FACULTY OF COMPUTING AND APPLIED SCIENCES SCHOOL OF APPLIED SCIENCES

“ING JULIO C. PRAYERS” MATH AND SCIENCE COORDINATION

RESEARCH TOPIC:
The derivative and its relationship with the marginal
analysis of the
costs, income and profit.

Professor: Eng. Juan Antonio Reyes Mina

Subject: Mathematics II

Section: 01
STUDENT MEAT

Silvia Marisela López de Sariles. 03-5848-2012

José Orlando Arévalo Ortiz 54-6777-2014

Maira Lissette Rodríguez Montes 54-6064-2007

Delivery date: Wednesday, September 23, 2015.

INDEX. No
 INTRODUCTION.

Derivatives in economics are a very useful tool since by their very nature they allow marginal
calculations to be carried out, that is, finding the rate of change when an additional unit is
added to the total, regardless of the economic quantity being considered: cost, income, profit or
production.

In short, the idea of introducing derivatives to economics is nothing more than the fact of
measuring the instantaneous change in the dependent variable due to a small change in the
second quantity or variable, so such a line of thought was possible since neoclassical
economics, first with Carnot, and then with León Walras, Stanley Jevons and Alfred Marshall;
That is why this analytical innovation is known as the marginalist revolution.

In fact, most or all of the cost, income, benefit or marginal production functions are those
derived from the cost, income, benefit, total production functions.
In this order of ideas without altering, the procedure is reiterated in the context of multivariate
functions.
 GOALS.
CONCEPTUAL THEORETICAL
Marginal MAP.
analysis will guide the administrator in decisions such as increasing production,
investing in resources and training workers. In addition, it is responsible for providing the
MARGINAL ANALYSIS information necessary to increase the company's performance, increasing profitability as a result
of efficiency in the management of resources and the benefits that are granted by increasing
General. some cost.

> Using partial derivatives, we will try to estimate the rates of change of an
independent variable.
The concept of marginal revenue explains how income is affected by each new unit that is
produced and sold. That is, if the expression I(x) is assigned to the income obtained by selling
x number of items, what the marginal income shows is the income obtained by selling item x +
MARGINAL ANALYSIS OF
1. To know the income obtained from the sale of unit x + 1, solve the following subtraction.
INCOME ■—

Specific.
Marginal cost The calculation of the profits of a productive activity requires, in addition to
> Find the rate of change when an additional unit is added to the total.
MARGINAL ANALYSIS OF income, production costs, which is why it is of interest to address the marginal cost. As with
THE
> The procedure is reiterated in the context of multivariate functions.
COSTS > Estimate at marginal
any time revenue, if output increases by one unit, then the increase in x is x = 1.
the levels where any function is maximized or minimized.

Marginal utility Since the derivative depends on a discrete independent variable, marginal utility is
determined in the same way as it was done with income and costs. You have to:
The marginal utility function is the derivative of the utility function: U ( x ). The result of the
derivative is an approximation to the utility obtained from the production and sale of one more unit
MARGINAL ANALYSIS OF
of a certain product.
PROFITS
Marginal income
The concept of marginal revenue explains how income is affected by each new unit that is
produced and sold. That is, if the expression I(x) is assigned to the income obtained by
selling x number of items, what the marginal income shows is the income obtained by
selling item x + 1. To know the income obtained from the sale of unit x + 1, the following
subtraction is solved: I(x + 1) – I(x) (1) What we have in the previous expression is the
income from the sale of x items increased by 1, minus the sales revenue of x items. As a
particular case, if the increase in units of items of the form x = 1 is considered, then the
increase in income I can be represented as: I = I(x + x) – I(x) = I(x + 1 ) – I(x)

The expression presented by the difference given in (1) corresponds to the rate of change
of income when production is increased by one unit. In other words, what is being said with
respect to the relationship between income and units of articles is that: I x I x( )1 I x( ) The
previous expression indicates the ratio between the increase in income I with respect to
The increase in x is equal to the difference between the income produced by the increase
of one unit and the income of unit x. Now, we have that the derivative of income I (x) is the
limit of the ratio I x when x tends to zero. What this result allows is to use the derivative of
the income function as an approximation of the income from producing and selling unit x
+1. Symbolically we have: I (x) I(x + 1) – I(x) (2) The symbol indicates that they are
approximately equal, the derivative of the income function and the difference between the
income produced by unit x plus 1 and the income of unit x. Now with the aforementioned
elements, the definition of MARGINAL INCOME is presented. The marginal revenue
function is the derivative of the income function I (x). The value obtained from this
derivative is an approximation of the true income when one more unit of a certain product
or service is sold.

