Chapter One: Introduction Broad applications of mathematical economics include:

1.1. Theoretical Vs Mathematical Economics  Optimization of problems as to goal equilibrium, whether of

Theoretical Economics a household, business firm, or policy maker;
Theoretical economics is the ideas and principles that aim to  Static (or equilibrium) analysis in which the economic unit
describe how economies work. (such as a household) or economic system (such as a market
Furthermore, economic theories are a set of assumptions, or the economy) is modeled as not changing
propositions, or accepted facts that attempt to provide a plausible or  Comparative statics as to a change from one equilibrium to
rational explanation of cause-and-effect (causal) relationships another induced by a change in one or more factors
among a group of observed phenomenon.  Dynamic analysis, tracing changes in an economic system
over time, for example from economic growth.
Mathematical Economics
Mathematical economics is the application of mathematical Formal economic modeling began in the 19th century with the use
methods to represent economic theories and analyze problems in of differential calculus to represent and explain economic behavior,
economics. By convention, the applied methods refer to those such as utility maximization, an early economic application of
beyond simple geometry, such as differential and integral calculus, mathematical optimization. Economics became more mathematical
difference and differential equations, matrix algebra, mathematical as a discipline throughout the first half of the 20th century, but
programming, and other computational methods. An advantage introduction of new and generalized techniques in the period
claimed for the approach is its allowing formulation of theoretical around the Second World War (WW-II), as in game theory, would
relationships with rigor, generality, and simplicity. greatly broaden the use of mathematical formulations in economics.

Mathematics allows economists to form meaningful, testable 1.2. Functions

propositions about wide-ranging and complex subjects which could In mathematical analysis someone will be concerned with variable
less easily be expressed informally. Further, the language of numbers. The important thing about variables is not the way in
mathematics allows economists to make specific, positive claims which each varies by itself, but the way in which different variables
about controversial or contentious subjects that would be are related to one another.
impossible without mathematics. Much of economic theory is
currently presented in terms of mathematical economic models, a Mathematical analysis is the study of relationships between variable
set of stylized and simplified mathematical relationships asserted to numbers. A simple technical term used to describe and symbolize
clarify assumptions and implications. the relationships between variables is the term ‘function’.

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Definition: a function is a rule or process or method that produces a 1.3. Types of Functions
correspondence between two sets of elements such that to 1.3.1. Multivariable Functions
each element in the first set (called domain) there exist only A multivariable function is a function whose input and/or output is
one corresponding element in the second set (called range). made up of multiple numbers. In contrast, a function with single-
For example, if we pair x = 3 with another number, say y = 6, we can number inputs and single-number outputs is called a single-variable
construct a simple function by writing either function.
36 or (x, y) = (3, 6) In economics these functions are in use when one economic variable
is written as a function of several independent variables. For
The correspondence can be quite arbitrary provided that we do not instance, demand and supply functions written as a multivariate
pair more than one y with a given x. Thus (x, y) = {(3, 6), (3, 5)} is functions as.
NOT a function. For eg. the expression y2 = 2x does not represent a Demand = f(P, I, PR,T, E, W,…) Supply = f(P, T, G, E, W, …)
function.
 Domain is the set of real inputs into a function which results in a 1.3.2. Inverse and Implicit Functions
real output, usually denoted by the variable x. Inverse Functions
 Range is the set of corresponding function or values. A function can be represented by a set of ordered pairs. For
example, the function f(x) = x + 4from the set A = {1, 2, 3, 4} to the
Example: determine the domain and range of the function given as
pair set B = {5, 6, 7, 8} can be written as below:
y = √9 − 𝑥 2 f(x) = x + 4: {(1,5), (2,6), (3,7), (4,8)}.
Solution: the domain is determined by the requirement 9 − 𝑥 2 ≥ 0 By interchanging the first and the second coordinates of these
or (3 + x) (3 – x) ≥ 0. Since this inequality is satisfied only if – ordered pairs, one can form an inverse function of the function f
3 ≤ x ≤ 3, it follows that the interval is the domain of the which is usually denoted by f─1. Thus, f─1 is the set from B to A.
function.
f─1 (x) = x – 4: {(5,1), (6,2), (7,3), (8,4)}.
The smallest y value is f(-3) = 0 and the largest y value is f(0) = 3.
Thus, the range of function is 0 ≤ y ≤ 3. Note that the domainsoff(x) are the ranges of f─1 (x) and the vice
versa.
In a function, the variable that represents the numbers in the
domain (input) is called the independent variable, and the variable Example: find the inverse function of f(x) = 4x.
that represents the numbers in the range (output) is called the 4
Solution: f─1 (x) =
dependent variable. 𝑥

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 function of price; the inverse demand function treats price as a
function of quantity demanded, and is also called the price function

The inverse demand function can be used to derive the total and
marginal revenue functions. Total revenue equals price, P, times
quantity, Q, or TR = P×Q. Multiply the inverse demand function by Q
to derive the total revenue function and the marginal revenue
function is the first derivative of the total revenue function.

Implicit Function
An implicit function is a function that is defined implicitly by an
Fig 1.1: graph of a function and its inverse implicit equation, by associating one of the variables (the value) with
the others (the arguments).
Algebraic Verification of Inverse Functions
Note: for two inverse functions when you form the composition of f We're used to seeing algebraic definitions of functions in which the
with f─1or composition of f─1with fyou obtain identity function. output y is given explicitly in terms of some combination of the
Example: in the above example f(x)= 4x the inverse is found to be f─1 input x as in the example below:
4
(x) = and it is true that:
𝑥
f(f─1 (x)) = f─1(f(x)) = x In the above instant the output y is not involved in the "business" of
computing the function, it is only the end product. Consider the
Self-practice: Using the composition of f with f─1or composition of functions below
f─1with f show that the following two functions are inverse of each
other.
3 𝑥+1
f(x) = 2x3 – 1 and g(x) = √
2
In economics, an 'inverse demand function', P = f−1(Q), is a function Here the x and y are all mixed-up together, on either side of the
that maps the quantity of output demanded to the market price equation. There is no obvious way to proceed from an "input" x to
(dependent variable) for that output. Quantity demanded, Q, is a an "output" y. It isn't even clear if each y is actually a function of the

Compiled Note for Calculus for Economists (ECON 1011) Page-3

corresponding x. The y in such "mixed-up" equations are often called One of the most familiar examples of exponential growth is that of
implicit functions of x. an investment earning continuously compounded interest. Suppose
a principal is invested at P an annual interest rate r compounded
In a Cobb-Douglas production given as follows one can understand once a year. If the interest is added to the principal at the end of the
that none of the variables (labor or capital) depend on each other. year, the new balance is P(1+r)n
Here the partial derivatives measure MRTS between L and K.
This pattern of multiplying the previous principal by is then repeated
Q = f(L, K) = LK
each successive year.

1.3.3. Exponential and Logarithmic Functions Cobb-Douglas production function is an exponential function
Exponential Functions exampled as below:
An exponential function f with base a is denoted by the form: Q = f(L, K) = 2L0.25 K0.75
f(x) = ax where a>0, a  1 and x is any real number. Logarithmic Functions:
For x>0, a>0 and a1, the expression f(x) = y = 𝒍𝒐𝒈𝒂 𝒙, read as ‘log
The base a = 1 is excluded because it yields f(x) = 1x = 1. This is a
base a of x’ is referred to as a logarithmic function.
constant function, not an exponential function.
The functions y = 𝒍𝒐𝒈𝒂 𝒙 and x = ay are [Link] first equation
The exponential function is different from all the functions because
is in logarithmic form and the second is in exponential form.
the variable x is an exponent. A distinguishing characteristic of an
exponential function is its rapid increase as increases (for a>1). Many The Natural Logarithmic Function (ln)
real-life phenomena with patterns of rapid growth (or decline) can The function f(x) = exhas an inverse function which is called the
be modeled by exponential functions. natural logarithmic function and is denoted by the special symbol
ln x read as “the natural log of x”.
The Natural Basee
For many applications, the convenient choice for a base is the For x > 0 y = ln 𝑥 if and only if x = ey. And the function is given as
irrational number e = 2.718281828
y = 𝒍𝒐𝒈𝒆 𝒙 = 𝒍𝒏 𝒙is the natural logarithmic function
This number is called the natural base. The function f(x) = ex is called
the natural exponential function. Reading Assignment: refer to basic properties of logarithmic and
exponential functions
Application:
1.3.4. Monotonic and Homogeneous Functions

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Monotonic Functions In the Derivative and Monotonic graphic on the left, the function is
The monotonicity of a function tells us if the function is increasing or decreasing in [x1, x2] and [x3, x4], and the slope of the function's
decreasing. A function is increasing when its graph rises from left to tangent lines are negative. On the other hand, the function is
right. In technical terms, a function is increasing on an interval if for increasing in [x2, x3] and the slope of the function's tangent line is
any x1 and x2 in the interval, x1 is less than x2 implies that f(x1) is less positive.
than f(x2). Basically, this says that when x1 is less than x2, then the
function evaluated at x1 is less than the function evaluated at x2.

A function is decreasing when its graph falls from left to right. Again,
the technical definition says that a function is decreasing on an
interval if for any x1 and x2 in the interval, x1 is less than x2 implies
that f(x1) is greater than f(x2). In other words, a function is
decreasing on an interval when it is the case that whenever x1 is less
than x2, f(x1) is greater than f(x2). Homogeneous Function
The monotonicity of a function is directly related to the function's A homogeneous function has a property that when every variable of
derivative. A function is increasing when its derivative is positive, such function is replaced by a constant term times the variable, the
and a function is decreasing when its derivative is negative. multiplied constant can be factored out with some power.

In simpler words, we may explain this as - If a function satisfies the

condition that if each of its argument is multiplied by factor k, then
the resultant function is multiplied by a certain integer power (say n)
of the factor k, then such function is said to be a homogeneous
function of degree n.

A function f is called a homogeneous function having degree n,

where n be is some integer, when
Increasing Function Decreasing Function
f(kx)=knf(x)

Use of Derivative to Test Monotonic 1.3.5. Applications of Functions in Economics

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We now investigate and plot various economic functions. The people will pay to obtain variousquantities of output and so it is also
analysis in the subsequent sections corresponds to analysis known as the demand curve.
presented in any elementary microeconomics.
A market demand curve is assumed to be downward sloping.
We usually replace the general variable names x and y with names Different prices are associated with different quantities being sold
chosen to suit our variables. Suitable scales for the variables depend and more is sold at lower prices. There will also be an associated
on the particular model, but for some economic variables – such as downward sloping marginal revenue, MR, curve.
price, quantity, cost and labor employed – only positive values are
Example: If the average revenue (AR) function is given by AR (P) = 72
meaningful. Other variables, such as profit, can take negative values.
– 3Q then determine the TRand MR function:
It is a general principle of economic modeling to choose a functional
Solution: the AR is TR  Q and by derivation TR = AR * Q.
form that is as simple as possible while representing the appropriate
Thus, TR = AR*Q = (72 – Q)*Q= 72Q – Q2.
form of relationship. We will therefore find that linear relationships
are used in various contexts and that where a curve is needed to It can be seen that while the AR function is linear (have straight line
depict the relationship a quadratic or cubic function may be used. graph) the TR is non-linear (quadratic function).
The analyses presented below are concerned with two variable
∆𝑇𝑅 𝑑𝑇𝑅
relationships. A multivariate relationship is also examined, focusing MR = = = 72 – 2Q.
∆𝑄 𝑑𝑄
on particular aspects that can be represented on two-dimensional
graphs.  Cost Functions
A firm’s total cost of production, TC, depends on its output, Q. The
 Revenue Functions
TC function may include a constant term, which represents fixed
When a firm sells a quantity, Q, of goods each at price P, its total
costs, FC. The part of total cost that varies with Q is called variable
revenue, TR, is the price that is paid multiplied by the quantity sold
cost, VC. We have, then, that TC = FC + VC. Average cost per unit of
and so TR = P * Q
output is found by dividing by Q. We can find average total cost,
Average revenue, AR, is the revenue received by the firm per unit of denoted AC, which is given by AC = TC ÷ Q, together with average
output sold. This is its total revenue divided by the quantity sold. variable cost AVC = VC ÷ Q and average fixed cost AFC = FC ÷ Q.
Hence,AR = TR ÷ Q, substituting the above expression for TR.
FC is the constant term in TC.
The average revenue curve shows the average revenue or price at VC = TC − FC AVC = VC/Q
which differentquantities are sold. It therefore shows the prices that AC = TC/Q AFC = FC/Q

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 Realize that the firm will incur a loss of 400 (-400 profit) by
Example: for a firm with total cost given by
2 3
producing 10,000 units; gain a profit of 400 by producing 15,000
TC = 120 + 45Q − Q + 0.4Q identify its AC, FC, VC, AVC and AFC
units and zero profit (break-even) by producing 12,500 units.
functions.
 Demand and Supply Functions
TC = 120 + 45Q − Q2 + 0.4Q3
Among the determinants of demand and supply with a due
AC = TC/Q = 120/Q + 45 − Q + 0.4Q2
concentration on price supply and demand functions can be
FC = 120 (the constant term in TC)
established as QD = a – bP QS = a + bP
VC = TC − FC = 45Q − Q2 + 0.4Q3
By the use of these functions the market clearing price (equilibrium
AVC = VC/Q = 45 − Q + 0.4Q2
price) can be determined when demand and supply get balance to
AFC = FC/Q = 120/Q
each other. The way to solve for the equilibrium price is by equating
the demand and supply functions (or solving the two functions
 Profit Functions:
simultaneously).
If x unit of a commodity are produced and sold, the profit is found by
subtracting the total cost (TC) from the total revenue (TR). Example: assume the market demand and supply functions are given
Profit (Loss) = TR – TC = R(x) – C(x) by QD = 60 – 5PX and QS = 10 + 20 PX. Determine the equilibrium
price? Answer: equilibrium price = 2.
Example: for a certain commodity if the TR function is given by
R(x) = 0.50x and the TC function given by C(x) = 2000 + 0.34x then  The Consumption Function
the profit function will be given by the expression The Keynesian consumption function given as C = a + bYD. This
Profit (Loss) = 0.5x – (2000 + 0.34x) expression tells that consumption is a linear function in which the
= 0.16x – 2000 intercept ‘a’ is an autonomous consumption independent of
disposable income and the slope ‘b’ is an induced consumption
Note that the profit function is negative (loss) for some values,
dependent on the disposable income of the individual. YD is the
positive (profit) for others and zero (break-even) for certain value.
disposable income (income after tax deduction).
Using the above profit function determine the loss and profit when
Example: for a given consumption functions C = 20 + 0.6 YD, what is
the firm produces 10,000 units, 15,000 units and 12,500 units.
the consumption level when disposable income is 0 and when
disposable income is $5 billion?

Answer C = 20 billion when YD = 0; C = 23 billion when YD = 5 billion.

