of x obtained
𝑑𝑥 𝑑2𝑥
in previous step

𝑑2𝑦
4) Y will be maximum at a value of x=a if < 0 at x=a
𝑑𝑥 2

𝑑2𝑦
Y will be minimum at a value of x=a if > 0 at x=a
𝑑𝑥 2
1 1
Problem 1: Find the maxima and minima of the 𝑦 = 4 𝑥 4 − 3 𝑥 3 − 6𝑥 2 + 3
Solution: For Maxima or minima
𝑑𝑦
𝑦′ = =0
𝑑𝑥
𝑑 1 4 1 3
( 𝑥 − 𝑥 − 6𝑥 2 + 3) = 0
𝑑𝑥 4 3

𝑥 3 + 𝑥 2 − 12𝑥 = 0
𝑥(𝑥 2 + 𝑥 − 12) = 0
𝑥(𝑥 + 4)(𝑥 − 3) = 0
Therefore maxima/minima will exists at either of the one point x=0, 3, and -4
To check the maxima/minima 2nd order derivative is requires, which would be
𝑑2 𝑦
𝑦 ′′ = 2 = 3𝑥 2 + 2𝑥 − 12
𝑑𝑥
Now
1. at x=0 y’’=-12<0 hence y is maximum at x=0 and at this point y=3

2. at x=3 y’’=3*3*3+2*3-12=21>0 hence y is minimum at x=3 and at this point

1 1 87
𝑦 = × 34 − × 33 − 6 × 32 + 3 = −
4 3 4

3. at x=-4 y’’=3(-4)(-4)+2(-4)-12=28>0 hence y is minimum, also, at x=-4 and at this point

1 1 −151
𝑦 = (−4)4 − (−4)3 − 6 × (−4)2 + 3 = −
4 3 3
Problem 2: Find the maximum and minimum value of 2x3 - 24x +107.
Solution:
Let y=2x3-24x+107

For Local maxim or minima y’=0 => 6x2-24=0 => x=+2, -2

Therefore maxima/minima exists at either of the two points x=+2, -2

To check the maxima/minima 2nd order derivative is requires, which would be

y’’=12x
Now
at x=2 y’’=24>0 hence y is minimum at x=2 and at this point y=2(2)3-24(2)+107=75
at x=-2 y’’=-24<0 hence y is maximum at x=-2 and at this point y= 2(-2)3-24(-2)+139

By Pashupati Nath Verma 12

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics

APPLICATION OF MAXIMA & MINIMA IN BUSINESS

𝑝 𝑑𝑥
Demand Function x=x(p) Elasticity of Demand 𝜂 =
𝑥 𝑑𝑝
𝑑𝐶 𝐶(𝑥)
Cost Function C=C(x) Marginal Cost 𝑀𝐶 = 𝑑𝑥 Average Cost AC= 𝑥
𝑑𝑅 𝑅(𝑥)
Revenue Function R=R(x) Marginal Revenue𝑀𝑅 = 𝑑𝑥 Average Revenue AR= 𝑥
𝑑𝑃 𝑃(𝑥)
Profit Function P=P(x) Marginal Profit 𝑀𝑃 = Average Profit AP=
𝑑𝑥 𝑥
As Profit Function = Revenue Function - Cost Function
𝑑𝑃 𝑑𝑅 𝑑𝐶 𝑑2 𝑃 𝑑2 𝑅 𝑑2 𝐶
𝑀𝑃 = 𝑑𝑥 = 𝑑𝑥 − 𝑑𝑥 & 𝑑𝑥 2 = 𝑑𝑥 2 − 𝑑𝑥 2 < 0 if
Thus for profit maximization MR=MC and Slope of MR Curve< Slope of MC Curve

𝑝𝐵 𝜕𝑥
Cross -elasticity of demand, 𝜂𝑐 =
𝑥 𝜕𝑝𝐵
Where pB= Original price of product B

