Lecture 2

Mathematical Economics:
Lecture 2
Yu Ren
WISE, Xiamen University
September 25, 2012

Chapter 2
Outline
1 Chapter 2
math
Yu Ren Mathematical Economics: Lecture 2

Chapter 2
Number Line
The number line, origin (Figure 2.1 Page

11)
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Chapter 2
Number Line
Interval
(a, b) = {x ∈ R 1 : a < x < b}
[a, b] = {x ∈ R 1 : a ≤ x ≤ b}
(a, b] = {x ∈ R 1 : a < x ≤ b}
[a, b) = {x ∈ R 1 : a ≤ x < b}
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Chapter 2
Function on R 1
Function on R 1 : a rule which assigns a

number in R 1 to a number in R 1
Example in the book: f (x) = x + 1
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Chapter 2
Function on R 1
Function on R 1 : a rule which assigns a

number in R 1 to a number in R 1
Example in the book: f (x) = x + 1
math

Chapter 2
Function on R 1
x = 0 → f (x) = 0.5
x = 3.25 → f (x)√ = 0.98
x = π → f (x) = 2
Is f (x) a function about x ?
math

Chapter 2
Function on R 1
Domain: the set of numbers at which the

function is defined
Example: f (x) = x1
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Chapter 2
Function on R 1
Domain: the set of numbers at which the

function is defined
Example: f (x) = x1
math

Chapter 2
Function on R 1
x: independent variable, exogenous

variable
y = f (x): dependent variable, endogenous
variable
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Chapter 2
Function Categories
monomials: f1 (x) = 4x 3 , f1 (x) = 5x 2 ,

f1 (x) = 2x
f (x) = ax b
b: positive integer
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Chapter 2
Function Categories
monomials: f1 (x) = 4x 3 , f1 (x) = 5x 2 ,

f1 (x) = 2x
f (x) = ax b
b: positive integer
math

Chapter 2
Function Categories
polynomials: f (x) = 4x 3 + 5x 2 + 2x + 1
f (x) = a1 x b1 + a2 x b2 + · · · + an x bn
bi : positive integer
math

Chapter 2
Function Categories
polynomials: f (x) = 4x 3 + 5x 2 + 2x + 1
f (x) = a1 x b1 + a2 x b2 + · · · + an x bn
bi : positive integer
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Chapter 2
Function Categories
polynomial
rational function f (x) = polynomial ,
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Chapter 2
Function Categories
exponential function f (x) = ax ,
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Chapter 2
Function Categories
trigonometric function
f (x) = F (sin(x), cos(x), · · · ),
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Chapter 2
Function Categories
increasing function, decreasing function
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Chapter 2
Minimum
local minimum: a minimum within a local

neighborhood
For example: if x1 is a local minimum of
f (x), then f (x1 ) is the lowest value within
(x1 − , x1 + ), where is a small positive
number
math

Chapter 2
Minimum
local minimum: a minimum within a local

neighborhood
For example: if x1 is a local minimum of
f (x), then f (x1 ) is the lowest value within
(x1 − , x1 + ), where is a small positive
number
math

Chapter 2
Minimum
global minimum: a minimum within the

whole domain
For example: if x1 is a local minimum of f (x)
and x2 can be another local minimum of
f (x), but only one of them can be the global
minimum.
math

Chapter 2
Minimum
global minimum: a minimum within the

whole domain
For example: if x1 is a local minimum of f (x)
and x2 can be another local minimum of
f (x), but only one of them can be the global
minimum.
math

Chapter 2
Linear Function
linear function: f (x) = mx + b

m is the slope, b is the intercept
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Chapter 2
Linear Function
Example 2.2 The slope of the line joining

the points (4,6) and (0,7) is
7−6 1
m= =− .
0−4 4
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Chapter 2
Economic Interpretation: Marginal
Slope in economics: marginal cost,

marginal utility, marginal product
marginal cost is the change in total cost
that arises when the quantity produced
changes by one unit.
marginal product is the extra output
produced by one more unit of an input
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Chapter 2

