Introduction to Logic using Propositional

Calculus
• A statement or a proposition is a sentence that is either true (T) or
false (F) – but not both:
• “19 is a prime number” is a true statement. • “This statement is
false” is not a statement. • “x is an odd number.” is not a statement.
• When making precise arguments, we often need to make conditional
statements, like if the price of output increases then a competitive
firm increases its output.
• These statements are instances of the statement if A then B, where A
and B stand for statements. We may alternatively write this general
statement as A implies B, or, using a symbol, as A ⇒ B.
• Connectives: Statements can be connected to more complex statements by
means of words like “and”, “or”, “not”, “if . . . then . . .” or “if and only if”.
Here are the most important ones:
• Let P and Q be two statements.
• Connective Symbol Name
• not ¬P or 𝑃ത negation
• P and Q P ∧Q conjunction
• P or Q P ∨Q disjunction
• if P then Q P⇒Q implication
• Q if and only if P P ⇔ Q equivalence (double implication)
• In an implication P ⇒ Q there are two parts: Statement P is called the
hypothesis or assumption, and statement Q is called the conclusion.
• Notice that P ⇒ Q says nothing about the truth of P or Q!
• Below you can see a truth table for some connectives:
• Note that not(not(A)) ⇔ A.
• If A and B are statements, and both are true, we write
A and B, and if at least one of them is true we write A or
B.
• Note, in particular, that writing “A or B” includes the
possibility that both statements are true.
• Explaining truth table for implications:
• "If you get an A, then I'll give you a dollar."
• The statement will be true if I keep my promise and false if I don't.
• Suppose it's true that you get an A and it's true that I give you a dollar. Since I kept my promise,
the implication is true. This corresponds to the first line in the table.
• Suppose it's true that you get an A but it's false that I give you a dollar. Since I didn't keep my
promise, the implication is false. This corresponds to the second line in the table.
• What if it's false that you get an A? Whether or not I give you a dollar, I haven't broken my
promise. Thus, the implication can't be false, so (since this is a two-valued logic) it must be true.
This explains the last two lines of the table.
• The double implication is true if P and Q are both true or if P and Q are both false; otherwise, the
double implication is false.
• A friend tells you that “if you upload that picture to Facebook, you’ll lose
your job.” There are four possible outcomes:
1.You upload the picture and keep your job
2.You upload the picture and lose your job
3.You don’t upload the picture and keep your job
4.You don’t upload the picture and lose your job
• There is only one possible case where your friend was lying—the first option
where you upload the picture and keep your job. In the last two cases, your
friend didn’t say anything about what would happen if you didn’t upload the
picture, so you can’t conclude their statement is invalid, even if you didn’t
upload the picture and still lost your job.
• Quantifiers:
• The phrase “for all” is the universal quantifier, denoted by ∀.
• The phrase “there exists” is the existential quantifier, denoted by ∃.
• For example, denoting the total demand for tomatoes at the
price p by D(p), it might be true that D(p) > 100 for every price p in
the set S. In this statement, “for every price” is a quantifier.
• Exercises:
• 1. For each statement, decide whether they are TRUE or FALSE.
Explain your decision briefly.
• (a) “For all x, there exists y such that x < y.
• (b) “There exists x such that for all y, x < y.
• (c) “For all x and for all y, x < y.
• (d) “There exists x and there exists y such that x < y.
• (e) “There is a smallest positive number”.
• 2. A and B are statements. The following theorem is true: A is true if
and only if B is true. Which of the following statements follow from
this theorem?
a.If A is true, then B is true.
b.If B is true, then A is true.
c.If A is not true, then B is not true.
d.If B is not true, then A is not true.
Sets
• A set is a well-defined collection of distinct objects, considered as an
object in its own right.
• Examples:
A = {4, 2, 1, 3}
B = {blue, white, red}
C = {1, 2, 3, ..., 1000}
• If B is a set and x is one of the objects of B, this is denoted as x ∈ B,
and is read as "x is an element of B", as "x belongs to B", or "x is in
B". If y is not a member of B then this is written as y ∉ B, read as "y is
not an element of B", or "y is not in B"
• The empty set (or the null set) is denoted by the symbol ∅.
• The cardinality of a set S, denoted |S|, is the number of members
of S.
• Set of all natural numbers: N = {1, 2, 3, ...}
• Set of all integers (positive, negative or zero): Z = {...,−2, −1, 0, 1, 2,... }
• Set of all rational numbers (that is, the set of all proper and improper
fractions): Q = {a/b | a, b ∈ Z, b ≠ 0}.
• Set of all real numbers R ( all rational numbers, together with all
irrational numbers like 2 , 𝝿, 𝑒.
• A set B is called a subset of a set A, if all elements of B are also elements of
A. We write: 𝐵 ⊆ 𝐴 𝑜𝑟 𝐵 ⊂ 𝐴 if B is a proper subset (if there is at least
one element of B which is not an element of A).
• Basic operations with sets:
• Intersection A ∩ B is the set of all objects that are members of
both A and B.
• Union A ∪ B is the set of all objects that are members of either A or B.
• Difference A \ B is the set of all objects that are members of A but not
members of B. It is also called the relative complement of B in A.
• Cartesian product A × B is the set of all ordered pairs (a, b) such that a is a
member of A and b is a member of B.
• Examples:
• A={2,4,6}
• B={1,2,3}
• A ∪ B={1,2,3,4,6}
• A ∩ B={2}
• A \ B={4,6}
• A x B={(2,1),(2,2),(2,3), (4,1), (4,2), (4,3), (6,1), (6,2), (6,3)}
Functions
• Function is a relation between sets that associates every element of
a first set exactly one element of the second set.
• Notation: f(x):X→Y
• X is called the domain of f (all the x values).
• Y is called the codomain
• All the y values are called range or image of f.
• Constant function: f(x) = c

• Linear Function: f(x) = mx + t

m is called slope and t is called intercept
its graph is a straight line
• A quadratic function is one of the form f(x) = 𝑎𝑥 2 + bx + c, where a, b,
and c are numbers with 𝑎 not equal to zero.
• The graph of a quadratic function is a curve called a parabola.
Parabolas may open upward or downward and vary in "width" or
"steepness", but they all have the same basic "U" shape.
• Zeros:
• you can have up to 2 zeros.
• You can calculate the zeros by using the quadratic formula:

• Vertex: each parabola has a highest (if a<0) or lowest (if a>0) point
called vertex.
• A cubic function or a polynomial function of degree three is a
function of the form
f(x)= 𝑎𝑥 3 + 𝑏𝑥 2 + 𝑐𝑥 + 𝑑
where the coefficients a, b, c, and d are real numbers, and the variable
x takes real values, and a ≠ 0.
• Exponential function is a mathematical function of the following
form: f ( x ) = a x. where x is a variable, and a is a constant called the
base of the function, a > 0 and a ≠ 1.
For a>1: For a<1:
• The most commonly encountered exponential-function base is the
transcendental number e , which is equal to approximately 2.71828.
• Thus the natural exponential function is: f ( x ) = e x

• e𝑥 > 0 for any x!

• e𝑥 has no zeros!
• Domain is R
• Logarithmic function is a function of the form
f(x) = loga(x) where a is any value greater than 0, except 1, and x > 0
• Natural logarithm function is a function of the form
f(x) = ln(x) with x > 0

• Domain is 𝑹+
• x=1 is the only zero
• Range is R
• The natural logarithm function is the inverse of the natural
exponential function.
• The square root function 𝑥 is defined to take any x≥ 0 as input and
return the positive number y which would have to be squared (i.e.
multiplied by itself), to obtain x.
• Domain: 𝑅0+ (𝑎𝑙𝑙 x ≥ 0)
• Range: 𝑅𝟎+
• x=0 is the only zero
 1
• The reciprocal function 𝑓 𝑥 = is a function defined on the set of
𝑥
nonzero reals, that sends every real number to its reciprocal, i.e., its
multiplicative inverse.
• The graph of a reciprocal function is a curve called a hyperbola.