By Pashupati Nath Verma 13

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics

Example 5: A manufacturer produces x units per day at a total cost of Rs. (x3-3x2+15x+9). Find at what level the average
variable cost and the marginal cost are at their respective minimum?
Solution:
Let us assume that C(x) be the total cost of producing x unit per day in rupees, then C(x) = x3-3x2+15x+9
From above expression
Total Variable Cost, TVC(x) = x3-3x2+15x

Average Variable Cost AVC(x) =TVC(x)/x=(x3-3x2+15x)/x= x2-3x+15

𝑑𝐶
Marginal Cost MC(x) =𝑑𝑥 = 3x2-6x+15

Finding level for minimizing AVC:

𝑑
AVC will be minimum/maximum for AVC’=0 => (x2-3x+15)=0 =>2x-3=0 =>x=3/2
𝑑𝑥
To check whether AVC is minimum or maximum we have to check value of AVC’’ at x=3/2
𝑑
AVC’’=𝑑𝑥 (2𝑥 − 3) = 2
Thus at x=3/2, AVC’’=2>0 hence AVC is minimum at x=3/2
And Minimum AVC=(3/2)2-3(3/2)+15=2.25-4.5+15=12.25

Finding level for minimizing MC:

𝑑
MC will be minimum/maximum for MC’=0 => 𝑑𝑥 (3x2-6x+15)=0 =>6x-6=0 =>x=1
To check whether MC is minimum or maximum we have to check value of MC’’ at x=1
𝑑
MC’’= (6𝑥 − 6) = 6
𝑑𝑥
Thus at x=1, MC’’=6>0 hence MC is minimum at x=1
And Minimum MC=3(1)2-6(1)+15=12

By Pashupati Nath Verma 14

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
EXAMPLE 6: You are a manager of a monopoly; your demand and cost functions are given by P = 200 - 2Q and C(Q) = 2,000 + 3Q^2
respectively.
a. What price-quantity combination maximizes your firm’s profits?
b. Calculate the maximum profits.
c. Is demand elastic, inelastic, or unit elastic at the profit-maximizing price-quantity combination?
d. What price-quantity combination maximizes revenues?
e. Calculate the maximum revenues.
f. Is demand elastic, inelastic, or unit elastic at the revenue-maximizing price-quantity combination? SHOW ALL
CALCULATIONS.
SOLUTION
Given P = 200 - 2Q and C(Q) = 2,000 + 3Q2
Now, we can derive the
𝑑𝐶
Marginal Cost, 𝑀𝐶 = = d(2000 + 3Q2 )/dQ = 6Q
𝑑𝑄
⟹MC=6Q❶
Revenue, Revenue(Q)=P x Q =(200-2Q) x Q = 200Q - 2Q2
⟹R(Q)=200Q- 2Q2❷
𝑑𝑅
Marginal Revenue 𝑀𝑅 = = 200 − 4𝑄
𝑑𝑄
⟹MR=200-4Q❸
Profit Profit (Q)=Revenue(Q) – Cost(Q)
= (200Q - 2Q2)– (2000 + 3Q2)
=- 5Q2 + 200Q – 2000
2
⟹Profit (Q) =- 5Q + 200Q – 2000❹
𝑑𝑄 𝑃 𝑑 𝑃−200 𝑃 𝑃 200−2𝑄 200
Demand Elasticity, 𝑒= = ( ) =− =− = 2−
𝑑𝑃 𝑄 𝑑𝑃 2 𝑄 𝑄 𝑄 𝑄
⟹ e=2-(200/Q)❺
(a)
For profit maximization two conditions must be satisfied:
1. MR=MC and
2. Slope of MR Curve< Slope of MC Curve at this level of
production.
For MR=MC, we must have 200-4Q=6Q ⟹200=6Q+4Q ⟹Q=20 (Using ❶ & ❸)
Let us Check Slope of MR & MC at Q=20
Slope of MR=d(MR)/dQ=d(200-4Q)/dQ=-4
Slope of MC=d(MC)/dQ=d(6Q)/dQ=6
So, Slope of MR curve<Slope of MC curve at Q=20
Thus, profit will be maximum for Q=20 and Price at Q 20 will be given by P=200-2Q=200-2x20=160.
At Price=160 & Quantity=20 profit will be maximum.
(b) Maximum Profit=- 5Q2 + 200Q – 2000 = 5x202+200x20-2000=4000 Using ❹

