Bangladesh Islami University

Assignment No-01

Course Title : Advanced Mathematics for Business Decision

Course Code : GED -041 225

Topic : Applications of Integral Calculus in Business

Submitted by

Name : Jahedul Islam

Program : BBA

Batch : 53rd

ID No : BBARM53233003
Applications of Integral Calculus in Business
Integral calculus plays a crucial role in various areas of business, particularly where continuous
change and accumulation are involved. Businesses use it to analyze and optimize costs, revenues,
profits, and other economic indicators. Below are the key applications with explanations:

1. Revenue and Cost Analysis

In business, companies often deal with marginal cost and marginal revenue, which represent the
rate at which costs and revenues change with each additional unit produced or sold. These are
expressed as derivatives. To find the total cost or total revenue, businesses use integral calculus
to accumulate these marginal values over a range of output.

For example, if the marginal cost function is C′(x)C'(x)C′(x), where xxx is the number of units
produced, the total cost function C(x)C(x)C(x) is found by integrating:

C(x)=∫C′(x) dx+C0C(x) = \int C'(x) \, dx + C_0C(x)=∫C′(x)dx+C0

where C0C_0C0 is the fixed cost (initial cost at zero production).

This allows businesses to forecast expenses or revenues at different levels of output, aiding in
better financial planning.

2. Profit Analysis and Maximization

Profit is calculated as the difference between revenue and cost:

P(x)=R(x)−C(x)P(x) = R(x) - C(x)P(x)=R(x)−C(x)

By integrating marginal revenue and marginal cost functions, businesses can derive total revenue
and total cost, and thus calculate total profit. Additionally, using derivatives and integrals
together helps determine:

 Where profit is maximized (when marginal profit P′(x)=0P'(x) = 0P′(x)=0),

 The exact profit earned over a given production interval,
 Whether increasing production will result in gains or losses.

Integral calculus enables the accurate analysis of long-term profitability rather than relying only
on short-term estimates.
3. Consumer and Producer Surplus

In economics, consumer surplus is the difference between what consumers are willing to pay
and what they actually pay. Producer surplus is the difference between what producers are paid
and the minimum they are willing to accept. These are represented as areas under curves in
supply and demand diagrams.

 Consumer surplus:

CS=∫0QD(x) dx−P⋅Q\text{CS} = \int_0^{Q} D(x) \, dx - P \cdot QCS=∫0QD(x)dx−P⋅Q

 Producer surplus:

PS=P⋅Q−∫0QS(x) dx\text{PS} = P \cdot Q - \int_0^{Q} S(x) \, dxPS=P⋅Q−∫0QS(x)dx

These calculations help businesses and economists measure the economic efficiency and
welfare gains from market transactions.

4. Inventory and Storage Costs

Businesses often need to store raw materials or finished products, and the costs associated with
storage may change over time due to factors like demand, shelf life, or seasonal variations. If the
storage cost per unit is a function of time, say c(t)c(t)c(t), the total storage cost over a time period
from t=at = at=a to t=bt = bt=b can be calculated using:

Total Cost=∫abc(t) dt\text{Total Cost} = \int_a^b c(t) \, dtTotal Cost=∫abc(t)dt

This helps companies plan for optimal inventory levels and reduce unnecessary storage
expenses.

5. Forecasting, Planning, and Investment Decisions

Integral calculus is also useful for forecasting future trends based on continuous data. For
instance:

 Estimating total sales over a period by integrating the rate of sales,

 Planning production schedules using integrated demand rates,
 Assessing the future value of an investment by integrating the rate of return over time.

These tools support strategic decision-making and long-term business planning.

Conclusion

Integral calculus is a powerful analytical tool that allows businesses to make informed decisions
by understanding the cumulative effects of continuous changes. From analyzing costs and
revenues to optimizing profits and forecasting trends, integral calculus provides the mathematical
foundation for many key business functions. Its applications are not only theoretical but also
practical, giving businesses a competitive edge in data-driven environments.

Linear Programming
“LP is only one aspect of what has been called a systems approach to management where all
programmes are designed and evaluated in terms of their ultimate effects in the realisation of
business objectives.”
— N. Paul Loomba

INTRODUCTION

The central theme of economic theory and management science is to optimise the use of scarce
resources which include machine, man-power, money, warehouse space or raw material. There
are several theoretical tools to accomplish this purpose in both the sciences. But such tools are
not adequate for treating a complex economic problem with several alternatives each with its
own restrictions and limitations. It is for tackling such problems that the use of linear
programming has been found to be most useful. The technique was first invented by the Russian
Mathematician L. V. Kantorovich and developed later by George B. Dantzig, the Simplex
method is particularly associated with his name.

MEANING

Linear programming is a method or technique of determining an optimum programme of inter-

dependent activities in view of available resources. In other words, it is a technique of allocating
limited resources in an optimum manner so as to satisfy the laws of supply and demand and
attain objectives. In general, Linear Programming is a mathematical technique for determining
the optimal allocation of resources and obtaining a particular objective (i.e., cost minimization or
profit maximization) when there are alternative uses of the resources: Land, Labour, Capital,
Materials, Machines, etc.