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Chapter Two: Limit and Continuity In this case the numbers of the sequence are said to be ‘tend to
2.1. The Concepts of Limits 1’ and 1 is the limit value of the sequence.
Calculus is an enormously powerful branch of mathematics with a
Again, consider the following two decreasing sequences of numbers
wide range of applications, including curve sketching, optimization
1, 0, -1, -2, -3, -4...
of functions, analysis of rates of change, and computation of area
3 4 5 6 7
and probability. What gives calculus its power and distinguishes it 2, , , , , …
2 3 4 5 6
from algebra is the concept of limit. The two classes for the decreasing sequence above are:
i. In the sequence of the first class, the numbers grow indefinitely
This concept helps one to describe, in a precise way, the behavior of larger numerically, but through negative values instead of
f(x) when x is close, but not equal, to a particular value c. This can be positive values. This sequence is said to be tend to negative
represented by the expression below: infinity.
lim f(x) =L ii. In the second class of the above sequences, the numbers tend to
x→c
Read as ‘the limit of the function f(x) as x approaches to c equals L’. a limiting value, decreasing to a limit instead of increasing to it.
The numbers approach and tend to the value 1.
Conceptual Notions of Limits:
Consider the following two increasingsequences of real numbers Consider also the following sequence which is neither increasing nor
1, 2, 3, 4, 5, 6... decreasing.
1 2 3 4 5 6 1 3 3 5 5 6
, , , , , … , , , , , …
2 3 4 5 6 7 2 2 4 4 6 7
Both sequences show the property of indefinite or endless
continuation. The two increasing sequences can be divided into two A sequence of real numbers with such kind of order does not
classes: proceed to any magnitude at all, sequence which is not increasing or
i. In the first sequence the numbers get larger and larger decreasing.
withoutlimit as we proceed through the order. The numbers of
In general the sequences of real numbers will have any of the
an increasing sequence of this class tend to infinity;
following three possibilities:
ii. In the second sequence the numbers increase as we proceed
 A sequence may tend to infinity (positive or negative infinity)
through the order but with limit. In the particular sequence
 A sequence may tend a specific numerical limit
above the numbers steadily approach nearer and nearer to the
 Oscillate without tending to any limit (numerical value)
value 1, without ever attaining this value.

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2.1.1. Limits of Functions
Now is time to have extended concepts of limits in functions.
Consider the following function:
𝟏
𝒚=𝟏−
𝒙
By giving the sequences of positive and negative values the
corresponding sequence of 𝒚 value obtained from the function are
summarized in the tables below:
𝒙 1 2 3 4 5 6 7 …
1 2 3 4 5 6 …
𝒚 0
2 3 4 5 6 7
𝒙 ─1 ─2 ─3 ─4 ─5 ─6 ─7 …
3 4 5 6 7 8 … 𝟏
𝒚 2 Fig. 1.1: the graph of the function 𝒚 = 𝟏 −
2 3 4 5 6 7 𝒙
If 𝒚 is given as a function of𝒙, a sequences of values can be allotted
The tables show four sequences of numbers already discussed in the
to 𝒙 according to some prescribed rules and the 𝒍𝒊𝒎𝒊𝒕 of the
above examples. The two sequences in the first tables are associated
function is then dependent on the behavior of the corresponding
in such a way that the 𝒙 sequences increases indefinitely and the 𝒚
sequences of values of 𝒚.
sequence increase and approaches to the value 1. This can be
expressed as:
The𝒍𝒊𝒎𝒊𝒕 is essentially a relative concept, the value approached by
𝐥𝐢𝐦 𝒇(𝒙) = 𝟏 the sequence of 𝒚 as the independent variable 𝒙 is made to change
𝒙→∞
The graph on figure 1.1 below also illustrates the same fact. As in some given way.
𝒙increases through positive values the curve rises from left to right
and approaches the horizontal broken line drawn at a unit distant In the stock phrase of limits the two blanks to be filled are:
(𝒚 = 𝒇(𝒙) = 𝟏). 𝒇(𝒙) 𝒕𝒆𝒏𝒅𝒔 𝒕𝒐 _________, 𝒂𝒔 𝒙 𝒕𝒆𝒏𝒅𝒔 𝒕𝒐_____. The second blank is
filled at our choice and the first is determined from the behavior of
In the same way the secondtable provides other pair of associated
the function.
sequence – the 𝒙 sequence tending to negative infinity (−∞)and the
𝒚 sequence decreasing to the limit 1. This can be expressed as:
The possible cases of the limits of single-valued and explicit function:
𝐥𝐢𝐦 𝒇(𝒙) = 𝟏
𝒙→−∞

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 A. The limits of f(x) as x  c) The value of 𝒇(𝒙) may forma sequence approaching a
There are four possibilities for the behavior of the sequences of the definite value as 𝒙 increases.
values of the function. In this case we say that
a) The values of 𝒇(𝒙) may be positive and becoming larger and “𝒇(𝒙)𝒕𝒆𝒏𝒅𝒔 𝒕𝒐 𝒕𝒉𝒆 𝒍𝒊𝒎𝒊𝒕  𝒂𝒔 𝒙 𝒂𝒑𝒑𝒓𝒐𝒂𝒄𝒉𝒆𝒔 𝒕𝒐 𝒊𝒏𝒇𝒊𝒏𝒊𝒕𝒚”
large as 𝒙 increases. a phrase which can be symbolized by:
In this case we say that 𝐥𝐢𝐦 𝒇(𝒙) = 
𝒙→∞
“𝒇(𝒙)𝒕𝒆𝒏𝒅𝒔 𝒕𝒐 𝒊𝒏𝒇𝒊𝒏𝒊𝒕𝒚 𝒂𝒔 𝒙 𝒂𝒑𝒑𝒓𝒐𝒂𝒄𝒉𝒆𝒔 𝒕𝒐 𝒊𝒏𝒇𝒊𝒏𝒊𝒕𝒚”,
The curve of the function 𝐲 = 𝒇(𝒙)approachesnearer and nearerthe
a phrase which can be symbolized by:
fixed horizontal line 𝐲 = as we move to the right as shown below
𝐥𝐢𝐦 𝒇(𝒙) = 
𝒙→∞ (panel 𝒄 of the figure below).
In this case,the curve of the function 𝐲 = 𝒇(𝒙)rises indefinitely to
d) The value of 𝒇(𝒙)may behave in none of the above three
the right as shown below (panel 𝒂 of the figure below).
possibilities, oscillating without settling down to any
b) The values of 𝒇(𝒙) may be negative and, in absolute terms, ‘trend’,as 𝒙 𝒊𝒏𝒄𝒓𝒆𝒔𝒆𝒔.
becoming larger and large as 𝒙 increases. In this case the function has no limiting valueand the curve
In this case we say that continues its oscillation as we infinitely proceed to the right.
“𝒇(𝒙)𝒕𝒆𝒏𝒅𝒔 𝒕𝒐 𝒏𝒆𝒈𝒂𝒕𝒊𝒗𝒆 𝒊𝒏𝒇𝒊𝒏𝒊𝒕𝒚 𝒂𝒔 𝒙 𝒂𝒑𝒑𝒓𝒐𝒂𝒄𝒉𝒆𝒔 𝒕𝒐
𝒊𝒏𝒇𝒊𝒏𝒊𝒕𝒚”, a phrase which can be symbolized by:
𝐥𝐢𝐦 𝒇(𝒙) = −
𝒙→∞
The curve of the function 𝐲 = 𝒇(𝒙)falls indefinitely to the right as
shown below (panel 𝒃 of the figure below).

B. The limits of f(x) as x  a

The intension here is to trace the behavior of the values of 𝒇(𝒙)as
the value of 𝒙 approaches nearer and nearer to the given value
𝒙 = 𝒂.

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Note: in no cases 𝒙 ever actually attain the value 𝒙 = 𝒂 in the limit Theorem#1:
process. 𝐥𝐢𝐦 𝑪 = 𝑪
𝒙→𝒂
Suppose that the 𝒙 sequence approaches 𝒙 = 𝒂 only through values For f(x) = c is a constant function
greater than 𝒂. The corresponding sequence of values of 𝒇(𝒙)is Example: find the limit of the function f(x) = 4 as x approaches 2.
subject to the same four possibilities discussed above. That is, the 𝐥𝐢𝐦 𝟒 = 𝟒
𝒙→𝟐
function 𝒇(𝒙) can tend to  , to a finite limit  , or to no limit at all as Theorem #2:
𝒙 approaches to 𝒂 through values greater than 𝒂. The symbolic 𝐥𝐢𝐦 𝒙 = 𝒂
𝒙→𝒂
notation here is
Example: find the limit of f(x) = x as x approaches 7.
𝐥𝐢𝐦 𝒇(𝒙) = 
𝒙→𝒂+ 𝐥𝐢𝐦 𝒙 = 𝟕
𝒙→𝟕
Similarly, when 𝒙 approaches to 𝒂 through values less than 𝒂 the
Theorem #3:
symbol is denoted as:
𝐥𝐢𝐦 𝑪𝒙 = 𝑪 𝐥𝐢𝐦 𝒙
𝐥𝐢𝐦 𝒇(𝒙) =  𝒙→𝒂 𝒙→𝒂
𝒙→𝒂−
Where C is a constant term of the function.
Finally, is it is found that 𝒇(𝒙) tends to the same limit as, 𝒙𝒂 +
Example: find the limit of f(x)= 5x as x approaches 6.
and as 𝒙𝒂 −we say that 𝒇(𝒙) tends to this limit, written as:
𝐥𝐢𝐦 𝟓𝒙 = 𝟓 𝐥𝐢𝐦 𝒙 = 𝟓(𝟔) = 𝟑𝟎
𝐥𝐢𝐦 𝒇(𝒙) =  𝒙→𝟔 𝒙→𝟔
𝒙→𝒂
Theorem #4:
The expression above implies that the function 𝒇(𝒙)tendsto thelimit
𝒍𝒊𝒎 𝒇(𝒙) 𝒈(𝒙) = 𝐥𝐢𝐦 𝒇(𝒙) 𝐥𝐢𝐦 𝒈(𝒙)
 as 𝒙tends to 𝒂through values both greater and less than 𝒂. 𝒙→𝒂 𝒙→𝒂 𝒙→𝒂

If the limits as 𝒙𝒂 +and as𝒙𝒂 −are different it is NOT Example: What is the limit of f(x) = 3x2 + 4x as x approaches 2?
possible to combine them in one notation, and the limit of the
𝐥𝐢𝐦 𝟑𝒙𝟐 + 𝟒𝒙
function is said to be it does not exist. 𝒙→𝟐
 𝐥𝐢𝐦 𝟑𝒙𝟐 + 𝐥𝐢𝐦 𝟒𝒙
𝒙→𝟐 𝒙→𝟐
2.2. The Limit Theorems  𝟑𝐥𝐢𝐦 𝒙𝟐 + 𝟒 𝐥𝐢𝐦 𝒙
𝒙→𝟐 𝒙→𝟐
Assume that the following limits exist
 𝟑(𝟐 ) + 𝟒(𝟐)
𝟐
𝐥𝐢𝐦 𝒇(𝒙)
𝒙→𝒂  𝟐𝟎
Theorem #5:
Then the theorems below hold true: 𝒍𝒊𝒎 𝒇(𝒙) 𝒈(𝒙) = 𝐥𝐢𝐦 𝒇(𝒙) 𝐥𝐢𝐦 𝒈(𝒙)
𝒙→𝒂 𝒙→𝒂 𝒙→𝒂

Compiled Note for Calculus for Economists (ECON 1011) Page-11

Example: find the limit of f(x) = 3x2 4x as x approaches 2? Theorem #8:
𝒏
𝐥𝐢𝐦 𝟑𝒙𝟐  𝟒𝒙 𝐥𝐢𝐦 𝒇(𝒙)𝒏 = (𝐥𝐢𝐦 𝒇(𝒙))
𝒙→𝟐 𝒙→𝒂 𝒙→𝒂
 𝐥𝐢𝐦 𝟑𝒙𝟐  𝐥𝐢𝐦 𝟒𝒙 Example: evaluate the limit of (2x +3)2 as x approaches to 3
𝒙→𝟐 𝒙→𝟐
 𝟑𝐥𝐢𝐦 𝒙𝟐  𝟒 𝐥𝐢𝐦 𝒙 𝐥𝐢𝐦 𝒇(𝟐𝒙 + 𝟑)𝟐 = (𝐥𝐢𝐦 𝟐𝒙 + 𝟑)
𝟐
𝒙→𝟐 𝒙→𝟐
𝒙→𝟑 𝒙→𝟑
 𝟑(𝟐𝟐 ) 𝟒(𝟐)
 𝟗𝟔 𝟐
Theorem #6: (𝟐𝐥𝐢𝐦 𝒙 + 𝐥𝐢𝐦 𝟑) = 𝟖𝟏
𝒙→𝟑 𝒙→𝟑

𝒇(𝒙) 𝐥𝐢𝐦 𝒇(𝒙)

𝒍𝒊𝒎 = 𝒙→𝒂 Class Activity:Evaluate the limits below:
𝒙→𝒂 𝒈(𝒙) 𝐥𝐢𝐦 𝒈(𝒙)
𝒙→𝒂 𝐚) 𝐥𝐢𝐦(𝒙𝟐 + 𝒙 + 𝟐)
𝒙→𝟏
2𝑥
Example: evaluate the limit of f(x) = as x approaches 8.
4
𝒙𝟐 − 𝟒
𝐥𝐢𝐦 𝟐𝒙 𝐜) 𝐥𝐢𝐦
𝟐𝒙 𝒙→𝟐 𝒙 − 𝟐
𝒍𝒊𝒎 = 𝒙→𝟖
𝒙→𝟖 𝟒 𝐥𝐢𝐦 𝟒
𝒙→𝟖
𝟐𝐥𝐢𝐦 𝒙 𝒙𝟐 − 𝟏𝟔
𝐜) 𝐥𝐢𝐦
 𝒙→𝟖
𝒙→𝟒 𝒙𝟐 − 𝟒𝒙
𝐥𝐢𝐦 𝟒
𝒙→𝟖

𝟐 (𝟖)
 =𝟒 Self-assessment: assess yourself by evaluating the following limits.
𝟒
Theorem #7: 𝐚) 𝐥𝐢𝐦(𝒙 − 𝟑) 𝐚𝐧𝐬𝐰𝐞𝐫: 𝟎
𝒙→𝟑
𝒏 𝒏
𝒍𝒊𝒎 √𝒇(𝒙) = √𝐥𝐢𝐦 𝒇(𝒙)
𝒙→𝒂 𝒙→𝒂
𝐛) 𝐥𝐢𝐦 𝟐𝒙𝟐 𝒂𝒏𝒔𝒘𝒆𝒓: 𝟏𝟖
Example: find the limit of f(x) = √2𝑥 + 5as x approaches to 2. 𝒙→𝟑

𝒍𝒊𝒎 √𝟐𝒙 + 𝟓 = √𝐥𝐢𝐦 𝟐𝒙 + 𝟓 = √𝟐𝐥𝐢𝐦 𝒙 + 𝐥𝐢𝐦 𝟓

𝒙→𝟐 𝒙→𝟐 𝒙→𝟐 𝒙→𝟐 𝐜) 𝐥𝐢𝐦(𝒙𝟐 − 𝒙)(√𝟐𝒙 𝐚𝐧𝐬𝐰𝐞𝐫: 𝟒
𝒙→𝟐
√𝟒 + 𝟓 = √𝟗 = 𝟑

Compiled Note for Calculus for Economists (ECON 1011) Page-12

2.3. Continuity of Functions Possibility 3: 𝒇(𝒙)may tend to the value 𝒇(𝒂)value as 𝒙 tends to 𝒂
Recall the definition of function that it is the correspondence from either sides.
between values of two variables; to each value of one variable there The third possibility is the only the situation to describe the function
correspondinga definite set of values of the other variable. is continous at 𝒙 = 𝒂.

