Mathematics for Economics

Lesson 2: Differentiation
Nguyen Chanh Tu, DUT
Email: nctudut@gmail.com; nctu@dut.udn.vn
Tel: 0914179882
(Trích xuất từ bài giảng trên môi trường tương tác Maple)

Derivatives
Velocity
You go from Quang Tri to Danang by motorbike. At t0 = 7 am your motobike at Hue, the
milestone shows s t0 = 650 km, and you reach Danang at 10 am, the milestone shows
s t1 = 10 = 760 km.
1. What is your average velocity from t0 = 7 am to t1 = 10 am? How to compute the average
velocity from t0 to t0 Ch if your function of moving is s = f t ?
2. At Hue, your speedometer shows 35 km per hour. What does it mean?
How to compute that ?
sol
1. Vav =
2. Vav =
O

Slopes of Curves
Find the slope of the tangent of the curve at P.
f ' a = the slope of the tangent to the curve y = f x at the point P = a , f a
It is called the derivative at point a.
Exam

Derivative
Slope of the tangent
 f a Ch Kf a
• mPQ =
h
f a Ch Kf a
• mT = f ' a = limh/0
h
Def
1. The derivative of the function f at point/number a, denoted by f ' a , is given by the
formula:
f a Ch Kf a
f ' a = lim .
h/0 h
f x Ch Kf x
2. Let a move and denote by x, then we have f ' x = lim .
h/0 h
This function is called the derivative function of f.
3. The equation for the tangent L to the graph of y = f x at the point a, f a is
y Kf a = f ' a x Ka
Exams
3
1. Use definition to find the derivative f ' x of the function f x = x Cx K1.
3
2. Write down the equation of the tangent of f x = x Cx K1 at a = 1.
Notations
f ' x or
 O

Review of Computations of derivaties

All formulae of derivatives at highschool (Please review yoursefl by looking
textbook in Chapter 6). Namely:
1. af x '= af ' x
2. f x Gg x '= f ' x Gg' x
n n K1
3. (anx Can K 1x C...Ca1 x Ca0 '=
n K1 n K2
= nanx C n K1 an K 1x C...Ca1
a a K1
4. Ax '= Aax ;
x x
5. e '= e
x x
6. a '= a $ln a
1
7. ln x '=
x
1
8. logax '=
x$ln a
1
9. ln x '=
x
O
Derivative of product and quotient
• u x v x '= u' x v x Cu x v' x
'
u x u' x v x Ku x v' x
• = 2
v x v x
O

Chain Rule
Suppose that y is a function of u, and that u is a function of x
dy dy du
Then = (Chain Rule)
dx du dx
Or y u x '= y u '$u x '
O

Increasing and Decreasing Functions

Definition
Let f be a function defined on an interval I.
• If f x2 R f x1 whenever x2 O x1, then f is increasing in I
• If f x2 O f x1 whenever x2 O x1, then f is strictly increasing in I
• If f x2 % f x1 whenever x2 O x1, then f is decreasing in I
• If f x2 ! f x1 whenever x2 O x1, then f is strictly decreasing in I

Properties

Exam
Exam 6.3.2
Find the derivative of the cubic function
1 3 2
f x =K x C2 x K3 x C1. Then examine where f is increasing/decreasing.
3
sol
 O
O

Rate of change
• The derivative of a function at a particular point was defined as the slope of the tangent to its
graph at that point. Economists interpret the derivative in many important ways, starting with the
rate of change of an economic variable.
• Suppose that a quantity y is related to a quantity x by y = f x . If x has the value a, then the value
of the function is f a . Suppose that a is changed to a Ch.
• The change in y per unit change in x has a particular name, the average rate of change (tỷ lệ thay
f a Ch Kf a
đổi trung bình) of f over the interval from a to a Ch.
h

