Econ 301 Intermediate Microeconomics

Math Reviews

June 13, 2010

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Outline
1

Functions Denitions Inverse Function Convex and Concave Functions Derivative of Functions of One Variable Denitions Rules of Finding Derivatives Second Derivative Derivative of Functions of Multivariables Partial Derivatives Total Dierentiation Unconstrained Optimization Denitions Theorems Constrained Optimization
Jingbo Cui (ISU) Econ 301-Summer 2010 June 13, 2010 2 / 21

Functions

Denitions

Denition

A function f is a mapping from some set A (called the domain of the function) to some set B (called the range of the function) which satises a condition that to every element in A, f assigns an unique element from the set B. In short we write: f : A B

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Econ 301-Summer 2010

June 13, 2010

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Functions

Inverse Function

Denition

Suppose that we are given a function f : X Y . We say that f has an inverse if there is a function g such that the domain of g is the range of f and such that f (x) = y if and only if g (y ) = x for every x X and for every y Y . Example, demand function Qd (p) = 100 5p, the corresponding inverse demand function p(Qd ) = 20 Qd /5.

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Econ 301-Summer 2010

June 13, 2010

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Functions

Convex and Concave Functions

Denitions

Assume we have a function f : A R, where A is a convex set. We say that the function is convex if for all a1 A, for all a2 A and for all (0, 1) we have: f (a1 + (1 )a2 ) f (a1 ) + (1 )f (a2 ) We say that the function f is concave if for all a1 A, for all a2 A and for all (0, 1), we have: f (a1 + (1 )a2 ) f (a1 ) + (1 )f (a2 )

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Functions

Convex and Concave Functions

Examples

Function f (x) = x 2 is convex. Function f (x) = x is concave. Linear function f (x) = a + bx is both convex and concave, where a, b are constants,

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Derivative of Functions of One Variable

Denitions

Denitions

Let f : R R be a real-valued function. The derivative of f at point x is dened as: f (x) lim f (x + h) f (x) h0 h

f is said to be dierentiable at point x if the above limit exits. f is said to be dierentiable if it is dierentiable at every point in its domain.

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

7 / 21

Derivative of Functions of One Variable

Denitions

Interpretation

Intuitively, derivative of a real-valued function of one variable shows how much the value of the function changes with respect to (w.r.t.) a very small change in its argument (x) at that point. Geometrically, derivative of a function at a point equals the slope of the tangent line passing through that point. Sign of the derivatives gives information about the properties of the function.
If f > 0, then f is strictly increasing; If f < 0, then f is strictly decreasing.

Second derivative f

is the derivative of f .

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Econ 301-Summer 2010

June 13, 2010

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Derivative of Functions of One Variable

Rules of Finding Derivatives

Rules of Finding Derivatives I

1. If k is a constant, then

dk dx

= 0.
d[kf (x)] dx

2. Multiplication by a constant k,, 3. The power rule: 4. The 5. The 6. The

= kf (x).

dx k k1 . dx = kx addition rule: d[f (x)g (x)] = f (x) g (x) dx product rule: d[f (x)g (x)] = f (x)g (x) + g (x)f (x). dx d[f (x)/g (x)] quotient rule: = f (x)g (x)f (x)g (x) dx [g (x)]2

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Derivative of Functions of One Variable

Rules of Finding Derivatives

Rules of Finding Derivatives II

7. The logarithm rule: 8. The 9. The 10. The

d ln x 1 dx = x x exponent rule: dk = k x ln k for any dx g (x) exponential rule: dedx = dg (x) e g (x) dx d[f (g (x))] df (g (x)) dg (x) chain rule = dg (x) dx dx

constant k.