• Domain: R∖ 0
• Range: R∖ 0
• No zeros
Exercises
• 1.
• Build the union, intersection, difference and cartesian product of A=
{2,4,6} and B= {1,2,3}
• Build the union, intersection, difference of N and Z.
• 2. Fill in the blanks:
• The graph of a ………….. function is a straight line.
• The graph of a ………….. function is a parabola, which is a symmetrical
curve with a maximum or minimum point and an axis of symmetry.
• The graph of an ………….. function is a curve with a horizontal
asymptote and is either strictly increasing or strictly decreasing.
• 3. Find domain, range and zeros of following functions:
• 𝑓 𝑥 = 2𝑥 + 3
• 𝑓 𝑥 = 𝑥2 − 4
• 𝑓 𝑥 = 𝑥 2 − 4𝑥 + 3
• 𝑓 𝑥 = e𝑥
• 𝑓 𝑥 = e𝑥 − 3
• 𝑓 𝑥 = ln 𝑥
• 𝑓 𝑥 = ln 𝑥 − 2
Solutions:
• 1. A= {2,4,6} , B= {1,2,3}
• A ∪ B = {1,2,3,4,6}
• A ∩ B = {2}
• A \ B={4,6}
• A x B={(2,1),(2,2),(2,3), (4,1), (4,2), (4,3), (6,1), (6,2), (6,3)}

• 2. linear;quadratic; exponential
• 3.
•𝑓 𝑥 = 2𝑥 + 3; D=R, W=R, x=-3/2=-1,5
•𝑓 𝑥 = 𝑥 2 − 4; D=R, W=[-4; +∞[, 𝑥1 = −2, 𝑥2 = 2
•𝑓 𝑥 = 𝑥 2 − 4𝑥 + 3; D=R, W=[-1; +∞[, 𝑥1 = 1, 𝑥2 = 3
•𝑓 𝑥 = e𝑥 ; D=R, W=𝑅 + , 𝑛𝑜 𝑧𝑒𝑟𝑜𝑠
•𝑓 𝑥 = e𝑥 − 3; D=R, ]-3; +∞[, x=ln3
•𝑓 𝑥 = ln 𝑥; D= 𝑅 + , W=R, x=1
•𝑓 𝑥 = ln 𝑥 − 2; D= 𝑅 + , W=R, x=e2
Rules for Exponents
x1 = x Example: 61 = 6
x0 = 1 70 = 1
x-1 = 1/x 4-1 = 1/4

xmxn = xm+n x2x3 = x2+3 = x5

xm/xn = xm-n x6/x2 = x6-2 = x4
(xm)n = xmn (x2)3 = x2×3 = x6
(xy)n = xnyn (xy)3 = x3y3
(x/y)n = xn/yn (x/y)2 = x2 / y2
x-n = 1/xn x-3 = 1/x3
Rules for Logarithms
• loga(m × n) = logam + logan
• loga(m/n) = logam − logan
• loga(1/n) = −logan
• loga(mr) = r ( logam )

• Rules are valid for any basis a. When a=e, we write ln instead of loge.
HW
• Find domain, range and zeros of following functions:
• 𝑓 𝑥 = 12x − 3
• 𝑓 𝑥 = 3𝑥 2 − 27
• 𝑓 𝑥 = 2𝑥 2 − 10𝑥 + 12
• 𝑓 𝑥 = 4e 𝑥
• 𝑓 𝑥 = 5e 𝑥 + 1
• 𝑓 𝑥 = 3ln 𝑥-6
• 𝑓 𝑥 = 4ln 𝑥 + 8
• 𝑓 𝑥 = 2𝑥 − 7
4
• 𝑓 𝑥 =
𝑥−1
• Simplify (write with only one base and one exponent):
• 𝑥2 ⋅ 𝑥4
• 𝑥5: 𝑥
• 𝑥2 3

• Write as a sum or difference of logarithms:

• ln(pK)
• ln(a:b)
Derivative of a Function
• The derivative of a function at a given point gives us the rate of
change or slope of the tangent line to the function at that point.
• This enables us to find out where the function has a maximum or a
minimum.
′ ⅆ𝑦 a small change in y
• We write 𝑓 𝑥 = = =m=the slope of the tangent
ⅆ𝑥 a small change in x
• 𝑓 ′ 𝑥 > 0 𝑎 𝑝𝑜𝑠𝑖𝑡𝑖𝑣𝑒 𝑠𝑙𝑜𝑝𝑒 𝑚𝑒𝑎𝑛𝑠 𝑡ℎ𝑒 𝑓𝑢𝑛𝑐𝑡𝑖𝑜𝑛 𝑖𝑠 𝑖𝑛𝑐𝑟𝑒𝑎𝑠𝑖𝑛𝑔
• 𝑓 ′ 𝑥 < 0 𝑎 𝑛𝑒𝑔𝑎𝑡𝑖𝑣𝑒 𝑠𝑙𝑜𝑝𝑒 𝑚𝑒𝑎𝑛𝑠 𝑡ℎ𝑒 𝑓𝑢𝑛𝑐𝑡𝑖𝑜𝑛 𝑖𝑠 𝑑𝑒𝑐𝑟𝑒𝑎𝑠𝑖𝑛𝑔
• 𝑓 ′ 𝑥 = 0 𝑠𝑙𝑜𝑝𝑒 𝑒𝑞𝑢𝑎𝑙 𝑧𝑒𝑟𝑜
𝑚𝑒𝑎𝑛𝑠 𝑡ℎ𝑒 𝑓𝑢𝑛𝑐𝑡𝑖𝑜𝑛 ℎ𝑎𝑠 𝑎 ℎ𝑜𝑟𝑖𝑧𝑜𝑛𝑡𝑎𝑙 𝑡𝑎𝑛𝑔𝑒𝑛𝑡 𝑙𝑖𝑛𝑒 and therefore
a local maximum, local minimum or a saddle point
Useful Derivatives

Function Derivative
• C • 0
• X • 1
• 𝑥2 • 2x
• 𝑥n • n 𝑥 n−1
• e𝑥 • e𝑥
1
• lnx •
𝑥

• 𝑥 •
1
2 𝑥
Example:
• 𝑓 𝑥 = 𝑥 3 − 4𝑥 2 + 3𝑥
• 𝑓 ′ 𝑥 = 3𝑥 2 - 8 𝑥 + 3
• Set 𝑓 ′ 𝑥 = 0
• Thus 3 -8 + 3 = 0 and
• 𝑥1 ≈ 0,45 and 𝑥2 ≈ 2,2
x 0,45 2,2
𝑓′ 𝑥 + 0 - 0 +
𝑓 𝑥 increasing max. decreasing min increasing
• Thus the function has a local max. for 𝑥1 = 0,45 and a local min. for
𝑥2 = 2,2
• In order to find the corresponding y values, insert the x values in the
function:
• 𝑦1 = 𝑓 0,45 ≈0,63
• 𝑦2 = 𝑓 2,2 ≈-2,1
HW
• Find the local maximum and minimum for these functions:
• A. 𝑓 𝑥 = 𝑥 3 − 4,5𝑥 2 +6𝑥
• B. 𝑓 𝑥 = 2𝑥 3 − 3𝑥 2 − 12 𝑥
• 𝐶. 𝑓 𝑥 = 𝑥 2 − 4𝑥 + 3
• D. 𝑓 𝑥 = 𝑥 2 − 10𝑥 + 1
• E. 𝑓 𝑥 = 𝑥 3 + 15 𝑥
Solution:
• A. 𝑓 ′ 𝑥 = 3𝑥 2 − 9𝑥 + 6, the zeros of 𝑓 ′ 𝑥 are 1 and 2; max (1;2,5)
and min (2;2)
• B. 𝑓 ′ 𝑥 = 6𝑥 2 − 6𝑥 – 12, the zeros of 𝑓 ′ 𝑥 are -1 and 2; max (-1;7)
and min (2;-20)
• C. 𝑓 ′ 𝑥 = 2𝑥 – 4, the zero of 𝑓 ′ 𝑥 is 2; min(2;-1)
• D. 𝑓 ′ 𝑥 = 2𝑥 – 10, the zero of 𝑓 ′ 𝑥 is 5; min (5; -24)
• E. 𝑓 ′ 𝑥 = 3𝑥 2 + 15, no zeros of 𝑓 ′ 𝑥 ; no min or max for 𝑓 𝑥
Rules for Derivatives
′
• Product rule: 𝑓 ⋅ 𝑔 = 𝑓′ ⋅ 𝑔 + 𝑓 ⋅ 𝑔′
• Quotient rule:
• Chain rule: (f ∘ g)´ = (f’ ∘ g) × g’
• The chain rule actually allows you to use a simple formula for a
composite function!
Examples
′ 1
• 𝑥 ⋅ ln 𝑥 = 1 ⋅ ln 𝑥 + 𝑥 ⋅ = ln 𝑥 + 1
𝑥

