Chapter 6

Multivariate Differential Calculus

General form of expressing multivariate functions in the form of explicit faction:

x1 and x 2,
If a variable y, called the dependent variable, depends on two independent variables, the

dependence is generally expressed in the form of explicit faction as Y  f ( x1 , x 2 ) .This form of function

is often said to be function of two independent variables x1 and x 2 .

2 x1  x 2
Y  2 x1  x 2 , Y  x12  3 x1 x 2  5 x 22 and Y 
For instance, the functions x 22 are functions of

two independent variables x1 and x 2 , and can be denoted as Y  f ( x1 , x 2 ) .

Generally, the dependence relationship between the dependent variable Y and n independent variables
x1 , x 2 , . . . x n
is expressed in an explicit form as

Y  f ( x1 , x 2 , . . . x n ).

This form of function is said to be function of n-independent variables.

For example,
Y  3x12  x1 x 2  3 x 2 x3  4 x32 is a function with three independent variables

x1 , x 2 and x3 , Y  f ( x1 , x 2 , x3 )  3x12  x1 x 2  3 x 2 x3  4 x32 .

and can be written as

Notice that the value of a multivariate function at a given point in its domain can be obtained just by
substituting the given number for each independent variable in place of the corresponding variable as
given in the right side of the function. Now let us see how we do it in the following examples.

Example1: Find the value of each of the following function at a point (1, 2).

a ) Y  2 x1 x 2
2 x1  x 2
b) Y 
x 22

Solutions: a) For Y  2 x1 x 2 , its value at (1,2) can be computed y by substituting 1 in place of x1 and 2

in place of x 2 as f (1,2)  2(1)( 2)  4

1
 2 x1  x 2
Y
b) The value of x 22 at (1,2) can be computed as

2(1)  2 4
f (1,2)   1
22 4

Example 2: Compute the value of

Y  x12  2 x1 x 2  x 2 x3  4 x32 at the point (2, 0. 1).

Solution: The value of this function at a point (2, 0, 1) can be obtained as

f (2,0,1)  2 2  2(2)(0)  0(1)  4(12 )  8

6.1. Partial Derivatives

Definition 6.1

Given Y  f ( x1 , x 2 ), the rate at which Y changes ( Y ) with respect to change in x1 ( x1 ) as the ,

becomes arbitrarily small (x1 ) , while holding x 2 constant is said to be the partial derivative of f with
y
respect to x1 and it is denoted as x1 with Greek  (delta) instead of Roman symbol d. Other common
y f
.
ways of denoting x1 is x1

Mathematically, the partial derivative of f with respect to x1 is given by

y f ( x1  x1 , x 2 )  f ( x1 , x 2 )
 lim
x1 x1 0 x1

Similarly, the partial derivative of f with respect to x 2 is the rate at which y changes ( y ) with respect
y
to change in x1 (x 2 ) as x 2 becomes arbitrarily small ( x 2  0) and it is denoted as
x 2 .

Mathematically, it can be defined as

y f ( x1 , x 2  x 2 )  f ( x1 , x 2 )
 lim
x 2 x2 0 x 2

2
The definition of partial derivative for n-variable case can be extended straight forwardly as follows:

Definitions 6.2

Given
Y  f ( x1 , x 2 , . . . x n ), the partial derivative of f with respect to xi , is the rate of change in

Y (y ) as a result of change in xi (xi ) when xi becomes arbitrarily small ( xi  0), while keeping

y f
or or f i
all other variables constant and if is denoted as x i x i .

Mathematically, it is given by

y f ( x1 , x 2 , . . . , xi  xi , . . . x n )  f ( x1 , x 2 , . . x n )
 lim
xi xi 0 xi

Notes

Y  f ( x1 , x2 , . . . x n ),
1. The implicit assumption of computing partial derivatives for is that the
x1 , x 2 , . . . x n
variables are all independent of one another which mean that each of the independent
variable can change by itself without affecting the other.

2. For a function having n-independent variables, we have n different partial derivatives corresponding
to each independent variable.

Notice that the process of taking or finding the partial derivative of a function is called partial
differentiation. The rules or the techniques of differentiation in univariate function can be directly
applied to get the partial derivatives but the only difference in the latter case is that we treat all the
independent variable constant except the one which assumed to vary or change.

Thus, the partial derivative of a function with respect to the variable

xi amounts to differentiating the

function with respect to

xi , assuming other independent variables as constant, using any of the

appropriate rules of differentiation stated for univariate function.

3
Now, let us illustrate how we apply different rules of univariate differentiation to find partial derivatives
with the help of the following examples.

Example :

Find the partial derivatives of each of the following functions

a ) Y  4 x12  3 x 2 b) Y  3 x12 x 2 c ) Y  x12  4 x1 x 2  x 22 .

Solutions

2
a) Since Y  f ( x1 , x 2 )  4 x1  3 x 2 have two independent variables x1 and x 2 , we are required to find

 y 
x1 or  
 x1 
two partial derivatives: the partial derivative with respect to and the partial derivative with

 y 
x 2 or  .
respect to  x 2 

y
,
x
To get 1 we differentiate the function with respect to x1 by treating x 2 as constant.

2
The first term (4 x1 ) contains only x1 , so its derivative using the power rule is 8x1 . The second term
(3 x 2 ) is a constant since x 2 is treated as a constant, so its derivative is zero.

Then, putting the derivatives of the two terms together using the sum rule, we have,

y
f1   8 x1  0  8 x1
x1

y
,
Similarly, to get
x 2 we differentiate the function with respect to x 2 by treating x1 as constant.

2
Now the derivative of the first term (4 x1 ) is zero since x1 is treated as constant and the derivative of

the second term (3 x 2 ) with respect to x 2 is 3. Thus, putting these derivatives together, we have

y
f2   033
x 2

4
 3
b) In Y  f ( x1 , x 2 )  3 x1 x 2 , there is only one term which contains the multiplicative form of
x1 and x 2 .

y
, 3
Now, to get x1 we consider the function as x1 times a constant (3 x 2 ) since x 2 is treated as a
3 2
constant. Then we differentiate x1 with respect to x1 to get 3 x1 . Finally, through applying the constant
y
2
multiple rules, we multiply 3x with
1 a constant (3x 2 ) to get x1 as
y
f1   (3 x12 ) (3 x 2 )  9 x12 x 2 .
x1

y
, 2
we first consider the function as a constant (3 x1 ) times x 2 .Then we differentiate
Similarly, to get
x 2

x 2 with respect to x 2 which is equals to one. Finally, we multiply the constant (3 x12 ) with one to have

y y
f   (3 x13 ) (1)  3 x13 .
x 2 as 2 x

2 2
c) In Y  f ( x1 , x 2 )  x1  4 x1 x 2  x 2 , there are three terms so that we can find each partial

derivatives by differentiating each term partially with respect to x1 and x 2 .

y
,
To get
x1 first we differentiate each term with respect to x1 while treating x 2 as a constant as
follows;

2
The derivative of the first term ( x1 ) with respect to x1 is 2 x1 . The derivative of the second term
( 4 x1 x 2 ) with respect to x1 is 4x 2 , which is the product of the derivative of x1 with respect to x1 and
2
the constant (4 x 2 ). The derivative of the third term ( x1 ) w.r.t x1 is zero since it is treated as a constant.
Then, putting the derivatives of each term together, we have

y 
f1   ( x12  4 x1 x 2  x 22 )  2 x1  4 x 2  0  2 x1  4 x 2.
x1 x1

5
 y
x
Similarly, to get 2 , first we differentiate each term with respect to x 2 by treating x1 as constant so

that the derivative of the first term, the second term and the third term will be zero, 4 x1 and 2 x 2
y
respectively. Then, we collect these derivatives together to have
x 2 as

y 
f2   ( x12  4 x1 x 2  x 22 )  0  4 x1  2 x 2  4 x1  2 x 2 .
x 2 x 2

Notice that the functions given in the above example are all polynomial functions and to get the partial
derivatives of such type of functions we can use the following short-cut method.