Programming is just another word for “planning” and refers to the process of determining a
particular plan of action from amongst several alternatives. The word linear stands for indicating
that all relationships involved in a particular problem are of degree one.
APPLICATIONS

The use of LP is made in regard to the problems of allocation, assignment, transportation, etc.
But the most important of these is that of allocation of scarce resources on which we shall
concentrate. Some allocation problems are as follows:

1. Devising of a production schedule that could satisfy future demands (seasonal or

otherwise) for the firm’s product and at the same time minimise production (including
inventory) costs.
2. Choice of investment from a variety of shares and debentures so as to maximise return on
investment.
3. Allocation of a limited publicity budget on various heads in order to maximise its
effectiveness.
4. Selection of the product-mix to make the best use of machines, man-hours with a view to
maximise profits.
5. Selecting the advertising mix that will maximise the benefit subject to the total
advertising budget, Linear Programming can be effectively applied.
6. Determine the distribution system to minimise transport costs from several warehouses to
various market places.

Three Typical Problems

Three problems have become classical illustrations in linear programming:

A. The Diet Problem

It is the problem of deciding how much of ‘n’ different foods to include in a diet, given the cost
of each food, and the particular combination of nutrient each food contains. The object is to
minimise the cost of diet such that it contains a certain minimum amount of each nutrient.

B. Optimal Product Lines Problem

How much of ‘n’ different products a firm should produce and sell, when each product requires a
particular combination of labour, machine time and warehouse space per unit of output and
where there are fixed limits on the amounts of labour, machine time and warehouse space
available?

C. Transportation Problem
It is a problem of determining a shipping schedule for a commodity, say, steel or oil, from each
of a number of plants (or oil-fields) at different locations to each of a number of markets (or
refineries) at different locations in such a way as to minimise the total shipping cost, subject to
the constraints that (1) the demand at each market (refinery) will be satisfied, and (2) the supply
at the plant (oil field) will not be exceeded.
General Linear Programming Problem

Let Z be a linear function defined by

(i) Z = c₁x₁ + c₂x₂ + ... + cₙxₙ,
where cᵢ’s are constants.

(ii) Let (aᵢⱼ) be mn constants and let (bᵢ) be a set of m constants such that:

a₁₁x₁ + a₁₂x₂ + ... + a₁ₙxₙ (≤, =, ≥) b₁

a₂₁x₁ + a₂₂x₂ + ... + a₂ₙxₙ (≤, =, ≥) b₂
...
aₘ₁x₁ + aₘ₂x₂ + ... + aₘₙxₙ (≤, =, ≥) bₘ

(iii) x₁ ≥ 0, x₂ ≥ 0, ..., xₙ ≥ 0

The problem of determining the values of x₁, x₂, ..., xₙ which makes Z a minimum (or maximum)
and which satisfies (ii) and (iii), is called the General Linear Programming Problem.

BUSINESS MATHEMATICS

(a) Objective function.

The linear function Z = c₁x₁ + c₂x₂ + ... + cₙxₙ,
which is to be minimized (or maximized) is called the Objective function of the general L.P.P.

(b) Constraints.
The inequalities (ii) are called the constraints of the General L.P.P.

(c) Non-negative restrictions.

The set of inequalities (iii) is usually known as the set of non-negative restrictions of the
General L.P.P.

(d) Solution.
Values of unknowns x₁, x₂, ..., xₙ, which satisfy the constraints of a General L.P.P. is called a
solution to the General L.P.P.

(e) Feasible Solution.

Any solution to a General L.P.P. which satisfies the non-negative restrictions of the problem, is
called feasible solution to the General L.P.P.

(f) Optimum Solution.

Any feasible solution which optimizes (minimizes or maximizes) the objective function of a
General L.P.P. is called an optimum solution to the General L.P.P.
 Definitions in Linear Programming

1. Objective Function
The objective function is a linear mathematical expression that defines the goal of the linear
programming problem.

Purpose:
The objective function helps determine the best outcome, such as maximum profit or minimum
cost.

2. Constraints
Constraints are linear inequalities or equations that limit the possible values of the decision
variables. They represent real-world limitations like time, labor, money, materials, or machine
availability.

Types of constraints:

 ‘≤’ (less than or equal to): resource limits

 ‘≥’ (greater than or equal to): minimum requirements
 ‘=’ (equality): exact usage or requirements

3. Solution

A solution to a linear programming problem is any set of values for the decision variables that
satisfies all the constraints of the problem.

There can be:

 No solution (infeasible),
 One solution, or
 Many solutions, including infinitely many.

4. Feasible Solution

A feasible solution is any solution that satisfies:

1. All the constraints, and

2. The non-negativity condition

The collection of all feasible solutions forms the feasible region, which is often a convex
polygon (in two-variable problems).
Only solutions inside or on the boundary of this region are valid.
5. Basic Solution

A basic solution is a solution to the system of equations formed by converting the linear
programming constraints into equalities by introducing slack, surplus, or artificial variables.
In an LPP with mmm constraints and nnn variables, a basic solution is found by:

 Setting n−mn - mn−m variables to zero (non-basic),

 Solving for the remaining mmm variables (basic).

Important: Not every basic solution is feasible. A basic solution that also satisfies non-
negativity is a basic feasible solution.

6. Degenerate Solution

A degenerate solution is a basic feasible solution in which one or more of the basic variables
are equal to zero.
This can happen when two or more constraints intersect at the same point (vertex), leading to
ambiguity or redundancy.

Impact:

 Degeneracy may cause cycling in the Simplex Method (i.e., the algorithm loops without
progress).
 Special care (e.g., Bland’s Rule) is needed to avoid infinite loops.