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Chapter 2

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Chapter 2
Slope of Nonlinear Function
nonlinear function
derivative: f 0 (x0 ) = limh→0 f (x0 +h)−f
h
(x0 )
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Chapter 2
computing rules: Theorem 2.4:

(f ± g)0 (x0 ) = f 0 (x0 ) ± g 0 (x0 )
kf 0 (x0 ) = k(f 0 (x0 ))
0 0 0
·g) (x0 ) = f (x0 )g(x0 ) + f (x0 )g (x0 )
(f
0
f f 0 (x0 )g(x0 )−f (x0 )g 0 (x0 )
g
(x0 ) = g(x0 )2
(f (x)n )0 = n(f (x)) n−1 0
f (x)
(x k )0 = kx k −1
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Chapter 2

(f ± g)0 (x0 ) = f 0 (x0 ) ± g 0 (x0 )
kf 0 (x0 ) = k(f 0 (x0 ))
0 0 0
·g) (x0 ) = f (x0 )g(x0 ) + f (x0 )g (x0 )
(f
0
f f 0 (x0 )g(x0 )−f (x0 )g 0 (x0 )
g
(x0 ) = g(x0 )2
(f (x)n )0 = n(f (x)) n−1 0
f (x)
(x k )0 = kx k −1
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Chapter 2

(f ± g)0 (x0 ) = f 0 (x0 ) ± g 0 (x0 )
kf 0 (x0 ) = k(f 0 (x0 ))
0 0 0
·g) (x0 ) = f (x0 )g(x0 ) + f (x0 )g (x0 )
(f
0
f f 0 (x0 )g(x0 )−f (x0 )g 0 (x0 )
g
(x0 ) = g(x0 )2
(f (x)n )0 = n(f (x)) n−1 0
f (x)
(x k )0 = kx k −1
math

Chapter 2

(f ± g)0 (x0 ) = f 0 (x0 ) ± g 0 (x0 )
kf 0 (x0 ) = k(f 0 (x0 ))
0 0 0
·g) (x0 ) = f (x0 )g(x0 ) + f (x0 )g (x0 )
(f
0
f f 0 (x0 )g(x0 )−f (x0 )g 0 (x0 )
g
(x0 ) = g(x0 )2
(f (x)n )0 = n(f (x)) n−1 0
f (x)
(x k )0 = kx k −1
math

Chapter 2

(f ± g)0 (x0 ) = f 0 (x0 ) ± g 0 (x0 )
kf 0 (x0 ) = k(f 0 (x0 ))
0 0 0
·g) (x0 ) = f (x0 )g(x0 ) + f (x0 )g (x0 )
(f
0
f f 0 (x0 )g(x0 )−f (x0 )g 0 (x0 )
g
(x0 ) = g(x0 )2
(f (x)n )0 = n(f (x)) n−1 0
f (x)
(x k )0 = kx k −1
math

Chapter 2

(f ± g)0 (x0 ) = f 0 (x0 ) ± g 0 (x0 )
kf 0 (x0 ) = k(f 0 (x0 ))
0 0 0
·g) (x0 ) = f (x0 )g(x0 ) + f (x0 )g (x0 )
(f
0
f f 0 (x0 )g(x0 )−f (x0 )g 0 (x0 )
g
(x0 ) = g(x0 )2
(f (x)n )0 = n(f (x)) n−1 0
f (x)
(x k )0 = kx k −1
math

Chapter 2

(f ± g)0 (x0 ) = f 0 (x0 ) ± g 0 (x0 )
kf 0 (x0 ) = k(f 0 (x0 ))
0 0 0
·g) (x0 ) = f (x0 )g(x0 ) + f (x0 )g (x0 )
(f
0
f f 0 (x0 )g(x0 )−f (x0 )g 0 (x0 )
g
(x0 ) = g(x0 )2
(f (x)n )0 = n(f (x)) n−1 0
f (x)
(x k )0 = kx k −1
math