4 ′ 3
• 7𝑥 + 5 = 4 ⋅ 7𝑥 + 5 ⋅7
′ 1 1
• ln 3𝑥 = ⋅3=
3𝑥 𝑥
′ 1 1
• ln 3 + 𝑥 = ⋅1 =
3+𝑥 3+𝑥
HW
• Build the derivatives:
• 4𝑥 ⋅ ln 𝑥 ′ =
=
=
• ln 5𝑥 ′ =
• ln 2 − 4𝑥 ′ =
• ln 𝑥 2 − 𝑥 ′ =
• ( 𝑥 2 − 𝑥 lnx)´=
Second Derivative of a Function
• The second derivative of a function f measures the concavity of
the graph of f.
• A function whose second derivative is positive will be concave up.
• A function whose second derivative is negative will be concave down.
• The "Second Derivative" is the derivative of the derivative of a
function. So:
• Find the derivative f‘(x) of a function
• Then take the derivative f‘‘(x) of that.
• For a local maximum, f‘‘(x)<0
• For a local minimum, f‘‘(x)>0
• Points where f‘‘(x)=0 and where the curve changes ist concavity
(meaning f‘‘(x) is changing its sign) are called inflection points.
Examples
• 1. 𝑓 𝑥 = 𝑥 3 − 4,5𝑥 2 +6𝑥
• f‘(x)=3𝑥 2 − 9𝑥+6
• f‘‘(x)=6𝑥-9
• We set f‘‘(x)=0 and get x=1,5.
• For x<1,5, f‘‘(x)<0, the graph is concave down
• For x>1,5, f‘‘(x)>0, the graph is concave up
• For x=1,5 the graph has an inflection point (1,5|2,25)
• 2. 𝑓 𝑥 = 2𝑥 3 − 3𝑥 2 − 12 𝑥
• f‘(x)=6𝑥 2 − 6𝑥- 12
• f‘‘(x)=12𝑥-6
• We set f‘‘(x)=0 and get x=0,5.
• For x<0,5, f‘‘(x)<0, the graph is concave down
• For x>0,5, f‘‘(x)>0, the graph is concave up
• For x=0,5 the graph has an inflection point (0,5| − 6,5)
• 3. 𝑓 𝑥 = 𝑥 2 − 4𝑥 + 3
• f‘(x)=2𝑥-4
• f‘‘(x)=2
• For all x, f‘‘(x)>0, the graph is concave up and has no inflection point
• 4. 𝑓 𝑥 = 𝑥 3 + 7,5 𝑥 2
• f‘(x)=3𝑥 2 + 15𝑥
• f‘‘(x)=6𝑥 + 15
15
• We set f‘‘(x)=0 and get x=− = −2,5.
6
• For x<-2,5, f‘‘(x)<0, the graph is concave down
• For x>-2,5, f‘‘(x)>0, the graph is concave up
• For x=-2,5 the graph has an inflection point (-2,5|31,25)
• 4. 𝑓 𝑥 = 3𝑥 5 − 5𝑥 4 Discuss this function.
• Zeros: x=0 and x=5/3
• f‘(x)=15𝑥 4 − 20𝑥 3 Set f‘(x)=0. We get: x=0 and x=20/15=4/3
x 0 4/3
f‘(x) + 0 - 0 +
f(x) increasing Max. decreasing Min. increasing

• Max=(0;0) and Min=(4/3;-3,16)

• f‘‘(x)=60𝑥 3 − 60𝑥 2 Set f‘‘(x)=0. We get: x=0 and x=1
 x 0 1

f‘‘(x) - 0 - 0 -
f(x) Concave down Concave down Inflection point Concave up

• The inflection point is W(1; -2)

• We have no inflection point at x=0, as concavity does not change.
Max=(0;0)

W(1; -2)

Min=(4/3;-3,16)
• 5. Let x denote the level of output of a firm’s production process. The
cost function is given by C (x) = x(x +2)+30 and the demand function
of the product by x=25 - 0,5p.
• (a) Show that the profit is given by E(x) = −3 𝑥 2 + 48x − 30.
• (b) Find the output x at which profit is maximized.
• (a) compute price per unit: x=25-0,5p ⇒ p = 25 − x : 0,5 = 50 − 2x
Profit=revenue-costs=units*price per unit – costs = x*p - C (x) =
=x*(50-2x)- (x(x +2)+30)=50x-2 𝑥 2 - 𝑥 2 -2x-30= −3 𝑥 2 + 48x − 30
• (b) E‘(x)=-6x+48 Set E‘(x)=0, thus x=8.
• 6. Compute the derivative of the following function and find local
extrema:
𝑥 2 +1
•𝑓 𝑥 = 𝑥2 +1⋅e
′
′ 𝑥 2 +1
• Use the product rule: 𝑓 𝑥 = 𝑥2 +1 ⋅e + 𝑥2 + 1 ⋅
′
𝑥 2 +1
e and then the chain rule:
′ 1 𝑥 2 +1 𝑥 2 +1
•𝑓 𝑥 = ⋅ 2𝑥 ⋅ e +e ⋅ 2𝑥 ⋅ 𝑥 2 + 1=
2 𝑥 2 +1

•=
• Now check for extrema:
′ 𝑥 2 +1 𝑥 2 +1
• Set 𝑓 𝑥 =0 ⇒ 𝑥e + 2𝑥 ⋅ e ⋅ (𝑥 2 + 1)=0
𝑥 2 +1 𝑥 2 +1
• Factor 𝑥 and e out: 𝑥e (1+2 (𝑥 2 + 1))=0
𝑥 2 +1
• This means: 𝑥e (3+2 𝑥 2 )=0
𝑥 2 +1
• As e >0 and 3+2 𝑥 2 >0 for each x value, the only zero is: x=0. There
is a min for x=0, 𝑓 0 = 1 ⋅ e1 = e ⇒ Min(0; e)
x 0
𝑓′ 𝑥 - 0 +
𝑓 𝑥 decreasing min increasing
• 7. Compute the derivative of the following function and find local
extrema:
𝑥+1
• 𝑓 𝑥 = ln
𝑥−1
• Differentiate as a ln function and then use the chain rule:
′ 𝑥−1 𝑥+1 ′ 𝑥−1 𝑥+1 ´ 𝑥−1 − 𝑥+1 𝑥−1 ´ 𝑥−1 𝑥−1 − 𝑥+1
•𝑓 𝑥 = ⋅ = ⋅ = ⋅
𝑥+1 𝑥−1 𝑥+1 𝑥−1 2 𝑥+1 𝑥−1 2
1 𝑥−1−𝑥−1 −2
•= ⋅ =
𝑥+1 𝑥−1 (𝑥+1) 𝑥−1
′
• No local extrema as 𝑓 𝑥 can never be zero.
HW
• 1. Let x denote the level of output of a firm’s production process. The
cost function is given by C (x) = x(x +1)+40 and the demand function
of the product by x=30 - 0,5p.
• (a) Compute profit
• (b) Find the output x at which profit is maximized.
• 2. Compute the derivative of the following function and find local
extrema:
𝑥 2 +1
•𝑓 𝑥 = 3𝑥 2 +4⋅e
Antiderivative and Integral
• The integral of a non-negative function 𝑓 𝑥 of a single variable can
be regarded, in the simplest case, as the area between the graph of
that function and the x-axis: the integral of a positive
function f between limits a and b can be interpreted as the area
under the graph of f.
𝑏
• We write: 𝐴 = ‫𝑓 𝑎׬‬ 𝑥 d𝑥 = 𝐹 𝑥 𝑏𝑎 = 𝐹 𝑏 − 𝐹 𝑎
• Where 𝐹 𝑥 is the antiderivative of 𝑓 𝑥 ,a function whose derivative
is equal to the original function f: 𝐹 ′ 𝑥 = 𝑓 𝑥
• The area between 2 functions is:
𝑏
•𝐴= ‫𝑟𝑒𝑝𝑝𝑢( 𝑎׬‬ 𝑓𝑐𝑡 − 𝑙𝑜𝑤𝑒𝑟 𝑓𝑐𝑡) d𝑥
Useful Antiderivatives
Function f Antiderivative F
c cx
x 1 2
𝑥
2
𝑥2 1 3
𝑥
3
𝑥𝑛 1
𝑥 𝑛+1
n+ 1

