Chapter 3

Differentiation

Instructor: Ines Khemir

 Differentiation

• In economics, there are many problems which require us to take into

account how a function value changes with respect to small changes
of the independent variable (e.g. input, time, etc.).
A useful tool for such investigations is differential calculus. It is an
important field of mathematics with many applications, e.g. graphing
functions, determination of extreme points of functions with or
without additional constraints.
Differential calculus allows us to investigate specific properties of
functions such as monotonicity or convexity.

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Section I

LIMIT AND CONTINUITY

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The Limit Process
The Idea of a Limit

We start with a number c and a function f defined at all numbers x near c but not

necessarily at c itself. In any case, whether or not f is defined at c and, if so, how is

totally irrelevant.
lim f  x   L
x c
Now let L be some real number. We say that the limit of f (x) as x tends to c is L and

write that
provided

as x approaches c, f(x) approaches L

or (somewhat more precisely) provided that

f (x) is close to L for all x ≠ c which are close to c.

The Limit Process

The curve in Figure 2.1.4 represents the graph of a function f. The number c is on the

x-axis and the limit L is on the y-axis. As x approaches c along the

x-axis, f (x) approaches L along the y-axis.

The Limit Process
One-Sided Limits

Numbers x near c fall into two natural categories: those that lie to the left of c
lim f  x   L
and those that xlie
 c to the right of c. We write
[The left-hand limit of f(x) as x tends to c is L.]

to indicate that

as x approaches c from the left, f(x) approaches L.

lim f  x   L
x c 
[The right-hand limit of f(x) as x tends to c is L.]
We write
to indicate that

as x approaches c from the right, f(x) approaches L

 The Limit Process
Example

Take the function indicated in Figure 2.1.7. As x approaches

lim f  x   2
5 from the left, f (x) approaches 2; therefore
x  5

As x approaches 5 from the right, f (x) approaches 4; therefore

lim f  x   4
x 5

lim f  x 
x 5
The full limit, , does not exist: consideration of x < 5 would force the limit to

be 2, but consideration of x > 5 would force the limit to be 4.

For a full limit to exist, both one-sided limits have to exist and they have to be equal.
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These graphs show the behavior of three different functions around x=2.

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 The Limit Process
Example 9

We refer to function indicated in Figure 2.1.10 and examine the behavior of f(x) for x

close to 3 and close to to 7.

As x approaches 3 from the left or from the right, f(x)

becomes arbitrarily largex →and

3 cannot stay close to any

number L. Therefore

limx →
f(x)
7 does not exist.

As x approaches 7 from the left, f(x) becomes arbitrarily large and cannot stay close

to any number L. Therefore

 The Limit Process
Remark To indicate that f (x) becomes arbitrarily large, we can write

f (x)→∞. To indicate that f (x) becomes arbitrarily large negative, we can write

f (x)→−∞. 

Consider Figure 2.1.10, and note that for the function depicted


there the following statements hold:

as x → 3¯, f (x) → (∞) and as x → 3 , f (x)→∞.

Consequently,

as x → 3, f (x)→∞.
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If we apply Theorem 2, part (4), and separately determine the limit of the numerator and the

denominator, we find that both terms tend to zero, and we cannot find the limit in this way.

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1.2 Continuity of a function

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The discontinuity can be removed by redefining f at x . If the limit is L, redefine f at x to be L.

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 Continuity
Example 1
x3  x
The function F  x  3 x  2 4
x  5x  6

is continuous at all real numbers other than 2 and 3. You can see this by noting that

F = 3 f + g/h + k

where

3 2
f (x) = |x|, g(x) = x − x, h(x) = x − 5x + 6, k(x) = 4.

Since f, g, h, k are everywhere continuous, F is continuous except at 2 and 3, the numbers

at which h takes on the value 0. (At those numbers F is not defined.)

2.2 Properties of continuous functions

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Intermediate Value Theorem

If f is a continuous function on a closed interval [a, b] and L is any number between f (a) and f

(b), then there is at least one number c in [a, b] such that f(c) = L.

y  f ( x)
f (b)

f (c) = L

f (a)

a c b
Example

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The first function is continuous at .
f(0) = 02 − 4 · 0 + 2 > 0.
f(2) = 22 − 4 · 2 + 2 < 0.
Since it verifies the intermediate value
theorem, there is at least one c that
belongs to the interval (0, 2) and intersects
the x-axis.
•We cannot confirm the same of the
second function because it is not
continuous at x = 1.
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 Example

Prove that the equation: x3 + x − 5 = 0, has

at least one solution x = a such that
1 < a < 2.

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Using Bolzano's theorem, show that the equation: x3 + x
− 5 = 0, has at least one solution for x = a such that 1 < a
< 2.
f(x) is continuous in [1,2]
f(1) = 13 + 1 − 5 = −3 < 0
f(2) = 23 + 2 − 5 = 5 > 0
Since it verifies the Bolzano's Theorem, there is c (1,2)
such that:
f(c) = 0 c3 + c − 5 = 0.
Therefore there is at least one real solution to the
equation x3+ x − 5 = 0.