Chapter 2
Example
Example 2.5:
For f (x) = x 2 , in order to prove that f 0 (3) = 6,
we need to show that
(3 + hn )2 − 32
→ 6, as hn → 0
hn
for every sequence {hn } which approaches
zero.
math

Chapter 2
Example
For any h,
(3 + h)2 − 32 9 + 6h + h2 − 9 h(6 + h)
= = = 6+h
h h h
which clearly converges to 6 as h → 0.
f 0 (3) = 6.
math

Chapter 2
Differentiability and Continuity
differentiable: limh→0 f (x0 +h)−f

h
(x0 )
exists and
same ∀ h
Is f (x) = |x| differentiable at x0 = 0?
math

Chapter 2
differentiable: limh→0 f (x0 +h)−f

h
(x0 )
exists and
same ∀ h
Is f (x) = |x| differentiable at x0 = 0?
math

Chapter 2
limh→0− f 0 (x0 ) = limh→0+ f 0 (x0 )

left limit: limh→0− f 0 (x0 )
right limit: limh→0+ f 0 (x0 )
math

Chapter 2
limh→0− f 0 (x0 ) = limh→0+ f 0 (x0 )

left limit: limh→0− f 0 (x0 )
right limit: limh→0+ f 0 (x0 )
math

Chapter 2
continuous: f (x0 ) = limh→0 f (x0 + h)

when the limit of x0 exists, f may or may not
be continuous at x0
f (x) = x when (−∞, 3) ∪ (3, +∞) and
f (3) = 9. f (x) is not continuous at 3.
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Chapter 2

be continuous at x0
f (x) = x when (−∞, 3) ∪ (3, +∞) and
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Chapter 2

be continuous at x0
f (x) = x when (−∞, 3) ∪ (3, +∞) and
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Chapter 2
Higher-Order Derivatives
2
d df d f
f 00 (x0 ) or dx ( dx )(x0 ) = dx 2 (x0 )
Example 2.9: the derivative of the function

f (x) = x 3 + 3x 2 + 3x + 1 is
f 0 (x) = 3x 2 + 6x + 3
f 00 (x) = 6x + 6
math

Chapter 2
2
d df d f
f 00 (x0 ) or dx ( dx )(x0 ) = dx 2 (x0 )

f (x) = x 3 + 3x 2 + 3x + 1 is
f 0 (x) = 3x 2 + 6x + 3
f 00 (x) = 6x + 6
math

Chapter 2
2
d df d f
f 00 (x0 ) or dx ( dx )(x0 ) = dx 2 (x0 )

f (x) = x 3 + 3x 2 + 3x + 1 is
f 0 (x) = 3x 2 + 6x + 3
f 00 (x) = 6x + 6
math

Chapter 2
twice continuously differentiable: If f has a

second derivative everywhere, then f 00 is a
well defined function of x. And if f 00 is a
continuous function of x, then f is twice
continuously differentiable, denoted by C 2
C 1, C n , C ∞
math

Chapter 2
twice continuously differentiable: If f has a

second derivative everywhere, then f 00 is a
well defined function of x. And if f 00 is a
continuous function of x, then f is twice
continuously differentiable, denoted by C 2
C 1, C n , C ∞
math

Chapter 2
Approximation by Differentials
f 0 (x0 ) = dy ∆y
dx ≈ ∆x
∆y = f (x0 + ∆x) − f (x0 ) ≈ f 0 (x0 )∆x
f (x0 + ∆x) ≈ f (x0 ) + f 0 (x0 )∆x
Figure 2.15 (page 37)
math

Chapter 2
f 0 (x0 ) = dy ∆y
dx ≈ ∆x
∆y = f (x0 + ∆x) − f (x0 ) ≈ f 0 (x0 )∆x
f (x0 + ∆x) ≈ f (x0 ) + f 0 (x0 )∆x
math

