Mathematics for Business Engineers 1

Homogeneous functions and directional derivatives

Ignace Van de Woestyne

KU Leuven Campus Brussels

1/12
Homogeneous functions

f : A ⊂ Rn → R is homogeneous on A of degree (of homogeneity) r ∈ R if for all

(x1 , x2 , . . . , xn ) ∈ A and for all λ ∈ R+
0:
(λx1 , λx2 , . . . , λxn ) ∈ A
f (λx1 , λx2 , . . . , λxn ) = λr f (x1 , x2 , . . . , xn )

Example
Let f : R2 → R : (x, y ) 7→ f (x, y ) = 4x 3 − 5y 3
∀λ ∈ R+ 2
0 , ∀(x, y ) ∈ R : (λx, λy ) ∈ R
2

f (λx, λy ) = 4(λx)3 − 5(λy )3 = λ3 (4x 3 − 5y 3 ) = λ3 f (x, y )

Conclusion: f is homogeneous of degree 3 on R2

See book for additional examples and counterexamples

2/12
Returns to scale

A firm uses n ∈ N0 inputs to produce one output

Denote the quantity by which the output is produced by q
Denote the quantities of the n inputs by x1 , x2 , . . . , xn
The production function q : (R+ )n → R : (x1 , x2 , . . . , xn ) 7→ q(x1 , x2 , . . . , xn )
Production exhibits
constant returns to scale (CRS) if q(λx1 , λx2 , . . . , λxn ) = λq(x1 , x2 , . . . , xn ) for all λ > 1
increasing returns to scale (IRS) if q(λx1 , λx2 , . . . , λxn ) > λq(x1 , x2 , . . . , xn ) for all λ > 1
decreasing returns to scale (DRS) if q(λx1 , λx2 , . . . , λxn ) < λq(x1 , x2 , . . . , xn ) for all λ > 1

Theorem
Consider a firm with a homogeneous production function q : (R+ )n → R of degree r ∈ R+
0 . Then q
exhibits (a) CRS if r = 1, (b) IRS if r > 1 or (c) DRS if r < 1

Example
The Cobb-Douglas production function q : (R+ )2 → R : (K , L) 7→ q(K , L) = CK α Lβ is
homogeneous of degree α + β
ν
The CES production function q : (R+ )2 → R : (K , L) 7→ q(K , L) = c(αK ρ + (1 − α)Lρ ) ρ is
homogeneous of degree ν
3/12
Euler’s theorem

Theorem (Euler’s theorem)

Consider the homogeneous function f : A ⊂ Rn → R of degree r ∈ R on the open set A. Assume that
f has continuous partial derivatives in A. Then, for all (x1 , x2 , . . . , xn ) ∈ A:
n
X
xj Dj f (x1 , x2 , . . . , xn ) = rf (x1 , x2 , . . . , xn )
j=1

The proof is a good exercise on applying the chain rule (see book for details)

Example
Consider a homogeneous production function Q : (R+ )2 → R : (K , L) 7→ Q(K , L) of degree r with
continuous partial derivatives
Euler’s theorem ⇒ K ∂Q
∂K
(K , L) + L ∂Q
∂L
(K , L) = rQ(K , L)
Interpretation: the sum of capital times marginal productivity of capital and labour times
marginal productivity of labour is equal to the degree of homogeneity times total production
If Q exhibits CRS (i.e., r = 1), then the result is known as the product exhaustion theorem in
economics

4/12
Directional derivatives

Let f : A ⊂ Rn → R with A an open set of Rn , a ∈ A and u ∈ Rn be a unit vector (i.e., kuk = 1)

f (a + hu) − f (a)
f is differentiable at a in the direction of u if lim exists and is finite
h→0 h
This limit is denoted by Du f (a) and is called the directional derivative of f at a in the direction
of u
f is directional differentiable in the direction of u if the directional derivative exists at every
element of its domain A0 ⊂ A
The function Du f : A0 ⊂ Rn → R : x 7→ Du f (x) is called the directional derivative of f in the
direction of u
By comparing definitions: Di f (a) = Dei f (a) for every vector ei in the standard basis of Rn