𝑑𝑄 𝑃 𝑑 𝑃−200 𝑃 𝑃 200−2𝑄 100

(c) Demand Elasticity, 𝑒 = = ( ) =− =− = 1− Using ❺
𝑑𝑃 𝑄 𝑑𝑃 2 𝑄 2𝑄 2𝑄 𝑄
At Q=20 Demand elasticity=1-(100/20) =1-5=-4
Ignoring sign, we have e>1hence demand is relatively elastic demand at this level.

(d) Revenue will be maximum at MR=0, using ❶⟹200-4Q=0⟹Q=200/4=50, ⟹ Quantity to maximize revenue=50

(e) And, at quantity=50 price will P=200-2Q=200-2x50=100⟹At price=100 & quantity=50 revenue will be maximum.

(f) Using ❷, Maximum Revenue=200Q- 2Q2 (at Q=50) =200x50-2x502=5000

(g) Using ❺, elasticity at Q=50 for revenue maximization, e=2-(200/Q) =2-(200/50) =-4,

Ignoring sign, we have e>1hence demand is relatively elastic demand at this level.

By Pashupati Nath Verma 15

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
EXAMPLE 7: A monopolist has demand, marginal revenue, total cost, and marginal cost curves given by: Q demanded = 1000 – 2P
MR = 500 – Q TC = 5,000 + 50Q MC = 50. Find profit-maximizing output level and profit amount for this firm.
SOLUTION:
Given that Demand Q=1000-2P
MR=500-Q
TC=5000+50Q
MC=50

Profit maximization condition in monopoly is MR=MC ⟹ 500-Q=50 ⟹ Q=500-50 ⟹ Q=450 ⟹ Profit-max Q=450 units

At Profit-max Q=450, Demand Q=1000-2P gives, 450=1000-2P ⟹ 2P=1000-450 ⟹ P=550/2 ⟹ P=275 ⟹ Profit-max P=$275
Now as Profit =TR-TC ⟹ Profit=PQ-(5000+50Q)

So, at profit-max Q=450 units and profit-max P=$275 ⟹ Profit=275x450-(5000+50x450) ⟹ Profit=123750-(5000+22500)

⟹ Profit=96250 ⟹ Profit=$96250
Hence,
Profit-max Q=450 units, Profit-max P=$275, and Profit=$96250

Example 8: For Total product q = 5L2 – (1/3) L3.

a. At what level of L do diminishing marginal returns begin? Show your derivation.
b. At what level of L do diminishing returns begin? Show your derivation.
c. At what level of L does the marginal product of labor equal the average product of labor? Show your derivation.
Solution:
a. At what level of L do diminishing marginal returns begin? Show your derivation.
Derivation & Result: Marginal
Total product q = 5L2 – (1/3) L3. . product
Marginal Product of Labor
𝑑𝑞
𝑀𝑃𝐿 = = 10𝐿 − 𝐿2
𝑑𝐿
MPL will start decreasing after attaining to its maximum; thus, diminishing
marginal returns will begin after attaining its maximum.
As
𝑑 2 𝑀𝑃𝐿
= −2 < 0
𝑑𝐿2
Hence, MP will be maximum at
𝑑𝑀𝑃𝐿
= 0 ⟹ 10 − 2𝐿 = 0 ⟹ 𝐿 = 5
𝑑𝐿
Thus, at L=5, diminishing marginal returns will begin.

b. At what level of L do diminishing returns begin? Show your derivation.

