You are on page 1of 29

Good Evening

Welcome to the Presentation of

Applications of
Differential Calculus in
Business
Submitted to:
Mahabuba Lima
Assistant Professor,
Department of Finance,
Faculty of Business Studies,
University of Dhaka
Prepared By:
Name ID No.
Giasuddin Bulbul 25054
Muhammad Mostafizur Rahman 25059
Mohammed Riaz Uddin 27006
Nadia Talukder 27032
Muntasir Ul Huq 27081
Applications of Differential Calculus in Business
Executive Summary
 This ppt is an attempt to apply theoretical
mathematics into practical business world on the
aspect of Deferential Calculus. The most common use
of calculus is in regard to the computation of the rate
of the change in one variable with reference to an
infinitesimal variation in the other variable.
Differential calculus is a subfield of calculus concerned
with the study of the rates at which quantities change.
It deals with derivatives of functions and their
applications. Derivative of a function tells how the
value of a function changes with any change in its
input. The process of finding derivative is called
differentiation.
Executive Summary-2

 Differential Calculus helps us in finding the rate at


which one such quantity changes with respect to the
other. Marginal analysis in Economics and Commerce
is the most direct application of differential calculus.
In this context, differential calculus is used to find the
maximum profit or minimum cost etc.
Executive Summary-3
 In this report, we shall study about the total, average or
marginal functions and the optimization problems.
We will try to understand how differential calculus
helps us to analyze the marginal and minimum cost,
break-even point and maximization of profit in
different level of demand and production. By solving
some math, we will see the firm’s revenue, profit and
price at the optimum production level. Overall this
study will help us to solve some practical problem in
business where differential calculus has a crucial
function.
Objective of the Study:
On the basis of differential calculus, the specific
objectives of the report are:
 To determine the cost function, revenue function and
profit function
 To analyze the Marginal Cost, Minimum Cost, break-
even point and Maximum Profit
Broader Objectives
 To calculate the optimum production level and net or
maximum profit for a certain quantity of demand
 To find the level of output where the marginal cost
attains its minimum and determine the level of
production for maximum profit
 To see the firm’s profit and price at the optimum
production level
 To find out total and marginal revenue as well as the
variable or marginal cost at the most profitable output
The History of Differentiation

Differentiation is part of the science of Calculus, and was first


developed in the 17th century by two different Mathematicians.

Gottfried Leibniz Differentiation, or finding the


(1646-1716) instantaneous rate of change, is
an essential part of:
Germany
• Mathematics and Physics
• Chemistry
Sir Isaac Newton • Biology
(1642-1727) • Computer Science
• Engineering
England
• Navigation and Astronomy
Calculus
The word calculus stands for the method of
computation. There may be an arithmetic calculus or a
probationary calculus.
Calculus is made up of two interconnected topics,
differential calculus and integral calculus. We can look
at differential calculus as the mathematics of motion
and change. Integral calculus covers the accumulation of
quantities, such as areas under a curve. The two ideas
work inversely together as defined by the Fundamental
Theorem of Calculus.
Differential Calculus in
Business Math
In mathematics, differential calculus is a subfield of
calculus concerned with the study of the rates at which
quantities change. Differential calculus deals with
derivatives of functions and their applications.
Derivative of a function is defined as the rate of change
of a function. Derivative of a function tells how the value
of a function changes with any change in its input. The
process of finding derivative is called differentiation.
Differential Calculus in
Business Math
 For example: Rate of change of displacement i.e.
derivative of displacement of an object is called its
velocity and the rate of change of velocity i.e.
derivative of the velocity of an object is called its
acceleration.
Estimating the Instantaneous Rate of Change

The diagrams below show attempts to estimate the instantaneous


gradient (the rate of change of y with respect to x ) at the point A.

y
A A y A
x x y
x

Notice that the accuracy improves as x gets closer to zero.


The instantaneous rate of
dy y
change is written as: = as x approaches 0.
dx x
Maxima & Minima:
 We can calculate the slope in derivatives all type of
equations.
 A function can have peaks and valleys or ups and
downs. A value at which a given function reaches its
relative maximum point, is called its local maximum.
Similarly, a value at which a given function reaches its
relative minimum point, is called its local minimum.
On the other hand, global maximum is a point, where
the function reaches its highest point and global
minimum is a point where the function reaches its
lowest point.
Maxima & Minima
 A function can have more than one maximum (plural -
maxima) or minimum (plural - minima) as shown in
the figure:
How to Find Maxima or Minima?
 Following steps should be followed while finding local
maximum and local minimum for a function f(x):
 Find first derivative of the function f′(x).
 Equate it to zero and determine critical point (say "a").
Critical point is a point, where either maximum or
minimum exists.
 Calculate second derivative f′′(x).
 Evaluate f′′(a)
 If f′′(a)<0, then there is a maximum at point a.
 If f′′(a)>0, then there is a minimum at point a.
Let us consider an example on finding
maxima or minima
Practical Math in Business
Case Study 1: Differentiation
 For a unit demand function of p =24 – 8x for Walton 1
KW generator, where x is the number of power
generator in thousand and p is the price in Taka. If the
average cost per generator is Tk8 thou, find –

 i) The profit function.