5/12
Geometric interpretation

T
πu

α
p
graph of f

y
u

a
Lu
x

6/12
Example

Example
Let f : R2 → R : (x, y ) 7→ f (x, y ) = x 2 + 3xy , a = (1, 1) and u = (cos θ, sin θ) for some θ ∈ [0, 2π[
Question: Determine Du f (a) using the definition
Solution:
a + hu = (1, 1) + h(cos θ, sin θ) = (1 + h cos θ, 1 + h sin θ)
f (a + hu) = f (1 + h cos θ, 1 + h sin θ) = (1 + h cos θ)2 + 3(1 + h cos θ)(1 + h sin θ)
= h2 (cos2 θ + 3 cos θ sin θ) + h(5 cos θ + 3 sin θ) + 4
f (a) = 1 + 3 = 4
f (a + hu) − f (a)
Du f (a) = lim = lim (h(cos2 θ + 3 cos θ sin θ) + 5 cos θ + 3 sin θ) = 5 cos θ + 3 sin θ
h→0 h h→0

7/12
Alternative formulations of directional derivative

Let f : A ⊂ Rn → R with A an open set of Rn , a ∈ A and u ∈ Rn be a unit vector

(a) Du f (a) = gu0 (0) with gu : R → R : h 7→ gu (h) = f (a + hu) if gu is differentiable in 0
(b) If f is partial differentiable and all partial derivatives of f are continuous in a, then
Xn
Du f (a) = Dj f (a)uj
j=1

Proof: (a) follows using the appropriate definitions and (b) is a consequence of the chain rule (see
book for details)

8/12
Alternative formulations of directional derivative

Example
Let f : R2 → R : (x, y ) 7→ f (x, y ) = x 2 + 3xy , a = (1, 1) and u = (cos θ, sin θ) for some θ ∈ [0, 2π[
Question: Determine Du f (a) using alternative (a)
Solution:
gu (h) = f (a + hu) = f (1 + h cos θ, 1 + h sin θ) = (1 + h cos θ)2 + 3(1 + h cos θ)(1 + h sin θ)
gu0 (h) = 2(1 + h cos θ) cos θ + 3 cos θ(1 + h sin θ) + 3(1 + h cos θ) sin θ
Du f (a) = gu0 (0) = 2 cos θ + 3 cos θ + 3 sin θ = 5 cos θ + 3 sin θ

Example
Let f : R2 → R : (x, y ) 7→ f (x, y ) = x 2 + 3xy , a = (1, 1) and u = (cos θ, sin θ) for some θ ∈ [0, 2π[
Question: Determine Du f (a) using alternative (b)
Solution:
D1 f (x, y ) = 2x + 3y ⇒ D1 f (1, 1) = 5
D2 f (x, y ) = 3x ⇒ D2 f (1, 1) = 3
Du f (a) = D1 f (a)u1 + D2 f (a)u2 = 5 cos θ + 3 sin θ

See book for alternative examples

9/12
Gradient

Let f : A ⊂ Rn → R with A an open set of Rn be a partial differentiable function

the gradient ∇f of f is the function

∇f : A ⊂ Rn → Rn : x 7→ ∇f (x) = (D1 f (x), D2 f (x), . . . , Dn f (x))

The image ∇f (x) ∈ Rn is also called the gradient vector at x ∈ A

The gradient vector ∇f (x) corresponds with the Jacobian Jf (x) at x

Example
Let f : R2 → R : (x, y ) 7→ f (x, y ) = 31 (x cos y + y cos x)
D1 f : R2 → R : (x, y ) 7→ D1 f (x, y ) = 31 (cos y − y sin x)
D2 f : R2 → R : (x, y ) 7→ D2 f (x, y ) = 31 (−x sin y + cos x)
∇f : R2 → R2 : (x, y ) 7→ ∇f (x, y ) = ( 13 (cos y − y sin x), 13 (−x sin y + cos x))

10/12
Visualization of gradient vector field

11/12
Geometric interpretation of the gradient vector
Theorem
Consider f : A ⊂ Rn → R with A an open set of Rn and a ∈ A. Assume that f is partial differentiable
in an open set of A containing a and that all partial derivatives are continuous in a. Then,
(a) the gradient vector ∇f (a) points in the direction where f at a has the largest possible slope
(b) the opposite of the gradient vector −∇f (a) points in the direction where f at a has the
smallest possible slope
(c) a direction perpendicular to the gradient vector ∇f (a) points in the direction where f at a has
no slope

Proof: ∇f (a)
n
X
Du f (a) = Dj f (a)uj = h∇f (a), ui
j=1

= k∇f (a)k · kuk · cos θu u

= k∇f (a)k · cos θu θu
with θu the angle between u and ∇f (a)
Results follow from turning u in the
appropriate directions 0
12/12