Rate
• Biến thiên; tỷ lệ; tỷ suất (kt); tốc độ; hệ số
O
• Taking the limit as h tends to 0 gives the derivative of f at a, which we interpret as follows:
The instantaneous rate of change (tỷ lệ thay đổi tức thời) of f at a is
f a Ch Kf a
f ' a = lim
h/0 h
f' a
• The relative rate of change (tỷ lệ thay đổi tương đối) of f at a is:
f a
Exam 1
Let N t be the number of individuals in a population (of, say, humans, animals, or plants) at time
t. If t increases to t Ch, then the change in population is equal to N t Ch KN t
individuals. Hence,
N t Ch KN t
h
dN
is the average rate of change. Taking the limit as h tends to 0 gives N' t or for the
dt
instantaneous rate of change of population at time t .
O

Exam 2: rate of investment

Let K t be the capital stock in an economy at time t . The rate of change K' t of K t is called
the rate of investment at time t . It is usually denoted by I t ,so K' t = I t .
O

Exam 3-Marginal cost (chi phí cận biên)

Consider a firm producing some commodity in a given period, and let C x denote the cost of
producing x units. The derivative C' x at x is called the marginal cost (chi phí cận biên) at x.
C x Ch KC x
According to the definition, it is equal to C' x z for h small.
h
• Then, the incremental cost of producing h units of extra output
C x Ch KC x z hC' x 3 , the product of the marginal cost and the change in output.

Note
Putting h = 1 in (3) makes marginal cost approximately equal to
C' x ≈ C x C1 KC x
This is approximately equal to the incremental cost C x C1 KC x , that is, the additional cost
of producing one more unit than x.
Exam in Lesson 1
The total dollar cost of producing x units of a product is given by C x = 100 x x C500 for
each nonnegative integer x.
1. Find the cost of producing 16 units. C 16 = 6900 $
2. Suppose the firm produces a units; find the increase in the cost from producing one additional
unit by using marginal cost.
a. Compute C a C1 KC a as in Lesson 1)
b. Approximate by compute C' a : marginal cost
3. What is the meaning of C' 100 ?
O C x d 100 x x C500 : OneUnit d C a C1 KC a ;
3/2 3/2
OneUnit := 100 a C1 K100 a (3.6.1)
O subs x = a, C' x ;
150 a (3.6.2)
O subs a = 1600, OneUnit ; evalf %
160100 1601 K160000 1600
6000.938 (3.6.3)
O subs a = 1600, C' a : evalf %
6000.000000 (3.6.4)
 O

More applications of derivatives

Implicit Differentiations
Exam 1 (206 in 7.1)
Let a function y = f x where xy = 5. Find the slope of the tangent of the curve at the point
5
P = 3, . Find the equation of the tangent at that point.
3

Sol
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Exam 2 (207)->HW

Sol

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The method of implicit diffrentiation
 Exam 3 (208) (HW)

Economics Examples
Exam 1(210)

1. Suppose first that

C = f (Y) = 95.05 + 0.712 Y (see Example 4.5.2), and use equations i and ii to find Y
in terms of I.
2. Inserting the expression for C from ii into i give
Y = f (Y) + I .
Suppose that this equation defines Y as a differentiable function of I . Find an expression for
dY
=Y'
dI
Sol (a)

Sol (b)
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Exam 2 (HW)
Exam 4.5.4