Another expression of the income function As the interest of this section is to study the
applications with respect to the income function, another way of expressing it is presented,
which allows us to better see the object of study that is being addressed. In this case, the
income function is related to the demand function in the following way: I(x) = xp where p is
the unit sales price per item and x is the number of items sold. The unit sales price p is
related to the quantity x demanded of the item.
Example

In a digital calculator factory, the relationship between the unit price p in pesos and
the demand quantity x of the Tk-85 calculator is given by the equation:

p = 650 – 0.03x 0 ≤ x ≤ 25,000

a) What is the income function? b) What is the function of marginal revenue? c) Let's use
the marginal revenue function to estimate the additional revenue that will be generated by
the production and sale of unit 9,001. d) Let's use the income function to calculate exactly
the income generated by the production and sale of unit 9,001.

Solution: a) We can obtain the income function in the following way:

I(x)=xp

= x(650-0.03)

= 650x – 0.03x 2 0≤x≤25,000

b) The marginal revenue function is given by the derivative of the revenue function:

I” (x) = 650 – 0.06x

c) An approximation of the income generated by producing and selling unit 9,001 is

obtained by calculating the marginal income at 9,000:

I” (9 000) = 650 – 0.06 (9 000) = 110

This result shows the income obtained from the sale of unit 9 001, which is approximately
$110.

d) The exact income obtained by producing and selling unit 9,001 is determined by
making the following difference:

I(x+9)-1(1)=1/9007)-1/9000)

=650(9 001 )-0.03(9 001 ) 2 - 650(9 000)-0.03(9 ccoj

MARGINAL COST .

The calculation of the profits of a productive activity requires, in addition to income,

=650 - 540.03=109.97
production costs, which is why it is of interest to address the marginal cost. As in marginal
revenue, if production increases by one unit, then the increase in x is ⌂x = 1, so we have:

That is, the marginal cost C¨(x) is an approximation to the cost of producing unit x+1, that
is:

C (x) = C(x + 1) – C(x)

With the previous approaches, the marginal cost is defined as follows: The marginal cost
function is the derivative of the cost function: C” (x). The value obtained by calculating the
derivative of the cost function is an approximation of the true cost when one more unit of a
certain product is produced.

The previous statement indicates that if you want to know the cost of producing x units of
an item plus 1 unit, the way to estimate the cost of this process is by using the derivative.
Although the result is not an exact value, it corresponds to a very close approximation.

Example:

The total cost, in pesos, to produce x meters of a certain fabric is:

C(x) = 30 000 + 20x + 0.1x 2 + 0.002x 3

a) Let's find the marginal cost function.

b) Let's calculate C (100) and analyze its meaning.

c) Let's compare C (100) with the cost of manufacturing the 101st meter.

d) Calculate the absolute and relative error committed in the approximation that gives the
marginal cost.
Solution:

a) We have that the marginal cost function is the derivative of the cost function, then:

C(x) = 20 + 0.2x + 0.006x 2

b) We determine the marginal cost at 100 by evaluating the derivative of the cost function
at x =100, so we obtain the following expression:

C” (100) = 20 + 0.2(100) + 0.006(100) 2 = 100

This result is an approximation of the cost of producing the 101st meter of fabric. c) The
actual cost of manufacturing the 101st meter of fabric is equal to the cost of producing 101
meters minus the cost of producing 100 meters of fabric, that is: C(101) – C(100)

Instead of specifically calculating this value, the general expression for the manufacturing
cost of x + 1-th meter of fabric is calculated:

From the general expression we replace x with 100, and this operation allows us to obtain
the production cost of the 101st meter of fabric: C (101) – C (100) = 100.70

d) From the results obtained in b) and c), the absolute error, which is calculated with the
absolute value of the difference between the production cost of the 101st meter minus the
production cost of the 100 meters, is: |100.70 – 100| = 0.70.

To determine the relative error we use expression (3):

Marginal profits.