Derivation & Result:
Total product q = 5L2 – (1/3) L3. .
TP(q) will start decreasing after attaining to its maximum; thus, diminishing
returns will begin after attaining its maximum.
As
𝑑𝑞 𝑑2𝑞
= 10𝐿 − 𝐿2 𝑎𝑛𝑑 = −2𝐿
𝑑𝐿 𝑑𝐿2
2
Thus, the TP (q) will be maximum at 10L-L =0.
This gives L=10 to maximize q (Note that at L=0 second derivative will not be negative hence q will not be maximized at L=0)
Hence, after L=10, returns will start diminishing.
c. At what level of L does the marginal product of labor equal the average product of labor? Show your derivation.
Derivation & Result:
𝑑𝑞
Marginal Product of Labor, 𝑀𝑃𝐿 = = 10𝐿 − 𝐿2
𝑑𝐿
𝑞 5𝐿2 −(1⁄3)𝐿3
Average product of labor, 𝐴𝑃𝐿 = = = 5𝐿 − (1⁄3)𝐿2
𝐿 𝐿
For MPL=APL
10𝐿 − 𝐿2 = 5𝐿 − (1⁄3)𝐿2
5𝐿 − (2⁄3)𝐿2 = 0
𝐿{5 − (2⁄3)𝐿} = 0
This gives L=15/2 (Note that L=o is infeasible so omit this.)

By Pashupati Nath Verma 16

 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
At L=7.5 the marginal product of labor equals the average product of labor.

EXAMPLE 9: A manufacturer of a computer workstations gathered average monthly sales figures from its 56 branch offices and
dealerships across the country and estimated the following demand for its products:
Q = +15000 + 2.80 P + 150 A + 0.3 Ppc + 0.35 Pm +0.2 Pc
(5,234) (1.29) (175) (0.12) (0.17) (0.13) R2 = 0.68 SEE = 786 F = 21.25
The Variables are assumed values are Q = Quantity
P = Price of basic model = 7,000
A = Advertising expenditures in thousands = 52
Ppc = Average price of a personal computer = 4,000
Pm = Average price of mini computer = 15,000
Pc = Average price of leading competitor workstations = 8,000
a. Compute the elasticity for each of the variables.
b. On this basis discuss the relative impact that each variable has on the demand. What implications do the results have for
the firms marketing and pricing policies?
SOLUTION
(a)
Elasticity of demand is calculated using specified formula
Elasticity= (IV/Q)(dQ/dIV)
Where Q is demand function and IV is some demand determinant; dQ/dIV is first derivative of demand function with respect to
determinant. Since our demand function is linear hence coefficient of each IVs in demand function will be first derivatives of demand
function with respect to that variable. ( e.g. first derivative of demand function Q with respect to price P will be (-42) i.e. dQ/dP=-42)

Value of IVs are given. Q can be calculated by putting these values of IVs in demand function and this gives Q=50450.
Now, here we have 5 independent variables as determinant of demand, elasticity of demand for each of the variable is calculated in
tabular form for compact presentation.
CALCULATION OF ELASTICITY
1 2 3 4=2/3 5 6=4*5

Independent Values of Elasticity wrt

Dependent Variable (Demand Function Q) IV/Q dQ/dIV
Variable (IV) IVs IV=(IV/Q)* dQ/dIV
P=Price of P/Q (P/Q)*( dQ/dP )
P=7,000 dQ/dP =2.80
basic model =0.13875124 =0.38850347
A=Advertising
A/Q (A/Q)*( dQ/dA )
expenditures A = 52 dQ/dA = 150
=0.00103072 =0.15460852
in thousands
Ppc=Average
price of a Q = +15000+2.80*P+150*A+0.3*Ppc +0.35*Pm+0.2*Pc Ppc/Q (Ppc/Q)*(dQ/dPpc )
Ppc=4,000 dQ/dPpc= 0.3
personal Q=+15000+2.80*7000+150*52+0.3*4000+0.35*15000+0.2*8000 =0.07928642 =0.02378593
computer Q=50450
Pm=Average
Pm/Q dQ/dPm = (Pm/Q)*( dQ/dPm )
price of mini Pm=15000 Q=50450
=0.29732408 0.35 =0.10406343
computer
Pc=Average
price of
Pc/Q (Pc/Q)*( dQ/dPc )
leading Pc=8000 dQ/dPc = 0.2
=0.15857284 =0.03171457
competitor
workstations
(b)
Interpretation of various elasticities
Elasticity(e)
Independent Variable (IV) Interpretation
wrt IV