Short- cut Method

y
x
For a function y  f ( x1 , x 2 ), we can compute 1 as follows;

i) If the term contains only x1 , then apply the necessary rule to differentiate it with respect to x1 .

ii) If the term contains the multiplicative form of x1 and x 2 , then differentiate the expression in
x1 with respect to x1 and put the result together with the expression in x 2 and the number as it is given

in the term, and

iii) If the term contains an expression only in x 2 , then take its derivative as zero.

y
Then put the resulted derivative of each term together to get the final answer for x1 .

y
Similarly, we can compute x 2 in the same way just by substituting x 2 in place of x1 in all of the above
three cases.

Now, let us apply the above short-cut method to compute the partial derivatives of

Y  x12  4 x13 x 2  x 22 .

y
,
To get
x1 first we compute the derivative of each term as follows;

6
 2 3
The derivative of x1 is 2x1 since it contains only x1 . The derivative of 4 x1 x 2 is the derivative of

x13 which equal to 3 x12 times 4x 2 or (3 x12 )4 x 2  12 x12 x 2 .The derivative of x 22 is zero since it contains

y
only x 2 and treated as a constant. Then we collect the derivatives together to have
x1 as

y
f1   2 x1  12 x12 x 2  0  2 x1  12 x12 x 2 .
x1

y
,
Similarly, to get x 2 first do the followings;

2
i) Take the derivative of x1 as zero since it contains only x1 and we are differentiating the function with

respect to x 2

3 3 3 3
ii) Take the derivative of 4 x1 x 2 as 4 x1 times the derivative of x 2 which equal to (4 x1 ) (1)  4 x1 , and

2
ii) Take the derivative of x 2 as 2x 2 since it contains only x 2 .

y y
f2   0  4 x13  2 x 2  4 x13  2 x 2 .
Then, collect the derivatives together to get x 2 as x 2

note also that the functions may not always be in polynomial form as we have seen in the above
examples, they may be also in some other forms like in rational form, in radical form and so on, In fact,
finding the partial derivatives of such kind of functions is not a difficult task. The only thing we do that,
we first apply the necessary rules of differentiation like quotient rules, chain rule an so on and then we
use the above short-cut method as it is illustrated in the following example.

Example;

Find the partial derivatives of the following functions.

x12
a) y 
x1  x 2 b)
Y  2 x1  3 x1 x 22

Solutions

7
 x12
a) y 
x1  x 2 is a rational form. So to get each of the partial derivatives, we use the quotient rule and

the above short-cut method as follows:

y
,
To compute
x1 first apply the quotient rule while differentiating w.r.t x1 to get

 
( x12 )( x1  x 2 )  ( x1  x 2 )( x12 )
y x x1
 1
x1 ( x1  x 2 ) 2


 ( x12 )  2 x1 ,
Then, use the short-cut method to have
x1 since it contains only x1 and we are taking

( x1  x 2 )  1  0  1
the derivative with respect to x1 , and
x1 since the derivative of

( x12 )
x1 with respect to x1 is one and x 2 is treated as a constant. Finally, insert 2x1 in place of x1 and
 y
( x1  x 2 ) ,
x
1 in place of 1
x
on the right side of the above expression for 1 to get

y 2 x1 ( x1  x 2 )  1( x12 )
f1  
x1 ( x1  x 2 ) 2
2 x12  2 x1 x 2  x12

( x1  x 2 ) 2
x12  2 x1 x 2

( x1  x 2 ) 2

y
,
Similarly, to compute x 2 first we apply the quotient rule but now differentiating with respect to x 2 to
get

 
( x12 )( x1  x 2 )  ( x1  x 2 )( x12 )
y x x 2
 2
x 2 ( x1  x 2 ) 2

8
 
( x12 )  0
Then, using the short cut Method, we have
x 2 since it contains only x1 and it is treated as a

( x1  x 2 )  0  1  1,
constant and
x 2 since x1 is treated as a constant and the derivative of x 2
w.r.t x 2 is one. Finally, insert 0 and 1 in their respective place on the above expression to get.

y 0( x12 )  1( x12 )
f2  
x 2 ( x1  x 2 ) 2

 x12

( x1  x 2 ) 2

b) Since
Y  2 x1  3x1 x 22 is in radical form, the corresponding rules of differentiation is the chain

rule. So to get the partial derivatives, we use the chain rule and the short-cut method as follows;

y
,
x
To compute 1 first we apply the chain rule while differentiating with respect to x1 to get

y 1 
 (2 x1  3 x1 x 22 ) 1 / 2 (2 x1  3 x1 x 22 )
x1 2 x1
1 
 . ( 2 x1  3 x1 x 22 )
2 2 x1  3x x 2
1 2
x1


(2 x1  3 x1 x 22 )
x
Then we compute 1 using the short cut method as

  
(2 x1  3 x1 x 22 )  (2 x1 )  (3 x1 x 22 )  2  3 x 22 2
. Finally by inserting 2  3x 2 in place of
x1 x1 x1


( 2 x1  3 x1 x 22 )
x1 , we have

y 1 2  3 x 22
f1   .(2  3 x 22 ) 
x1 2 2 x1  3 x1 x 22 2 2 x1  3 x1 x 22

9
 y
,
In the same way, to get
x 2 we apply the chain rule while differentiating with respect to x 2 so that
we have

y 1 
 (2 x1  3 x1 x 22 ) 1 / 2 (2 x1  3x1 x 22 )
x 2 2 x 2
1 
 . (2 x1  3 x1 x 22 )
2 2 x1  3 x1 x 22 x 2

Then, using the short-cut method, we have

  
(2 x1  3x1 x 22 )  (2 x1 )  (3 x1 x 22 )  0  (3 x1 )( 2 x 2 )  6 x1 x 2.
x 2 x 2 x 2 Finally, we substitute 6 x1 x 2 in

( 2 x1  3 x1 x 22 ),
place of
x 2 to get

y 1 6 x1 x 2
f2   .(6 x1 x2 ) 
x 2 2 2 x1  3x1 x 2
2
2 2 x1  3x1 x 22

All the techniques that we have been used to get the partial derivatives of y  f ( x1 , x 2 ) can also be
used to get the partial derivatives of a function with more than two independent variables as illustrated
in the following example.

Example; Find all the partial derivatives of

a ) Y  3 x12 x 2 x32 b) Y  2 x12  x1 x 2  3 x 22  4 x 2 x32  5 x32

Solutions

a) Since
Y  f ( x1 , x 2 , x3 )  3 x12 x 2 x32 has three independent variables, it has three partial derivatives,

y y y
or f 1 , or f 2 and or f 3 .
namely,
x1 x 2 x 3

Again, since the function has only one term in multiplicative form, we compute each partial derivative by
differentiating the term with only one variable while treating the other two variables as constant as
follows:

10
 y  
f1   (3 x12 x 2 x32 )  ( x12 ).(3 x 2 x32 )  (2 x1 )(3x 2 x32 )  6 x1 x 2 x32 ,
x1 x1 x1
y  
f2   (3 x12 x 2 x32 )  ( x 2 )(3 x12 x32 )  (1)(3 x12 x32  3x12 x32 , and
x 2 x 2 x 2
y  
f3   (3 x12 x 2 x32 )  ( x32 )(3 x12 x 2 )  (2 x3 )(3 x12 x 2 )  6 x12 x 2 x3 .
x3 x3 x3

b) The function has five terms which separated by plus and minus sign. So, to get each of the partial
derivatives we differentiate each term partially with respect to the corresponding variables as follows;

y     
f1   (2 x12 )  ( x1 x 2 )  (3 x 22 )  (4 x 2 x32 )  (5 x32 )
x1 x1 x1 x1 x1 x1

  
(2 x12 )  4 x1 ( x1 x 2 )  ( x1 ). x 2  1.x 2  x 2
Moreover, x 1 x
since it contains only ;
1 x 1 x 1 since x 2 is

(3 x 22 )  0,
treated as a constant; x1 since there is no x1 and x 2 is treated as a constant;
 
( 4 x 2 x32 )  0, (5 x32 )  0,
x1 x
since there is no x1 and x 2 and 3 are treated as a constant and x1 since

there is no
x1 and x3 is treated as a constant.