0.70/ 100.70 * 100%= 0.69

%
After knowing the income and cost of a productive activity, the profits obtained can be
determined. Marginal utility Since the derivative depends on a discrete independent variable,
marginal utility is determined in the same way as it was done with income and costs. You
have to:

The marginal utility function is the derivative of the utility function: U”(x). The result of the
derivative is an approximation to the utility obtained from the production and sale of one
more unit of a certain product.

Note that the definition allows us to see that the derivative of the utility function approximates
the utility obtained by producing and selling unit x + 1.

Example

A manufacturer estimates that when x number of items are produced, the total cost in
2
thousands of dollars is given by C(x) = 0.2x + 4x + 200, and that the price per unit, in
thousands of dollars, depends on the number of units produced and is given by the function
p(x) = 0.5 (100 – x). For example, if 10 units are sold, the price of each one is p(10) = 0.5
(100 – 10) = (0.5)(90) = 45, this is $45,000.

a) Let's calculate the utility function.

b) Let's determine the marginal utility function.

c) Let's calculate the utility of producing and selling the ninth unit, with the help of the
marginal utility function.

d) Let's calculate the errors made when making this approximation. Solution:

a) The utility function is obtained by subtracting costs from income, that is:

U(x) = I(x) – C(x) (5)

Since revenue is calculated by multiplying the number of units sold by the sales price, we
have to:

I(x) = xp(x) = x [0.5 (100 –

x)]
Then, the utility is given by:

U(x) = 0.5 x (100 – x) – (0.2x 2 + 4x + 200)

= – 0.7x 2 + 46x – 200

b) The marginal utility is the derivative of the utility:

U”(x) = –1.4x + 46

c) To determine the approximate utility obtained by producing the ninth unit, it is

enough to replace x by 8 in U”(x) which gives:

U” (8) = –1.4 (8) + 46 = 34.8 thousand dollars.

That is, $34,800

d) The exact profit in producing the ninth unit is given by:

U (9) – U (8) = 157.3 – 123.2 = 34.10 thousand pesos, that is, $34,100

Solved Exercises.

1- In a digital calculator factory the relationship of the unit price p in

dollars and the demand quantity x of the Tk-85 calculator is given
by the equation:

p = 650 – 0.03 x 0 x 25,000

a) What is the income function?

b) What is the function of marginal revenue?

c) Let's use the marginal revenue function to estimate the additional revenue that will be
generated by the production and sale of unit 9,001.

d) Let's use the income function to calculate exactly the income generated by the
production and sale of unit 9,001.

Solution:
C ( x ) = 20 + 0.2 x +
0.006 x 2
 a) We can obtain the income function in the following way:

I x= xp

=x(650-0.03x)

= 650x – 0.03x 2 0 x ≤ X ≤ 25,000

b) The marginal revenue function is given by the derivative of the revenue

function:

I´ (x) = 650 – 0.06x

c) An approximation of the income generated by producing and selling unit

9,001 is obtained by calculating the marginal income at 9,000:

I´ (9 000) = 650 – 0.06 (9 000) = 110

This result shows the income obtained from the sale of unit 9 001, which is approximately $110.

d) The exact income obtained by producing and selling unit 9,001 is

determined by making the following difference:

I ( x+1 ) – I(x) = I (9001) – I (9000)

= 650 (9001) – 0.03 (9001) 2 - [650 (9000) – 0.03 (9000)] 2

= 650 – 540.03 = 109.97

2- The total cost, in pesos, to produce x meters of a certain fabric is:

C ( x ) = 30,000 + 20 x + 0.1 x 2 + 0.002 x 3
a) Let's find the marginal cost function
b) Let's calculate C`(100) and analyze its meaning
c) Let's compare C (100) with the cost of manufacturing the 101st meter.
d) Calculate the absolute and relative error committed in the approximation

Solution.
a) We have that the marginal cost function is the derivative of the cost function, then:

b) We determine the marginal cost at 100 by evaluating the derivative of the cost
function at x = 100, so we obtain the following expression:
C (100) = 20 + 0.2 (100) + 0.006 (100) 2 = 100
This result is an approximation of the cost of producing the 101st meter of fabric.
 c) The actual manufacturing cost of the 101st meter of fabric is equal to the cost of
producing 101 meters minus the cost of producing 100 meters of fabric, that is:
C (101) – C (100)
Instead of specifically calculating this value, the general expression for the manufacturing
cost of x + 1-th meter of fabric is calculated