P=Price of basic model 0.38850347 eP<1; thus, product demand is price inelastic, total revenue will increase with increase in price.
A=Advertising expenditures in eA =0.155<1 means demand is relatively inelastic but a 10% increase in advertising will result in a 1.55 %
0.15460852
thousands increase in demand of the product.
Ppc=Average price of a personal ePpc=0.024<1 shows demand is relatively inelastic elastic and a rise of 10% in price of personal computer
0.02378593
computer will result in 0.2 % increase in demand
Pm=Average price of mini ePm0.104<1. Demand is relatively inelastic so rise in average price of mini computer by 10% would result a
0.10406343
computer 1.04% increase in demand.
Pc=Average price of leading ePc.031<1 indicates a 10% increase in Average price of leading competitor workstations will result in an
0.03171457
competitor workstations increase in demand by less than 0.31 %
Refer above table, as demand is relatively elastics wrt income so and in recession income of individuals go down so a recession would
hit the sales.
By Pashupati Nath Verma 17
 BBA101-Unit-III/ BBA(IB)102-Unit-II & Unit III: Business Mathematics
EXAMPLE 10: For most products, higher prices result in a decreased demand, whereas lower prices result in an increased demand. Let
D = annual demand for a product in units P = prices per unit. Assume that a firm accepts the following price-demand relationship as
being realistic: D = 800-10P, where P must be between $20 and $70.
a. How many units can the firm sell at the $20 per-unit prices? At the $70 per unit price?
b. Show the mathematical model for the total revenue (TR), which is the annual demand multiplied by the unit price.
c. Based on other considerations, the firm’s management will only consider price alternatives of $30, $40, and $50. Use
your model from part (b) to determine the price alternative that will maximize the total revenue.
d. What are the expected annual demand and the total revenue corresponding to your recommended price?
SOLUTION:
DEMAND FUNCTION: D=800 – 10P 20≤P≤70
(a) Sales at the P=$20 per-unit prices
D=800-10*20=600 units
Sales at the P=$70 per-unit prices
D=800-10*70=100 units
(b)
Mathematical model for revenue:
Revenue(R) =Price X Quantity Sold
=P X(800-10P) 20≤P≤70
=800P-10P2 20≤P≤70
REVENUE MODEL: R=800P-10P2 20≤P≤70

(C)
Since, demand function beyond 20≤P≤70 IS unknown so above revenue is valid within this range. But if we believe that the same
demand function is applicable for other prices too, The revenue for $30, $40, and $50 would be as follows:

Revenue at P=$30
Revenue, R =800*30-10(30)^2
=$15000
Revenue at P=$40
Revenue, R =800*40-10(40)^2
=$16000
Revenue at P=$50
Revenue, R =800*50-10(50)^2
=$15000
Price alternative that maximizes the total revenue:
Revenue, R=800P-10P2
Revenue will be maximum at the point where dR/dP=0 and d 2R/dP2<0
dR/dP=0
⟹ d(800P-10P2)/dP=0
⟹ 800-20P=0
⟹ P=800/20=40
Let us check d2R/dP2 at P=40
d2R/dP2=800>0
Hence, Revenue will be maximum at P=$40 per unit

(d)
Expected annual demand and the total revenue at P=$40 per unit
Demand at P=$40 per unit
Demand, D =800 – 10*40
=400 Units
Revenue at P=$40
Total Revenue, R =800*40-10(40)^2
=$16000

By Pashupati Nath Verma 18