 ii) The number of generators that maximize the profit
function of Walton generator.
Practical Math in Business
Case Study 1: Differentiation
Solution: (a) (i)
Given, p = 24 – 8x ii) Here profit (y) = 16x – 8x 2
dy/dx = 16 – 16x
TR = p x = (24 – 8x)x = 24x-8x 2 d2y/dx2= - 16
Also given, AC = 8 For maximum or minimum,
dy/dx = 0
TC = AC X x= 8x =>16 – 16x =0
Profit (y) = TR –TC => x=1
When x=1, then d2y/dx2 = -16
= 24x -8x 2 – 8x Which is negative.
= 16x – 8x 2 So profit function is maximum
at x=1.
which is the required profit Thus 01 thousand unit 1KW
Generator production by Walton will
function. (Ans) maximize the profit(Ans)
Practical Math in Business
Case Study 2: Differentiation
Square consumers has 250 categories of products
to sale. If they sale x categories of products then
their monthly profit in Tk., is given by,
P(x) = -8x2 + 3200x – 80,000

How many categories of products should it sale in


order to maximize their profit?
Practical Math in Business
Case Study 2: Differentiation
All that we’re really being asked to do here is to maximize
the profit subject to the constraint that x must be in the
range,
0≤x≤250
First, we’ll need the derivative and the critical point(s) that
fall in the range 0≤x≤250
Pꞌ(x) = -16x + 3200 pꞌꞌ(x) = -16
For critical points
-16x + 3200 = 0 or, x = 3200/16 = 200
pꞌꞌ(x) = -16 < 0, so the x = 200 is the maximum number
Practical Math in Business
Case Study 2: Differentiation
Since the profit function is continuous and we have an
interval with finite bounds we can find the maximum value by
simply plugging in the only critical point that we have (which
nicely enough in the range of acceptable answers) and the
end points of the range.

P (0) = -80,000 P (200) = 2,40,000 P (250) = 2,20,000

So, it looks like they will generate the most profit if they only
sale 200 of the categories of products instead of all 250 of
them.
Practical Math in Business
Case Study 3: Differentiation
A production facilities is capable of producing 60,000 lot
of Pran RFL mug each containing 10 mug in a day and
the total daily cost of producing x lot of “Mug” in a day is
given by,

C(x) = 2,50,000 + 0.08x + 20,00,00,000/x

How many lot of “Pran RFL mug” per day should they
produce in order to optimize production costs?
Practical Math in Business
Case Study 3: Differentiation

Here, the cost subject is needed to minimize to the


constraint that x must be in the range
0≤ x ≤ 60,000.

Let’s get the first couple of derivatives of the cost


function.

Cꞌ(x) = 0.08 – 20,00,00,000/x2


Cꞌꞌ(x) = 40,00,00,000/x3
Practical Math in Business
Case Study 3: Differentiation

The critical points of the cost function


0.08 – 20,00,00,000/x2 = 0
=> 0.08x2 = 20,00,00,000
=> x2 = 250,00,00,000
=> x = ±√ 250,00,00,000 = ± 50,000

but quantity can not be negative


So the possible solution is 50,000.
Practical Math in Business
Case Study 3: Differentiation
Cꞌꞌ(x) = 40,00,00,000/x3
Cꞌꞌ (50,000) = .0000032 > 0,
so, x=50,000 is the minimum value.

Now, as long as x > 0 the second derivative is


positive and so, in the range of possible solutions
the function is always concave up and so
producing 50,000 lot of “Pran RFL Mug” will yield
the absolute minimum production cost.
Conclusion
The importance of real life application of Business
Mathematics becomes more evident and prominent to
us during the work process of our report. The effective
management of a business depends to a great extent on
the manager’s or owner’s knowledge in Business
Mathematics. By applying this knowledge he/she can
easily avoid more or less future business risks, and grab
or create some opportunities of making profit.
Thank You All

You might also like