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In the linear supply and demand model of Example 4.5.4, suppose that a tax of t per unit is
imposed on consumers’ purchases, thus raising the price they face from P to P Ct . Then
D = a Kb P Ct , S = a Cb$P (*)
Here a, b, α, and β are positive constants. The equilibrium price is determined by equating
supply and demand, so that
a Kb P Ct = a Cb$P ()))
(a) Equation ())) implicitly defines the price P as a function of the unit tax t. Compute dP/dt
d
by implicit differentiation. What is its sign? What is the sign of P Ct ?
dt
Check the result by first solving equation ())) for P and then finding dP/dt explicitly.
Sol
dP b
Differentiating Kb P Ct = a Cb$P w.r.t. t yealds =K
dt b Cb
We see that dP/dt is negative. Because P is the price received by the producer, this price
will go down if the tax rate t increases. But P Ct is the price paid by the consumer.
Because
 d dP b b
P Ct = C1 =K C1 = .
dt dt b Cb b Cb
we see that 0 < d(P +t)/dt < 1. Thus, the consumer price increases, but by less than the
increase in the tax.
a Ka b
If we solve ())) for P, we obtain P = K t.
b Cb b Cb
This equation shows that the equilibrium producer price is a linear function of the tax per
b
unit, with slope .
b Cb
O
(b) Compute tax revenue T as a function of t. For what value of t does the quadratic function T
reach its maximum?
Sol
The total tax revenue is T = St = a C bP t , where P is the equilibrium price. Thus,
a Ka b b$b 2 a b C ab
T = a Cb K t t =K t C t
b Cb b Cb b Cb b Cb
ab C ba
This quadratic function has its maximum at t = .
2 b$b
O
(c) Generalize the foregoing model by assuming that D = f P Ct and S = g P , where
f and g are differentiable functions with f'! 0 and g'O 0. The equilibrium condition
f P Ct = g P
defines P implicitly as a differentiable function of t . Find an expression for dP/dt by
implicit differentiation. Illustrate geometrically.
Sol
Differentiating the equation f (P + t) = g(P) w.r.t. t yields
dP dP
f ' P Ct C1 = g ' P $ (*)
dt dt
dP f ' P Ct
Then =
dt g' P Kf ' P Ct
Because f '! 0 and g'O 0 , we we see that dP/dt is negative in this case as well.
Moreover,
d dP g' P
P Ct = C1 = .
dt dt g' P Kf ' P Ct
which implies that 0 < d(P + t)/dt < 1.
Differentiating the Inverse (optional)
Exam
1
y = f x = ax Cb and y = g x = x Kb .
a
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Theorem 7.3.1
If f is differentiable and strictly increasing (or strictly decreasing) in an interval I,
then f has an inverse function g, which is strictly increasing (strictly decreasing)
in the interval f I . If x0 is an interior point of I and f ' x0 s 0, then g is differentiable at
1
y0 = f x0 and g' y0 = y0 = f x0
f ' x0

Linear Approximations-Doubling Time-Rule of 70 (7.4)

Con consider the function y = f x .
f a Ch Kf a
We know that f ' a = lim
h/0 h
f a Ch Kf a
Therefore, f ' a z when h closes to 0.
h

Then f a Ch z f a C f ' a $h, h closes to 0 (1)

Let x = a Ch, we have:
f x z f a Cf' a x Ka (x close to a) (2)
 They are called linear approximation at a

Exam 0;
Compute 9.1 and 8.9 without using calculator by using linear approximation

1
Use a = 9 and f x = x z a C x Ka
2$ a
O
O
Exam 1
3 3
Find the linear approximation to f x = x about a = 1. Apply to compute 1.05 .
sol

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Exam 2
Show that ln 1 Cx zx for x close to 0.
sol

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Exam 5
50
Use (1) to find an approximate value for 1.001 .
n
Show that 1 Cx z n$x, when x closes to 0.
Sol

Exam 3(Compound Interest)

• A savings account of $K that increases by p% interest each year. Compute how much you
can get after 1, 2, 3 year?

• A savings account of $K that increases by p% interest each year will have increased
t
after t years to K(1+p/100 . According to this formula with K = 1, a deposit of $1
t
earning interest at 8% per year (p = 8) will have increased after t years to 1.08 .
 Doubling time.
savings account of $K that increases by 6% interest each year. When can you get double?