The variables may themselves be continuous (i.e. the number Two conditions are needed for the function 𝒇(𝒙)to be continuous at
system is continuous) or may be discontinuous. Distinguishing point𝒙 = 𝒂.
between continuous and discontinuous function is equivalent to the 1st. There must be a definite point 𝑷 on the curve at 𝒙 = 𝒂.;
idea of continuity that qualify function. there can no gap in the curve.
2nd. As we move along the curve of 𝒇(𝒙) towards each sides of
A function is said to be continuous if the related variables vary the value 𝒙 = 𝒂, we must arrive at point 𝑷. There can be
continuously together. The variables must be separately continuous; no jumpin the curve as we pass through 𝑷.
and sufficiently the continuous variation of the two variables must
be synchronized. In a formal way of speaking the function 𝒇(𝒙) is defined to be continous at

Restricting ourselves in a single-valued function of the continuous 𝒙 = 𝒂 if:

 𝒇(𝒂) exists and is finite
variable: 𝒚 = 𝒇(𝒙). The general idea of a continuous function
 𝒇(𝒙)exists and is finite at all values of 𝒙near 𝒙 = 𝒂 in such a
applies to the function as a whole and involves the continuous
way that
variation of 𝒚as 𝒙varies continuously.
𝐥𝐢𝐦 𝒇(𝒙) = 𝒇(𝒂)
𝒙→𝒂
First, it is necessary to define the concept of continuityat a point, i.e. The definition is equivalent to the identity of limits and values of 𝒇(𝒙)
at one value of 𝒙. The prerequisite for the continuity of the function at the point, and it is essential to see the neccessity of the two conditions.
at a point 𝒙 = 𝒂is that 𝒇(𝒙) should be defined both for the values
𝒙 = 𝒂 and for all values of 𝒙 near𝒙 = 𝒂. It is now possible to extend the definition to include continuity of a
function. A function is continous over a range of values of 𝒙 if it is
There are several possibilities concerning the variatons 𝒇(𝒙)of as𝒙 continous at every point of the range. On the other hand, the function is
approaches to 𝒂. not continous if it exihibits at least one point of discontinuity in the
Possibility 1: 𝒇(𝒙) may tend to no limiting value or to two different relevant range.
limiting values as 𝒙 tends to 𝒂 from both sides
Possibility 2: 𝒇(𝒙)may tend to a definite limiting value as 𝒙 tends to
𝒂 from both sides
Compiled Note for Calculus for Economists (ECON 1011) Page-13
Illustration of continuity and discontinuity of functions For discontinuous the values of the function 𝒇(𝒙)at point 𝒙 = 𝒂is
If a function is continous over a range, it is continous at every point of the infinite such that𝒇(𝒙) → ±∞as 𝒙 → 𝒂.
range and can be represented by a curve which has no gaps and no jumps
in the range concerned. This implies that the curve ca be drawn graphically The curves below (panel c) shows a rectangular hyperbola with an infinite
without taking a pencil point from the paper. Note that, however, discontinuity at 𝒙 = 𝟏. The curve on paneldportrays six point of
continous curve is not neccessarily a ‘smooth’ curve. discountinuity of the ‘jump’ kind

Refere to the figures below: the curves are both continous over the whole
range. The first parabola, 𝒚 = 𝟏𝟐(𝒙𝟐 + 𝟑𝒙 − 𝟐), is smooth as well as
𝟑
continuous. And the second, 𝒚 = 𝟏 + √(𝒙 − 𝟏)𝟐 , is also continous as it
can be drawn without taking the pencil up from the paper. But the second
curve is not smooth; it has ‘sharp point’ at the point where 𝒙 = 𝟏.

Fig. 2.5: Discontinuous curves

Examples:
#1:show that the polynomial 𝒇(𝒙) = 𝟑𝒙𝟐 − 𝒙 + 𝟓 is continuous
at𝒙 = 𝟏.

Solutionf(1) is defined such that f(1) = 7

Fig: 2.4: Continuous curves
The curves below are discontinuous. If a function is discontinuous in 𝐥𝐢𝐦 𝟑𝒙𝟐 − 𝒙 + 𝟓 = 𝟕 = 𝒇(𝟏)
𝒙→𝟏
a range, it must have, at least, one point of discontinuity where one
or the other of the conditions for continuity fails to meet. In Thus, the function 𝒇(𝒙)is continuous at 𝒙 = 𝟏.
diagrammatic terms, the curve represents the function having at 2.4. Economic Application of Limits and Continuity
least one gap or jump somewhere in the range concerned.

Compiled Note for Calculus for Economists (ECON 1011) Page-14

 Chapter Three: Derivatives Look at the graph above (Fig. 3.1): Consider point P and Q. The
3.1. Introduction straight line through these points is called secant (a Latin word
An important topic in scientific discipline including economics is the meaning ‘cutting’). If point P is fixed but Q moves along the curve
study of how (economic) variable changes over time. The towards P, then the secant line will rotate around point P, as
mathematical concept used to describe the rate of change of depicted in the figure below. The limiting straight line PT becomes
functions is the derivative. Isaac Newton (1642 – 1727) and tangent to the curve at point P.
Gottfried Leibniz (1646 – 1716) discovered most of the general rules
of derivatives. This initiated the development of differential and
integral calculus.

3.2. Geometric Interpretation of Derivatives: slope of a curve

Simply stated, derivative is the rate of change. The slope of a
straight line can be considered to be the rate of change. It is the rate
of change of y with respect to x and mathematically given as:
∆𝒚
𝒔𝒍𝒐𝒑𝒆 =
∆𝒙 Fig. 3.2: rotation of secant line to tangent
The slope of a line is the number that specifies the changes the Finding the slope of the function (non-linear) at tangency (point P):
changes in in y compared with the change in x in going from one Further considering the figure below point P has the coordinates [a,
point to another on the line. It is to be recalled that for any f(a)].Point Q is also on the graph and suppose that the x coordinate
particular straight line the slope is constant. of Q is a + h where h is a small number such that h≠0. Then the x
But what if the function under consideration is not linear? How coordinate of Q is not a (because Q ≠ P) but a number close to a.
would one compute slope in this instance? Considerthe graph of a
non-linear function shown below:

Compiled Note for Calculus for Economists (ECON 1011) Page-15

As long as Q lies the graph of f, the y coordinate of Q is equal to f(a And thus f(x + h) – f(x) = (x2 +2xh + h2) – (x2) = 2xh + [Link], for all
+ h). Hence, the coordinates of the points are: h ≠ 0,we have the following:
P = [a, f(a)] and Q = [a + h, f(a + h)].
𝒇(𝒙 + 𝒉) − 𝒇(𝒙) 𝟐𝒙𝒉 + 𝒉𝟐 𝒉(𝟐𝒙 + 𝒉)
The slope of the secant line PQ is given by; = = = 𝟐𝒙 + 𝒉
𝒉 𝒉 𝒉
∆𝒚 𝒇(𝒂 + 𝒉) − 𝒇(𝒂) 𝒇(𝒂 + 𝒉) − 𝒇(𝒂) Thus f’(x) is given as:
𝒔𝒍𝒐𝒑𝒆 = = = … .∗
∆𝒙 (𝒂 + 𝒉) − 𝒂 𝒉
𝒇(𝒙 + 𝒉) − 𝒇(𝒙)
𝒇′ (𝒙) = 𝐥𝐢𝐦 = 𝐥𝐢𝐦(𝟐𝒙 + 𝒉) = 𝟐𝒙
In mathematics, this fraction is often called a Newton (or 𝒉→𝟎 𝒉 𝒉→𝟎

Differential) Quotient of function.

This reveals that when f(x) = x2, then f’(a) = 2a. And for a = 𝟏⁄ we
 When h = 0, the fraction above will become undefined. But 𝟐
obtain f’(𝟏⁄𝟐) = 1.
choosing h = 0 corresponds to letting Q = P.
 When Q moves toward P (Q → P) along the graph of the At ,x = 𝟏⁄𝟐 we havef(x) =(𝟏⁄𝟐)2= 𝟏⁄𝟒 and f’(𝟏⁄𝟐) = 𝟏. Accordingly, the
function, the x coordinate of Q (i.e. a + h ) must tend to a, equation of the tangent line is 𝒚 = 𝒙 − 𝟏⁄𝟒.
and so h tends to 0.
Procedures of Computing 𝒇′ (𝒙)
 Simultaneously, the secant PQ tends to the tangent PT.
 Add h to x (h ≠ 0) and compute f(x + h)
Thissuggests the slope of the tangent line at point Pas a number that  Compute the corresponding change in the function value f(x
approach as h tends to [Link] slope value, defined as f’(a), thus, is + h) – f(x)
given as:  For h ≠ 0, form an Newton quotient as
𝒇(𝒂 + 𝒉) − 𝒇(𝒂) 𝒇(𝒙 + 𝒉) − 𝒇(𝒙) 𝒇(𝒙 + 𝒉) − 𝒇(𝒙)
𝒇′ (𝒂) = 𝐥𝐢𝐦 =
𝒉→𝟎 𝒉 (𝒙 + 𝒉) − 𝒙 𝒉
The equation of the tangent line to the graph at [𝒂, 𝒇(𝒂)] is given  Reduce the fraction in the above step to the most simplified
by: expression.
y – f(a) = f’(a)(x-a)  Then compute the limit below:
𝒇(𝒙 + 𝒉) − 𝒇(𝒙)
Example: compute f’(x) when f(x) = x2. Find f’(𝟏⁄𝟐) and find the 𝐥𝐢𝐦
𝒉→𝟎 𝒉
equation for the tangent line at the point (𝟏⁄𝟐 , 𝟏⁄𝟒). In-Class Practice: Use the procedure above to compute 𝒇′ (𝒙)when

Solution: for the given fucntion f(x) = x2 we have 𝒇(𝒙) = √𝒙 + 𝟐. Answer: 𝒇′ (𝒙) = 𝟏⁄ 𝒇𝒐𝒓 𝒙 > 0.
𝟐√𝒙
f(x + h) = (x + h)2 = x2 +2xh + h2. Find also𝒇′ (𝒙) when 𝒇(𝒙) = 𝟒𝒙 − 𝒙𝟐 Answer: 𝒇′ (𝒙) = 𝟒 − 𝟐𝒙

Compiled Note for Calculus for Economists (ECON 1011) Page-16

3.3. The Concept of Derivatives Example: find the derivatives [𝒇′(𝒙)] for the following power
Definition: the derivative of the function y = f(x) with respect to the functions:
variable x at the point x is a) 𝒇(𝒙) = 𝒙−𝟐
𝒅𝒚 𝒅 𝒇(𝒙 + 𝒉) − 𝒇(𝒙) 𝟐⁄
= 𝒇(𝒙) = 𝒚′ = 𝒇′ (𝒙) = 𝐥𝐢𝐦 , b) 𝒇(𝒙) = (𝒙) 𝟑
𝒅𝒙 𝒅𝒙 𝒉→𝟎 (𝒙 + 𝒉) − 𝒙
if the limit exists. C. Generalized Power Rule
If 𝒇′ (𝒙)exist for each 𝒙 in an interval(𝒂, 𝒃),then the function 𝒇(𝒙)is It is often necessary to know the differentiation rule for a function of
said to be differentiable over the [Link] is the the form:
process of finding the derivative of a function. 𝒚 = [𝒇(𝒙)]𝒂
Then
Non-Existence of Derivatives 𝒅𝒚
= 𝒂[𝒇(𝒙)]𝒂−𝟏 • 𝒇′ (𝒙)
The existence of a derivative at 𝒙 = 𝒂depends on the existence of a 𝒅𝒙
limit at 𝒙 = 𝒂, that is, on the existence of Example: differentiate the following function with generalized
power;
𝒇(𝒙 + 𝒉) − 𝒇(𝒙)
𝐥𝐢𝐦 a) 𝒚 = (𝒙𝟑 + 𝒙𝟐 )𝟓𝟎
𝒉→𝟎 𝒉 𝒙 − 𝟏 𝟏⁄
If the limit does not exist at 𝒙 = 𝒂 we say that the function f is non- b) 𝒚 = ( ) 𝟑
𝒙+𝟑
differentiable at 𝒙 = 𝒂, or 𝒇′ (𝒙) does not exist. c) 𝒚 = √𝒙𝟐 + 𝟏

 Basic Differentiation Rules D. Sum and Difference Rule

A. Constant Function Rule The derivative of the sum/difference of two differentiable functions
The derivative of any constant function is [Link] 𝒇(𝒙) = 𝑪(for is C is the sum/difference of the derivatives of the functions.
constant) then 𝒇′ (𝒙) = 𝟎. Given 𝒚 = 𝒇(𝒙) ± 𝒈(𝒙)then,
Conceptual insight: The graph of 𝒇(𝒙) = 𝑪 is a horizontal line with 𝒅𝒚
= 𝒇′(𝒙) ± 𝒈′(𝒙)
slope 0. 𝒅𝒙
𝒅𝒚
Example: find the derivatives ( ) of the following functions:
𝒅𝒙
B. Power Rule 𝟐
a) 𝒚 = 𝟑𝒙 + 𝟐𝒙
A function of the form 𝒇(𝒙) = 𝒙𝒏 where 𝒏 is a real number, is called b) 𝒚 = 𝟒 + 𝟐𝒙𝟑 − 𝟑𝒙−𝟑
a power [Link] c) 𝒚 = 𝟓𝒙𝟑 − √𝒙
𝒇′(𝒙) = 𝒏𝒙𝒏−𝟏

Compiled Note for Calculus for Economists (ECON 1011) Page-17

E. Product Rule Given the above limit value, the derivative of the exponential
The derivative of the product of two differentiable functions function with base 𝒆 is the exponential function itself.
𝒚 = 𝒇(𝒙) • 𝒈(𝒙)is given as
𝒅𝒚
𝒅𝒚 Example: for the function give as 𝒚 = 𝒆𝒙 the = 𝒆𝒙
𝒅𝒙
= 𝒇′(𝒙) • 𝒈(𝒙) + 𝒇(𝒙) • 𝒈′ (𝒙)
𝒅𝒙 Proof:
Example: find the derivative of 𝒚 = (𝟐𝒙 + 𝟑)(𝟑𝒙𝟐 ) 1st.𝒇(𝒙 + 𝒉) = 𝒆𝒙+𝒉 = 𝒆𝒙 𝒆𝒉 .
F. Quotient Rule 2nd. 𝒇(𝒙 + 𝒉) − 𝒇(𝒙) = 𝒆𝒙 𝒆𝒉 − 𝒆𝒙 = 𝒆𝒙 (𝒆𝒉 − 𝟏)
𝒇(𝒙) 𝒇(𝒙+𝒉)−𝒇(𝒙) 𝒇(𝒙+𝒉)−𝒇(𝒙)
The derivative of the ratio of two differentiable functions 𝒚 = is 3rd. Newton equation of a form =
𝒈(𝒙) 𝒙+𝒉−𝒙 𝒉

given as 𝒆𝒙 (𝒆𝒉 − 𝟏)
𝒅𝒚 𝒇′(𝒙) • 𝒈(𝒙) − 𝒇(𝒙) • 𝒈 ′ (𝒙) ⇒ 𝒕𝒉𝒆 𝒓𝒆𝒅𝒖𝒄𝒆𝒅 𝒇𝒓𝒂𝒄𝒕𝒊𝒐𝒏
= 𝒉
𝒅𝒙 [𝒈(𝒙)]𝟐 𝒇(𝒙 + 𝒉) − 𝒇(𝒙)
𝒙𝟐 ⇒ 𝐥𝐢𝐦
Example: find the derivative of 𝒚 = 𝒉→𝟎 𝒉
𝟐𝒙−𝟏
𝒆𝒙 (𝒆𝒉 − 𝟏)
G. Chain Rule ⇒ 𝐥𝐢𝐦
𝒉→𝟎 𝒉
If we have a 𝒛 = 𝒇(𝒚), where 𝒚 in turn a function of another 𝒉
(𝒆 − 𝟏)
variable 𝒙say 𝒚 = 𝒈(𝒙) then the derivative
𝒅𝒛
is given by: ⇒ 𝒆𝒙 𝐥𝐢𝐦
𝒅𝒙
𝒉→𝟎 𝒉
𝒅𝒛 𝒅𝒛 𝒅𝒚 ⇒ 𝒆𝒙 • 𝟏 = 𝒆𝒙
= • Conclusion: the derivative of 𝒆 with a functional exponent is equal to
𝒅𝒙 𝒅𝒚 𝒅𝒙
𝒅𝒛 𝒆 with that exponent times the derivative of that exponent.
Example: find where 𝒛 = 𝒇(𝒚) = 𝟑𝒚𝟐 and 𝒚 = 𝒇(𝒙) = 𝟐𝒙 + 𝟓.
𝒅𝒙
Example: compute the derivative of the function𝒚=𝒆𝟐𝒙+𝟑 Answer:
H. Derivatives of Exponential and Logarithmic Functions 𝑑𝑦
 Derivative of power functions with base 𝒆. ( = 2𝒆𝟐𝒙+𝟑 )
𝑑𝑥
And bear in mind the following limit value
𝒆𝒉 − 𝟏  Derivatives of Logarithmic Functions
𝐥𝐢𝐦 =𝟏  Derivative of 𝒚 = 𝐥𝐧 𝒙
𝒉→𝟎 𝒉
If𝒉 = ̶ 0.1 ̶ 0.01 →0← + 0.01 + 0.1 𝒅𝒚 𝟏
𝑡ℎ𝑒𝑛 =
𝒆𝒉 −𝟏 𝒅𝒙 𝒙
then = 0.951626 0.995017 →1← 1.005017 1.051709
𝒉
Illustration Illustration

