DERIVATIVES The rate of change in the value of a function is useful in studying the behaviour of a function.

This change in y for a unit change in x is referred to as the derivating of y with respect to x. In finance and economics, the rate of change is called marginal or incremental. Rules of Differentiation : a. If f(x) = c where c = constant, then f ' (x) = 0 b. If f(x) = xn then f ' (x) = n xn-1 c. Let f(x) be a product of two functions say, g(x) and h(x) so that F(x) = g(x) * h(x) F '(x) = g '(x) h(x) + g(x) h'(x) d. If f(x) is a quotient of two functions say g(x) and h(x) so that f(x) = g(x) h(x) h(x) 0

then f'(x) = g'(x) h(x) g(x) h'(x) [h(x)]2 e. If f(x) = cg(x) then f'(x) = cg'(x) f. If f(x) = g(x) + h(x) then f'(x) = g'(x) + h'(x) Optimization : Organizations would like to maximize their profits or minimize their costs. In order to find out maximization or minimization second order derivative is used for finding out whether the solution is maximized or minimized. Step 1 : Find out the first order derivative of the function Step 2 : Equate the first order derivative with 0 and find out the solution. Step 3 : Find out the second order derivative of the function and substitute the value that has been found out from first order derivative in order to find out whether the solution is maximized or minimized. Local Maxima Local Minima f'(x) = 0 F'(x) = 0 F''(x) <0 F''(x) >0