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Hasin Yousaf
Week 5
Optimization
Overview of today’s lecture
Optimization
• n-th derivative
• Taylor expansion
• Utility maximizing
• Revenue maximizing
• Cost minimizing
y = f (x)
and attempt to find a procedure for finding the level of x that will
maximize or minimize the value of y.
Absolute Maximium/ Minimum
f (x̄) ≥ f (x)
for all x.
f (x) ≤ f (x)
for all x.
Relative Maximium/ Minimum
f (x̄) ≥ f (x)
f (x) ≤ f (x)
10
D
8
B
6
y
4
C
2
A
0 2 4 6 8 10
x
• A: Absolute Minimum
• B: Local Maximum
• C: Local Minimum
• D: Absolute Maximum
First-Derivative Test
6
y
C
2
0 2 4 6 8 10
x
First-Derivative Test
10
x0
6
(+) (−)
y
0 2 4 6 8 10
x
The point x0 is a critical point since f 0 (x0 ) = 0. It is also a relative
maximum since f 0 (x) changes sign from + to − from the immediate
left to the immediate right of x0 .
First-Derivative Test
10
6
y
(−) (+)
4
x0
2
0 2 4 6 8 10
x
The point x0 is a critical point since f 0 (x0 ) = 0. It is also a relative
minimum since f 0 (x) changes sign from − to + from the immediate left
to the immediate right of x0 .
First-Derivative Test
10
8
(+)
6
x0
y
(+)
2
0 2 4 6 8 10
x
Exercise
x
Find the first four derivatives of the function f (x) = 1+x .
( (
f 00 (x0 ) > 0 0 increase
• ⇒ the slope of the curve, f (x), tends to
f 00 (x0 ) < 0 decrease
Interpretation of the Second Derivative
• f 0 (x) > 0 and f 00 (x) > 0 ⇒ the slope of the curve is positive and
increasing, so f (x) is increasing at an increasing rate.
• f 0 (x) > 0 and f 00 (x) < 0 ⇒ the slope of the curve is positive but
decreasing, f (x) is increasing at a decreasing rate.
• f 0 (x) < 0 and f 00 (x) > 0 ⇒ the slope of the curve is negative and
increasing, but this means the slope is changing to a larger number.
In other words, the negative slope becomes less steep as x increases.
• f 0 (x) < 0 and f 00 (x) < 0 ⇒ the slope of the curve is negative
and decreasing, and so the negative slope becomes steeper as x
increases.
Second-Derivative Test
Exercise
10
6
y
0 2 4 6 8 10
x
The function y = f (x) is strictly convex since the line segment joining
any pair of points on f (x) lies entirely above the curve.
Concavity and Convexity of Functions
10
6
y
0 2 4 6 8 10
x
The function y = f (x) is strictly concave since the line segment joining
any pair of points on f (x) lies entirely below the curve.
Testing for the Concavity and Convexity of Functions
For example, the functionf (x) = 4x2 + 5 is strictly convex since f 00 (x) =
8 > 0.
√
For example, the function f (x) = x is strictly concave on its domain
[0, +∞) since f 00 (x) = − 14 x−3/2 < 0.
Maclaurin Series of a Polynomial Function
f (x) = a0 + a1 x + a2 x2 + a3 x3 + a4 x4 + · · · + an xn
Using factorials we can express the given function f (x) as a new, equiv-
alent, same-degree polynomial - the coefficients are expressed in terms
of derivatives evaluated at x = 0. This series is called the Maclaurin
series:
Exercise
f (x) = 2 + 4x + 3x2
f (x) = a0 + a1 x + a2 x2 + a3 x3 + a4 x4 + · · · + an xn
Using factorials we can express the given function f (x) as a new, equiva-
lent, same-degree polynomial - the coefficients are expressed in terms of
derivatives evaluated at x = x0 . This series is called the Taylor series:
Exercise
f (x) = 2 + 4x + 3x2
f 0 (x) = (1 + x)−2
Go Back
The derivatives of the function f (x) = 2 + 4x + 3x2 are:
f 0 (x) = 4 + 6x ⇒ f 0 (0) = 4
00 00
f (x) = 6 ⇒ f (0) = 6
Go Back
The derivatives of the function f (x) = 2 + 4x + 3x2 are:
Go Back
Find the extremum:
Go Back