Compiled Note for Calculus for Economists (ECON 1011) Page-18

 4th. 𝒇(𝒙 + 𝒉) = By definition, the expression in the bracket is evaluated as
𝒍𝒏 (𝒙 + 𝒉), 𝑤ℎ𝑖𝑐ℎ 𝑐𝑎𝑛𝑛𝑜𝑡 𝑏𝑒 𝑠𝑖𝑚𝑝𝑙𝑖𝑓𝑖𝑒𝑑 𝒆 ≈ 𝟐. 𝟕𝟏𝟖 𝟐𝟖𝟏 𝟖𝟐𝟖 𝟒𝟓𝟗.
5th. 𝒇(𝒙 + 𝒉) − 𝒇(𝒙) = 𝒍𝒏 (𝒙 + 𝒉) − 𝒍𝒏 𝒙
If𝒔 = ̶ 0.001 ̶ 0.0001 →0← + 0.0001 + 0.001
𝒙+𝒉
⇒ 𝒍𝒏 then(𝟏 +
𝒙 𝟏 2.719642 2.718418 2.718 281 2.718146 2.716924
6th. Newton equation is formulated as 𝒔)𝒔 =
𝒇(𝒙 + 𝒉) − 𝒇(𝒙) 𝒍𝒏(𝒙 + 𝒉) − 𝒍𝒏(𝒙)
= Example:find the derivative ofthe function 𝒚 = 𝒙𝟑 − 𝒍𝒏𝒙𝟒
𝒉 𝒉
𝟏 𝒙+𝒉 𝒚 = 𝒙𝟑 − 𝟒𝒍𝒏𝒙
⇒ 𝒍𝒏 𝒅𝒚 𝟒
𝒉 𝒙 = 𝟑𝒙𝟐 −
𝒙 𝟏 𝒙+𝒉 𝒙 𝒅𝒙 𝒙
⇒ • 𝒍𝒏 , 𝒎𝒖𝒍𝒕𝒊𝒑𝒍𝒚𝒊𝒏𝒈 𝒃𝒚 𝒃𝒓𝒊𝒏𝒈 𝒏𝒐 𝒄𝒉𝒂𝒏𝒈𝒆
𝒙 𝒉 𝒙 𝒙
𝟏 𝒙 𝒉
⇒ • 𝒍𝒏 (𝟏 + )
𝒙 𝒉 𝒙  Derivative of 𝒚 = 𝐥𝐨𝐠 𝒂 𝒙
𝒙 𝒅𝒚 𝟏 𝟏
𝟏 𝒉 𝒉 𝑡ℎ𝑒𝑛 = •
⇒ 𝒍𝒏 (𝟏 + ) 𝒅𝒙 𝒍𝒏𝒂 𝒙
𝒙 𝒙 Illustration
𝒚 = 𝐥𝐨𝐠 𝒂 𝒙
7th. Finding the limit of the above expression as 𝒉 → 𝟎 ⇒ 𝒂𝒚 = 𝒙
𝒙
𝟏 𝒉 𝒉 ⇒ 𝒍𝒏𝒂𝒚 = 𝒍𝒏𝒙 → taking the 𝒏𝒂𝒕𝒖𝒓𝒂𝒍 𝒍𝒐𝒈 of both sides
⇒ 𝐥𝐢𝐦 [ 𝒍𝒏 (𝟏 + ) ]
𝒉→𝟎 𝒙 𝒙
𝒚𝒍𝒏𝒂 = 𝒍𝒏𝒙
𝒉
Letting𝒔 = as 𝒉 → 𝟎 then 𝒔 → 𝟎 𝟏
𝒙 𝒚= • 𝒍𝒏𝒙
The limit above can be changed to the following 𝒍𝒏𝒂
𝟏 𝟏
𝟏 𝒅𝒚 𝟏 𝟏
⇒ • 𝒍𝒏 [𝐥𝐢𝐦(𝟏 + 𝒔) 𝒔 ] Thus, 𝐥𝐨𝐠 𝒂 𝒙 = 𝒍𝒏𝒙 and = •
𝒙 𝒔→𝟎 𝒍𝒏𝒂 𝒅𝒙 𝒍𝒏𝒂 𝒙
𝟏 𝟏
Thus, • 𝒍𝒏𝒆 = , because 𝒍𝒏𝒆 = 1 Example: find the derivative of the function 𝒚 = 𝐥𝐨𝐠 𝟒 𝟓𝒙
𝒙 𝒙 𝒅𝒚 𝟓 𝟏
Answer: ( = • )
𝒅𝒙 𝒍𝒏𝟒 𝒙

Compiled Note for Calculus for Economists (ECON 1011) Page-19

3.4. Order Derivatives 3rd. The equality below must be attained
3.4.1. Second and Higher Order Derivatives 𝐥𝐢𝐦 𝒇(𝒙) = 𝒇(𝒂)
𝒙→𝒂
The derivative of a function 𝒇′ is often called the first (order)
derivative of the function, 𝒇. If 𝒇′ is also differentiable, then we can If the function 𝒇(𝒙) is not continuous at point 𝒂 (if one of the
differentiate it in turn. We call (𝒇′)′as the second order derivative of requirements violated) it is said to be discontinuous at 𝒂.
the function 𝒇. Further differentiations [such as,(𝒇′′)′, (𝒇′′′)′]denote
Continuity at a point and in a domain
higher order derivatives.
 If the point 𝒂 is not in the domain of 𝒇no more to say about
Example: find the first, second third and fourth order derivatives of continuity of the function at that point.
the following function.  The function 𝒇 is continuous on the subset of its domain, if it
𝒇(𝒙) = 𝟐𝒙𝟓 − 𝟑𝒙𝟑 + 𝟐𝒙 is continuous at each point of the domain.
𝒅𝒚
𝒇′(𝒙) = = 𝟏𝟎𝒙𝟒 − 𝟗𝒙𝟐 + 𝟐
𝒅𝒙 Recognizing Points of Discontinuity in a Graph
𝒅𝟐 𝒚 Let the function𝒇(𝒙) have the graph below:
𝒇′′ (𝒙) = = 𝟒𝟎𝒙𝟑 − 𝟏𝟖𝒙
𝒅𝒙𝟐
′′′
𝒅𝟑 𝒚
𝒇 (𝒙) = = 𝟏𝟐𝟎𝒙𝟐 − 𝟏𝟖
𝒅𝒙𝟑
′′′′
𝒅𝟒 𝒚
𝒇 (𝒙) = = 𝟐𝟒𝟎𝒙
𝒅𝒙𝟒

3.5. Continuity and Differentiability of a Function

 Continuity of a Function
It is to be recalled that when the limit of a function 𝒚 = 𝒇(𝒙) exists
as 𝒙 → 𝒂, in its domain, and when the limit equal to 𝒇(𝒂) then the
function is said to be continuous at 𝒂. As has been discussed,
continuity of a function has the following requirements: At which points of the domain of 𝒇(𝒙) is the function discontinuous?
1st. The point 𝒂 must be in the domain of the function. That is,
𝒇(𝒂) must be defined; Solution
2nd. The following limit must exist According to the definition, 𝒇(𝒙) can fail to be continuous at a point
𝐥𝐢𝐦 𝒇(𝒙) 𝒂of its domain if either:
𝒙→𝒂

Compiled Note for Calculus for Economists (ECON 1011) Page-20

 𝟏. 𝐥𝐢𝐦 𝒇(𝒙) does not exist, or Differentiability at a point and in a domain
𝒙→𝒂
𝟐. 𝐥𝐢𝐦 𝒇(𝒙) exist but ≠ 𝒇(𝒂)  The function 𝒇 is differentiable at the point 𝒂in its domainif
𝒙→𝒂
the above limit exists.
Looking at the figure, we see that the possible points where things  The function 𝒇 is differentiable on the subset of its domain if
might go wrong are at x = − 1, 0, 1, and2. Let us look at these points it is differentiable at each point of the domain.
one-at-a-time. Note: a function 𝒇fails to be differentiable at point in its domain (𝒂)
 x = − 1: it is a point of the domain of𝒇(𝒙) and the limit below if the limit above does not exist or if it’s infinite.
does not exist because the left and right hand limits disagree.
𝐥𝐢𝐦 𝒇(𝒙) Consider the following two graphs
𝒙→−𝟏
Therefore, the function 𝒇 has a discontinuity at x = − 1.
 x = 0:from the graph, we see that f(0) is not defined. Therefore, 0
is not in the domain of 𝒇so we cannot say that 𝒇 has a
discontinuity at x = 0.
 x = 1: at this point the limit does exist, however,
𝐥𝐢𝐦 𝒇(𝒙) = 𝟏 but 𝒇(𝟏) = 𝟐
𝒙→𝟏
Thus, since the limit at 1does not equal the value of the function, we
have a discontinuity at x = 1.
 x = 2:although there is a sharp in the graph at x = 2, it can be Example: Determine points of non-differentiability of the function
seen that the limit at x = 2exists, and agrees with (𝟐). 𝟑
𝒇(𝒙) = √𝒙 − 𝟏
Therefore, 𝒇(𝒙)is continuous atx = [Link], the points of Solution:
discontinuity in the domain of 𝒇(𝒙)occur at x = − 1andx = 1. 𝟏 −𝟐⁄
Using the power rule of derivative 𝒇′ (𝒙) = [ (𝒙 − 𝟏) 𝟑] •𝟏
𝟑

 Differentiability of a Function 𝒇′ (𝒙)is not definedwhen𝒙 = 𝟏 and thus 𝒇(𝒙) is not differentiable at
The derivative of the function 𝒇 at the point 𝒂 in its domain is given 𝒙 = 𝟏.
by
𝒇(𝒂 + 𝒉) − 𝒇(𝒂) In fact the direct computation given as follows
𝒇′ (𝒂) = 𝐥𝐢𝐦 𝟏
𝒉→𝟎 𝒉 𝒇(𝟏 + 𝒉) − 𝒇(𝟏) (𝒉) ⁄𝟑 𝟏
𝐥𝐢𝐦 = 𝐥𝐢𝐦 = 𝐥𝐢𝐦 𝟐 = +∞
𝒉→𝟎 𝒉 𝒉→𝟎 𝒉 𝒉→𝟎
(𝒉) ⁄𝟑

Compiled Note for Calculus for Economists (ECON 1011) Page-21

Showing that the function 𝒇 is not differentiable at 𝒙 = 𝟏. The  If the second derivative f'' is positive (+), then f is concave up
graph is given below: (∪ shaped).
 If the second derivative f'' is negative (-), then f is concave
down (∩ shaped).
It is possible to give a graphical interpretation of the sign of the
second-order derivative. It is agreeable that the first-order
derivative, f′(x), measures the gradient of a curve. If the derivative of
f′(x) is positive (that is, if f″(x)> 0) then f′(x) is increasing. This means
that the graph gets steeper as we move from left to right and so the
curve bends upwards.

On the other hand, if f″(x) < 0, the gradient, f′(x) must be decreasing,
 Relationship between Differentiability and Continuity so the curve bends downwards. Thesetwo cases are illustrated in the
Theorem: Differentiability Implies Continuity (but not the vice versa) Figure below. For this function, f ″(x) < 0 to the left of x = a, andf″(x)
 If a function𝒇 is differentiable at point 𝒂, then it is > 0 to the right of x = a. At x = a itself, the curve changes from
continuous at that point. This implies alldifferentiable bending downwards tobending upwards and at this point, f″(a) = 0.
functions arecontinuous.
 But not all continuous functions are differentiable.

3.6. The Sign of the Derivative

The value of a derivative can be interpreted in two ways: measure of
rate of changes and the tangent gradient (slope) of the curve of
𝒚 = 𝒇(𝒙) at the specific point under consideration.

The value of derivatives of 𝒇(𝒙)at the point 𝒙 = 𝒂is given to be

𝒇′(𝒂). The meaning of the sign of the derivative is apparent, as
summarized below Example A: Given the function 𝒚 = 𝟒𝒙 − 𝒙𝟐 , check whether it is
 If the first derivative f' is positive (+), thenf is increasing. concave down or concave up.
 If the first derivative f' is negative (-), thenf is decreasing. Solution:
 If the first derivative f' is zero (0), then f has stationary point. 𝑑𝑦
= 4 − 2𝑥 = −2(𝑥 − 2)
𝑑𝑥

Compiled Note for Calculus for Economists (ECON 1011) Page-22

The first derivative result (which is the slope of the function given) is 3.7. Maximum and Minimum Values
positivewhen 𝒙 < 2, zero when 𝒙 = 𝟐 and negative when 𝒙 > 2. 3.7.1. Relative (Local) Maximum and Minimum Values
We say that a function f(x) has a relative maximum value at x = a, if
This implies that the function 𝒚 = 𝟒𝒙 − 𝒙𝟐 increase at first, f(a) is greater than any value immediately preceding or following.
becomes stationary at 𝒙 = 𝟐 and then decreasing as x increases We call it a "relativemaximum” because other values of the function
beyond. In this case we say that the function is concave down [has a may in fact be greater.
‘maximum’ value [𝒚 = 𝟒] at the point where 𝒙 = 𝟐, as depicted in
We say that a function f(x) has a relative minimum value at x = b, if
the graph below (the graph on the left side).
f(b) is less than any value immediately preceding or following. With
Example B: Given the function 𝒚 = 𝒙𝟐 − 𝟒𝒙 + 𝟖, check whether it is
that understanding, we call it a "relativeminimum” because other
concave down or concave up.
values of the function may be lesser.
Solution:
𝑑𝑦 The value of the function at either a maximum or a minimum is
= 2𝑥 − 4 = 2(𝑥 − 2)
𝑑𝑥 called an extreme value. Look at the graph below.
The first derivative result (which is the slope of the function given) is
positivewhen 𝒙 > 2, zero when 𝒙 = 𝟐 and negative when 𝒙 < 2.

This implies that the function 𝑦 = 𝑥 2 − 4𝑥 + 8decrease at first,

becomes stationary at 𝒙 = 𝟐 and then increases as x increases
beyond. In this case we say that the function is concave up [has a
‘minimum’value 𝒚 = 𝟒] at the point where 𝒙 = 𝟐, as depicted in the
graph below (the graph on the right side).

What characterizes the graph at an extreme value?