Then by substituting the above results for each term, we have

y
f1   4 x1  x 2  0  0  0  4 x1  x 2
x1

y
or f 2
Similarly, we get x 2 as

y     
f2   (2 x12 )  ( x1 x 2 )  (3 x 22 )  (4 x 2 x32 )  (5 x32 )
x 2 x 2 x 2 x 2 x 2 x 2

 0  x1  6 x 2  4 x32  0
 x1  6 x 2  4 x32 .

y
or f 3
and x3 as

11
 y     
f3   (2 x12 )  ( x1 x 2 )  (3 x 22 )  (4 x 2 x32 )  (5 x32 )
x3 x3 x3 x3 x3 x3

0  0  0  ( x32 )( 4 x 2 )  10 x3
x3
 (2 x3 )( 4 x 2 )  10 x3
 8 x 2 x3  10 x3

6.2. Higher-order partial derivatives and Young’s Theorem

The function y  f ( x1 , x 2 ) has two first-order partial derivatives which denoted as

y y
or f 1 and or f 2 .
x1 x 2 Moreover, each of these partial derivatives are a gain a function of x1 and x 2 .

So, we can continue differentiating each of them partially with respect to x1 and x 2 . In doing so, we can
get the following four possible second – order partial derivatives.

y
x
1. When 1 is differentiated with respect to x, while holding x 2 as a constant, we have

  y  z y
  or f 11
x1  x1  x 2
and denoted as 1

y
x
2. When 1 is differentiated with respect to x 2 keeping x1 as a constant, we have

  y  2 y
  or f 12 ;
x 2  x1  and denoted as x 2 x1

y
x
3. When 2 is differentiated partially with respect to x1 we have,

  y  2 y
  or f 21
x1  x 2  and denoted as x1x 2 and

y
x
4. When 2 is differentiated with respect to x 2 , holding x1 as a constant, we have

12
   y  2 y
  or f 22
x 2  x 2
2
 and denoted as x 2

i. To make the notations simple and clear, we will often use f 1 and f 2 to denote the first-

order partial derivatives with respect to x1 and x 2 respectively and f 11 , f 12 , f 22 and f 22 to denote the
second-order partial derivatives.

ii. f 11 and f 22 are called pure or own partial derivatives. f11 indicates that the given function

y  f ( x1 , x 2 ) is first partially differentiated w.r.tx1 . f 22 indicates that y  f ( x1 , x 2 ) is first

differentiated partially with respect to x 2 .

iii. f12 and f 21 are called cross or mixed partial derivatives f 12 indicates that y  f ( x1 , x 2 ) is first

partially differentiated w.r.tx 2 and then with respect to x1 .

Now, before defining the second-order partial derivatives for n-variable case, let us see how we

compute them for y  f ( x1 , x 2 ) with the help of the following example.

Example; Find the second – order partial derivatives for

a ) First , compute f 1 as

y 
f1   (3 x1  2 x 23  x13 x 22 )  3  0  3x12 x 22  3  3 x12 x 22
x1 x1

The differentiate f 1 w.r.t x 2 to get f 11 as

   
f 11  ( f1 )  (3  3 x12 x 22 )  (3)  (3 x12 x 22 )  0  6 x1 x 22  6 x1 x 22
x1 x 2 x1 x1

and also diffentiate f 1 w.r.t x 2 to get f 12 as

y   
f 12  ( f1 )  (3  3 x12 x 22 )  (3)  (3 x12 x 22  0  6 x12 x 2  6 x12 x 2 .
x 2 x 2 x 2 x 2

Second, compute f 2 as

13
 y 
f2   (3 x1  2 x 23  x13 x 22 )  6 x 22  2 x13 x 2
x 2 x 2

Then differentiate f 2 w.r.t x1 to get f 21 as

   
f 21  ( f2 )  (6 x 22  2 x13 x 2 )  (6 x 22 )  (2 x13 x 2 )  0  6 x12 x 2  6 x12 x 2
x1 x1 x1 x1 and also

differentiate f 2 w.r.t x 2 to get f 22 as

   
f 22  ( f2 )  (6 x 22  2 x13 x 2 )  (6 x 22 )  (2 x13 x 2 )  12 x 2  2 x13
x 2 x 2 x 2 x 2

Therefore, the second-order partial derivatives for this function are

f11  6 x1 x 22 f 21  6 x12 x 2
f12  6 x12 x 2 f 22  12 x 2  2 x13

Notice that the cross partial derivatives are equal. That is,

f 12  f 21  6 x12 x 2.

b) First compute the first-order partial derivatives as

y  
f1   ( x13 e 2 x 2 )  ( x13 )e 2 x2  3 x12 e 2 x2 , and
x1 x1 x1
y  
f2   ( x13 e 2 x2 )  x13 (e 2 x2 )  x13 2e 2 x2  2 x13 e 2 x2
x 2 x 2 x 2

Then obtain the second –order partials as follows:

  
f 11  ( f1 )  (3 x12 e 2 x2 )  (3 x12 )e 2 x2  6 x1e 2 x2 ;
x1 x1 x1
  
f 12  ( f1 )  (3 x12 e 2 x2 )  (e 2 x2 )3 x12  2e 2 x2 (3 x12 )  6 x12 e 2 x2 ;
x 2 x 2 x 2
  
f 21  ( f2 )  (2 x13 e 2 x2 )  (2 x13 )e 2 x2  6 x12 (e 2 x2 )  6 x12 e 2 x2 ; and
x1 x1 x1
  
f 22  ( f2 )  (2 x13 e 2 x2 )  (e 2 x2 )2 x13  2e 2 x2 (2 x13 )  4 x13 e 2 x2
x 2 x 2 x 2

Therefore, the second – order partial for the function are

14
 f 11  6 x1e 2 x2 f 21  6 x12 e 2 x2
f 12  6 x12 e 2 x2 f 22  4 x13 e 2 x2

Again notice that the cross-partial derivatives are equal. That is,

f12  f 21  6 x12 e 2 x2

Just as we have seen for Y  f ( x1 , x 2 ), the second-order partial derivatives for n-variable function can
be defined analogously as follows:

y  f ( x1 , x 2 , . . . x n ), 2
Definition : The function has n first-order partial derivatives and n second-order
partial derivatives each denoted as

2 y 
or f ij  ( fi )
x j xi x j

f ij xi
Where is the second-order partial obtained first differentiating the function with respect to and
fi xj
then differentiating the result with respect to for i, j  1, 2, . . . n.

fi i fjj i j
The partial derivatives in form of or where are called pure or own partial derivatives

fi j i j
and those in a form of where are called cross or mixed partial derivatives.

Now let us see one very useful theorem regarding the cross partial derivatives.

Remember that in example 2.6, the cross-partial derivatives were equal (i.e, f12  f 21 ) for both
functions. This fact is also true for any multivariate function with continuous second derivatives due to
the following theorem known as Young’s Theorem.

y  f ( x1 , x2 ,....xn ),
Young’s Theorem: For a function with continuous first and second-order partial
derivatives, the cross-partial derivatives are equal. That is,

fi j  f ji i j.
for any pair i, j (i, j  1, 2, ...n), where

Notice that, unless otherwise it is stated, Young’s Theorem is always true as all multivariate functions in
this module are assumed to have continuous first and second order partial derivatives.

15
The theorem has various useful results as we will see in the latter parts of the module. Now let us see
one of its useful results with the help of the following example.

Example: Find the second-order partial derivatives for

y  2 x12  3 x1 x2  x22  5 x1 x3  4 x32

Solution: Since the function has three independent variables, it has 3 first order partials derivatives

f1 , f 2 and
f3 and each of them has three second-order partial derivatives. So, for this function we
2
have a group of 3  9 second-order partial derivatives which are given as follows:

First order partials Second-order partials

f1 f11 f12 f13

f2 f 21 f 22 f 23

f3 f 31 f 32 f 33

f 12, f 21 , f 13 , f 31 , f 23 and f 32
Out of the nine second-order partials, are cross partial derivatives and
from Young’s Theorem the following are identical:

f 12  f 21 , f13  f 31 and f 23  f 32

Thus, we need only six distinct values of second-order partial derivatives: three of which are pure partial

f ,f
derivative (That is, 11 22
f
and 33 ) and three are cross partial derivatives (That is,
f12 , f13 and

f 23 ).