e𝑥 e𝑥
e𝑛𝑥 1 𝑛𝑥
e
𝑛
lnx xlnx-x
• Applications of integrals in finance and economics:
• Marginal and total revenue, cost, and profit;
• Capital accumulation over a specified period of time;
• Consumer and producer surplus;
• Lorenz curve and Gini coefficient;
 𝐴
Gini coefficient G=
𝐴+𝐵
Ex 1:
• For a certain product, the demand function is D(Q)=1000-25Q
and the supply function is S(Q)=100+5Q. Compute the consumer
surplus.
• We set D and S equal to find equilibrium point:
1000-25Q=100+5Q ⇒ Q = 30 and D = S = 250
• Consumer surplus is the area between demand curve and the
horizontal line through equilibrium point:
• CS=A=
11 250
 P

Consumer Surplus D

P=250
Equil. point

Q
Ex 2:
• For a certain product, the demand function is D(Q)=1000-25Q
and the supply function is S(Q)=100+𝑄2 . Compute the consumer
surplus and producer surplus.
• We set D and S equal to find equilibrium point:
• 1000-25Q= 100+𝑄2 and get: 𝑄2 + 25Q − 900 = 0, thus Q =20
and D=S=500
• Consumer surplus is the area below demand curve and the
horizontal line through equilibrium point:
• CS=A= =5000
• Producer surplus is the area between the horizontal line through
equilibrium point and supply curve:
• PS= =5333,33
CS

P=500

PS
Ex 3:
• Marginal revenue MR is the additional revenue gained by
producing one more unit of a product or service.
• It can also be described as the change in total revenue TR
divided by the change in number of units sold (Q):
ⅆ𝑇𝑅
MR= (the derivarive of TR with respect to Q)
ⅆ𝑄
• This implies that: 𝑇𝑅 = ‫ 𝑅𝑀 ׬‬d𝑄
• The marginal revenue of a company is given by MR=100 +
20𝑄 + 3𝑄2 , where Q is amount of units sold for a period. Find
the total revenue function if at Q=0 it is equal to 0.

• 𝑇𝑅 = ‫ 𝑅𝑀 ׬‬d𝑄= ‫ (׬‬100 + 20𝑄 + 3𝑄2 )dQ = 100Q + 10𝑄2 + 𝑄3

Ex. 4:
• Calculate the Gini coefficient for the Lorenz function L(x)=𝑥 3
𝐴
• Gini coefficient G=
𝐴+𝐵
1
• A=‫׬‬0𝑥 − 𝑥 3 d𝑥 (the area between equality line y=x and Lorenz
curve, here L(x)=𝑥 3 )
• A+B= 0,5 (the area between equality line y=x and x-axis)
• Thus A = =
• G=0,25:0,5=0,5
The Exponential Function
• In economics exponential functions are important when looking at
growth or decay.
• Examples are the value of an investment that increases by a constant
percentage each period , sales of a company that increase at a
constant percentage each period, models of economic growth or
models of the spread of an epidemic.
• The most common formula is:
• K=𝐾0 ⋅ 1 + 𝑝 𝑛
• Where K is capital after n years, 𝐾0 is initial capital, p is interest rate
(decimal) and n is number of years.
Example 1
• Suppose you invest 1000 EUR at 2% interest rate.
• After 1 year you have: 1000*1,02 EUR
• After 2 years you have: 1000*1,02*1,02 EUR
• After 3 years you have: 1000*1,02*1,02*1,02 EUR
• After n years you have: 1000*1,02𝑛 EUR
• Now let us see when you have doubled your capital by setting
K=2*1000 EUR: 2*1000=1000 ⋅ 1,02 𝑛
ln 2
• We get: n= = 35 𝑦𝑒𝑎𝑟𝑠.
ln 1,02
• Now let us find out which interest rate is necessary to double a capital
within 10 years only:
• K=𝐾0 ⋅ 1 + 𝑝 𝑛
• We set K=2* 𝐾0
• Thus: 2 𝐾0 = 𝐾0 ⋅ 1 + 𝑝 10
• We divide by 𝐾0 and calculate the 10th root:
10
• 1+𝑝 = 2
10
• We get: p= 2 -1=0,07177, meaning the interest rate would be about
7,18%
• Ex 2: Germany had a GDP of about 3,4 trillions EUR in 2018. The
population was about 82 millions.
• A. Calculate GDP per capita in 2018.
• B. Suppose GDP grows at a rate of 1,5% and population at a rate of
0,5%, calculate GDP per capita in 2019.
• C. Suppose both rates remain constant, when would GDP per capita
reach 50 000?
• A. GDP per capita 2018= 41 463

• B. GDP per capita 2019= =41 875

• C. =50 000 We get: = and thus:

ln : ln = 18,9 years
Sequences and Series
• A sequence is a list of objects (usually numbers) that are in order.
• When the sequence goes on forever it is called an infinite sequence,
otherwise it is a finite sequence.
• A sequence is like a set, except:
-the terms are in order (with sets the order does not matter)
-the same value can appear many times (only once in sets)
A sequence usually has a rule, which is a way to find the value of each
term.
• Examples:
• {1, 2, 3, 4, ...} is a very simple sequence (and it is an infinite sequence)
• {20, 25, 30, 35, ...} is also an infinite sequence
• {1, 3, 5, 7} is the sequence of the first 4 odd numbers (and is a finite
sequence)
• {4, 3, 2, 1} is 4 to 1 backwards
• {1, 2, 4, 8, 16, 32, ...} is an infinite sequence where every term doubles
• {a, b, c, d, e} is the sequence of the first 5 letters alphabetically
• {f, r, e, d} is the sequence of letters in the name "fred"
• {0, 1, 0, 1, 0, 1, ...} is the sequence of alternating 0s and 1s (yes they are in
order, it is an alternating order in this case)
• Arithmetic sequences: the difference between one term and the next is a
constant.
• Generally, we can write an arithmetic sequence like this:
{a, a+d, a+2d, a+3d, ... }
where:
• a is the first term
• d is the difference between the terms (called the "common difference")
And we can make the rule:
xn = a + d(n-1)
(We use "n-1" because d is not used in the 1st term).
• Geometric sequences: each term is found by multiplying the previous term
by a constant.
• Generally, we can write a geometric sequence like this:
{a, ar, ar2, ar3, ... }
where:
• a is the first term, and
• r is the factor between the terms (called the "common ratio")
And the rule is:
xn = ar(n-1)
(We use "n-1" because ar0 is the 1st term)
• If we sum up a part of a sequence, we get a partial sum.
• The sum of a sequence is called a series.
• Example: Sequence: {1, 3, 5, 7, ...}
• Series: 1 + 3 + 5 + 7 + ...
• Partial sum of first 3 terms: 1 + 3 + 5
𝑎1 +𝑎n
• The partial sum 𝑆𝑛 of an arithmetic series is: 𝑆𝑛 = σ𝑛𝑖=1 𝑎𝑖 =𝑛⋅
2
1−𝑟𝑛
• The partial sum of a geometric series is: 𝑆𝑛 = σ𝑛𝑖=1 𝑎𝑖 = 𝑎𝑖
1−𝑟
Functions of 2 variables:
• In economics we often encounter functions of 2 or more variables.
• For example, demand for a product is generally considered to be a
function of its own price, prices of other commodities (which may be
substitutes or complements), income of the consumers, tastes and
preferences of the consumers and advertising expenditure made by a
firm to promote its product.
• Examples of functions of 2 variables:
• A particular production function: 𝑄 = 𝐾 + 𝐿2
• Cobb-Douglas production function: Q =𝐾 𝑎 𝐿1−𝛼 depends on capital
(K) and labour (L).
• In order to find the local minimum/maximum, we proceed similarly to functions of one
variable, but we consider the partial derivatives: derivatives with respect to one of those
variables, with the other held constant.
• We set the first order partial derivatives 0 to find the critical points.
′′ ′′ ′′
• We compute the second order partial derivatives 𝑓𝑥𝑥 , 𝑓𝑦𝑦 and 𝑓𝑥𝑦 .
• We compute the determinant of the Hessian matrix:
′′ ′′ ′′ ′′
• D = 𝑓𝑥𝑥 (a,b) 𝑓𝑦𝑦 (a,b) - 𝑓𝑥𝑦 (a,b) 𝑓𝑥𝑦 (a,b)
′′
• a) If D > 0 and 𝑓𝑥𝑥 (a,b) > 0, then f has a relative minimum at (a,b).
′′
b) If D > 0 and 𝑓𝑥𝑥 (a,b) < 0, then f has a relative maximum at (a,b).
c) If D < 0, then f has a saddle point at (a,b).
d) If D = 0, then no conclusion can be drawn.
• Example: f(x , y) = 2x2 + 2xy + 2y2 - 6x
• We compute the first order partial derivatives:
• fx(x,y) = 4x + 2y - 6
fy(x,y) = 2x + 4y and set each 0 and get: x=2, y=-1
• We compute the second order partial derivatives fxx(x,y), fyy(x,y) and
fxy(x,y): fxx(x,y) = 4, fyy(x,y) = 4, fxy(x,y) = 2.
• We compute the determinant of the Hessian matrix: D = fxx(2,-1)
fyy(2,-1) - fxy2(2,-1) = ( 4 )( 4 ) - 22 = 12
• Since D >0 and fxx(2,-1) is also positive, the function f has a local
minimum at (2,-1).
• Check for maxima and minima:
• f(x , y) = 2x2 + 2 x2 y2 + 2y2 - 6x
• f(x , y) = 2x2 + 2 x2 y2 + 2y2 - 6
• f(x , y) = x3 + 2 x2 y - y2 -4y
• Check for maxima and minima:
• 𝑓 𝑥, 𝑦 = 𝑥 2 + 𝑦 2 ⋅ 𝑒 −𝑦
• The profit obtained by producing x units of product A and y units of
product B is approximated by the model
P(x,y) = 8x + 10y - (0.001)(x2 + xy + y2) - 10000
• Find the production level that produces a maximum profit
Matrices
• 1. Two competing companies offer satellite television service to a city
with 100,000 households.
• Figure 2.1 shows the changes in satellite subscriptions each year.
Company A now has 15,000 subscribers and Company B has 20,000
subscribers.
• How many subscribers will each company have in one year?
• The matrix representing the given transition probabilities is
• In one year, Company A will have 23,250 subscribers and Company B
will have 28,750 subscribers.
• Once we have created the model, it becomes relatively easy to find
the state matrices representing future years by repeatedly multiplying
by the matrix.
• This matrix enables us to build a so-called consumer preference
model.
• 2. Consider a simple economic system consisting of three industries:
electricity, water, and coal.
• Production, or output, of one unit of electricity requires 0.5 unit of
itself, 0.25 unit of water, and 0.25 unit of coal.
• Production of one unit of water requires 0.1 unit of electricity, 0.6
unit of itself, and 0 units of coal.
• Production of one unit of coal requires 0.2 unit of electricity, 0.15 unit
of water, and 0.5 unit of itself.
• Find the input-output matrix for this system.
• The column entries show the amounts each industry requires from
the others, and from itself, to produce one unit of output.
• This is the so-called Leontief Input-Output Model.
• In economics, an input–output model is a quantitative
economic model that represents the interdependencies between different
sectors of a national economy or different regional economies.
• A matrix is a two-dimensional arrangement of numbers in rows and
columns enclosed by a pair of brackets or square brackets ([ ]).
• Matrices are used to describe linear equations, keep track of the
coefficients of linear transformations and to record data that depend on
multiple parameters. They can be added, multiplied, and decomposed in
various ways.
• Example 1:
• The quarterly sales for coffee, tea and chocolate for 2018 are:
Q1 Q2 Q3 Q4
Coffee
• A= Tea
chocolate

• For 2019 the sales are:

• B=
• By adding the two matrices A+B we can find the total quarterly sales
for the 2 years.

+ =

By subtracting the two matrices B-A we can find the increase or

decrease in quarterly sales form 2018 to 2019.
• Ex 2:
• Lisa, Mia and Nick purchased biscuits of different brands A, B and C.
• Lisa purchased 10 packets of A, 7 packets of B and 3 packets of C.
• Mia purchased 4 packets of A, 8 packets of B and 10 packets of C.
• Nick purchased 4 packets of A, 7 packets of B and 8 packets of C.
• If brand A costs 4 €, B costs 5 € and C costs 6 € each, find the amount
of money spent by each person.
• Let Q be the matrix denoting the quantity of each brand of biscuit bought
by Lisa, Mia and Nick and let R be the matrix showing the cost of each
brand of biscuit:
A B C
L
• Q= Mand R=
N

• We now multiply the matrices:

• QxR= x = =

• Amount spent by Lisa, Mia and Nick is 93 €, 116 € and 99 € respectively.

• Ex 3: A firm produces three products A, B and C requiring the mix of three
materials P, Q and R. The requirement (per unit) of each product for each
material is as follows:
P Q R
A
• M= B
C

• Using matrix notations, find:(1).The total requirement of each material if

the firm produces 100 units of each product.(2).The per unit cost of
production of each product if the per unit cost of materials P, Q and R is 5,
10 and 5 EUR respectively.(3).The total cost of production if the firm
produces 200 units of each product.
• 1. The total requirement of each material if the firm produces 100
units of each product can be calculated using the matrix
multiplication given below:

x =

• 2. Let the per unit cost of materials P, Q and R be represented by the

3×1 matrix as:

• C=
• With the help of matrix multiplication, the per unit cost of production
of each product would be calculated as:

• MxC= x =

• 3. The total cost of production if the firm produces 200 units of each
product would be given as:

x =34000
• Ex. 4: Suppose we divide the economy into 3 sectors: 1. Agriculture 2.
Manufacturing 3. Services.
• The three industries each use inputs from two sources:
1. Domestically produced commodities form the three industries
2. Other inputs, such as imports, labour, and capital.
• The outputs of the industries have two broad uses or destinations:
• 1. Inputs to production of the three industries (intermediate inputs) 2.
Final demand (Consumption, Investment, Government expenditure,
Exports)
• All this can be summarised in a so-called input-output table (in billions of
euros):
• Take for example manufacturing:
• Its output is worth € 400 bln, which is allocated as follows:
• 10 bln is used by the agricultural sector
• 200 bln as intermediate goods for the manufacturing sector
• 50 bln. is used by the services sector.
• 140 bln. is the final demand (consumption, investment, government
expenditure & exports)
• In order to produce, the manufacturing sector uses inputs worth of
400 bln, of which
• 40 bln comes from the agricultural sector,
• 200 bln from the manufacturing sector (intermediate inputs),
• 80 bln from the services sector,
• 80 bln from other sources, including imports, labour and capital
• Note that sector outputs equal sector inputs and that the economy-
wide value of inputs equals the value of outputs at 1600 bln.
Solving systems of linear equations
• Matrices can also be used to solve systems of linear equations.
• There are a few different ways to solve a system like this:
• (I) x + y + z = 6
• (II) 2y + 5z = −4
• (III) 2x + 5y − z = 27
• 1. Substitution:
• In one equation (e.g.the first), solve for one of the variables in terms of the
others. z=6-x-y
• Substitute this expression into the remaining equations. Get here: 2y+5(6-
x-y)=-4 and 2x+5y-(6-x-y)=27. Simplify these: -5x-3y=-34 and 3x+6y=33
• Repeat step 1 until the system is reduced to a single linear equation: solve
e.g. 3x+6y=33 for x in terms of z from and get x=11-2y. Substitute this
expression into the remaining equation and get: -5(11-2y)-3y=-34
• Solve this equation, and then back-substitute until the entire solution is
found: -55+7y=-34, thus y=3, x=5 and z=-2.
• 2. Gaussian elimination: swap II and III:
• (I) x + y + z =6 multiply by -2 and add to III
• (III) 2x + 5y − z =27
• (II) 2y + 5z =−4
• You get:
• (I) x +y + z =6
• (III) 0 +3y - 3z =15 multiply by -2 and add to II*3
• (II) 2y + 5z =−4
• (I) x + y + z =6
• (III) 0 + 3y - 3z =15
• (II) 0 + 21z =-42
• Now solve II: z=-2 and substitute in III to get: y=3, then substitute z
and y in I and get x=5
• As you see, you can multiply each equation and also add this to
another one.
• 3. Gaussian elimination with augmented matrix:
• We can convert the system into an augmented matrix of the
coefficients:

• Do the allowed row operations like swap, multiply, add and get,
similar to the previous method:
• The last row can now be read as: 21z=-42, thus z=-2
• The middle row can be read as: 3y-3z=15, thus y=3
• The first row means: x+y+z=6, thus x=5
• Summarizing, we can say:
• We formed the augmented matrix A |b and applied the elementary
row operations:
• Multiplying a row by a scalar
• Subtracting a multiple of one row from another
• Exchanging two rows
• to reduce A to upper-triangular form. Following this step, back
substitution computes the solution.
• Ex: solve the system by using the augmented matrix:
Determinant of a Matrix

Definition
The determinant of a 1 × 1 matrix is the single number in the matrix. For any n ≥ 2,
the determinant of the n × n matrix A is
|A| =σ𝑛𝑗=1 −1 1+ja1j|A1j|
where a1j is the number in the first row and jth column of A and A1j is the n − 1 × n − 1
matrix obtained by deleting the first row and jth column of A.
• Notice that the term (−1)1+j in the sum in the definition
is equal to 1 if 1 + j is even and −1 if 1 + j is odd, so
that the signs of the coefficients of the a1j|Aij| terms in
the sum alternate between positive and negative. If we
expand the sum we get:
• |A|=𝑎11 𝐴11 − 𝑎12 𝐴12 + 𝑎13 𝐴13 -…
• Let A be the 2 × 2 matrix:

• The matrix A11 is the 1 × 1 matrix consisting of the

number d and the matrix A12 is the 1 × 1 matrix
consisting of the number c. Thus using the expression
in the definition, the determinant of A is ad − bc.
• Let A be the 3 × 3 matrix:

• Using the expression in the definition, the determinant

of A is: a(ei − fh) − b(di − fg) + c(dh − eg).
• Identity matrix: The identity matrix is a matrix in which every entry on
the main diagonal is 1 and all other entries are 0.
• Inverse Matrix:
• Let A be an n × n matrix. If there is
an n × n matrix B such that:
• BA = AB = I,
• where I is the n × n identity matrix (in which every
entry on the main diagonal is 1 and all other entries are
0), then B is an inverse of A, denoted A−1
• A square (n × n) matrix has at most one inverse.
• A matrix has an inverse if and only if it is nonsingular
(if its determinant is not zero).
Cramer's Rule
• To use determinants to solve a system of three equations with three
variables (Cramer's Rule), say x, y, and z, four determinants must be
formed following this procedure:
1.Write all equations in standard form.
2.Create the denominator determinant, D, by using the
coefficients of x, y, and z from the equations and evaluate it.
3.Create the x‐numerator determinant, D x , the y‐numerator
determinant, D y , and the z‐numerator determinant, D z , by
replacing the respective x, y, and z coefficients with the
constants from the equations in standard form and evaluate
each determinant.
The answers for x, y, and z are as follows:
HW
• 1) Assume the demand and supply functions for a product
are D(Q)=𝑄2 − 6𝑄 + 9 and S(Q)= 𝑄2 . Compute the equilibrium point
and consumer and producer surplus.
• 2) Assume the demand and supply functions for a product
are D(Q)=−4𝑄 + 1000 and S(Q)= 𝑄. Compute the equilibrium point
and consumer and producer surplus.
• 3) Calculate the Gini coefficient for the Lorenz function L(x)=𝑥 2
• 4) Calculate the Gini coefficient for the Lorenz function L(x)=𝑥 4
Practice Exam
• 1. Two sets A and B are given as:
A={7,8,9}
B={6,7}
Build the intersection, the union, the difference and cartesian product
of A and B.
• 2. Find domain, range and zero of following functions:
• 𝑓 𝑥 = 0,4𝑥 + 12
• 𝑓 𝑥 = 𝑥2 − 6
• 𝑓 𝑥 = 𝑥 2 − 7𝑥 + 10
• 𝑓 𝑥 = 3e𝑥
• 𝑓 𝑥 = 2e𝑥 + 5
• 𝑓 𝑥 = 4ln 𝑥
• 𝑓 𝑥 = ln 𝑥 + 4
• 3. Find the local maximum and minimum for these functions:
• A. 𝑓 𝑥 = 𝑥 3 + 1,5𝑥 2 −60𝑥
• B. 𝑓 𝑥 = 𝑥 3 − 1,5𝑥 2 − 6 𝑥
• 𝐶. 𝑓 𝑥 = 𝑥 2 − 10𝑥 + 30
• D. 𝑓 𝑥 = 𝑥 2 + 2𝑥
• E. 𝑓 𝑥 = 𝑥 3 + 3 𝑥
• F. 𝑓 𝑥 = 𝑥 3 - 3 𝑥
• 4. Calculate the following derivatives:
• 3𝑥 ⋅ ln 𝑥 ′ =
2𝑥 ′
• =
ln 𝑥
′
5
• 3𝑥 + 1,5 =
′
• ln 6𝑥 =
• ln 5 + 2𝑥 ′ =
• (ln 𝑥 2 + 4 )′=
• (e2𝑥 ⋅ ln 3𝑥)′ =
• ( 3 + 𝑥 2 )′ =
• ( e2𝑥 )′ =
2
• (e3𝑥 )′ =
• 5. Check these functions for zeros, monotony and concavity:
• 𝑓 𝑥 = 2𝑥 5 − 5𝑥 4
• 𝑓 𝑥 = 2𝑥 3 − 9𝑥 2 + 12𝑥
• 𝑓 𝑥 = 0,5𝑥 3 − 0,75𝑥 2 − 3𝑥
• 6. The marginal revenue of a company is given by MR=20 +
3𝑄 + 4𝑄2 , where Q is amount of units sold for a period. Find the
total revenue function if at Q=0 it is equal to 0.
• 7. Calculate the Gini coefficient for the Lorenz function L(x)=𝑥 5 .
• 8. For a certain product, the demand function is D(Q)=9000-
30Q and the supply function is S(Q)=1000+10Q. Compute the
consumer surplus.
• 9. Ex 2: Hungary had a GDP of about 158 billions EUR in 2018. The
population was about 9,7 millions.
• A. Calculate GDP per capita in 2018.
• B. Suppose GDP grows at a rate of 5% and population at a rate of
0,01%, calculate GDP per capita in 2019.
• C. Suppose both rates remain constant, when would GDP per capita
reach 50 000?
• 10. Consider a simple economic system consisting of three industries:
electricity, water, and coal.
• Production, or output, of one unit of electricity requires 0.25 unit of
itself, 0.5 unit of water, and 0 units of coal.
• Production of one unit of water requires 0.2 unit of electricity, 0.3
unit of itself, and 0 units of coal.
• Production of one unit of coal requires 0.3 unit of electricity, 0.4 unit
of water, and 0.1 unit of itself.
• Find the input-output matrix for this system.
• 11. Determine the relative minima and maxima of function f defined by:
• f(x , y) = 2x2 - 4xy + y4 + 2
• g(x , y) = - x4 - y4 + 4xy
• h(x , y) = x2 + 3 y2 - 2 xy - 8x
• j(x , y) = x3 - 12 x + y3 + 3 y2 - 9y
• Solutions: f: (0 , 0)saddle point , (1 , 1)min and (-1 , -1)min
• g: (0,0)saddle point, (1,1)max, (-1,-1)max
• h: minimum at (6,2)
• J: maximum at (-2,-3), minimum at (2,1), saddle points at (2,-3) and (-2,1).
• Detailed sol.: f(x , y) = 2x2 - 4xy + y4 + 2
• Build first derivatives: 𝑓𝑥′ = 4𝑥 − 4𝑦 and 𝑓𝑦′= −4𝑥 + 4𝑦 3
• Set 𝑓𝑥′=0 and 𝑓𝑦′=0: 4𝑥 − 4𝑦=0 ⇒ x = y, insert in −4𝑥 + 4𝑦 3=0 ⇒
- 4y + 4𝑦 3=0 ⇒- 4y(1- 𝑦 2)=0 ⇒ y=0 or y=1 or y=-1 and thus, accordingly, x=0 or x=1
or x=-1 (as x=y). Critical points: (0,0); (1,1); (-1,-1)
′′ ′′
• Build second derivatives: 𝑓𝑥𝑥 =4 and 𝑓𝑦𝑦 =12 𝑦 2 and 𝑓𝑥𝑦
′′
=-4.
• Build determinant of Hessian matrix for each critical point:
′′ ′′ ′′2
• For (0,0): D= 𝑓𝑥𝑥 (0,0) 𝑓𝑦𝑦 (0,0) - 𝑓𝑥𝑦 (0,0)=4*0- −4 2 = -16<0, so f has a saddle point
• For (1,1): D= 𝑓𝑥𝑥
′′ (1,1) 𝑓 ′′ (1,1) -𝑓 ′′2(1,1)=4*12- −4
𝑦𝑦 𝑥𝑦
2 ′′ =4>0, so f has a relative
= 32>0. 𝑓𝑥𝑥
minimum
• For (-1,-1): D= 𝑓𝑥𝑥
′′ ′′
(-1,-1) 𝑓𝑦𝑦 ′′2
(-1,-1) -𝑓𝑥𝑦 (-1,-1)=4*12- −4 2 ′′
=32>0. 𝑓𝑥𝑥 =4>0, so f has a relative
minimum
critical
point (0,0) (1,1) (-1,1)
(a,b)
fxx(a,b) 4 4 4
fyy(a,b) 0 12 12
fxy(a,b) -4 -4 -4
D -16 32 32
saddle relative relative
point minimum minimum
• Detailed sol.: g(x , y) = - x4 - y4 + 4xy
• Build first derivatives: 𝑔𝑥′ = −4 𝑥 3 + 4𝑦 and 𝑔𝑦′ = −4𝑦3 + 4𝑥
• Set 𝑔𝑥′ =0 and 𝑔𝑦′ =0: −4 𝑥 3 + 4𝑦=0 ⇒ y = 𝑥 3 , insert in−4𝑦3 + 4𝑥=0 ⇒
- 4𝑥 9 + 4𝑥=0 ⇒- 4x(𝑥 8 -1)=0 ⇒ x=0 or x=1 0r x=-1 and thus, accordingly, y=0 or y=1 or y=-1
(as x=y). Critical points: (0,0); (1,1);(-1,-1).
′′
- Build second derivatives: 𝑔𝑥𝑥 = −12𝑥 2and 𝑔𝑦𝑦 ′′
=-12 𝑦2 and 𝑔𝑥𝑦
′′
=4.
• Build determinant of Hessian matrix for each critical point:
′′ ′′ ′′2
• For (0,0): D= 𝑔𝑥𝑥 (0,0) 𝑔𝑦𝑦 (0,0) - 𝑔𝑥𝑦 (0,0)=0*0- 4 2=-16<0, so g has a saddle point.
′′ (1,1) 𝑔′′ (1,1) -𝑔′′2(1,1)=(-12)*(-12)- 4
• For (1,1): D= 𝑔𝑥𝑥 2 ′′ = −12 <0, so f has a
= 128>0. 𝑔𝑥𝑥
𝑦𝑦 𝑥𝑦
relative maximum.
• For (-1,-1): D= 𝑔𝑥𝑥
′′ ′′
(-1,-1) 𝑔𝑦𝑦 ′′2
(-1,-1) -𝑔𝑥𝑦 (-1,-1)= )=(-12)*(-12)- 4 2 ′′
= 128>0. 𝑔𝑥𝑥 =
− 12 <0, so f has a relative maximum.
critical point (a,b) (0,0) (1,1) (-1,1)
fxx(a,b) 0 -12 -12
fyy(a,b) 0 -12 -12
fxy(a,b) 4 4 4
D -16 128 128
saddle point relative maximum relative maximum
• Detailed sol.: h(x , y) = x2 + 3 y2 - 2 xy - 8x
• Build first derivatives: ℎ𝑥′ = 2𝑥 − 2𝑦 − 8 and ℎ𝑦′ = 6𝑦 − 2𝑥
• Set ℎ𝑥′ =0 and ℎ𝑦′ =0: 6𝑦 − 2𝑥=0 ⇒ 𝑥 = 3𝑦, insert in 2𝑥 − 2𝑦 − 8=0 ⇒
6y-2y-8=0 ⇒ 4y = 8 ⇒ y=2 and thus, accordingly, x=6 (as x=3y). Critical
point: (6,2).
′′ ′′ ′′
- Build second derivatives: ℎ𝑥𝑥 = 2 and ℎ𝑦𝑦 =6 and ℎ𝑥𝑦 =-2.
• Build determinant of Hessian matrix for the critical point:
′′ ′′ ′′2
• For (2,6): D= ℎ𝑥𝑥 (6,2) ℎ𝑦𝑦 (6,2) - ℎ𝑥𝑦 (6,2)=2*6- −2 2 =8>0. ℎ𝑥𝑥′′
=
2 > 0, so f has a relative minimum.
• Detailed so.: x3 - 12 x + y3 + 3 y2 - 9y
• Build first derivatives: 𝑗𝑥′ = 3 𝑥 2 − 12 and 𝑗𝑦′ = 3𝑦2 + 6𝑦 − 9
• Set 𝑗𝑥′ =0 and 𝑗𝑦′ =0: 3 𝑥 2 − 12=0 ⇒ 𝑥 = 2 𝑜𝑟 𝑥 = −2 , set 3𝑦2 + 6𝑦 − 9 ⇒ y=1 or y=-3
- Critical points: (2,1); (-2,1); (2,-3); (-2,-3).
′′ ′′ ′′
- Build second derivatives: 𝑗𝑥𝑥 = 6𝑥 and 𝑗𝑦𝑦 =6y+6 and 𝑗𝑥𝑦 =0.
• Build determinant of Hessian matrix for each critical point:
• For (2,1): D= 𝑗𝑥𝑥′′ (2,1) 𝑗 ′′ (2,1) - 𝑗 ′′2 (2,1)=12*12- 0 2 =144>0. 𝑗 ′′ =12>0, so j has a relative minimum.
𝑦𝑦 𝑥𝑦 𝑥𝑥
′′ ′′ ′′2
• For (-2,1): D= 𝑗𝑥𝑥 (-2,1) 𝑗𝑦𝑦 (-2,1) -𝑗𝑥𝑦 (-2,1)=(-12)*(12)- 0 2 = −144 < 0. Thus j has a saddle point.
′′ (2,-3) 𝑗 ′′ (2,-3) -𝑗 ′′2 (2,-3)= )=(12)*(-12)- 0 2 = −144 < 0. Thus j has a saddle point.
• For (2,-3): D= 𝑗𝑥𝑥 𝑦𝑦 𝑥𝑦
′′ ′′ ′′2 2 ′′
• For (-2,-3): D= 𝑗𝑥𝑥 (-2,-3) 𝑗𝑦𝑦 (-2,-3) -𝑗𝑥𝑦 (-2,-3)= )=(-12)*(-12)- 0 = 144 > 0. 𝑗𝑥𝑥 =−12<0, so j has a relative
maximum.
• 12. Solve the systems of equations by using the augmented matrix:
• A. 2x + y − 2z = 3
• x − y − z = 0
• x + y + 3z = 12 (Sol: x=3,5;y=1;z=2,5)