Chapter 2
f 0 (x0 ) = dy ∆y
dx ≈ ∆x
∆y = f (x0 + ∆x) − f (x0 ) ≈ f 0 (x0 )∆x
f (x0 + ∆x) ≈ f (x0 ) + f 0 (x0 )∆x
math

Chapter 2
f 0 (x0 ) = dy ∆y
dx ≈ ∆x
∆y = f (x0 + ∆x) − f (x0 ) ≈ f 0 (x0 )∆x
f (x0 + ∆x) ≈ f (x0 ) + f 0 (x0 )∆x
math

Chapter 2
Example
Example 2.11
√
Production function F (x) = 12 x
100 units of labor input x
its output is 5 units.
The derivative of the production F at
x = 100,
1 1
F 0 (100) = 100−1/2 = = 0.025,
4 40
math

Chapter 2
Example
F 0 (100) is a good measure of the marginal

product of labor
the actual increase in output is
F (101) − F (100) = 0.02494 · · · , pretty
close to 0.025.
math

Lecture 2

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Mathematical Economics:

September 25, 2012

Yu Ren Mathematical Economics: Lecture 2

The number line, origin (Figure 2.1 Page

Yu Ren Mathematical Economics: Lecture 2

Yu Ren Mathematical Economics: Lecture 2

Function on R 1 : a rule which assigns a

Yu Ren Mathematical Economics: Lecture 2

Function on R 1 : a rule which assigns a

Yu Ren Mathematical Economics: Lecture 2

Yu Ren Mathematical Economics: Lecture 2

Domain: the set of numbers at which the

Yu Ren Mathematical Economics: Lecture 2

Domain: the set of numbers at which the

Yu Ren Mathematical Economics: Lecture 2

x: independent variable, exogenous

Yu Ren Mathematical Economics: Lecture 2

monomials: f1 (x) = 4x 3 , f1 (x) = 5x 2 ,

Yu Ren Mathematical Economics: Lecture 2

monomials: f1 (x) = 4x 3 , f1 (x) = 5x 2 ,

Yu Ren Mathematical Economics: Lecture 2

Yu Ren Mathematical Economics: Lecture 2

Yu Ren Mathematical Economics: Lecture 2

Yu Ren Mathematical Economics: Lecture 2

exponential function f (x) = ax ,

Yu Ren Mathematical Economics: Lecture 2

Yu Ren Mathematical Economics: Lecture 2

increasing function, decreasing function

Yu Ren Mathematical Economics: Lecture 2

local minimum: a minimum within a local

Yu Ren Mathematical Economics: Lecture 2

local minimum: a minimum within a local

Yu Ren Mathematical Economics: Lecture 2

global minimum: a minimum within the

Yu Ren Mathematical Economics: Lecture 2

global minimum: a minimum within the

Yu Ren Mathematical Economics: Lecture 2

linear function: f (x) = mx + b

Yu Ren Mathematical Economics: Lecture 2

Example 2.2 The slope of the line joining

Yu Ren Mathematical Economics: Lecture 2

Economic Interpretation: Marginal

Slope in economics: marginal cost,

Yu Ren Mathematical Economics: Lecture 2

Economic Interpretation: Marginal

Slope in economics: marginal cost,

Yu Ren Mathematical Economics: Lecture 2

Economic Interpretation: Marginal

Slope in economics: marginal cost,

Yu Ren Mathematical Economics: Lecture 2

Slope of Nonlinear Function

Yu Ren Mathematical Economics: Lecture 2

Slope of Nonlinear Function

computing rules: Theorem 2.4:

Yu Ren Mathematical Economics: Lecture 2

Slope of Nonlinear Function

computing rules: Theorem 2.4:

Yu Ren Mathematical Economics: Lecture 2

Slope of Nonlinear Function

computing rules: Theorem 2.4:

Yu Ren Mathematical Economics: Lecture 2

Slope of Nonlinear Function

computing rules: Theorem 2.4:

Yu Ren Mathematical Economics: Lecture 2