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Lesson 21 Partial Derivatives in Economics 1194885782977551 4
Lesson 21 Partial Derivatives in Economics 1194885782977551 4
November 7, 2007
Announcements
Problem Set 8 assigned today. Due November 14. No class November 12. Yes class November 21. OH: Mondays 12, Tuesdays 34, Wednesdays 13 (SC 323) Prob. Sess.: Sundays 67 (SC B-10), Tuesdays 12 (SC 116)
Outline
Marginal Quantities
Marginal Utilities
Case Study
Marginal Quantities
If a variable u depends on some quantity x, the amount that u changes by a unit increment in x is called the marginal u of x. For instance, the demand q for a quantity is usually assumed to depend on several things, including price p, and also perhaps income I . If we use a nonlinear function such as q(p, I ) = p 2 + I to model demand, then the marginal demand of price is q = 2p 3 p Similarly, the marginal demand of income is q =1 I
A point to ponder
The act of xing all variables and varying only one is the mathematical formulation of the ceteris paribus (all other things being equal) motto.
Outline
Marginal Quantities
Marginal Utilities
Case Study
Outline
Marginal Quantities
Marginal Utilities
Case Study
Let u(x, z) be a measure of the total well-being of a society, where x is the total amount of goods produced and consumed z is a measure of the level of pollution What can you estimate about the signs of ux ? uz ? uxz ? What formula might the function have? What might the shape of the graph of u be?
Outline
Marginal Quantities
Marginal Utilities
Case Study
Anti-utility
Found on The McIntyre Conspiracy: I had a suck show last night. Many comics have suck shows sometimes. But suck is such a vague term. I think we need to develop a statistic to help us quantify just how much gigs suck relative to each other. This way, when comparing bag gigs, I can say,My show had a suck factor of 7.8 and youll know just how [bad] it was.
Anti-utility
Found on The McIntyre Conspiracy: I had a suck show last night. Many comics have suck shows sometimes. But suck is such a vague term. I think we need to develop a statistic to help us quantify just how much gigs suck relative to each other. This way, when comparing bag gigs, I can say,My show had a suck factor of 7.8 and youll know just how [bad] it was. This is a opposite to utility, but the same analysis can be applied mutatis mutandis
Inputs
These are the things which make a comic unhappy about his set: low pay gig far away from home Bad Lights Bad Sound Bad Stage Bad Chair Arrangement/Audience Seating Bad Environment (TVs on, loud waitsta, etc.) No Heckler Control Restrictive Limits on Material Bachelorette Party In Room No Cover Charge Random Bizarreness
Variables
Tim settled on the following variables: t: drive time to the venue w : amount paid for the show S: venue quality (count of bad qualities) from above Let (t, w , S) be the suckiness function. What can you estimate about the partial derivatives of ? Can you devise a formula for S?
Result
Tim tried the function (t, w , S) = t(S + 1) w
Result
Tim tried the function (t, w , S) = t(S + 1) w
Result
Tim tried the function (t, w , S) = t(S + 1) w
Outline
A discriminating monopolist
Linear Regression
Outline
A discriminating monopolist
Linear Regression
Example
A rm sells a product in two separate areas with distinct linear demand curves, and has monopoly power to decide how much to sell in each area. How does its maximal prot depend on the demand in each area?
Outline
A discriminating monopolist
Linear Regression
Example
Suppose were given a data set (xt , yt ), where t = 1, 2, . . . , T are discrete observations. What line best ts these data?