Section 11.5

Economic Applications of the Derivative

Derivatives are perfect for examining change. By their definition, they tells us how one variable changes when another variable changes. In business and economics, this allows us to examine how revenue and cost change as the quantity produced and sold changes. Marginal revenue and marginal cost help a business determine compute these changes.

Elasticity is used to determine how changes in price affect the quantity demanded by consumers. Understanding this relationship helps us to determine whether a price should be increased or decreased.

In this section we’ll examine these terms and apply them to several examples drawn from businesses operating in the real world.

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