 At the extreme values the tangent line to the specific points on
the curve is horizontal. We see this at the points A and B. The
slope of each tangent line, i.e. the derivative when evaluated at
a andb is 0.

Compiled Note for Calculus for Economists (ECON 1011) Page-23

 Moreover, at points immediately to the left of a maximum, at a As can be seen below f(x) is a parabola, and we can see that the
point C, the slope of the tangent is positive: f'(x) >0. While at turning point is a minimum with the vertex of (3, −4).
points immediately to the right, at a point D, the slope is
negative: f'(x) <0. In other words, at a maximum, f'(x) changes
sign from (+) to (-).At a minimum, conversely,f'(x) changes sign
from (-) to (+). We can see that at the points E and F.
 We can also observe that at a maximum, at A, the graph is
concave down. While at a minimum, at B, it is concave up.

A value of x at which the function has either a maximum or a

minimum is called a critical value.

Referring to the above figure the critical values are x = a andx = b.

The critical values determine turning points, at which the tangent But we will not always be able to look at the graph. The algebraic
line is parallel to the x-axis. The critical values will be the solutions condition for a minimum is that f'(x) changes sign from negative to
to f'(x) = 0. positive. We see this at the points E, B, F above. The value of the
slope is increasing. Now to say that the slope is increasing, is to say
Example: Given that 𝒇(𝒙) = 𝒙𝟐 − 𝟔𝒙 + 𝟓 that, at a critical value, the second derivative is positive.
Are there any critical values and turning points for the function? If
so, do they determine a maximum or a minimum? And what are the For the above example, accordingly,f’’(x) = 2, and f’’(3) = +2. This
coordinates on the graph of that maximum or minimum? tells us algebraically that the critical value 3 determines a minimum.

Solution:f'(x) = 2x − 6 = 0 impliesx = 3. x = 3 is the only critical The Two Conditions

value. It is the x-coordinate of the turning point. To determine the 1. First order (necessary) condition
y-coordinate, evaluate f at that critical value – evaluate f(3)asf(3) =  The function has a minimum or maximum values at x = a
−4. if f'(a) = 0
2. Second order (sufficient) conditions
The extreme value is −4. To see whether it is a maximum or a We can now state the sufficient conditions for extreme values of a
minimum, in this case we can simply look at the graph. function at a critical value a:
 The function has a minimum value at x = aif f ''(a) is positive
number.

Compiled Note for Calculus for Economists (ECON 1011) Page-24

  The function has a maximum value at x = aif f ''(a) is negative Referring to the above graph, for the function shown in this graph
number. we have relative maximums at 𝒙 = 𝒃and 𝒙 = 𝒅. Both of these
points are relative maximums since they are interior to the domain
Class Activity: for𝒇(𝒙) = 𝟐𝒙𝟑 − 𝟗𝒙𝟐 + 𝟏𝟐𝒙 − 𝟑
shown and are the largest point on the graph in some interval
Are there any critical values? Do they determine a maximum or a
around the point. We also have a relative minimum at 𝒙 = 𝒄 since
minimum? And what are the coordinates on the graph of that
this point is interior to the domain and is the lowest point on the
maximum or minimum? Where are the turning points?
graph in an interval around it. The far right end point, 𝒙 = 𝒆, will
not be a relative minimum since it is an end point.
3.7.2. Absolute (Global) Maximum and Minimum Values
The function has an absolute maximum at 𝒙 = 𝒅 and an absolute
 We say that f(x) has an absolute (or global) maximum at𝒙 = 𝒄if minimum at 𝒙 = 𝒂. These two points are the largest and smallest
𝒇(𝒙) ≤ 𝒇(𝒄)for every 𝒙 in the domain. that the function will ever be. We can also notice that the absolute
 We say that f(x) has a relative (or local) maximum at 𝒙 = 𝒄if extrema for a function will occur at either the endpoints of the
𝒇(𝒙) ≤ 𝒇(𝒄)for every 𝒙 in some open interval around 𝒙 = 𝒄. domain or at relative extrema.
 We say that f(x) has an absolute (or global) minimum at 𝒙 = 𝒄 if
𝒇(𝒙) ≥ 𝒇(𝒄) for every 𝒙 in the domain. Example: Identify the absolute extrema and relative extrema for the
function 𝒇(𝒙) = 𝒙𝟐 on the interval[−𝟏, 𝟐]
 We say that f(x) has a relative (or local) minimum at 𝒙 = 𝒄 if
𝒇(𝒙) ≥ 𝒇(𝒄) for every 𝒙 in some open interval around 𝒙 = 𝒄. Solution: Here is the graph the function on the interval [-1, 2].
Note that when we say an “open interval around 𝒙 = 𝒄 we mean
that we can find some interval (𝒂, 𝒃) such that 𝒂 < 𝑐 < 𝑏.

Compiled Note for Calculus for Economists (ECON 1011) Page-25

We can now identify the extrema from the graph. It looks like we’ve As this example has shown there can only be a single absolute
got a relative and absolute minimum of zero at 𝒙 = 𝟎 and an maximum or absolute minimum value, but they can occur at more
absolute maximum of fourat 𝒙 = 𝟐. Note that 𝒙 = −𝟏 is not a than one place in the domain.
relative maximum since it is at the end point of the interval. Thus,
this function doesn’t have any relative maximums. Example: Identify the absolute extrema and relative extrema for
the above function
As we saw in the previous example functions do not have to have
relative extrema. It is completely possible for a function to not have Solution
a relative maximum and/or a relative minimum. In this case we’ve given no domain and so the assumption is that we
will take the largest possible domain. For this function that means
Example: Identify the absolute extrema and relative extrema for the all the real numbers. Below is the graph.
aabove function on the interval [−𝟐, 𝟐].
Solution: in this case the graph for this function is shown as below.

In this case the graph doesn’t stop increasing at either end and so
In this case we still have a relative and absolute minimum of zero there are no maximums of any kind for this function. No matter
at 𝒙 = 𝟎. We also have an absolute maximum of four. However, which point we pick on the graph there will be points both larger
unlike the first example this will occur at two points, 𝒙 = −𝟐and 𝒙 = and smaller than it on either side so we can’t have any maximums
(both relative or absolute) in a graph.
𝟐.Again, the function doesn’t have any relative maximums.
We have a relative and absolute minimum value of zero at 𝒙 = 𝟎.

3.8. Economic Application of Derivatives

Compiled Note for Calculus for Economists (ECON 1011) Page-26

In recent years, decision making in economics has become more and It follows that the demand decreases by approximately 0.8% for a1%
more mathematical oriented. Faced with huge masses of statistical increase in price or, conversely, increases by 0.8% for a 1%
data, depending on hundreds or even thousands of different decreasein price. In this case the demand is said to be inelastic at a
variables, business analysts and economists have increasingly turned price of £5.
to mathematical methods to help them describe what is happening,
If, however, the price is $6then Q will be 58. Then 𝒆𝑷 will have
predict the effects of various policy alternatives, and choose
different value:
reasonable courses of action from the numerous possibilities. 6
Among the mathematical methods employed is calculus, one of 𝑒𝑃 = −(1 + 2𝑋6) • ≈ −𝟏. 𝟑
58
which is derivative with some application in economics.
Thus a 1% decrease in price results in a 1.3% increase in thequantity
3.8.1. Elasticity demanded. The demand is then said to be elastic at a price of £6.
A measure of sensitivity to pricechange can be obtained by Other elasticities are of importance in economics and these
expressing the percentage change in thequantity demanded of a aredetermined in a similar way to the above:
good in terms of the percentage change in price. This measure is ∆𝑄 𝐼 𝑑𝑄 𝐼
called price elasticity of demand and is given as: 𝑒𝐼 = • = •
∆𝐼 𝑄 𝑑𝐼 𝑄
∆𝑸 𝑷 𝒅𝑸 𝑷 To determine this elasticity it is necessary to know the relationship
𝒆𝑷 = • = •
∆𝑷 𝑸 𝒅𝑷 𝑸 between the quantity demanded of a good and the income, that is,
If the demand function is given in the form 𝑄 = 𝑓(𝑃)then it is 𝑄 = 𝑓(𝐼)
𝒅𝑸
asimple matter to differentiate and to substitute the values of in It is, therefore, possible to determine other forms of elasticity (such
𝒅𝑷
theabove equation. as cross price elasticity of demand, price elasticity of supply…) if the
Example, ifthe demand function is given as𝑸 = 𝟏𝟎𝟎 − 𝑷 − 𝑷𝟐 relationship between the variables is known.
𝒅𝑸
= −𝟏 − 𝟐𝑷 = −(𝟏 + 𝟐𝑷) 3.8.2. The Marginal Concepts in Economics
𝒅𝑷
𝑷 We have, in the differential calculus, a method for determining the
∴ 𝒆𝑷 = −(𝟏 + 𝟐𝑷) •
𝑸 slope of a function. In terms of the total cost curve example, the
If, on the above example price is known to be $5, then Q will be 70. slope at any point tells us the marginal or extra cost incurred if the
Then 𝒆𝑷 will be evaluated as: volume of production is increased by a very small amount or,
5 conversely, the cost saved if the volume of production is decreased
𝑒𝑃 = −(1 + 2𝑋5) • ≈ −𝟎. 𝟖
70 by a very small amount.

Compiled Note for Calculus for Economists (ECON 1011) Page-27

The same principles also apply in other uses of marginal concepts, It should be clear that marginal revenue and elasticity of demand are
such as marginal revenue (obtained from a total revenue function), related.
the marginal productivity of labor (obtained from a production
Illustration:
function), and the marginal propensity to consume (obtained from a Given that 𝑻𝑹 = 𝑷𝑸 then differentiating gives
consumption function). 𝒅𝑻𝑹 𝒅𝑸 𝒅𝑷
𝑴𝑹 = = 𝑷+ 𝑸
Example: for a linear cost function given as: 𝑇𝐶 = 𝑓(𝑄) = 100 + 3𝑄 𝒅𝑸 𝒅𝑸 𝒅𝑸
𝒅𝑷 𝑸 𝒅𝑷
∆𝑇𝐶 𝑑𝑇𝐶 𝑷+ 𝑸 = 𝑷(𝟏 + • )
𝑀𝐶 = = 𝒅𝑸 𝑷 𝒅𝑸
∆𝑄 𝑑𝑄 𝟏
Thus, MC = 3. This implies that 𝑴𝑹 = 𝑷(𝟏 + )
[
𝑬𝑷
For the quadratic cost function given as: Graphically,
1
𝑇𝐶 = 𝑓(𝑄) = 100 + 2𝑄 + 𝑄2
10
𝟏
𝑴𝑪 = 𝟐 + 𝑸
𝟓
Applying the same ideas to total revenue (TR), and using the factthat
𝑻𝑹 = 𝑷𝑸 where 𝑷is price and 𝑸is quantity, both related through
the demand function,marginal revenue, 𝑴𝑹, is found by
differentiating 𝑻𝑹 with respect to 𝑸.

Notice that the demand function allows 𝑷 to be replaced by a

function of𝑸 so that 𝑻𝑹 is expressed solely in terms of 𝑸. It is also
possible to usethe demand function to replace 𝑸 by a function of 𝑷,
so that 𝑻𝑹 dependson price, but when marginal revenue is referred
to it is normally in thecontext of a change in output rather than
price. To illustrate the determinationof marginal revenue, suppose  When EP = 1, MR = 0, that is, TR is maximum
the demand function isgiven by:𝑸 = 𝟏𝟐𝟓 − 𝟎. 𝟓𝑷  When EP> 1 (elastic),MR > 0
And the inverse demand function can be derived as 𝑷 = 𝟐𝟓𝟎 − 𝟐𝑸  When EP< 1 (inelastic),MR < 0
Then𝑻𝑹is given as 𝑻𝑹 = 𝑷𝑸 = (𝟐𝟓𝟎 − 𝟐𝑸)𝑸 = 𝟐𝟓𝟎𝑸 − 𝟐𝑸𝟐  When EP< 0 (perfectlyinelastic),MR = ∞
 When EP = ∞,MR = P, that is, when the firm is a competitor in
𝒅𝑻𝑹
𝑴𝑹 = = 𝟐𝟓𝟎 − 𝟒𝑸 the product market and the demand is perfectly elastic, the
𝒅𝑸
marginal revenue equals price.

Compiled Note for Calculus for Economists (ECON 1011) Page-28

Example: some years ago it was estimated that the demandfor steel make U as large aspossible, thereby maximizing utility. However, a
approximately satisfied the equationQ = 5.12–0.02P, and the total moment’s thought should convince consumers thatthis problem
cost of producing Qunitsof steel was C(Q) = 182 + 56Q. (The quantity does not have a finite solution (unconstrained optimization).
Q was measuredin millions of tons and the price and total cost 𝟏