C ( x 1) C ( x ) = [ 30 000+20( x+ 1) 0.1( x+ 1) 2 + 0.002( x+ 1)3 ]

= (30 000+20x+0.1x 2 + 0.002x 3 )

= 20+0.1 [ ( x+ 1) 2 - x 2 ] + 0.002 [ ( x+ 1) 3 - x 3 ]

= 20+0.1 (2 x+ 1) + 0.002(3x 2 +3x +1)

= 20+0.2 + 0.1 + 0.006x 2 + 0.006x + 0.002
= 20.102 + 0.206x+ 0.006x 2
From the general expression we replace x with 100, and this operation allows us to obtain
the production cost of the 101st meter of fabric:

C (101) – C (100) = 100.70

d) From the results obtained in b) and c), the absolute error, which is calculated with
the absolute value of the difference between the production cost of the 101st meter
minus the production cost of the 100 meters, is:

|100.70 – 100| = 0.70.

To determine the relative error we use expression (3) :

0.70 . 100% = 0.69%

100.70

C ( x ) = 20 + 0.2 x +
0.006 x 2
 3- The total production cost of x spherical containers for soft drinks, in a bottling
company, is given by:
C ( x ) = 200 + 20 x + 0.5 x 2
a) Let's calculate the average cost function.
b) Let's determine the average marginal cost function.

Solution.
a) The average cost function, for this case, is:
C(x) 200
Cm (X) = = +20 +0.05x
x x

4- A manufacturer estimates that when x number of items are produced, the total cost
in thousands of dollars is given by C ( x ) = 0.2 x 2 + 4 x + 200, and that the price
per unit, in thousands of dollars, depends on the number of units produced and is
given by the function p ( x ) = 0.5 (100 – x ). For example, if 10 units are sold, the
price of each one is p (10) = 0.5 (100 – 10) = (0.5) (90) = 45, this is $45,000.
a) Let's calculate the utility function.
b) Let's determine the marginal utility function.
c) Let's calculate the utility of producing and selling the ninth unit, with the
help of the marginal utility function.
d) Let's calculate the errors made when making this approximation.

Solution.
a) The utility function is obtained by subtracting costs from income, that is: U ( x ) =
I(x)–C(x)
Since revenue is calculated by multiplying the number of units sold by the sales price, we
have to:

I ( x ) = xp ( x ) = x [0.5(100 – x )]

Then, the utility is given by:

U ( x ) = 0.5 x (100 – x ) – (0.2 x 2 + 4 x + 200)

= – 0.7 x 2 + 46 x – 200

b) The marginal utility is the derivative of the utility:

U ( x ) = –1.4 x +
46
c) To determine the approximate utility obtained by producing the ninth unit, simply
replace x with 8 in U ( x ), which gives:

U (8) = –1.4 (8) + 46 = 34.8 thousand dollars

That is, $34,800
e) The exact profit when producing the ninth unit is given by: U (9) –
U (8) = 157.3 – 123.2 = 34.10 thousand dollars,
That is, $34,100
The absolute error committed is:
34.8 – 34.1 = 0.7 thousand dollars
That is, $700
The relative error is:
0.70 . 100% = 2.05%
34.10
 Conclusion

Costs, income and profits reveal and maintain, in most cases, a great similarity when it
comes to a marginal analysis; similarity with controllable, avoidable, variable and
differential costs. Profit maximization, both for a firm in a perfectly competitive market and
for a monopoly, is achieved when marginal revenue is equal to marginal cost. The deflator
that reflects the prices of all goods and services produced in that reflects the prices of all
goods and services purchased by consumers, which are not necessarily produced in the
country. The most important cause of inflation is the excessive increase in the amount of
money in a country's economy.

When analyzing the income that increases from the additional order, this is something
beneficial in the case when there are profits in a short period of time that is planned. The
additional order can be covered by the idle capacity that can be used and therefore
leveraged to produce this additional quantity. The special order placed by the customer
has the same cost given the invariability of the sunk cost.
Bibliography.
http://www.zonaeconomica.com/costo-marginal
http://www.enciclopediafinanciera.com/definicion-ingreso-marginal.html
http://www.gerencie.com/utilidad-marginal.html