Sam Chang

Period 3
Calculus Applications in Business
As much as a student may hope to leave behind the high school AP calculus
course that plagued her so to pursue the field of business, one more commonly associated
with suits and briefcases rather than calculators and graph paper, she will never be able to
elude calculus and its applications. Math is everywhere, but it is especially prevalent in
the area of business; not only do colleges offer business mathematics, with business
calculus as one of the most popular courses, but graduates with math and science degrees
are shown to pioneer todays leading companies and corporations in greater proportions.
The two primary branches of calculus are differential calculus and integral
calculus. The first component studies the variation of a function respective to changes in
the variables. The derivative measures the change of a function with respect to a change
in its input; at a chosen value of input, the derivative depicts the linear approximation of
the function near the value. It can be applied to deal with optimization, stock market
curves, and other utilities valuable to a businesss success.
Optimization in the regular sense of the word is the use of
something at its most effective and advantageous state. To reach the
optimal condition of anything, it must be fully exhausted to either its
minimum or its maximum. Business-minded people seek to fully
optimize resources to achieve maximum sales, to optimize operations
to achieve maximum revenue and minimum costs, and to optimize
opportunities. Thus, applications of derivatives are indispensable in the

business world. The maximums and minimums of the curve of a

function have the slope of 0, so the derivative of the equation is set
equal to 0 to determine the input at the functions optimal state. For
example, in the case of an apartment complex company, a function
can be determined to find out the amount of money produced by the
number of apartment buildings sold, an equation of a simple
relationship. Keeping in mind the domain (the number of apartments
actually available), the functions derivative reveals the critical points
that can be determined to be absolute maximums, absolute
minimums, or neither with the reinsertion of the values into the original
function. The use of derivatives and their role in optimization reveals
that the maximum profit does not necessarily come from renting out
all the apartment buildings, as maintenance costs and other variables
need to be considered. Consequently, the analysis from the derivative
equations alerts the business owners to finding a means of raising rent
costs or lowering maintenance costs to get maximum profit to full
resource capacity. The economic principle of marginal analysis is
beneficial to break-even analysis and profit maximization. The profitmaximizing quantity of output is achieved at the point where marginal
cost, the extra cost of production of a single unit of output, and
marginal revenue, the extra revenue generated by the sale of an
additional unit of product, are equal. The marginal revenue is formally
defined as the change in total revenue over the change in one unit of

quantity and can be represented as a derivative. The total revenue is

equal to the price demanded multiplied by the quantity, so through the
product rule the marginal revenue is equal to the price demanded plus
the quantity times the derivative of the price demanded. With this
information, the owners of a firm can ascertain the profit-maximizing
quantity based on its role as a monopoly or a competitive firm and to
efficiently organize its factors of production and exercise specialization.
Because the derivative gives the slope of a curve, it can be
applied to the curves commonly utilized in the business conference
room: revenue and cost curves and stock market curves. A graph of a
firms total revenue for a period of time depicts changes in total
revenue while that of the cost depicts changes in costs with relation to
the level of output. The slope of the curve at a single value is
determined by the functions derivative, and it can be used to
determine an increase or decrease in sales and projections for the
future. The attainment of slopes and instantaneous rates of change
can be used for stock market curves as well. The price history curve for
a firm or corporation reveals the price of its shares at different points in
time, and the slope at a specific point indicates growth or decline,
further denoting the potential future success or failure of a business.
The same concept works for other curves relevant in the business
arena, such as yield curves, which capture the overall movement of interest rates on

bonds of different maturities. Curves can be evaluated by the important differential

calculus applications.
Business calculus can be applied to determine the equation and
graphical shape of a total cost curve, a functions derivative, and other
aspects necessary or convenient for a business to know. In addition to
measuring a functions change with respect to that of its input, a
derivative is also a financial instrument that plays a role in the stock
market. It is derived from an underlying asset, which is usually an
asset, event, index, or value. With the purchase of a stock comes the
ownership of a small part of the company, an ownership that provides
an intrinsic value. Derivatives traders over time exchange cash or
assets based upon the underlying asset, and they can inflate stock
values and increase their ostensible values.
No matter which occupational field a student is interested in,
calculus and mathematics in general will play a role, apparent or
implicit, in its success. So instead of hoping to leave that calculus class
and dismissing its teachings, one must embrace calculus
wholeheartedly. To have a competency in mathematics is to be armed
with the proper tools to thrive in any field.

BIBLIOGRAPHY

Business Applications. 17 Sept 2008. Pauls Online Math Notes. 25 Oct 2009
<http://tutorial.math.lamar.edu/Classes/CalcI/BusinessApps.aspx>.
Clayton, Gary E. Economics principles & practices. New York: Glencoe/McGraw-Hill,
2003.
Derivative. 2004. The Financial Dictionary. 25 Oct 2009 <http://financialdictionary.thefreedictionary.com/Derivative+calculus>.
Lane, Margaret. Interview. 25 Oct 2009.
Lau, Jeffrey. Total Revenue and Elasticity. 30 Jun 1998. University of Hawaii. 24 Oct
2009 <http://www2.hawaii.edu/~rpeterso/demand.htm>.
Tatum, Malcolm. What is a Derivatives Market? 11 Sept 2009. Wise Geek. 23 Oct
2009 <http://www.wisegeek.com/what-is-a-derivative-market.htm>.
Wagner, Hans. Bond Yield Curve and the Stock Market. 25 May 2009. Daily Markets.
23 Oct 2009 <http://www.dailymarkets.com/stocks/2009/05/24/bond-yield-curveand-the-stock-market/>.