weremeasured in millions of dollars.) Determine the level The factor 𝒙𝟒 can be made as large aswe please by taking ever-
𝟑
ofproduction and the corresponding price that maximizethe profits. increasing values of 𝒙 and likewise for the factor 𝒚𝟒 . In other
Answer: level of output = 2 million tons, price = $156 per ton. words,utility increases without bound as more and more items of the
two goods are bought.
Example: a small tie shop sells ties for $3.50 [Link] daily cost
function is estimated to be C(Q) dollars,where Q is the number of In practice, of course, this does not occur, since there is a limit to the
ties sold on a typical day andC(Q) = 0.0006Q3 −0.03Q2 +2Q+20. Find amount of money thatan individual has to spend on these goods. For
the value of Q thatwill maximize the store’s daily profit. example, suppose that the price of each item is $2 and $3,
Answer: maximum Q occurs at Q = 50. respectively, and that we allocate $100 for the purchase of these
[Link] total spending (the budget) of buying 𝒙 and 𝒚is:
Example: an inverse demand equation for a certaincommodity is
𝟏 𝟐𝒙 + 𝟑𝒚 = 𝟏𝟎𝟎
given as𝑷 = 𝑸𝟐 − 𝟏𝟎𝑸 + 𝟑𝟎𝟎 for 0 ≤ Q ≤ 60. Find the value of Q 𝟏 𝟑
𝟏𝟐
and the correspondingprice P that maximize the revenue The problem will now be maximizing utility 𝑼 = 𝒇(𝒙, 𝒚) = 𝒙𝟒 𝒚𝟒
AnswerQ = 20 units, p = $133.33 subject to the budgetary constraint 𝟐𝒙 + 𝟑𝒚 = 𝟏𝟎𝟎. The constraint,
in the problem, prevents consumers from taking ever-increasing
3.8.3. Optimization: values of 𝒙 and 𝒚 and leads to a finitesolution.
The methods for finding the maximum and minimum points of a
function of two variables are similar to those used for functions of A) Unconstrained Optimization
one variable. However, the nature of economic functions of several For unconstrained problems with one variable, optimization will
variables forces us to subdivide optimization problems into two involve the steps below:
types, unconstrained and constrained. Step 1: find the stationary (critical) value by setting the first order
To understand the distinction between unconstrained and derivative of the function equal to zero.
constrained problems, consider the utilityfunction given as: That is, for the function 𝒚 = 𝒇(𝒙)solvefor𝒇′ (𝒙) = 𝟎 to find the
𝟏 𝟑 critical value of the function𝒙 = 𝒂.
𝑼 = 𝒇(𝒙, 𝒚) = 𝒙𝟒 𝒚𝟒
Step 2: find the second order derivative and conclude the following:
The value of 𝑼 measures the satisfaction gained from buying goods𝒙
 If 𝒇′′ (𝒂) > 0, then the function has minimum at 𝒙 = 𝒂
and 𝒚 items. The natural thing to do here is to try to pick 𝒙 and 𝒚to
Compiled Note for Calculus for Economists (ECON 1011) Page-29
  If 𝒇′′ (𝒂) < 0, then the function has maximum at 𝒙 = 𝒂 Constrained Optimization of with Lagrangian Multiplier
 If 𝒇′′ (𝒂) = 𝟎,then the point cannot be classified using the Given a function 𝒇(𝒙, 𝒚)subject to a constraint the Lagrangian
available information function 𝜱can be formed by:
Example: optimize the unconstrained problem given as:𝒇(𝒙) = - setting the constraint equal to zero,
𝟑𝒙𝟑 − 𝟓𝟒𝒙𝟐 + 𝟐𝟖𝟖𝒙 − 𝟐𝟐 - multiplying it by λ (the Lagrange multiplier), and
- adding/subtractingthe product to the objective function.
Solution:
Note: either adding the product to the objective function or
Find the critical points by taking the first derivative, setting it equal
subtracting it from the objective function would not change
to zero, and solvingfor 𝒙.
the critical values of 𝒙and 𝒚. In so doing only the sign of𝝀 will
𝒇′(𝒙) = 𝟎 ⇒ 𝟗𝒙𝟐 − 𝟏𝟎𝟖𝒙 + 𝟐𝟖𝟖 = 𝟎
be affected.
𝒇′(𝒙) = 𝒙𝟐 − 𝟏𝟐𝒙 + 𝟑𝟐
(𝒙 − 𝟒)(𝒙 − 𝟖) = 𝟎 𝛷 = 𝒇(𝒙, 𝒚, 𝝀)constitutes the Lagrangian (composite) function.
𝒙 = 𝟒 or 𝒙 = 𝟖 Critical values𝒙𝟎 ,𝒚𝟎 , 𝝀𝟎 at which the function is optimized,are found
Test for concavity (up or down) by taking the second derivative, by taking the partial derivatives of 𝛷 with respect to all three
evaluating it at the critical points, andchecking the signs to independent variables, settingthem equal to zero, and solving
distinguish between a relative maximum and a relative minimum. simultaneously:
𝒇′′ (𝒙) = 𝟏𝟖𝒙 − 𝟏𝟎𝟖
The Lagrange multiplier 𝝀 approximates the effect on the objective
𝒇′′ (𝟒) = −𝟑𝟔 < 0
function of asmall change in the constant of the constraint.
𝒇′′ (𝟖) = 𝟑𝟔 > 0
Thus, the function is maximized at 𝒙 = 𝟒 and minimized at 𝒙 = 𝟖. Example:Use the Lagrange multiplier method to optimize the
function
B) Constrained Optimization 𝒛 = 𝒇(𝒙, 𝒚) = 𝟔𝒙𝟐 + 𝟓𝒙𝒚 + 𝟐𝒚𝟐
People in business and economics frequently need to optimize Subject to the constraint 𝟐𝒙 + 𝒚 = 𝟗𝟔.
functions under specific constraints. This is referred to as
Solution:
constrained optimization.
Start by setting the constraint equal to zero as 𝟗𝟔 − 𝟐𝒙 − 𝒚 = 𝟎
At times an individual consumer may wish to maximize utility subject
to a budget constraint; at other times firms may becalled on to Multiply it by 𝝀 and add it to the objective function to form the
minimize costs subject to some minimal requirement of output such Lagrangian function 𝜱.
as a production quota. 𝜱 = 𝟔𝒙𝟐 + 𝟓𝒙𝒚 + 𝟐𝒚𝟐 + 𝝀(𝟗𝟔 − 𝟐𝒙 − 𝒚)

Compiled Note for Calculus for Economists (ECON 1011) Page-30

Take the first-order partial derivatives, set them equal to zero, and Chapter Four: Differential Calculus of Multivariable Functions
solve simultaneously as: 4.1. Introduction
𝝏𝜱 In the preceding chapter of derivatives, we have applied the key
= 𝟎 ⇒ 𝟏𝟐𝒙 + 𝟓𝒚 − 𝟐𝝀 = 𝟎
𝝏𝒙 concepts of calculus, the derivative to functions with one
𝟓
⇒ 𝝀 = 𝟔𝒙 + 𝒚 independent variable. And then we extended the key concepts of
𝟐
𝝏𝜱 calculus to functions with two independent variables. Practically, we
= 𝟎 ⇒ 𝟓𝒙 + 𝟒𝒚 − 𝝀 = 𝟎
𝝏𝒚 might use functions with two independent variables to study how
⇒ 𝝀 = 𝟓𝒙 + 𝟒𝒚 production depends on both labor and capital. Functions with two or
𝝏𝜱 more independent variable, in general, are considered as
= 𝟎 ⇒ 𝟗𝟔 − 𝟐𝒙 − 𝒚 = 𝟎
𝝏𝝀 multivariable functions.
𝟓 𝟐
From 𝝀 = 𝝀 it follows that 𝟔𝒙 + 𝒚 = 𝟓𝒙 + 𝟒𝒚implying 𝒚 = 𝒙.
𝟐 𝟑 For instance, a small manufacturing company produces good with
Solving for 𝒙 and 𝒚 yields the respective values 𝒙 = 𝟑𝟔 and𝒚 = 𝟐𝟒.
quantity𝑸. If fixed costs are $500 per week and variable costs are
The Lagrangian multiplier, 𝝀 = 𝟐𝟕𝟔implies that a 1 unit increase in $70 per output produced, the weekly cost function is given by:
the constant of the constraint (for example, from 96 to 97) would 𝑪 = 𝒇(𝑸) = 𝟓𝟎𝟎 + 𝟕𝟎𝑸
lead to an increase in 𝜱 of approximately 276.
where𝑸 is the number of outputs produced per [Link] cost
Self-Assessment Exercise 1: minimize the cost of fulfilling the pledge function is a functionof a single independent variable 𝑸. For each
under the constraint 𝒄 = 𝒇(𝒙, 𝒚) = 𝟏𝟖𝒙𝟐 + 𝟔𝒙𝒚 + 𝟐𝟎. 𝟓𝒚𝟐 subject value of 𝑸 from the domain of 𝑪, thereexists exactly one value of
to 𝟐𝒙 + 𝟑𝒚 = 𝟏𝟒𝟎. 𝑪(𝑸)in the range of 𝑪.
Answer:𝒙 = 𝟐𝟓𝒚 = 𝟑𝟎and𝝀 = 𝟑𝟔𝟎 Now, suppose that the company decides to produce variety of
products, 𝑸𝟏 and 𝑸𝟐 If the fixed cost for the new product is $200 per
Self-Assessment Exercise 2:given a firm operating at constant week and the variable costs is $100 per output, then the cost
returns to scale whose (strict) Cobb-Douglas production function is function above shall be modified to:
given as: 𝑸 = 𝒇(𝑳, 𝑲) = 𝟑𝑳𝟎.𝟖 𝑲𝟎.𝟐 . The total cost allotted for 𝑪 = 𝒇(𝑸𝟏 , 𝑸𝟐 ) = 𝟕𝟎𝟎 + 𝟕𝟎𝑸𝟏 + 𝟏𝟎𝟎𝑸𝟐
production is $450 and the wage per hour is $4 and interest per hour
The modified equation above is an example of a function with two
is $9. Find the combination of L and K that maximize the Q.
independent variables 𝑸𝟏 and 𝑸𝟐 . Of course, as the company
Answer: 𝑳 = 90𝑲 = 10 andλ = 0.386636
======================================================== expands its product line even further, its weekly cost function must
======================================================== be modified to include more and more independent variables, one
for each new product produced.

Compiled Note for Calculus for Economists (ECON 1011) Page-31

In general, an equation of the form𝒛 = 𝒇(𝒙, 𝒚)describes a function with respect to, are treated as constants. Apart fromthis, partial
of two independent variables if, for each permissible ordered pair differentiation follows the standard differentiation rules.
(𝒙, 𝒚), there is one and only one value of 𝒛 determined by
A symbol ∂ is used in a partial derivative to distinguish it from the
𝒇(𝒙, 𝒚).The variables𝒙 and 𝒚 are independent variables, and the
derivative of a singlevariable (total derivative) function where a
variable 𝒛 is a dependent variable.
normal letterd is used.
Here theset of all ordered pairs of permissible values of 𝒙 and𝒚is the
4.2.1. First-order Partial Derivatives
domain of the function,and the set of all corresponding values
Given a function of two variables,𝒛 = 𝒇(𝒙, 𝒚)we can determine two
𝒇(𝒙, 𝒚) is the range of the function.
first-order derivatives.
We can similarly define functions of three independent  The first order partial derivative of 𝒇 with respect to 𝒙 isgiven as:
variables𝒘 = 𝒇(𝒙, 𝒚, 𝒛); of four independent variables, 𝒖 = 𝝏𝒛 𝝏𝒇
or or𝒇𝒙
𝒇(𝒘, 𝒙, 𝒚, 𝒛)and so on. 𝝏𝒙 𝝏𝒙
The above expression denotes differentiating 𝒇 with respect to
It is impossible to provide any sort of graphical interpretation for 𝒙, with 𝒚 held constant
functions of more than two variables. For example, a function of,  Thefirst order partial derivative of 𝒇 with respect to 𝒚 isgiven as:
say, four variables would require five dimensions, one for each of 𝝏𝒛 𝝏𝒇
or or𝒇𝒚
the independent variables and a further one for the dependent 𝝏𝒚 𝝏𝒚
variable! In spite of this setback we can still perform the task of Likewise, the expression above represents differentiating 𝒇 with
differentiating functions of several variables and, as we shall see in respect to 𝒚 while holding 𝒙 constant.
the remaining sections of this chapter, such derivatives play a vital
Example: Find the first-order partial derivatives of the fffunctions
role in analyzing economic behavior.
a) 𝒛 = 𝒇(𝒙, 𝒚) = 𝒙𝟐 + 𝒚𝟑
4.2. Partial Derivatives b) 𝒛 = 𝒇(𝒙, 𝒚) = 𝒙𝟐 𝒚
Partial derivative is a technique for deriving the rate of change of a
function withrespect to increases in one independent variable when Solution:
all other independent variables in thefunction are held constant. a) By the sum rule we know that we can differentiate each part
separately and then add.
The basic rule for partial differentiation is that all independent
𝒇𝒙 = 𝟐𝒙 + 𝟎 = 𝟐𝒙
variables, other than the onethat the function is being differentiated
𝒇𝒚 = 𝟎 + 𝟑𝒚𝟐 = 𝟑𝒚𝟐

Compiled Note for Calculus for Economists (ECON 1011) Page-32

b) When we differentiate a multiple of two variables we Answers:
differentiate each and then multiply by the constant. Thus, a) 𝒇𝒙𝒙 = 𝟐 b) 𝒇𝒙𝒙 = 𝟐𝒚
𝒇𝒙 = 𝟐𝒙𝒚 + 𝟎 = 𝟐𝒙𝒚 𝒇𝒚𝒚 =𝟔𝒚 𝒇𝒚𝒚 =𝟎
𝒇𝒚 = 𝟎 + 𝒙𝟐 = 𝒙𝟐 𝒇𝒙𝒚 = 𝟎 𝒇𝒙𝒚 = 𝟐𝒙
Self-Exercise: for the following given functions find the first order 𝒇𝒚𝒙 = 𝟎 𝒇𝒚𝒙 = 𝟐𝒙
partial derivatives with respect to both variables [i.e𝒇𝒙 and𝒇𝒚 ] Surprisingly, differentiating with respect to 𝒙 then 𝒚 gives the same
𝟒 𝟐 expression as differentiating with respect to 𝒚 then 𝒙(i.e. 𝒇𝒙𝒚 = 𝒇𝒚𝒙 ).
a) 𝒛 = 𝒇(𝒙, 𝒚) = 𝟓𝒙 − 𝒚
b) 𝒛 = 𝒇(𝒙, 𝒚) = 𝒙𝟐 𝒚𝟑 − 𝟏𝟎𝒙 In fact, there are some exceptional mathematical functions for which
this result is not true (for some functions 𝒇𝒙𝒚 ≠ 𝒇𝒚𝒙 )
4.2.2. Higher Order Partial Derivatives
There is a possibility of differentiating a multivariable function for Self-Exercise: find expressions for the second-order partial
the second and even more times. derivatives𝒇𝒙𝒙 , 𝒇𝒚𝒚 , 𝒇𝒙𝒚 and 𝒇𝒚𝒙 for the following functions and check
that it holds that 𝒇𝒙𝒚 = 𝒇𝒚𝒙 .
Consider the expressions below and their representation: a) 𝒛 = 𝒇(𝒙, 𝒚) = 𝟓𝒙𝟒 − 𝒚𝟐
Notation Denotation
𝟐 𝟐
b) 𝒛 = 𝒇(𝒙, 𝒚) = 𝒙𝟐 𝒚𝟑 − 𝟏𝟎𝒙
𝝏 𝒛 𝝏 𝒇 The function obtained by differentiating
or or𝒇𝒙𝒙 twice with respect to 𝒙 Although we have concentrated exclusively on functions of two
𝝏𝒙𝟐 𝝏𝒙𝟐
variables, it should beobvious how to work out partial derivatives of
𝝏𝟐 𝒛 𝝏𝟐 𝒇 The function obtained by differentiating
or or𝒇𝒚𝒚 functions of more than two variables.
𝝏𝒚𝟐 𝝏𝒚𝟐 twice with respect to 𝒚
For thegeneral function𝒚 = 𝒇(𝒙𝟏 , 𝒙𝟐 , 𝒙𝟑 , … , 𝒙𝒏 ), there are 𝒏 first-
𝝏𝟐 𝒛 𝝏𝟐 𝒇 The function obtained by differentiating first
or or𝒇𝒙𝒚 with respect to 𝒚 and then with respect to𝒙 order partial derivatives, written as:
𝝏𝒙𝝏𝒚 𝝏𝒙𝝏𝒚
𝝏𝟐 𝒛 𝝏𝟐 𝒇 The function obtained by differentiating first 𝝏𝒚 𝝏𝒇
or or𝒇𝒚𝒙 or or𝒇𝒊 , for 𝒊 = 𝟏, 𝟐, 𝟑, … , 𝒏
𝝏𝒚𝝏𝒙 𝝏𝒚𝝏𝒙 with respect to𝒙 and then with respect to 𝒚 𝝏𝒙𝒊 𝝏𝒙𝒊
which are found by differentiating with respect to one variable at a
Example: find expressions for the second-order partial time, keeping the remaining𝒏 − 𝟏 variables fixed. The second-order
derivatives𝒇𝒙𝒙 , 𝒇𝒚𝒚 , 𝒇𝒙𝒚 and 𝒇𝒚𝒙 for the following functions. partial derivatives are determined in a similar way.
a) 𝒛 = 𝒇(𝒙, 𝒚) = 𝒙𝟐 + 𝒚𝟑
b) 𝒛 = 𝒇(𝒙, 𝒚) = 𝒙𝟐 𝒚