Exam 4
1. Find the doubling time of an amout of money A deposit in a bank with an interest rate
6 % per year.
* t
2. Find the doubling time t of an exponential function f t = A a .
Sol
ln 2
O evalf :
6
ln 1 C
100

Exam 4 (Rule of 70)

t
If an amount K earns yearly interest p%, after t year, we get A t = K 1 Cp% . When we
t ln 2
ontain double, then K 1 Cp% = 2 K. Then t = log 1 C p% 2 = .
ln 1 Cp%
* ln 2
The doubling time is t =
p
ln 1 C
100
If we use the approximations ln 2 ≈ 0.7 and ln(1 + x) ≈ x, then
* ln 2 0.7 70
t = z =
p p p
ln 1 C
100 100
Application (->quiz)
The population increasing of Danang city is p = 0.5 % per year.
1/ When does the population of Danang reach double ?
2/ When is the population of Danang three time increasing ?
O

L'Hopital's Rule (7.12) to compute hard limits (option)

 Exam 4

Sol

Single variable optimization

Definition
In (1), we call f c the maximum value, and in (2), we call f d the minimum value.If the value of
f at c is strictly larger than at any other point in D, then c is a strict maximum point.
Similarly, d is a strict minimum point if f x O f d for all c 2 D, x s d.
As collective names, we use the terms, optimal points and values, or extreme points and values.
Example 1
Find possible maximum and minimum points for:
2
a f x = 3 K x K2
b g x = x K5 K100, x R 5.
Sol

Interior points and critical (stationary) points

Points c at which f is differentiable and f ' c = 0 are called critical, or stationary points.
O

Theorem 8.1.1. Necessary first order condition

Suppose that a function f is differentiable in an interval I and that c is an interior point of I . For
x = c to be a maximum or minimum point for f in I , then c is a stationary point for f ,
i.e. f ' c = 0.
O

Simple Tests for Extreme Points-Theorem 8.2.1

Theorem 8.2.1 (FIRST-DERIVATIVE TEST FOR MAXIMUM/MINIMUM)
Let f x be differentiable on an interval I and c be an interior point of I.
If f ' x R 0 for all x % c and f ' x % 0 for all x R c then x = c is a maximum point for f.
If f ' x % 0 for all x % c and f ' x R 0 for all x R c then x = c is a minimum point for f.
Exam 1
Measured in milligrams per litre, the concentration of a drug in the bloodstream t hours after
t
injection is given by the formula c t = 2 for t R 0. Find the time of maximum
t C4
concentration.
Sol

O
Exam 2
2x x x x
Consider the function f x = e K5e C4 = e K1 e K4 .
(a) Find the zeros of f x and compute f ' x .
(b) Find the intervals where f increases and decreases, and determine possible extreme points
and values.
(c) Examine lim f x . Sketch the graph of f.
x /KN
 5 2x x
O subs x = ln , exp 1 K5 exp 1 C4 ; evalf %
2
5 5
2 ln ln
2 2
e K5 e C4
K2.250000000 (5.3.3.1)
2x x
O plot exp 1 K5 exp 1 C4, x =K5 ..5, y =K5 ..5 ;

y
2

K4 K2 0 2 4
x

K2

K4

O
Sol
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Theorem 8.2.2 (MAXIMUM/MINIMUM FOR CONCAVE/CONVEX FUNCTIONS)
Suppose f is a concave (convex) function in an interval I . If c is a stationary point
for f in the interior of I , then c is a maximum (minimum) point for f in I .
O
Second derivative tests for concave and convex

O
Exam 3 (optional)
xK1
Consider the function f x = e Kx. Show that f is convex and find its minimum point.
Sketch the graph.
xK1
O plot exp 1 K x, x =K2 ..2 :
Sol
Economic Examples
Exam 1
Suppose Y N bushels (giạ) of wheat are harvested per acre (mẫu Anh) of land when N pounds
of fertilizer (phân bón) per acre are used. If p is the dollar price per bushel of wheat and q is
the dollar price per pound of fertilizer, then profits in dollars per acre are
*
p N = p$Y N KqN. Find the amount of fertilizer N which maximizes the profit for the
following cases.
(a) In an (unrealistic) example Y N = N , p = 10, q = 0.5.
(b) An agricultural study in Iowa estimated the yield function Y N for the year 1952 as
1.5
Y N = 13.62 C0.984$N K0.05 N , p = 1.40, q = 0.18
Sol
 O
Exam 2 (read yourself)
(a) The total cost of producing Q units of a commodity is
2
C Q = C$Q C10$Q C32, Q O 0.
Find the value of Q which minimizes the average cost function
C Q 32
A Q = = 2$Q C10 C .
Q Q
(b) The total cost of producing Q units of a commodity is
2
C Q = a$Q Cb$Q Cc, Q O 0;
where a, b and c are positive constants. Show that the average cost function
C Q c * c
A Q = = a$Q Cb C has a minimum at Q = . In the same coordinate
Q Q d
system, draw the graphs of the average cost, the marginal cost, and the straight line
P = a$Q Cb.
Sol
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The Extreme Value Theorem