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

10 / 21

Derivative of Functions of One Variable

Second Derivative

Denitions

Second derivative of a function f at point x is dened as: f (x) = lim f (x + h) f (x) h0 h

Suppose that f is a real-valued function of one variable and suppose that f exists. Then f is convex if and only if f > 0. Suppose that f is a real-valued function of one variable and suppose that f exists. Then f is concave if and only if f < 0

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Derivative of Functions of Multivariables

Partial Derivatives

Denition

Let y = f (x1 , x2 , . . . , xi , . . . , xn ). A partial derivative of f w.r.t. xi at = (1 , . . . , xi , . . . , xn ) is: x x f (x) f (1 , . . . , xi + h, . . . , xn ) f (1 , . . . , xi , . . . , xn ) x x |x= = lim x h0 xi h Note: equivalent notations are
y xi

or fi (x).

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Derivative of Functions of Multivariables

Total Dierentiation

Denition

Let y = f (x) = f (x1 , . . . , xn ). A total dierential of f is dened as: df (x) = f (x) f (x) dx1 + . . . + dxn x1 xn

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Unconstrained Optimization

Denitions

Denitions

Function f has a local maximum at point x if there exists some open interval I that contains x and f (x ) f (x) for all x I . Function f has a global maximum at point x if f (x ) f (x) for all x in the domain of f. If a function f has a local(global) maximum at x then x is called a local(global) maximizer of f.

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Unconstrained Optimization

Theorems

Theorems
First Order Necessary Condition for Maximum/Minimum Let f be a real-valued function of one variable. Suppose that f has a local maximum/minimum at some point x and suppose that f (x ) exists. Then f (x ) = 0. Sucient Condition for Maximum (SOC) Let f be a real-valued function of one variable. Suppose that f (x ) exists and suppose that f (x ) = 0 and f (x ) < 0. Then f has a local maximum at x . Sucient Condition for Minimum (SOC) Let f be a real-valued function of one variable. Suppose that f (x ) exists and suppose that f (x ) = 0 and f (x ) > 0. Then f has a local minimum at x .

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Unconstrained Optimization

Theorems

Unconstrained Optimization with More Than One Variable

Now assume that we have a real-valued function y = f (x1 , . . . , xn ), where all xs R. First Order Necessary Condition for Maximum/Minimum Suppose that f has a local maximum/minimum at some point (x x = (x1 , . . . , xn ). Suppose that f (x , ) , . . . , fxn ) exist. Then x1 f (x ) f (x ) f (x ) = = = =0 x1 x2 xn

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Constrained Optimization

Example

Lisas objective to maximize her utility, U(q1 , q2 ), subject to (s.t.) her budget constraint: max
q1 ,q2

U(q1 , q2 ) s.t.p1 q2 + p2 q2 = Y

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Constrained Optimization

Substitution Method

Y p2 q2 , q2 ) q2 p1 dU U dq1 U p2 F.O.C. = + = ( )U1 + U2 = 0 dq2 q1 dq2 q2 p1 U1 p1 MRS = = = MRT U2 p2 maxU = U(

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Constrained Optimization

Lagrangian Method I
Suppose we want to nd the values x1 , . . . , xn that maximize
x1 ,...,xn

max y = f (x1 , . . . , xn ) s.t. g (x1 , . . . , xn ) = c

First, we set up Lagrangian function L = f (x1 , . . . , xn ) + [c g (x1 , . . . , xn )] where is called the Lagrangian multiplier (well treat as a variable in addition to xs).

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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Constrained Optimization

Lagrangian Method II
Then nding the constraint maximum value of f is equivalent to nding optimal (critical) values of L. The F.O.Cs for an optimal point are: L f g = + =0 x1 x1 x1 L f g = + =0 xn xn xn L = c g (x1 , . . . , xn ) = 0

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Econ 301-Summer 2010

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Constrained Optimization

Lagrangian Method III

q1 ,q2 ,

max L = U(q1 , q2 ) + (Y p1 q1 p2 q2 ) L U = p1 = U1 p1 = 0 q1 q1 L = U2 p2 = 0 q2 L = Y p1 q1 p2 q2 = 0 U1 U2 = = p p2

F.O.C.:

Jingbo Cui (ISU)

Econ 301-Summer 2010

June 13, 2010

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