Compiled Note for Calculus for Economists (ECON 1011) Page-33

 4.3. Total Differentials and Total Derivatives Therefore, the predicted change in 𝒚 is computed by the differential
4.3.1. Total Differentials given by:
When the concept of differentiation was introduced, you have learnt 𝒅𝒚
∆𝒚 = ∆𝒙
𝒅𝒚 𝒅𝒙
that the derivative measuredthe rate of change of 𝒚 with respect ∆𝒚 = 𝟐(𝟏) = 𝟐
𝒅𝒙
to 𝒙 for infinitesimally small (very small) changes in 𝒙and 𝒚. These The actual values are 𝒚 = 𝟐𝟎 when 𝒙 = 𝟏𝟎
infinitesimally small changes in 𝒙 and 𝒚 are referred to as 𝒚 = 𝟐𝟐 when 𝒙 = 𝟏𝟏
differentials. The actual change in 𝒚 = 𝟐𝟐 − 𝟐𝟎 = 𝟐(with accuracy of prediction
𝒅𝒚
100% - because predicted and actual value are equal)
For any non-linear function 𝒚 = 𝒇(𝒙) the value will change if 𝒙
𝒅𝒙 𝒅𝒚
and 𝒚 change. If the changes in variables 𝒙 and 𝒚 becomes b) = 𝟒𝒙
𝒅𝒙
infinitesimally small, then even for non-linear functions, it holds: The predicted change in 𝒚 is given by:
∆𝒚 𝒅𝒚 𝒅𝒚 𝒅𝒚
= ∆𝒚 = ∆𝒙 ∆𝒚 = ∆𝒙
∆𝒙 𝒅𝒙 𝒅𝒙 𝒅𝒙
It is, therefore, not possible to predict the effect of a given change in ∆𝒚 = 𝟒𝒙(𝟏) = 𝟒𝒙
𝒙on 𝒚 with complete accuracy. However, for a very small change in
𝒙[∆𝒙], we can say that it will be approximately true that the The actual values are 𝒚 = 𝟐𝟎𝟎 when 𝒙 = 𝟏𝟎
resulting change will be given by the differential 𝒚 = 𝟐𝟒𝟐 when 𝒙 = 𝟏𝟏
𝒅𝒚 The actual change in in 𝒚 = 𝟐𝟒𝟐 − 𝟐𝟎𝟎 = 𝟒𝟐
∆𝒚 = ∆𝒙
𝒅𝒙 𝒅𝒚
c) = 𝟔𝒙𝟐
𝒅𝒙
The closer the function 𝒚 = 𝒇(𝒙) to linearity, the more accurate will The predicted change in 𝒚 is given by:
be the prediction. Consider the cases below: 𝒅𝒚
∆𝒚 = ∆𝒙
Example 4.3:for the three functions below assume that the value of 𝒅𝒙
𝒙 increases from 𝟏𝟎to 𝟏𝟏. Predict the effect on 𝒚 using the ∆𝒚 = 𝟔𝒙𝟐 (𝟏) = 𝟔𝒙𝟐
𝒅𝒚
derivative and check the answers against the new value of the The actual values are 𝒚 = 𝟐𝟎𝟎𝟎 when 𝒙 = 𝟏𝟎
𝒅𝒙
function. 𝒚 = 𝟐𝟔𝟔𝟐 when 𝒙 = 𝟏𝟏
a) 𝒚 = 𝟐𝒙 b) 𝒚 = 𝟐𝒙𝟐 c) 𝒚 = 𝟐𝒙𝟑 The actual change in in 𝒚 = 𝟐𝟔𝟔𝟐 − 𝟐𝟎𝟎𝟎 = 𝟔𝟔𝟐
Solutions:in all the cases ∆𝒙 = 𝟏𝟏 − 𝟏𝟎 = 𝟏 When 𝒚 is a function of more thanone independent variable such as
a)
𝒅𝒚
=𝟐 𝒚 = 𝒇(𝒙, 𝒛) and if there are infinitesimally small changes in all
𝒅𝒙 variables, then the total effect will be:

Compiled Note for Calculus for Economists (ECON 1011) Page-34

 𝒚 𝒚 𝐝𝐊
∆𝒚 = ∆𝒙 + ∆𝒛 𝑴𝑹𝑻𝑺𝑳,𝑲 = −
𝒙 𝒛 𝐝𝐋
This is known as total differential, depicting the total effect of For the long-run production function given as 𝑸 = 𝒇(𝑳, 𝑲) total
changes in all independent variables on 𝒚. differential is given as:
𝑸 𝑸
It is usual to write 𝒅𝒚, 𝒅𝒙, 𝒅𝒛 to represent infinitesimally small 𝒅𝑸 = 𝒅𝑳 + 𝒅𝑲
𝑳 𝑲
changes instead of writing ∆𝒚, ∆𝒙, ∆𝒛. Thus, the total differential of If we are looking at a movement along the same isoquant then
the above form can be written as output is unchanged and so 𝒅𝑸 = 𝟎 and thus:
𝒚 𝒚 𝑸 𝑸
𝒅𝒚 = 𝒅𝒙 + 𝒅𝒛 𝒅𝑸 = 𝒅𝑳 + 𝒅𝑲 = 𝟎
𝒙 𝒛 𝑳 𝑲
Example 4.4: find the total differential of the function
𝒚 = 𝒇(𝒙, 𝒛) = 𝟔𝒙𝟐 + 𝟖𝒛𝟐 − 𝟎. 𝟑𝒙𝒛 𝑸 𝑸
⇒ 𝒅𝑳 = − 𝒅𝑲
Solution: the total differential is 𝑳 𝑲
𝒚 𝒚 𝐐
𝒅𝒚 =
𝒙
𝒅𝒙 +
𝒛
𝒅𝒛 𝐝𝐊 
𝐋
𝒅𝒚 = (𝟏𝟐𝒙 − 𝟎. 𝟑𝒛)𝒅𝒙 + (𝟏𝟔𝒛 − 𝟎. 𝟑𝒙)𝒅𝒛 ⇒ − = − 𝐐
𝐝𝐋
𝐊
The concept of total differential in economics 𝐐 𝐐
In production theory, the slope of an isoquant represents the Provided that 𝑴𝑷𝑳 = ; and 𝑴𝑷𝑲 = it follows that
𝐋 𝐊
marginal rate of technicalsubstitution(MRTS) between two inputs. 𝐝𝐊 𝑴𝑷𝑳
− =
The use of the total differential can help demonstratethat the MRTS 𝐝𝐋 𝑴𝑷𝑲
will equal the ratio of the marginal products of the two inputs. 𝑴𝑷𝑳
𝑴𝑹𝑻𝑺𝑳,𝑲 =
𝑴𝑷𝑲
The MRTSL,K is usually defined as the amount of Labor that would be 4.3.2. Total Derivatives
added to compensate for the reduction of one unit of K so that the In partial differentiation it is assumed that one variable changes
production level remains unchanged. This is only an approximate while all other independentvariables are held constant. However, in
measure and more accuracy can be obtained when the MRTSL,K is some instances there may be a connection betweenthe independent
defined at a point on an isoquant. variables and so this ceteris paribus assumption will not apply. For
For infinitesimally small changes in L and K the MRTSL,Kmeasures the example,in a production function the amount of one input used may
rate at which L needs to be substituted for K to keep output affect the amount of anotherinput that can be used with it. From the
unchanged. total differential of a function we can derive a totalderivative which
can cope with this additional effect.
Compiled Note for Calculus for Economists (ECON 1011) Page-35
Assume that 𝒚 = 𝒇(𝒙, 𝒛) and also 𝒙 = 𝒈(𝒛) the change in 𝒛 [∆𝒛] will And substituting these values in the total derivative we have
affect 𝒚in the following two ways: 𝒅𝑸
= (𝟏𝟐. 𝟓𝑳−𝟎.𝟓 𝑲𝟎.𝟒 ) + (𝟏𝟎𝑳𝟎.𝟓 𝑲−𝟎.𝟔 )( 𝟏. 𝟔𝑳)
One. Directly through the function 𝒚 = 𝒇(𝒙, 𝒛) 𝒅𝑳
Two. Indirectly by changing 𝒙 via the function 𝒈(𝒛) which in turn By simplifying
will affect 𝒚 through the function 𝒚 = 𝒇(𝒙, 𝒛) 𝒅𝑸
⇒ = (𝟏𝟐. 𝟓𝑳−𝟎.𝟓 𝑲𝟎.𝟒 ) + (𝟏𝟔𝑳𝟏.𝟓 𝑲−𝟎.𝟔 )
The total differential of the function 𝒚 = 𝒇(𝒙, 𝒛) is given as 𝒅𝑳

𝒚 𝒚 The expression(𝟏𝟔𝑳𝟏.𝟓 𝑲−𝟎.𝟔 )shows the indirect effect of changes in
𝒅𝒚 = 𝒅𝒙 + 𝒅𝒛
𝒙 𝒛 𝑳on 𝑸; and the term (𝟏𝟐. 𝟓𝑳−𝟎.𝟓 𝑲𝟎.𝟒 ) shows the direct effect.
Dividing both sides of the expression above by 𝒅𝒛 yields the total
derivative as given below:
Exercise 1: derive the total differentials of the following production
𝒅𝒚 𝒚 𝒅𝒙 𝒚
= + functions:
𝒅𝒛 𝒙 𝒅𝒛 𝒛
𝒚 𝒅𝒙 a) 𝑸 = 𝟐𝟎𝑳𝟎.𝟒 𝑲𝟎.𝟔
In the expression above the first term [i.e. ] shows the indirect
𝒙 𝒅𝒛 b) 𝑸 = 𝟔𝑲𝟎.𝟖 + 𝟓𝑳𝟎.𝟕 + 𝟎. 𝟖𝑳𝟐 𝑲𝟐
𝒚
effect of 𝒛, via its effect on 𝒙, and the second term [i.e. ] shows
𝒛
the direct effect. Exercise 2: if 𝑸 = 𝟒𝟎𝑳𝟎.𝟒 𝑲𝟎.𝟑 and 𝑳 = 𝟓𝑲𝟎.𝟐𝟓 , then find the total
effect of change in 𝑲 on 𝑸. Identify the direct and indirect effects.
Example 4.4: for a given Cobb-Douglas production function
𝑸 = 𝟐𝟓𝑳𝟎.𝟓 𝑲𝟎.𝟒 and 𝑲 = 𝟎. 𝟖𝑳𝟐 what is the total effect of a change 4.4. Partial Derivative of Implicit and Inverse Functions (Rules)
in 𝑳on 𝑸? Identify the direct and indirect effects. 4.4.1. Partial Derivatives of Implicit Functions
Let 𝒚 be related to 𝒙 by the equation
Solution
The total differential is: 𝑭 = 𝒇(𝒙, 𝒚) = 𝟎
𝑸 𝑸 Here the function is an implicit function in which 𝒚is NOT a function
𝒅𝑸 = 𝒅𝑳 + 𝒅𝑲 of 𝒙 since at a particular value of 𝒙 there can be more than one
𝑳 𝑲
The total derivative with respect to 𝑳 will be value of 𝒚.
𝒅𝑸  𝑸  𝑸 𝒅𝑲
= +
𝒅𝑳 𝑳  𝑲 𝒅𝑳 Then the partial derivative of 𝒚with respect to 𝒙is given as
Accordingly, from the given function we can derive the following:
 𝑸  𝑸 𝒅𝑲
= 𝟏𝟐. 𝟓𝑳−𝟎.𝟓 𝑲𝟎.𝟒 ; = 𝟏𝟎𝑳𝟎.𝟓 𝑲−𝟎.𝟔 ; and = 𝟏. 𝟔𝑳
𝑳 𝑲 𝒅𝑳
Compiled Note for Calculus for Economists (ECON 1011) Page-36
 𝝏𝑭 For example, if 𝑸 = 𝒇(𝑷, 𝑰) is the demand function, the partial
𝒚  𝒇𝒙
𝝏𝒙 𝐏
= − 𝝏𝑭 =−
𝒙 𝒇𝒚 derivative of the function is
𝐐
the partial derivative of the inverse
𝝏𝒚
function:
Example: given an implicit function 𝑭 = 𝒇(𝒙, 𝒚) = 𝒙𝟐 𝒚𝟐 + 𝒙𝟑 𝒚 =
𝒚 𝐏 𝟏
𝟎then find the partial derivative of the implicit function given. = 𝐐
𝒙 𝐐
𝐏
Solution:
𝝏𝑭
𝒚  4.5. Optimization of Multivariable Functions
𝝏𝒙
= − 𝝏𝑭 4.5.1. Unconstrained Optimizations
𝒙
𝝏𝒚 For a multivariable function such as 𝒛 = 𝒇(𝒙, 𝒚) to be to be at a
𝒚 𝟐𝒙𝒚𝟐 + 𝟑𝒙𝟐 𝒚 maximum or at a minimum, the first-orderconditions which must be
= −
𝒙 𝟐𝒙𝟐 𝒚 + 𝒙𝟑 met are:

4.4.2. Partial Derivatives of Inverse Functions 1st. The first-order partial derivatives must equal zero
Recalling that a derivative is a ratio of differentials, we can then simultaneously.
rearrange the terms to get theimplicit function rule: 𝒛 𝒛
i.e. = 𝟎; and =𝟎
𝒙 𝒚
𝒚 𝒇𝒙
= −
𝒙 𝒇𝒚 2nd. The second-order direct partial derivatives, when evaluated
at the critical point (a, b), must both be negative for a
𝒚
Notice that the partial derivative is the negative of the reciprocal relative maximum and positive for a relative minimum.
𝒙
of the corresponding partials 𝟐 𝒛 𝟐 𝒛
< 0; and 𝟐 < 0 for maximum
𝒚 𝒇𝒙 𝟏 𝒙𝟐 𝒚
=− = − 𝒇
𝒙 𝒇𝒚 𝒚 𝟐
 𝒛 𝟐 𝒛
𝒇𝒙 > 0; and > 0 for minimum
𝒙𝟐  𝒚𝟐
Assuming the inverse function exists1, the inverse function rule
These are similar to the second-order conditions for the optimization
states that thederivative of the inverse function is the reciprocal of
of a single [Link] difference here is that these
the derivative of the original function.
conditions must hold with respect to changes inboth independent
variables.
1
An inverse function exists if each value of y yields one and only one value of x.