Moreover, the required six distinct second order partial derivatives can be obtained as follows:-

 
f 11  ( f1 )  4 x1  3x 2  5 x3   4
x1 x1

 
f 12  ( f1 )  4 x1  3x2  5 x3   3
x 2 x 2

 
f 13  ( f1 )  4 x1  3x 2  5 x3    5
x3 x3

16
  
f 22  ( f2 )  3x1  2 x2   2
x 2 x 2

 
f 23  ( f2 )  3x1  2 x 2   0
x3 x3 and

 
f 33  ( f3 )   5 x1  8 x3   8
x3 x3

6.3. Total differential

y
Given y  f ( x1 , x 2 ), we learned that x1 or f 1 gives the change in y when there is a small change in
x1 (x1  0) holding x 2 as constant. Now if we suppose that x1 changes by some amount, x1 , while

y
.x1
x 2 holding as constant, the change in y will be x1 .

y
or f 2
Similarly, since x 2 represents the change in y for a small change in x 2 (x 2  0), the change in
y
.x 2 .
y as a result of change in x 2 by some amount, x 2 will be x 2

Therefore, the total change in y (say , y ) due to small change in x1 and x 2 will be:

y y
y  x1  x 2
x1 x 2

Notice that, when the change in x1 and x 2 becomes infinitesimal (That is, as x1  0 and x 2  0) ,

x1 becomes dx1 and x 2 becomes dx 2. Moreover, as x1  0 and x 2  0, the corresponding

change in y becomes infinitesimal (i.e, y  0) and thus y becomes dy.

So, using these notational relationships and from the above formula for y, the total change in y (dy )

as a result of an infinitesimal change in both x1 and x 2 (dx1 and dx 2 ) will be equal to:

y y
dy  dx1  dx 2 or dy  f 1 dx1  f 2 dx 2.
x1 x 2

17
In this formula,

y
. dx1
x1 is called the partial differential of y  f ( x1 , x 2 ) w.r.t x1

y
. dx 2
x 2 is called the partial differential of y  f ( x1 , x 2 ) w.r.t x 2 , and

y y
. dy or dx1  dx 2
x1 x 2 is called the total differential of y  f ( x1 , x 2 ).

The definition and interpretation of differentials can be extended in an analogous manner to function of
several variables as follows:

For a general function

y  f ( x1 , x 2 , . . . x n ) , the total differential in y is given by

dy  f 1 dx1  f 2 dx 2  . . .  f n dx n

x , x , . . .x n
And it measures the total change in y when all variables 1 2 are changes simultaneously.

Remarks

1. In the process of finding total differentials, we assumed that all independent variables are mutually
exclusive (That is, each independent variable can change with out affecting or changing the others).

2. There are two techniques or methods of finding the total differential of a function. These are:

i. Using partial derivative method

In this method, first we compute partial derivatives of the function and then we use the formula given

above for dy to get the total differential.

ii. Using rules of (total) differential

In this method, we consider each independent variable as a function and we apply the appropriate rules
of differentiation for univariate function like power rule, sum or difference rule, product rule, quotient
rule, chain rule and so on based on the way the variable or the combination of variables are presented in
a given function. In other words, in this method, we use the following rules of total differential.

18
Rules of Total differential

Let k be a constant and u and v be each considered as a variable or a function. Then

Rule 1: Constant Rule

dk  0

According to this rule, the total differential of a constant is zero. For instance,
d (3)  0 d (500)  0, and dA  0 if A is considered as a constant.
Rule 2: Power Rule

 
d cu n  cnu n 1 du , where c is a constant.

For instance, d 5u    53u du  15u du

3 2 2

Notice that we can apply this rule for x1 and x 2 if they are presented in power form. For example,

     
d x13  3x12 dx1 , d 4 x 25  4 5 x 24 dx 2  20 x 24 dx 2 , d x1   1dx1  dx1 and d x 2   dx 2 .

Rule 3: Sum or difference Rule

d u  v   du  dv


For instance, d u  5v
2 3
  d u  d 5v   2udu  15v dv
2 3 2

x x
In terms of 1 and 2 , this rule for example, can be applied as

       
d 3 x12  4 x 23  d 3 x13  d 4 x 23  6 x1 dx1  12 x 22 dx 2 and d 5 x13  6 x 2  15 x12 dx1  6dx 2 .

Rule 4: Product Rule

d uv   vdu  udv

For instance, d u v 3 2
  d u v  d v u  3u vdu  2uvdv .
3 2 3

Note that this rule will help us to find the total differential of a term which contains
x1 and x2 in their
multiplicative form.

19
  2
  
For example, d 3x1 x 2  d x1 3 x 2  d x 2 3 x1
2 2

= 2 x1 3x 2 dx1  3x1 dx 2

2

2
= 6 x1 x 2 dx1  3 x1 dx 2

Rule 5: Quotient Rule

 u  vdu  udv
d   ,
v v2 where v  0

 u 3  d (u 3 )v 2  d (v 2 )u 3 3u 2 v 2 du  2u 3 vdv
 
d 2   
For instance,  v  v 2 2
  v4

Note also that we will use this rule when the function
y  f x1 , x2  is given in quotient form or to get

x
the total differential of a term which contains 1 and
x2 in quotient form. For example,

d   
 
 3 x12  d 3 x12 x 2  d x 2 3x12 6 x1 x 2 dx1  3 x12 dx 2

 x2  x 22 x 22

Again notice that the exponential, the logarithmic and the chain rules will also applied to get the total

differential of a function
y  f ( x1 , x2 ) or any of its terms if its form entails the necessity of these
rules.

1 1 1 3
 
d e x1  e x1 dx1 , d nx 2  
x2
dx 2 d nx13   3 d x13   3 3x12 dx1   dx1
x1 x1 x1
For example, and .

Remark

All the above rules of total differential can also applied in analogous manner to find total differential of a
function with more than two independent variables.

Now, let use see how we use the above two methods to find the total differential of multivariate
function with the help of the following example:

20
Example: Find the total differential of each of the following functions using the partial derivative method
and rules of total differential.

2 2
a) y  3 x1  x1 x 2  2 x 2
3
b) y  n x1  3x 2  2
 c)
y  x12 x 2 x32 .

Solutions: a) Let us first use the partial derivative method

In this method, first we compute the partial derivatives as

f1  6 x1  2 x1 x 2 and f 2  x12  6x 22

Then using the formula for

dy as given above, we have

dy  f1 dx1  f 2 dx2


= 6 x1  2 x1 x 2 dx1  x1  6 x 2 dx 2 .
2 2

The same result can be obtained using rules of total differential as follows:


dy  d 3 x12  x12 x 2  2 x 23 
  
2 2
= d 3 x1  d x1 x 2  d 2 x 2    3

 
= 6 x1 dx1  d x1 x 2  d x 2 x1  6 x 2 dx 2
2 2 2

2 2
= 6 x1 dx1  2 x1 x 2 dx1  x1 dx 2  6 x 2 dx 2


= 6 x1  2 x1 x 2 dx1  x1  6 x 2 dx 2 .
2 2

b) To apply the partial derivative method, first compute
f1 and f 2 as

y 1  2 1 2x
f1 
x1

n x12  3 x 2  2 
x1  3 x 2 x1
x1  3 x 2  2
x1  3 x 2

(2 x1 )  2 1 
x1  3x 2 , and

y 1  1 3
f2 
x 2
nx1  3 x 2   2 x12  3x 2   2 (3)  2
x1  3 x 2 x 2 x1  3 x 2 x1  3 x 2 .

Then use the formula for

dy as

dy  f1 dx1  f 2 dx2

21
 2 x1 3
2
dx1  2 dx 2
= x  3x2
1 x1  3 x 2 .

The same result can be obtained using rules of total differential as

 
dy  d n x12  3x 2 
1
2
d x12  3x 2 
= x  3x2
1

1
2
d x12   d 3 x 2 
= x  3x 2
1

1
2
2 x1 dx1  3dx 2 
= x  3 x
1 2

2 x1 3
2
dx1  2 dx 2
= x  3x 2
1 x1  3 x 2 .

c) Using partial derivative method, first we have

 2   2
f1 
x1
x1 x 2 x32   2 x1 x 2 x32 , f 2 
x 2
x12 x 2 x32   x12 x32 , f3 
x3
x1 x 2 x32   2 x12 x 2 x3
and

Then using the formula for dy , we have

dy  f1 dx1  f 2 dx 2  f 3 dx3

=
2 x x x dx  x x dx  2 x
1 2
2
3 1
2
1
2
3 2
2
1 x 2 x3 dx3 .

We can also get the same result using rules of total differential as

dy  d x12 x 2 x32 

=
d x12 x 2 x32  d x 2 x12 x32  d x32 x12 x 2

=
2 x1 x 2 x32 dx1  x12 x32 dx 2  2 x12 x 2 x3 dx3 .

Remark

22
As we have seen in the above example, both methods give the same result for all functions. More over,
partial derivative method may be easier then using the rules of total differential in some function and
the latter may be easier in other types of functions. But since economic text books may use either or
both of the two methods to explain various concepts and to solve different problems, it will be worth
full to know the two methods.

6.4. Total derivatives of implicit functions

There are two methods of finding the (first) derivatives of implicit functions. These are:

i) Partial derivative method and

ii) Implicit differentiation method

In the first method, we use a formula in terms of partial derivative which is stated as a rule for univariate
and multivariate cases as follows:

Rule 1: For univariate implicit function

F ( x, y )  0 and Fx and Fy Fy  0,
If both exist and then the explicit function y  f (x) exists and the
dy
derivative dx is given by

dy  Fx

dx Fy

F F
Fx  and Fy 
Where, x y .

Rule 2: For Multivariate implicit function

F ( x1 , x 2 , . . . x n , y )  0 Fi Fy  0,
If has continuous first order partial derivatives and then the explicit
y
y  f ( x1 , x 2 , . . . x n ) xi is given by
function exists and the partial derivative

y  Fi

xi Fy

F F
Fi  and Fy 
Where
xi y

23
In the implicit differentiation method, we apply the technique of total differential as follows:

i. In univariate implicit function, F ( x, y )  0

In this case, first we take the total differential of both sides of the equation and then rearrange the
dy
.
terms to get dx

ii) In multivariate implicit function,

F x1 , x2 ,...xn , y   0

In this case, first we computer the total differential of both sides of the equation and then we rearrange
y
the terms to get
xi considering all other variable x j  xi as constant (or making all dx j  0 for

x j  xi
).

Now, let us see how we apply the above two methods to find derivatives of implicit functions with the
help of the following examples:

dy
Example: Find dx for 2 y  xy  4 x  0 using both methods

Solution: To apply the partial derivative method,

F F
First let F ( x, y )  2 y  xy  4 x, and compute x and y as

F F
Fx   y4 Fy   2 x
x and y

dy
Then use the formula given in rule 1 to get dx as

dy  Fx  ( y  4) 4  y
  
dx Fy 2 x 2 x

To apply the implicit differentiation method, take the total differential of both sides of the equation and
dy
rearrange the terms to get dx as follows

24
 d 2 y  xy  4 x   d (0)

 d (2 y )  d ( xy )  d (4 x)  0

 2dy  xdy  ydx  4dx  0

 ( 2  x)dy  ( y  4) dx  0

 (2  x) dy  ( y  4)dx

dy  ( y  4) 4  y
  
dx 2 x 2 x

Notice that we obtained the same answer through both methods.

2
Example: Find the first order partial derivatives for 3 x1 x2  x2 y  10  0

Solution: Since the function is an implicit function with two independent variables x1 and x 2 , the

y y
x x
required derivatives are the partial derivatives 1 and 2 .

Now, to apply the partial derivative method, we first let F x1 , x2 , y   3 x1 x2  x2 y  10 , and compute
2

F1 , F2 and Fy as

F F F
F1   3 x 2 , F2   3 x1  y 2 Fy   2 x2 y
x1 x 2 and y .

y y
x x
And then, we use the formula give in rule 2 to get 1 and 2 as

y  F1  3x 2  3 y  F2  (3 x1  y 2 )
    
x1 Fy 2 x2 y 2 y x 2 Fy 2 x2 y
and .

y y
x x
The same results for both 1 and 2 is obtained using the implicit differentiation method as follows:

First take the total differential of both sides as

 
d 3 x1 x2  x2 y 2  10  d (0)

25
  
 d 3x1 x 2   d x2 y 2  d (10)  0

 3x2 dx1  3x1dx2  y 2 dx2  2 x2 ydy  0

y
,
Then to get
x1 in the last equation make dx2  0 since x 2 is considered as a constant and change d

by  . This will make the equation as

3x2 x1  2 x2 yy  0

 2 x2 yy  3x2 y

y  3 x2  3
  
x1 2 x2 y 2 y

y
,
Similarly, to get
x2 set dx1  0 and change d by  in the last equation obtained from taking total

differential. This will make the equation as

3 x1x2  y 2 x2  2 x2 yy  0

 
 3 x1  y 2 x2  2 x2 yy  0


 2 x1 yy   3 x2  y 2 x2 


y  3 x1  y 2


x2 2 x2 y

6.5. Economic applications of multivariate calculus

A. Marginal Analysis

Marginal analysis is central to microeconomics. In economics the term marginal refers to the change in
dependent variable caused by change in one independent variable while others are kept as a constant.

26
 y
y  f ( x1 , x 2 ........ x n ) xi x
In multivariate economic function, , shows the marginal effect of i on y. In
y
x x
other words, i measures the change y due to a one unit change in i .

Now, let us see how the marginal effect and other important concepts can be described using the partial
derivatives with the example of theoretical firm’s production function.

The production of certain commodities requires the use of two or more inputs or factors of production.
The amount of production of any commodity, therefore, uniquely depends on the amounts of different
inputs used under certain technical conditions.

Let Q  f ( L, K ) be a production function, which relates the output Q to amount of labor input L and
capital input K. Then, the first and second partial derivatives of this function can have the following
meanings or interpretations.

Q
i) L is the marginal product of labor input L or MPL and it measures the change in output Q due to
a one unit increase in labor input L with fixed capital input K, and

Q
K is the marginal product of capital input K or MPK and it measures the change in output Q due to
a one unit increase in capital input K with fixed labor input L.

ii) If the first- order partial derivatives are positive and both of its pure second- order partial derivates
negative, then we can say that both inputs L and K satisfy the law of diminishing marginal productivity or
LDMP and the production is in its efficient or economic production range.

Mathematically,

 2 Q  ( Mp L )  2Q  ( Mp K )
f LL    0 f   0
If Mp L  0 and and Mp K  0 and
KK
L2 L K 2 K then it
possible to say that both inputs satisfy LDMP and the production is in its economic or efficient
production stage (That is, the production is inside the ridge lines)

27
iii) From the signs of mixed second-order partials derivatives we can determine the nature of inputs
(That is, whether the two inputs are complementary or substitutes).

If the signs of mixed second-order partials derivatives are both positive, then inputs are complementary.

Mathematically,

 2Q  ( Mp L )  2Q ( Mp K )
f LK   0 f KL   0
If LK K and KL L , then L and K are complimentary.

If the signs of mixed second-order partials derivatives are both negative, then inputs are competitive or
substitutes.

Mathematically,

 2Q  ( Mp L )  2Q  ( Mp K )
f LK   0 f KL   0
If LK K and KL L , then L and K are substitutes.

Now let us use the partial derivatives to describe important natures of specific types of production
functions with the help of the following examples.

Example

1/ 2
Given the production function y  10 L K 1/ 2 , find the first and second order partial derivatives and

illustrate their economic interpretations.

Solution: Firstly, we can compute the first-order partial as

y 1 5 K 1/ 2
fL   (10) L1/ 2 1 K 1/ 2  1/ 2  0
L 2 L since both L and K are positive, and

y 1 1/ 2 1 / 2 1 5 L1 / 2
fK   (10) L K  1/ 2  0
K 2 K .

Thus, both f L  Mp L and f K  Mp K are positive.

Secondly, we compute the pure second-order partials as

( f L )   5 K 1 / 2   5 K 1/ 2
f LL     0
L L  L1/ 2  2 L3 / 2
,and

28
 ( f K )   5 L1/ 2   5 L1/ 2
f KK     0
K K  K 1/ 2  2 K 3 / 2

Now since the first order partial for both inputs are positive and the pure second order partial are both
negative, we can say that both inputs L and K satisfy LDMP.

Finally, we compute the mixed second order partial as

( f L )   5 K 1/ 2  5
f LK    1/ 2   1/ 2 1/ 2  0
K K  L  2 L K
. Notice here that it is enough to get the sign of one
mixed second order partial due to Young’s Theorem.

Thus, from the sign of f LK we can conclude that L and K are complementary.

Example 2: Cobb Douglas Production Function

Find and interpret (economically) the first and second order partial derivatives for the Cobb Douglas
production function with two in puts L and K:

Q  f ( L, K )  AL K B , A  0, 0   ,   1, Where A,  and  are technological parameters.

Solution:

A K 
f L  MPL  AL 1 K   0
L1 since 1    0 as 0    1

  1  AL
f K  Mp K  AL K  1   0
K since 1    0 as 0    1 .

So, both MPL and MPK are positives.

Moreover,

( f L )  (  1)AK 
f LL   (AL 1 K  )  (  1) AL  2 K   0
L L L2  since 0    1 and
  1  0 , and

29
 ( f K )  (   1)  AL
f KK   (  AL K  1  (   1) AL K   2  0
K K K 2  since   1  0 and

2   0.

Thus, both input L and K exhibit diminishing marginal productivity.

( f L )  A
f LK   (AL 1 K  )  AL 1 K  1  1 1   0
Finally, since K K L  as 1  α  0 and 1  β  0
, both L and K are complementary.

Notice that the partial derivatives have the similar interpretations in utility function as they have in
production function.

For example, in the utility function U  f (q1 , q 2 ) , the first and second order partial derivatives have
the following interpretations:

U U
U1   MU1 U2   MU 2
i) q1 and q 2 , and

U U 
U1   MU1 U1   MU 1 U11  U1 
ii) if q1 and q1 are both positives and both q 1 and

U 22  U 2 
q2 are negatives, then both good q1 and q 2 satisfy Law of Diminishing Marginal Utility
(LDMU).

B) Level curves and Rate of Substitutions

How the implicit differentiation or total differential can help us in determining the slope of level sets or
level curves that are used in economic theory.

To do this, let us first see the definition and the method of finding the slope of the level set for a general

function y  f ( x1 , x2 ) and we will apply the concept for different level sets that are used in economic
theory.

For a function y  f(x 1 , x 2 ), the set of (x 1 , x 2 ) pairs that will generate some specific level or value for y,
y , is called a level set.

30
Mathematically, f ( x1 , x2 )  y , where y is some fixed constant is said to be a level set.

The graph of the equation of the level set (i.e, f ( x1 , x2 )  y ) is said to be a level curve.

Now, our basic concern is how we can determine the slope of such level set or or its corresponding level
curve?

The convenient way to do this is rewriting the equation f ( x1 , x2 )  y in the form that x 2 is expressed
dx 2
dx
explicitly in terms of x1 and y and determine its slope by 1 .

For example, if y  f ( x1 , x2 )  2 x1  3 x2 be a function with independent variables x1 and x 2 , then the

level sets can be described by the equation 2 x1  3 x2  y where y is a constant. Moreover, to get the
slope of this level set or level curve, first we rewrite the equation of the level set as

3x2  y  2 x1
y 2
 x2   x1
3 3

dx 2  2

dx
And then we compute the slope as 1
3 .

But this convenient method does not always works, particularly, when it is difficult to express x 2

explicitly in terms of x1 and y from f ( x1 , x2 )  y . For instance, we cannot get the slope of

3 3 1
(0.3 x1 0  0.7 x2 x1 ) 3
 y using the above method since it is not possible to write x 2 explicitly in

terms of x1 and y . So, the question which naturally arises is how we can determine the slope of such
level set?

Now since the level set f ( x1 , x2 )  y can be written implicitly as f ( x1 , x2 )  y  0 and its slope is given
dx 2
dx
by 1 , we can use any of the two implicit differentiation methods that we have used in section 2.6 to
dx 2
get
dx1 and thus the slope of the level set.

31
 dx 2
Alternatively, we can apply total differential techniques to get
dx1 and thus the slope of the level set

as follows:

By taking the total differential of both sides of f ( x1 , x2 )  y ,we get

df(x 1 , x 2 )   dy 
 f1dx1  f 2 dx 2  0 since y is a constant
dx 2  f1
 
dx1 f2

Thus, the slope of the level set for y  f ( x1 , x 2 ) (or f ( x1 , x2 )  y ) is given by

dx2  f1 f f
 f1  and f 2 
dx1 f 2 , where x1 x 2

2
Example; Find the slope of the level curve for y  f ( x1 , x2 )  x1 x2

Solution

f f
since f1   2x1x 2 and f 2   x12 , the Slope is given by
x1 x 2
dx 2  f1  2x1x 2  2x 2
  
dx1 f2 x12 x1

Notice that many of the curves in microeconomics are level curves; indifference curves and isoquants
are probably the most familiar. So, we can use either the implicit differentiation methods or the total
differential techniques to get the slopes of such curves.

Isoquants in the production function Q  f ( L, K ) are level curves and represented by the equation

f ( L, K )  Q where Q is the level of fixed output which can be obtained from all combinations of L

and K. Moreover, the slope of an isoquant is given by

dK  f L

dL fk

32
In fact, this result can obtained using total differential techniques as follows:

dK
Take the total differential of both sides f ( L , K )  Q and solve for dL as

df(L, K)  d Q 
 f L dL  f K dK  0 since Q is a constant
dK  f L
 
dL fK

The absolute value of the slope of an isoquant is called Marginal Rate of Technical Substitution (or
MRTS). So, MRTSL, K is given by

dK f
MRTS L , K   L
dL f K

1 1

Example; Find the MRTS for the production function given by y  f ( x1 , x 2 )  x1 x 2

3 2

Solution

f 1  2 3 1 2 f 1 1 1
since f1   x1 x 2 and f 2   x1 3 x 2 2 ,
x1 3 x 2 2
1 2 3 12 1 1
x x 
f1 3 1 2 2 x 22 2 2x 2
MRTS    
f 2 1 x 13 x 12 3 2 3  13 3x1
1 2 x1
2

Example; Cobb-Douglas Production Function

 
Find MRTSL,K for Q  f ( L, K )  AL K , A  0,0   ,   1 and show that

MPL
MRTSL,K =
MPk

Solution

 dk f L AL 1k  AK  k  (  1) k

    1
   ( 1)

MRTSL,K =
dL f k  AL k  AL L L .

f L MPL
MRTS L , K  
f L  MPL and f k  MPk f K MPK .
Moreover, Since , We have

33
Notice that an indifference curve in the utility function U  f (q1 , q 2 ) is also a level curve and it

represented by the equation f (q1 , q2 )  U as it shows all combinations of the two goods q1 and q 2

which gives the given level of utility U . Moreover, the slope of an indifference curve is given by
dq 2  f1 U U
 where f1  and f 2 
dq1 f2 q1 q 2 and the Marginal Rate of Substitution (or MRS) which is the

negative of the slope of the indifference curve is given by

- dq 2 f1 MU1 U U
MRS q1,q2    since MU1  and MU 2 
dq1 f 2 MU 2 q1 q 2 .

Chapter 7

Basics of Integration
7.1. Indefinite integral

Example1;

Example2;

34
Example;

7.2. Fundamental rules of integration

35
Example;

Solution:

Example;

36
 7.3. Integration by substitution and by parts

Example1;

Example2;

37
Example1;

Example2;

38
 7.4. Definite integral

Example;

b)

Example

39
 7.5. Economic applications of integral calculus
A) Developing a total function from marginal function
Example; If the marginal cost of a firm is given by an equation C’(Q) = -4Q3 + 6Q – 80
and the fixed cost of production is 90 birr, find the total cost of production.
❑

∫ MdQ=TC
❑
❑
TC =∫ (−4 Q3+ 6 Q – 80¿) dQ ¿ = = -Q4 + 3Q2 – 80Q and the fixed cost is given as = 90
❑
Then TC = -Q4 + 3Q2 – 80Q + 90

B) Finding the area of the region

One of the applications of definite integration is finding the area of a region bounded by f(x), the
X axis and the vertical lines x = a and x=b.
Note: The area of the region R, denoted by A(R), bounded by f, the X-axis, the vertical lines X=a
and X=b is given by;

40
Example;

41
C) Consumer’s and Producer’s Surplus
D) Definition: -consumers’ surplus is the difference between the total amount that consumers
would be willing to spend and the actual consumer expenditure on a commodity.
E)

F) e.g. If the price-demand equation is given by,

P  D x)(  200.05x find the consumers’ surplus at
a price level of birr 8?

G) To find the CS, first find the value of

x when price is 8.

H) p  20  0.05 x , 8  20  .o5 x  x  240 .

42
 240 0.05 x 2 240
CS   20  0.05 x dx  8(240) 20 x 
2 0
 1920.
I) 0 =

0. 5(0 240)2
CS  0(2 240)  1920 bir 14 0.
J)
2 Thus , the total savings to consumers who are willing to pay a higher price
for the product is birr 1,440.
K) Definition: The additional money suppliers gain from the higher price is called the
producers’ surplus.
L) Example: Find the producers’ surplus at a price level of birr 20 for the price-supply

2
equation
p  xs )(  2 0.0 02x .
M) The solution for this question can be answered in a similar way with consumers’ surplus.
x
ps  px   s ( x)dx
N)

px
0

O) where is the total sale.

P)
 s(x)dx
0 are the total sales that the producers are willing to accept.

Q) Now first find the quantity to be supplied

(x ) at a price level of birr 20.

43
 R) 20  2  0.0002 x 2  x  300

8. Matrices and their basic operations

8.1. Definition of matrix and types of matrix

A matrix is defined as an array of numbers (or algebraic symbols) set out in rows and columns. The usual
notation system is to denote matrices by a capital letter in bold type and to enclose the elements of a
matrix in a set of squared brackets, i.e. [ ]. Matrices may also be specified with algebraic terms instead of
numbers. Each entry is usually known as an ‘element’. The elements in each matrix must form a complete
rectangle, without any blank spaces. For example, if there are 5 rows and 3 columns there must be 3

44
elements in each row and 5 elements in each column. An element may be zero though. The size of a
matrix is called its ‘order’. The order is specified as: (number of rows) × (number of columns)

For example, the matrix A below has 5 rows and 3 columns and so its order is 5 × 3.

Matrices with only one column or row are known as vectors. These are usually represented by lower case
letters, in bold. For example, vector p = [139 160 205 340 430] is 1 × 5 row vector

is and 5 × 1 column vector .

8.2. Matrix addition and subtraction: Matrices that have the same order can be added together, or
subtracted. The addition, or subtraction, is performed on each of the corresponding elements.

E.g. A retailer sells two products, Q and R, in two shops A and B. The number of items sold for the last 4
weeks in each shop are shown in the two matrices A and B below, where the columns represent weeks
and the rows correspond to products Q and R, respectively.

Solution:

An element of a matrix can be a negative number

8.3. Scalar multiplication and matrix multiplication: There are two forms of multiplication that can be
performed on matrices. A matrix can be multiplied by a specific value, such as a number (scalar
multiplication) or by another matrix (matrix multiplication). Scalar multiplication simply involves the
multiplication of each element in a matrix by the scalar value.

E.g. The number of units of a product sold by a retailer for the last 2 weeks are shown in matrix A below,
where the columns represent weeks and the rows correspond to the two different shop units that sold
them.

45
If each item sells for Birr4, derive a matrix for total sales revenue for this retailer for these two shop units
over this two-week period.

Solution:

The scalar value that a matrix is multiplied by may be an algebraic term rather than a specific number
value.

Scalar division works in the same way as scalar multiplication, but with each element divided by the
relevant scalar value.

Basic principles of matrix multiplication

The basic rule matrix multiplication is to multiply elements along the rows of the first matrix by the
corresponding elements down the columns of the second matrix.

e.g1. the multiplication of p*q.

Where the row vector p contains the prices of hire cars in each category and the column vector q contains
the quantities of cars in each category that your company wishes to hire for the week.

= 139 × 4 + 160 × 3 + 205 × 12 + 340 × 2 + 430 × 1 = 4,606

46
e.g.2.

Matrix multiplication –the general case

The general m × n matrix with number of rows m and columns n can be written as;

47
Exercise:

8.4. Determinants, transpose, minor, cofactor and adjoint of matrix

Determinants: For a 2nd order matrix (i.e. order 2 × 2) the determinant is a number
calculated by multiplying the elements in opposite corners and subtracting. The usual
notation for a determinant is a set of vertical parallel lines either side of the array of
elements, instead of the squared brackets used for a matrix. The determinant of the general 2
× 2 matrix A, written as |A| and,

e.g. Find the determinant of matrix

|A|= 5x9-4x7 = 45-28 = 17

48
E.g.

Exercise:

To get the transpose of a matrix, usually written as AT, the rows and columns are swapped
around, i.e. row 1 becomes column 1 and column 1 becomes row 1, etc. If a matrix is not
square then the numbers of rows and columns will alter when it is transposed.

Minor matrix: The minor |Mij | of matrix A is the determinant of the matrix left when row i and
column j have been deleted. For example, if the first row and first column are deleted from matrix

49
e.g.

The cofactor matrix usually denoted by C same as a minor, except that its sign is
determined by the row and column that it corresponds to. The cofactor |Cij | of matrix A is the
determinant of the matrix remaining when row i and column j have been eliminated, with the
sign (−1)i+j .

Where

Cheack for the other elements by yourself.

50
 8.5. The matrix inverse
Asquare matrix A is said to be invertible or non-singular, if and only if threre is asquere matrix B
such that AB=BA=I, where I is the identity matrix that has the same order as A. only asquare
matrix can have an inverse. Invers of asquare matrix A is denoted by A -1.
e.g.

Solution:

The above method of finding an inverse matrix is tedious and time consuming. Threre is another
method of finding invers of invertible matrix, Using the adjoint of matrix the formula for A −1 (the
inverse of matrix A) can be stated as

e.g.

51
 |A|=1(4-5)-(-2)(0+4)+3(0+8) = -1+8+24 = 31
Then A-1 =

Exercise

8.6. Application of amatric inverse to the solution of simultaneous equations

Amatrix inverse is used to solve a set of simultaneous equations specified in matrix format. For
example,

52
X1 =4, x2= 2 and x3 = 5.

53
 8.7. Solving simultaneous equations using crumers rule

Cramer’s rule is another method of using matrices for solving sets of simultaneous equations, but it finds
the values of unknown variables one at a time. This means that it can be quicker and easier to use than the
matrix inversion method if you only wish to find the value of one unknown variable.

A set of n simultaneous equations involving n unknown variables x 1, x2,...,xn and n constants values can
be specified in matrix format as Ax = b where A is an n × n matrix of parameters, x is an n × 1 vector of
unknown variables and b is an n × 1 vector of constant values. Cramer’s rule says that the value of any
one of the unknown variables xi can be found by substituting the vector of constant values b for the i th
column of matrix A and then dividing the determinant of this new matrix by the determinant of the
original A matrix. Thus, if the term Ai is used to denote matrix A with column i replaced by the vector b
then Cramer’s rule gives

Example:

54
 Chapter 9

Optimization functions
9.1. Unconstrained optimization
9.1.1. Optimization with one variable & its Economics application
Extreme points: Minima and Maxima

Now let us to discuss the use of derivatives to find the relative maximum or minimum value of a
function. A relative maximum of a function is a peak, point on the graph of the function that is
higher than any neighboring point on the graph. A relative minimum is the bottom of a valley,
point on the graph that is lower than any neighboring point. The relative maxima and minima of
a function are collectively termed as relative extrema.

The above graph shows the relative maxima and minima of a function. The function has a
relative maximum point A and C and a relative minimum at points B and D. Each of these points
represents an extremum in the immediate neighborhood of the point only.
First order and second order tests
 First order tests

Given y=f(x) which is continuous and possess a continuous derivative, then the first derivative,
f (x) ' plays a major role in our search of its extreme values.

Definition: The values of x where the first derivative f (x) ' =0 are called critical points and the
corresponding values of f(x) are called critical values. The value of the function at the critical
value, f(x0), will be

55
A) a relative maximum if the derivative f (x) ' changes its sign from positive to negative from the
immediate left of the point x0 to its immediate right.
B) a relative minimum if f (x) ' changes its sign from negative to positive from the immediate left
of x0 to its immediate right.
C) neither a relative maximum nor a relative minimum if f (x) ' has the same sign on both the
immediate left and right of point x0.

In (a) the value of the function at x1, f(x1), is a relative minimum because the sign of the first
derivative changes f'(x) its sign from negative to positive. The value of the function at x2, f(x2), is

a relative maximum because the sign of the first derivative f '(x) changes its sign from positive to
negative. In (b) the value of the first derivative at x1, f '(x1) is zero, the derivative does not change
its sign from one side of x=x1, to the other side. Point A is called an inflection point.

The point (x1,f(x1)) and (x2,f(x2) in both (a) and (b) are called stationary points. The value of the
function f(x) at these stationary points (i,e, f(x1) and f(x 2) ) are called stationary values of y.
Note that a relative extremum must be a stationary value, but a stationary value may be
associated with either a relative extremum or an inflection point.
Example
Find the relative exterma for f(x)=x3-12x2+36x+8.
Solution
The first derivative of f(x) is f (x) ' =3x2-24x+36 equating this to zero,
3x2-24x+36=0
x1=2 and x2 = 6 are the critical values.
Next check the signs of f (x) ' by taking numbers from the left and right of x = 2 and x = 6
For x=2 take x=1.9 and x=2.1
At x = 1.9, f (x) ' = 3(1.9)2-24(1.9) +36 = 1.23
At x = 2.1, f (x) ' = 3(2.1)2-24(2.1) + 36 = -1.17
Since the sign of f (x) ' changes from positive to negative, f(2) = 40 is a relative maximum.

56
For x = 6 take x = 5.9 and x = 6.1
At x =5.9, f (x) ' =3(5.9)2-24(5.9)+36 = -1.17
At x=6.1, f (x) ' = 3(6.1)2-24(6.1) + 36 = 1.23
Since f (x) ' changes its sign from negative to positive, f(6)=8 is a relative minimum.
 Second order tests

The second derivative can be used to find the relative maxima or relative minima of a function.
This test is more convenient than the first derivative test, because it does not require you to check
the derivative sign to both the left and the right of x0.
If the first derivative of a function f at x = x0 is f' (x) = 0, then the value of the function at x0,
f(x0), will be
i) a relative maximum if the second derivative value at x0 is negative. That is, if f (x) '' < 0.
ii) a relative minimum if the second derivative value at x0 is positive. That is, if f (x) '' > 0.
''
But if f (x0) =0, the stationary value f(x0) can be either a relative maximum, or a relative
minimum, or even an inflection value. In this case we must revert to the first derivative test, or to
another test.:
Example: Find the relative extremum of the function f(x) = 4x2-x by using the second derivative
test.
Solution: First find the first derivative of the function and then the critical value
f ' (x) = 8x-1and thus x=1/8 is the critical value.
Then find the second derivative
f '' (x) = 8 and check the sign of the second derivative at the critical value
f''( x) = 8 >0
Therefore, f (1/8) = -1/16 is the relative minimum.
Economic Application:
Eg1.

57
Eg2.

58
Eg3.

59
9.1.2. Optimization with more than one variable & its economics application
 Optimization with Functions of Two Choice Variables

E.g. Find the critical points of the function f(x,y) = x3 + x2y + x - y

∂ f (x , y)
Solution: fx = = 3x2 +2xy + 1……………….(1)
∂x

∂ f (x , y)
fy = = x2 - 1………………………(2)
∂y
From equation 2 x2 = 1, x= ±√ 1= 1 or -1. Then substitute these values for x in equasion 1 and
find the respective values of y. That is, when x=1, 3(1)2 + 2(1)y + 1 = 0
3+2y+1=0

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e.g.

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e.g.2.

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9.2. Constrained optimization

Dear students, as you studied in the previous courses economics is the study of allocation of
scarce resources. Scarcity implies constraints, so much of economic theory has to do with agents
who are optimizing some objective function subject to a constraint, as in the case, for example,
when a consumer maximizes utility subject to a budget constraint. In similar manner, a producer
maximizes output subject to cost constraint.

Dear students, for further illustration let us consider together a consumer with the simple utility
function U = x1x2 + 2x1
∂u ∂u
Since the marginal utilities – the partial derivatives U 1 = and U2 = are positive for all
∂x 1 ∂x 2
positive levels of x1 and x2 , here, to have U maximized without any constraint, the consumer
should purchase infinite amount of both goods, a solution that obviously has little practical
relevance. To render the optimization problem meaningful, the purchasing power of the
consumer must also be taken into account; i.e., a budget constraint should be incorporated into
the problem. If the consumer intends to spend a given sum, say, Birr 60, on the two goods and if
the prices are P1 = 4 and P2 = 2, then the budget constraint can be expressed by the linear
equation as: 60 = 4x1 + 2x2

Such constraint renders the choice of x 1 and x2, mutually independent. The problem now is to
maximize utility, subject to this constraint. Mathematically, what the constraint (variously called
restraint, side relation, or subsidiary condition) does is to narrow the domain, and hence the
range of the objective function.

9.2.1. Finding the Stationary Values

A stationary value in constrained optimization problems can be determined by using the substitution
method. For example the above constrained maximization problem can easily be found as follows.
Rearranging the constraint will give;

2 x2 =60−4 x 1

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 60−4 x 1
x 2= =30−2 x1
2

Then, you can combine the constraint with the objective function by substituting the above result for the
constraint into the objective function. The result is an objective function is one variable only:
2
U =x1 ( 30−2 x 1 ) +2 x 1=32 x 1−2 x1

Dear students, as you have learned in the previous unit, the stationary point of the above function can be
dU
found by setting the partial derivative equal to zero ( ¿=0=32−4 x1=0 ¿. Doing so will result in a
d x1
solution x 1 = 8 and x 2 = 30 – 2(8) = 14. We can then find the stationary value U = 128; and since the
2
d y
second derivative is 2
=−4< 0 ,that the stationary value constitutes a constrained maximum of U *.
d x1

9.2.2. Lagrange – multiplier method and its Economic applications

The equality constraint was devised by a French mathematician J.L . Lagrange (1736 – 1813)
and is known as the method of Lagrange multipliers. Suppose that the interest is to find the
extreme value of the function f x, y, zsubject to the constraint g x, y, z0 which can be
formally written as
max f x, y, z
St
g x ,y, z0

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  Economic Applications of Lagrange Multiplier Method
Constrained optimization is very important for the following two applications.
I. Utility analysis
II. Profit analysis
I.Utility analysis
The main objective of rational consumer is maximization his utility given his limited income and
market prices of goods and services. Mathematically, the aim of the consumer can be written as
maxU = f(x,y,z)
s.t
I = Pxx + Pyy + Pzz, where U is a total utility, Consumer limited income, Px, Py and pz are per
unit price of good x, y and z respectively.

The main interest here is to find the consumer equilibrium (i,e, the consumption level that gives
maximum utility to the consumer). This is in fact means that maximizing the above constrained
utility function through the Lagrange Multiplier method. To do this the first step is to find the
critical points for the corresponding Lagrange Multiplier function through first order derivative
test as follows.

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So the above equations can be re- arranged as
MUx . Px

MUy . Py

MUz . Pz

And from these equations you can derive the first condition for maximization as

e.g. Find the levels of x and y that can maximize the utility given by

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 II. Profit Analysis
Profit maximization of the firm is achieved in two ways:
A) Maximization of output subject to a cost constraint.

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B). Minimization of cost for a given level of output.

A) Maximization of output subject to a cost constraint

In this situation cost is given or remaining constant. Mathematically, it can be represented as

Max Q f L, K

st
C- =wL+ Rk

Here also, you can use the method of Lagrange Multiplier to find the level of input combination
that can maximize the profit of the firm.

MP L w
MPK r

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B) Minimization of cost for a given level of output
In this case output is given or remaining constant and the problem can written mathematically as

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e.g.1. A firm can produce its product at two of its plants. The cost of manufacturing x units at the
first plant and y units at the second plant is given by the joint cost function
C( x, y) x2 y2 xy + 700. If the firm has a supply order of 500 units, how many units
should be produced at each plant to minimize the total cost?
Solution:
Cx2 y2 xy + 700
Subject to x+y=500

Again solve these equations simultaneously to get y 3x and substitute it in the supply order
constraint function as follows to get the critical point.

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