• B. x + z = 6
• -3y + z = 7
• 2x + y + 3z = 15 (sol: x = 2, y = −1, z = 4)
• C

• x+2y−z=4

• 2x+y+z=−2

• x+2y+z=2

• D

• 3x+2y−z=6

• −2x+2y+z=3

• x+y+z=4
• 13. Let x denote the level of output of a firm’s production process.
The cost function is given by C (x) = 2x(x +1)+30 and the demand
function of the product by x=50 - p.
• (a) Compute profit E(x).
• (b) Find the output x at which profit is maximized.
• (a) compute price per unit: x=50-p ⇒p=50−x
• Profit=revenue-costs=units*price per unit – costs = x*p - C (x) =
• =x*(50-x)- (2x(x +1)+30)=50x- 𝑥^2- 2𝑥^2-2x-30= −3 𝑥^2 + 48x − 30
• (b) E‘(x)=-6x+48 Set E‘(x)=0, thus x=8.
• 14. For a company that faces a market demand function Q = 25-0,5P
and has a cost function C(Q) = 20+2Q+0,5𝑄2 , what are the profit-
maximizing price and output?
• 15. A hot-dog vendor wants to minimize the average cost of selling his
dogs. After a careful analysis he determines that his actual daily cost
is: C(x) = 16 + 0.5x + 0.01𝑥 2 dollars when selling x dogs. What level of
sales will minimize his average cost? And what will that minimum cost
be?
Solutions:
• 1.
• A ∩ B={7}
• A ∪ B={6,7,8,9}
• A \ B={8,9}
• A x B={(7,6),(7,7),(8,6), (8,7), (9,6), (9,7) }
• 2.
• D=R, W=R, x=-30
• D=R, W= [-6; +∞[, 𝑥1 = − 6, 𝑥2 = 6
• D=R, W= [-2,25; +∞[, x=2 and x=5
• D=R, W= ]0; +∞[, no zeros
• D=R, W= ]5; +∞[, no zeros
• D= ]0; +∞[, W=R, x=1
• D= ]0; +∞[, W=R, x=e−4
• 3.
• A. Max(-5/137,5) and min(4/-152)
• B. Max(-1/3,5) and min(2/-10)
• C. Min(5/5)
• D. Min(-1/-1)
• E. no max or min
• F. Max(-1/2), min(1/-2)
• 4.
• 3 ln 𝑥+3
2 ln 𝑥−2
• ln 𝑥 2
• 15 3𝑥 + 1,5 4

1
• 𝑥
2
• 5+2𝑥
2𝑥
•
𝑥2 +4
1
• 2e2𝑥 ⋅ ln 3𝑥+ e2𝑥 ⋅ 𝑥
𝑥
•
3+𝑥2
• e2𝑥= e𝑥
2
• 6x e3𝑥
• 5.
• 6.
2 2 4 3
• 𝑇𝑅 = ‫ 𝑅𝑀 ׬‬d𝑄= ‫ (׬‬20 + 3𝑄 + 4𝑄 )dQ = 20Q + 1,5𝑄 + 𝑄
3
• 7.
𝐴
• Gini coefficient G=
𝐴+𝐵
1
• A=‫׬‬0𝑥 − 𝑥 5 d𝑥 (the area between equality line y=x and Lorenz curve,
here L(x)=𝑥 5)
• A+B= 0,5 (the area between equality line y=x and x-axis)
• Thus A = =
1 2
• G= :0,5= =0,67
3 3
• 8.
• We set D and S equal to find equilibrium point:
• 9000-30Q= 1000+10Q and get Q =200 and D=S=3000
• Consumer surplus is the area below demand curve and the
horizontal line through equilibrium point:
200
• CS=A=‫׬‬0 9000 − 30𝑄 − 3000 d𝑄 = ቂ6000𝑄 − 30 ⋅
=600000
• 9.
• GDP per capita 2018= 16 289

• B. GDP per capita 2019= =17 101

• C. =50 000 We get: = and thus:

ln : ln =23,03
• 10.
0,25 0,2 0,3
0,5 0,3 0,4
0 0 0,1
FORMULARY:

Roots of quadratic equation and the quadratic formula:

−𝑏± 𝑏 2 −4𝑎𝑐
If ax2 + bx + c = 0 then: 𝑥 =
2𝑎

Derivative of a function:

Useful derivatives:
Function Derivative
• Product rule: (𝑓 ⋅ 𝑔)′ = 𝑓 ′ ⋅ 𝑔 + 𝑓 ⋅ 𝑔′
𝑓 ′ 𝑓 ′ ⋅𝑔−𝑓⋅𝑔 ′
• Quotient rule: =
𝑔 𝑔2

• Chain rule: f ∘ g = (f’ ∘ g) × g’

Function f Antiderivative F

c cx

𝑥2

𝑥𝑛

e𝑥 e𝑥

e 𝑛𝑥

lnx xlnx-x
Maximum and minimum for functions of 2 variables:
• We set the partial derivatives 0 to find the critical points.
• We compute the determinant of the Hessian matrix:
• ′′ (a,b) 𝑓 ′′ (a,b) - 𝑓 ′′ (a,b) 𝑓 ′′ (a,b)
D = 𝑓𝑥𝑥 𝑦𝑦 𝑥𝑦 𝑥𝑦

• ′′ (a,b) > 0, then f has a relative minimum at (a,b).

a) If D > 0 and 𝑓𝑥𝑥
′′ (a,b) < 0, then f has a relative maximum at (a,b).
b) If D > 0 and 𝑓𝑥𝑥
c) If D < 0, then f has a saddle point at (a,b).
d) If D = 0, then no conclusion can be drawn.
ⅆ𝑇𝑅
Marginal revenue MR= (the derivative of Total Revenue with respect to Q)
ⅆ𝑄
• 𝑓 𝑥 = 12x − 3; D=R, W=R, x=1/4=0,25
• 𝑓 𝑥 = 3𝑥 2 − 27; D=R, W=[-27; +∞[, 𝑥1 = −3, 𝑥2 = 3
• 𝑓 𝑥 = 2𝑥 2 − 10𝑥 + 12; D=R, W=[-0,5; +∞[, 𝑥1 = 2, 𝑥2 = 3
• 𝑓 𝑥 = 4e𝑥 ; D=R, W=𝑅+ , 𝑛𝑜 𝑧𝑒𝑟𝑜𝑠
• 𝑓 𝑥 = 5e𝑥 + 1; D=R, ]1; +∞[, no zeros
• 𝑓 𝑥 = 3ln 𝑥 − 6; D= 𝑅+ , W=R, x= e2
• 𝑓 𝑥 = 4ln 𝑥 + 8; D= 𝑅+ , W=R, x=e−2
• 𝑓 𝑥 = 2𝑥 − 7; D=[3,5; +∞[, W=𝑅0+ , x=3,5
4
•𝑓 𝑥 = ; D=𝑅 ∖ 1 ; 𝑊 = 𝑅 ∖ 0 ; no zeros
𝑥−1