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DIFFERENCE QUOTIENT AND THE
DERIVATIVE

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 Differentiation Using Limits of Difference Quotients
Secant line

The Difference Quotient is used to find the average rate of change between two points.

The Difference Quotient also represents to slope of the secant line between two points on a

curve.
Derivative = Slope of Tangent Line
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Interpretations of the Derivative
The derivative of a function f is a new function The
domain of is a subset of the domain of f. The derivative
has various applications and interpretations, including
the following:
1.Slope of the tangent line. For each x in the domain of is
the slope of the line tangent to the graph of f at the point
(x, f(x)).
2.2. Instantaneous rate of change. For each x in the
domain of is the instantaneous rate of change of with
respect to x.
3.3. Velocity. If f(x) is the position of a moving object at
time x, then is the velocity of the object at that time.v =
f’(x)
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 Basic Differentiation Formulas

If the derivative of a function is its slope, then for a constant function, the derivative must be zero.

d
 c  0 example: y3 y  0
dx
The derivative of a constant is zero.

d n
Power Rule:
dx
 x   nx n 1

If n is any real number, then

d du
Constant Multiple Rule:
 cu   c
If c is a constant and f is differentiable function, then dx dx
d du dv
The Sum Rule:
 u  v  
dx dx dx
 d du dv
The Difference Rule:
 u  v  
dx dx dx

The Product Rule: d dv du

 uv   u  v
dx dx dx

d  2
dx 
x  3 2 x 
3
 5 x    
 x 2  3  6 x 2  5    2 x 3  5 x   2x 
du dv
The Quotient Rule:
v u  u  v du  u dv
d u dx dx d 
  v v 2
dx  v  v2  

    
Example:
d 2x  5x 3 x 2  3 6 x 2  5  2 x3  5 x  2 x 

dx x  3 x 
2 2
2
3 1-48
GRAPHING FUNCTIONS

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 1. Monotonicity

Checking a function f for monotonicity requires us to determine the intervals on which function f

is monotone and strictly monotone, respectively.

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2. Extreme points

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Let Df = [a, b]. In the domain Df , there are two local minimum points x2 and x4 as well as two

local maximum points x1 and x3. The global maximum point is x3 and the global minimum point

is the left boundary point a.

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3. Convexity and concavity

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To decide whether a function is convex or concave, the following notion of an inflection point can be helpful.

Consequently, if the second derivative changes the sign ‘at’ point x0, then point x0 is an inflection point of

function f

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 DEFINITION Marginal Cost, Revenue, and
Profit

If x is the number of units of a product produced in some time

interval, then
Marginal cost (or revenue or profit) is the instantaneous rate of
change of cost (or revenue or profit) relative to production at a
given production level.
total cost = C(x)
marginal cost = C’(x)
total revenue = R(x)
marginal revenue = R’(x)
total profit = P(x) = R(x) - C(x)
marginal profit = P’(x) = R’(x) – C’(x)
= (marginal revenue) - (marginal cost)
Example Cost Analysis
SOLUTION
Theorem: Marginal Cost and Exact Cost
ADDITIONAL DERIVATIVE
TOPICS
The Chain Rule
The word chain in the name chain rule comes from the fact
that a function formed by composition involves a chain of
functions that is, a function of a function. The chain rule
enables us to compute the derivative of a composite function in
terms of the derivatives of the functions making up the
composition.
The chain rule

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Example

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Composite Functions
Logarithmic differentiation

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 Limits
• We have already discussed some rules for computing limits of
sums, differences, products or quotients of functions. However, it
was necessary that each of the limits exists, i.e. each of the limits
was a finite number.
• The question we consider now is what happens when we want to
determine the limit of a quotient of two functions, and both limits
of the function in the numerator and the function in the
denominator tend to ∞ as x tends to a specific value x0.
• The same question arises when both functions in the numerator and
in the denominator tend to zero as x approaches some value x0.

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Therefore, we are interested in an overview on derivatives of
elementary functions which we can use when investigating
more complicated functions later.
Table 1 contains the derivatives of some elementary functions
of one variable.

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Derivative of composite and inverse
functions

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DIFFERENTIAL; RATE OF
CHANGE AND ELASTICITY

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• We have already discussed that the derivative of a function
characterizes the change in the function value for a ‘very small’
change in the variable x.
• However, in economics often a modified measure is used to describe
the change of the value of a function f .
• The reason for this is that a change in the price of, e.g. bread by 1
EUR would be very big in comparison with the current price,
whereas the change in the price of a car by 1 EUR would be very
small.
• Therefore, economists prefer measures for characterizing the change
of a function value in relation to this value itself.

This leads to the introduction of the proportional rate of change of a function;

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In economics, the term elasticity refers to the responsiveness of one
economic variable to changes in another economic variable.

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TAYLOR POLYNOMIALS
TAYLOR YOUNG THEOREM
EXAMPLE
APPROXIMATE DETERMINATION OF

ZEROES

BY NEWTON ALGORITHM
Illustration of Newton’s method
Description of the algorithm
Convergence condition
 EXAMPLE

n xn
0 1
1
2
3
4