Section 6.2: Applications in Business and Economics

Total Income for a Continuous Income Stream

If f(t) is the rate of flow of a continuous income stream, then the total income produced during the period from t = a to t = b is:

Total income = ∫ab f(t) dt

Future Value of a Continuous Income Stream

If f(t) is the rate of a continuous income stream, 0 ≤ t ≤ T, and if the income is continuously reinvested at a rate r, compounded continuously, then the future value FV at the end of T years is given by:

FV = ∫0T f(t) er(T - t) dt = erT ∫0T f(t) e-rt dt

The future value of a continuous income stream is the total value of all money produced by the continuous income stream (income and interest) at the end of T years.

interest rate (%) = 9.8

T = 30

Consumers' Surplus

If (x̄, p̄) is a point on the graph of the price-demand equation p = D(x) for a particular product, then the consumers' surplus CS at a price level of p̄ is:

CS = ∫0x̄ [D(x) - p̄] dx

which is the area between p = p̄ and p = D(x) from x = 0 to x = x̄.

The consumers' surplus represents the total savings to consumers who are willing to pay more than p̄ for the product but are still able to buy the product for p̄.

p = 4

Producers' Surplus

If (x̄, p̄) is a point on the graph of the price-supply equation p = S(x), then the producers' surplus PS at a price level of p̄ is:

PS = ∫0x̄ [p̄ - S(x)] dx

which is the area between p = p̄ and p = S(x) from x = 0 to x = x̄.

The producers' surplus represents the total gain to producers who are willing to supply units at a lower price than p̄ but are still able to supply units at p̄.

p = 4

Equilibrium Price and Equilibrium Quantity

In a free competitive market, the price of a product is determined by the relationship between supply and demand. If:

then: