MANAGERIAL ECONOMICS ASSIGNMENT 1

DEBASISH NANDA, ROLL: 13202134

We have learnt in calculus that when 'y' is a function of 'x', the derivative of y w.r.to x i.e.(dy/dx)
measures the instantaneous rate of change of y with respect to x.
BASIC FUNCTIONS-
1. Cost Function
The total cost C of producing and marketing x units of a product depends upon the number of
units (x). So the function relating C and x is called Cost-function and is written as C = C (x).
The total cost of producing x units of the product consists of two parts
(i) Fixed Cost
(ii) Variable Cost i.e. C (x) = F + V (x)
Fixed Cost : The fixed cost consists of all types of costs which do not change with the level of
production. For example, the rent of the premises, the insurance, taxes, etc.
Variable Cost : The variable cost is the sum of all costs that are dependent on the level of
production. For example, the cost of material, labour cost, cost of packaging, etc.
2. Demand Function
An equation that relates price per unit and quantity demanded at that price is called a demand
function.
If 'p' is the price per unit of a certain product and x is the number of units demanded, then we
can write the demand function as x = f(p)
or p = g (x) i.e., price (p) expressed as a function of x.
3. Revenue function
If x is the number of units of certain product sold at a rate of Rs. 'p' per unit, then the amount
derived from the sale of x units of a product is the total revenue. Thus, if R represents the total
revenue from x units of the product at the rate of Rs. 'p' per unit then
R= p.x is the total revenue
Thus, the Revenue function R (x) = p.x. = x .p (x)
4. Profit Function
The profit is calculated by subtracting the total cost from the total revenue obtained by selling x
units of a product. Thus, if P (x) is the profit function, then
P(x) = R(x) - C(x)
5 Break-Even Point.
Break even point is that value of x (number of units of the product sold) for which there is no
profit or loss. i.e. At Break-Even point P (x ) = 0
or R ( x)- = C(x ) 0 i.e. R ( x) = (x)
6. Average and Marginal Functions
If two quantities x and y are related as y = f (x), then the average function may be defined
as f(x)/x and the marginal function is the instantaneous rate of change of y with respect to x. i.e.
Marginal function is dy/dx or d/dx(f(x))
Average Cost : Let C = C(x) be the total cost of producing and selling x units of a product,
then the average cost (AC) is defined as AC=c/x.
Thus, the average cost represents per unit cost.
Marginal Cost : Let C = C(x) be the total cost of producing x units of a product, then the
marginal cost (MC), is defined to be the rale of change of C (x) with respect to x. Thus
MC=dc/dx or d/dx(c(x))
Marginal cost is interpreted as the approximate cost of one additional unit of output.
For example, if the cost function is 2 C = + 0.2x 5 , then the marginal cost is MC = 0.4x
\ The marginal cost when 5 units are produced is
[MC]
x=5
=(0.4)(5)=2 i.e. when production is increased from 5 units to 6, then the cost of additional unit is
approximately
Rs. 2.
However, the actual cost of producing one more unit after 5 units is C(6) - = C(5) Rs. 2.2