Applications of Differentiation

APPLICATIONS OF DIFFERENTIATION

Introduction

Modern economic theory is based on both differential and integral calculus. In economics, differential calculus is used to compute marginal cost, marginal revenue, maxima and minima, elasticities, partial elasticities and also enabling economists to predict maximum profit (or) minimum loss in a specific condition. In this chapter, we will study about some important concepts and applications of differentiation in business and economics.

Euler’s theorem in Economics

If factors of production function are paid as factors times of their marginal productivities, then the total factor payment is equal to the degree of homogeneity times the production function.