Sensitivity to Change

When a small change in x produces a large change in the

value of a function f(x), we say that the function is relatively
sensitive to changes in x. The derivative f’(x) is a measure of
this sensitivity.
Derivatives in Economics
Economists have a specialized vocabulary for rates of change and
derivatives. They call them marginals. In a manufacturing operation,
the cost of production c(x) is a function of x, the number of units
produced. The marginal cost of production is the rate of change of
dc
cost with respect to the level of production, so it is .
dx
Sometimes the marginal cost of production is loosely defined to be
the extra cost of producing one more unit.
Basic Vocabulary
 x is # of units produced or sold
 P is the price per unit
 R is the total revenue from selling x units R = xP
 C is the total cost of producing x units
 C is the average cost per unit C ( x)
C
x
 P is the total profit from selling x units
P = R - C ( need to read P in context)
 The break-even point is the number of units for which
R=C
Marginals
dR
 Marginal Revenue (extra revenue from selling one additional item.)
dx
dC
 Marginal Cost (extra cost of producing one additional item.)
dx
dP
 Marginal Profit (extra profit from selling one additional item.)
dx
Connection to Derivatives
 Let C(x) represent the dollars needed to produce x
tons of steel in one week.
 To produce h additional tons it would cost C(x+h)
 The average cost of producing each additional ton
would be

C ( x  h)  C ( x) C ( x  h)  C ( x)

( x  h)  x h
Marginal Cost
 The limit as h approaches zero is the marginal cost of
producing more steel per week when the current
production level is x tons

dC C ( x  h)  C ( x )
 lim
dx h0 h
Marginal Cost
 Marginal Cost is sometimes defined to be the cost of
producing one additional item
C ( x  1)  C ( x)
1

 For large values of x ,

dC
 C ( x  1)  C ( x)
dx
Example Derivatives in Economics
Suppose that the dollar cost of producing x washing machines
is c  x   2000  100 x  0.1x 2 .
Find the marginal cost of producing 100 washing machines.

d
The marginal cost is c  x  
dx
 2000  100 x  0.1x 2  100  0.2 x

The marginal cost of producing 100 machines is 100  0.2 100   $80

The actual cost of producing one more machine is found by

computing C(101) – C(100).
What is that value?
Find the average cost per unit and the marginal
cost when 1,000 units are produced if the cost function
is
C ( x)  8300  3.25 x  40 3 x
The total cost of producing and selling n units of
a certain commodity per week is given by
n2
C (n)  1000 
1200
Find the average cost and marginal cost when
800 units are produced.
 x2
P( x)  20  4 x  , x0
3
P(x) is the price of a single item when x items are
Manufactured. Find the Revenue function and the
Marginal revenue function.

When is the Revenue increasing?

For what x is the marginal revenue a maximum?