Theorem
Suppose that f is a continuous function over a closed and bounded interval a, b .
Then there exists a point d in a, b where f has a minimum, and a point c in a, b where f
has a maximum, so that f d % f x % f c for all x 2 a, b .

Searching for Maxima/Minima

Problem: Find the maximum and minimum values of a differentiable function f defined on a
closed, bounded interval a, b .
Solution:
(I) Find all stationary points of f in a, b , that is, find all points x 2 a, b , f ' x = 0.
(II) Evaluate f at the end points a and b of the interval and also at all stationary points.
(III) The largest function value found in (II) is the maximum value, and the smallest function
value is the minimum value of f in a, b .

Exams
Exam 1
2
Find the maximum and minimum values for f x = 3 x K6 x C5, x in 0, 3 .
Sol
 Exam 2
1 4 5 3 1 2
Find the maximum and minimum values for f x = x K x C x K1, x 2 K1, 3 .
4 6 2
sol

O
O

Further Economic Examples

Exam 1+2
A firm that produces a single commodity wants to maximize its profits. The total revenue
generated in a certain period by producing and selling Q units is R Q dollars, whereas C Q
denotes the associated total dollar cost. The profit obtained as a result of producing and selling
Q units is then p Q = R Q KC Q . __
We assume that because of technical limitations, there is a maximum quantity Q = 110 units
that can be produced by the firm in a given period.
Let us assume that the firm gets a fixed price p = 121 per unit sold. Then R Q = 121$Q.
3 2
Assume that C Q = 0.02$Q K3$Q C175$Q C500.
(a) Make a table of the values of the functions R Q = 121$Q, C Q and p Q for
Q = 0, 10, 30, 50, 70, 90 and 110. Draw the graphs of R Q and C Q in the same coordinate
system.
sol
 O
(b) Answer the following questions (approximately) by using the graphs in (a):
(i) How many units must be produced in order for the firm to make a profit?
(ii) How many units must be produced for the profit to be 2000 dollars?
(iii) Which production level maximizes profits?
sol
 O
(c) Answer the question in (b)(iii) by computation.
sol

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(d) What is the smallest price per unit the firm must charge in order not to lose money, if
capacity is fully utilized (that is if it produces110 units)?
Sol
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Exam 3 (HW)
Consider an example at the other extreme, where the firm has a monopoly in the sale of the
commodity. Assume that the price per unit, P Q , varies with Q according to the formula
1
P Q = 100 K Q, Q 2 0, 300 .
3
1 3 1000
Suppose now the cost function is C Q = $Q C50$Q K .
600 3
Find the production level that maximizes profit, and compute the maximum profit.
Sol

Homework
Sec 6.1
I. 1-2
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Sec 6.2
I 2,3
III. 5-7

Sec 6.3
I: 1-3
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Sec 6.4
I. 1-6; III. 7-8
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Sec 6.8
I. 1-3, 7,8,10,11
III, 9,12

Sec 6.9
I. 1,2,9,10
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7.1
I. 1-4,7
III. 5-6.8-10
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7.2
1,2,4
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8.1
II
1: a,b,c at least 1.;
2. a,b,c at least 1
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8.2
I 1, 3
II 5-8 at least 2
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8.3
II 1-3 at least 2
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8.4
I. 1,5
II. 2 a-e at least 2; 4-5 at least 1.
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8.5
I. 1
II. 2-6 at least 2
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Quiz: (20 minutes)