Compiled Note for Calculus for Economists (ECON 1011) Page-37

The other second-order condition for multivariable function is that 𝜫
=𝟎
𝟐 𝒛 𝟐 𝒛 𝟐 𝒛
𝟐 𝑸𝟏
( )( )>( ) ⇒ 𝟓𝟗𝟖. 𝟖 − 𝟎. 𝟔𝑸𝟏 − 𝟎. 𝟐𝑸𝟐 = 𝟎 ••• (∗)
𝒙𝟐  𝒚𝟐 𝒙𝒚
and
This must hold at both maximum and minimum stationary points.
𝜫
=𝟎
Keeping the above conditions for optimizations of multivariable 𝑸𝟐
functions in mind consider the example below: ⇒ 𝟒𝟗𝟖. 𝟓 − 𝟎. 𝟒𝑸𝟐 − 𝟎. 𝟐𝑸𝟏 = 𝟎 ••• (∗∗)

Example 4.5: Assume a firm produces two products Q1 and Q2 which Solving equations (*) and (**) above simultaneously help to
are sold in two separate markets with the inverse demand functions: compute the optimal values of 𝑸𝟏 and 𝑸𝟐 .
𝑷𝟏 = 𝟔𝟎𝟎 − 𝟎. 𝟑𝑸𝟏 and 𝑷𝟐 = 𝟓𝟎𝟎 − 𝟎. 𝟐𝑸𝟐 Rearranging the two equations yields
And the firm’s total cost is given as:
𝟎. 𝟔𝑸𝟏 + 𝟎. 𝟐𝑸𝟐 = 𝟓𝟗𝟖. 𝟖
𝑻𝑪 = 𝟏𝟔 + 𝟏. 𝟐𝑸𝟏 + 𝟏. 𝟓𝑸𝟐 + 𝟎. 𝟐𝑸𝟏 𝑸𝟐 𝟎. 𝟐𝑸𝟏 + 𝟎. 𝟒𝑸𝟐 = 𝟒𝟗𝟖. 𝟓
Required: If the firm wishes to maximize total profits, how much of Calculation yields 𝑸𝟏 = 𝟔𝟗𝟗. 𝟏𝟎units and 𝑸𝟐 = 𝟖𝟗𝟔. 𝟕 units
each product should it produce? What will the maximum profit level
And the maximized profit at these output levels will be
be?
𝜫 = −𝟏𝟔 + 𝟓𝟗𝟖. 𝟖(𝟔𝟗𝟗. 𝟏𝟎 ) − 𝟎. 𝟑(𝟔𝟗𝟗. 𝟏𝟎 )𝟐 + 𝟒𝟗𝟖. 𝟓(𝟖𝟗𝟔. 𝟕)
Solution: To compute the profit function, first derive the revenue − 𝟎. 𝟐(𝟖𝟗𝟔. 𝟕)𝟐 − 𝟎. 𝟐(𝟔𝟗𝟗. 𝟏𝟎 )(𝟖𝟗𝟔. 𝟕)
functions and then find the difference between TR and TC. 𝜫 = 𝟒𝟑𝟐, 𝟕𝟗𝟕. 𝟎𝟐
When checking for the second order condition (S.O.C) is met or not
TR = TR1 + TR2 (where TR1=P1•Q1 and TR2 = P2•Q2)
𝟐 𝜫
𝑻𝑹𝟏 = (𝟔𝟎𝟎 − 𝟎. 𝟑𝑸𝟏 )(𝑸𝟏 ) = 𝟔𝟎𝟎𝑸𝟏 − 𝟎. 𝟑𝑸𝟏 𝟐 = −𝟎. 𝟔 < 0S.O.C for maximizationmet
 𝑸𝟏 𝟐
𝑻𝑹𝟐 = (𝟓𝟎𝟎 − 𝟎. 𝟐𝑸𝟐 )(𝑸𝟐 ) = 𝟓𝟎𝟎𝑸𝟐 − 𝟎. 𝟐𝑸𝟐 𝟐
𝑻𝑹 = 𝟔𝟎𝟎𝑸𝟏 − 𝟎. 𝟑𝑸𝟏 𝟐 + 𝟓𝟎𝟎𝑸𝟐 − 𝟎. 𝟐𝑸𝟐 𝟐
𝟐 𝜫
Profit is given as, 𝜫 = 𝑻𝑹 − 𝑻𝑪 = −𝟎. 𝟒 < 0S.O.C for maximizationmet
 𝑸𝟐 𝟐
𝟐 𝟐
𝜫 = (𝟔𝟎𝟎𝑸𝟏 − 𝟎. 𝟑𝑸𝟏 + 𝟓𝟎𝟎𝑸𝟐 − 𝟎. 𝟐𝑸𝟐 ) − (𝟏𝟔 + 𝟏. 𝟐𝑸𝟏 + 𝟏. 𝟓𝑸𝟐 + 𝟎. 𝟐𝑸𝟏 𝑸𝟐 )
𝜫 = −𝟏𝟔 + 𝟓𝟗𝟖. 𝟖𝑸𝟏 − 𝟎. 𝟑𝑸𝟏 𝟐 + 𝟒𝟗𝟖. 𝟓𝑸𝟐 − 𝟎. 𝟐𝑸𝟐 𝟐 − 𝟎. 𝟐𝑸𝟏 𝑸𝟐 Looking at the other [Link] functions’ optimization,
that is
𝟐
The first –order conditions (F.O.C) for the maximization of this 𝟐 𝜫 𝟐 𝜫 𝟐 𝜫
( )( )>( )
unconstrained profit function are:  𝑸𝟏 𝟐  𝑸𝟐 𝟐 𝑸𝟏 𝑸𝟐

Compiled Note for Calculus for Economists (ECON 1011) Page-38

 𝟐 A) Marginal Productivity of Factors:
𝟐 𝜫
( ) = −𝟎. 𝟐 The marginal product of a factor is defined as the change in output
 𝑸𝟏  𝑸𝟐
𝟐 brought about by a small change in the factors under consideration
𝟐 𝜫 𝟐 𝜫 𝟐 𝜫
( )( )>( ) ⇒ (−𝟎. 𝟔)(−𝟎. 𝟒) > (−𝟎. 𝟐)𝟐 , true when all the other factors of production are held constant.
𝑸𝟏 𝟐 𝑸𝟐 𝟐 𝑸𝟏 𝑸𝟐
Example: for a given Cobb-Douglas production function of two
Exercise: a firm produces two products which are sold in separate factors – L and K, MPL and MPK can be found by the help of partial
markets with the respective inverse demand functions given as: derivatives.
𝑷𝟏 = 𝟐𝟏𝟎 − 𝟎. 𝟒𝑸𝟏 𝟐 and 𝑷𝟐 = 𝟒𝟗𝟏 − 𝟔𝑸𝟐 If 𝑸 = 𝟑𝟔𝑳𝑲 − 𝟑𝑳𝟐 − 𝟐𝑲𝟐 then
And the firm’s total cost is given as:
𝑸 𝑸
𝑻𝑪 = 𝟑𝟐 + 𝟎. 𝟖𝑸𝟏 𝟐 + 𝟎. 𝟕𝑸𝟐 𝟐 + 𝟎. 𝟏𝑸𝟏 𝑸𝟐 𝑴𝑷𝑳 = = 𝟑𝟔𝑲 − 𝟔𝑳; and𝑴𝑷𝑲 = = 𝟑𝟔𝑳 − 𝟒𝑲
𝑳 𝑲
Required: how much should the firm sell in each market in order to
maximize total profits? Check all the conditions. B) Determination of Multipliers in Macroeconomic Models
The partial derivative can also be used to derive the various
Exercise: a monopolist produces two products with the respective
multipliers of an incomedetermination model.
inverse demand functions given as:
𝑷𝟏 = 𝟓𝟎 − 𝑸𝟏 + 𝑸𝟐 and 𝑷𝟐 = 𝟑𝟎 − 𝟐𝑸𝟏 − 𝑸𝟐 For instance, given the Macroeconomic equation of National Income
And the firm’s total cost is given as: as 𝒀 = 𝑪 + 𝑰 + 𝑮 + (𝑿 − 𝑴)where
𝑻𝑪 = 𝟏𝟎𝑸𝟏 + 𝑸𝟏 𝑸𝟐 + 𝟏𝟎𝑸𝟐
𝑪 = 𝑪𝟎 + 𝒃𝒀 𝑮 = 𝑮𝟎
Required: how much units of the goods maximize total profits? 𝑴 = 𝑴𝟎
𝑰 = 𝑰𝟎 + 𝒂𝒀 𝑿 = 𝑿𝟎
Check all the conditions.
After simple substitution in the equation we have a simplified form
4.5.2. Constrained Optimization-the Method of Lagrange as
Composite Function 𝟏
𝒀̅ = (𝑪 + 𝑰𝟎 + 𝑮𝟎 + (𝑿𝟎 − 𝑴𝟎 ))
Reading Assignment 𝟏−𝒃−𝒂 𝟎
Using partial derivative now it is easy to find the multiplier of any of
4.6. Economic Application of Partial Derivatives the above parameters (a, b, C, I, G, X and M). For example, finding
In a multivariable functions in economics partial derivatives have the the government multiplier using partial derivative can be given as:
following applications: 𝒀̅ 𝟏
=
𝑮𝟎 𝟏 − 𝒃 − 𝒂
The import multiplier will be

Compiled Note for Calculus for Economists (ECON 1011) Page-39

 𝒀̅ 𝟏 Chapter Five: Integration
=−
𝑴𝟎 𝟏−𝒃−𝒂 5.1. The Concept of Integration
And the multiplier for a change in the marginal propensity to invest The previous chapters were devoted to differential calculus, which
(a) is given by measures the rate of change of functions. Differentiation, we
𝒀̅ 𝑪𝟎 + 𝑰𝟎 + 𝑮𝟎 + (𝑿𝟎 − 𝑴𝟎 ) 𝒀̅ learned, is the process of finding the derivative 𝑭’(𝒙) of a function,
= =
𝒂 (𝟏 − 𝒃 − 𝒂) 𝟐
𝟏−𝒃−𝒂 𝑭(𝒙). Frequently in economics, however, having known the rate of
Other multipliers can be found in similar ways change of a function we want to find the original function. Reversing
C) Computing Elasticity the process of differentiation and finding the original function from
For a multivariate demand function of good 𝒙(related to its own the derivative is called INTEGRATION, or ANTI-DIFFERENTIATION.
price (𝑷𝒙 ); price of substitute good (𝑷𝒚 ) and consumer income (𝒀) The original function, 𝑭(𝒙) is called theintegral, or antiderivative, of
given as 𝑸𝒙 = 𝒂 − 𝒃𝑷𝒙 + 𝒄𝑷𝒚 + 𝒎𝒀 𝑭’(𝒙).

 The point price elasticity of demand (𝜺𝑷 ) can be calculated by Example: let 𝒇(𝒙) = 𝑭’(𝒙) then the integral of the function is
the use of partial derivative as: mathematically expressed as:
𝑸𝒙 𝑷𝒙
𝜺𝑷 = • ∫ 𝒇(𝒙)𝒅𝒙 = 𝑭(𝒙) + 𝒄
𝑷𝒙 𝑸𝒙
 The point cross-price elasticity of demand (𝜺𝒙,𝒚 ) can be The expression ∫ 𝒇(𝒙)𝒅𝒙 read asthe integral of 𝒇 of 𝒙 with respect to 𝒙.
calculated by the use of partial derivative as:
𝑸𝒙 𝑷𝒚 - The symbol ∫ is an integral sign
𝜺𝒙,𝒚 = • - 𝒇(𝒙) is an integrand
𝑷𝒚 𝑸𝒙
- 𝒄 is the constant of the integration
 The point income elasticity of demand (𝜺𝑰 ) can be calculated
by the use of partial derivative as: Definition:
𝑸𝒙 𝑰 The function 𝑭(𝒙)is said to be an anti-derivative of 𝒇(𝒙) if:
𝜺𝑰 = •
𝑰 𝑸𝒙 𝑭′ (𝒙) = 𝒇(𝒙)for every x in the domain of 𝒇(𝒙).
D) Optimization of Functions
Partial derivatives are also useful for optimization of constrained and The process of finding anti-derivatives is calledanti-differentiation
𝑭(𝒙)
unconstrained economic functions as discussed in the preceding orindefinite integration.
sections. 𝒅𝑭
======================================================== The equation 𝑭′ (𝒙) = 𝒇(𝒙) can sometimes be written as = 𝒇(𝒙).
𝒅𝒙
======================================

Compiled Note for Calculus for Economists (ECON 1011) Page-40

 𝒙𝟑 Property #4:The indefinite integral of constant times a function is
Example: the function 𝐹 (𝑥 ) = is an anti-derivative of 𝒇(𝒙) =
𝟑 the constant times the indefinite integral of the function.
𝒅 𝒙𝟑
𝒙𝟐 because ( ) = 𝒙𝟐 . ∫ 𝒌𝒇(𝒙)𝒅𝒙 = 𝒌 ∫ 𝒇(𝒙)𝒅𝒙 where 𝒌 𝒊𝒔 𝒄𝒐𝒏𝒔𝒕𝒂𝒏𝒕
𝒅𝒙 𝟑

However, 𝑭(𝒙)is not the only anti-derivative of𝒙𝟐 . Note that all of
Property #5:The indefinite integral of the sum/difference of two
the following are the anti-derivatives of 𝒙𝟐 . functions is the sum/difference of the indefinite integrals.
𝒅 𝒙𝟑 𝒅 𝒙𝟑 𝒅 𝒙𝟑 ∫[𝒇(𝒙) ± 𝒈(𝒙)]𝒅𝒙 = ∫ 𝒇(𝒙)𝒅𝒙 ± ∫ 𝒈(𝒙)𝒅𝒙
( + 𝟐) = 𝒙𝟐 ( − ) = 𝒙𝟐 ( + √𝟓) = 𝒙𝟐
𝒅𝒙 𝟑 𝒅𝒙 𝟑 𝒅𝒙 𝟑
Therefore, it follows that for any real constant number 𝑪 the anti-
𝒙𝟑
Property #6:The indefinite integral of a constant function with
derivative of 𝒙𝟐 is + 𝑪. This is because of the fact that, value𝒌is 𝒌𝒙 + 𝑪.
𝟑

𝒅 𝒙𝟑 ∫ 𝒌𝒅𝒙 = 𝒌𝒙 + 𝑪
( + 𝑪) = 𝒙𝟐
𝒅𝒙 𝟑
5.2. Properties of Integration – Indefinite Integrals Examples: consider the indefinite integrals of the following
For 𝑪any real constant number the following are properties of 𝒂) ∫ 𝟓 𝒅𝒙 = 𝟓𝒙 + 𝑪
indefinite integrals functions:
𝒃) ∫(𝟒𝒙𝟑 + 𝟐𝒙 − 𝟏)𝒅𝒙 = 𝒙𝟒 + 𝒙𝟐 − 𝒙 + 𝑪
Property #1:
𝟏
𝒏
𝒙𝒏+𝟏 𝒄) ∫ (𝒆𝒙 + ) 𝒅𝒙 = 𝒆𝒙 + 𝐥𝐧|𝒙| + 𝑪
∫ 𝒙 𝒅𝒙 = + 𝑪 where 𝒏 ≠ −𝟏 𝒙
𝒏+𝟏 𝟒 −𝟐
𝒅) ∫ ( 𝟑 ) 𝒅𝒙 = 𝟐 + 𝑪
Property #2: 𝒙 𝒙

∫ 𝒆𝒙 𝒅𝒙 = 𝒆𝒙 + 𝑪
Application of Indefinite Integrals in Economics
Property #3:
Example: if the Marginal Cost (MC) of producing a commodity is
𝟏
∫ 𝒅𝒙 = 𝐥𝐧|𝒙| + 𝑪 where 𝒙 ≠ 𝟎 given by 𝑴𝑪 = 𝟎. 𝟑𝑸𝟐 + 𝟐𝑸and if the fixed cost is $2000 what is the
𝒙
total cost of producing 20 units

Compiled Note for Calculus for Economists (ECON 1011) Page-41

Solution: Let 𝒇 be a continuous function on an interval[𝒂, 𝒃],the definite
Recall that marginal cost is the derivative of the total cost function integral of 𝒇 from 𝒂 to 𝒃is denoted as:
and that fixed costis cost at a zero production level. So we want to
𝒃
find TC from the given MC. ∫ 𝒇(𝒙) 𝒅𝒙
𝒂
𝟐 Where𝒇(𝒙) is the integrand; 𝒂 is the lower limit of integration; and
We find the indefinite integral of𝑴𝑪 = 𝟎. 𝟑𝑸 + 𝟐𝑸 and determine
𝒃 is the upper limit of integration.
the arbitrary integrationconstant using TC when Q=0 is given to be
$2000. Therefore, The definite integral of the above kind is evaluated as:
𝒃
𝑻𝑪 = ∫(𝑴𝑪) 𝒅𝑸 = ∫(𝟎. 𝟑𝑸𝟐 + 𝟐𝑸) 𝒅𝑸 𝒃
∫ 𝒇(𝒙) 𝒅𝒙 = 𝑭(𝒙)𝒂 = 𝑭(𝒃) − 𝑭(𝒂)
𝑻𝑪 = 𝟎. 𝟏𝑸𝟑 + 𝟐𝑸𝟐 + 𝟐𝟎𝟎𝟎 𝒂
Example: evaluate the definite integrals given below:
And the TC of producing 20 units is
𝟔 𝟑
𝑻𝑪 = 𝟎. 𝟏(𝟐𝟎)𝟑 + 𝟐(𝟐𝟎)𝟐 + 𝟐𝟎𝟎𝟎 = $𝟑, 𝟐𝟎𝟎 𝒂) ∫ 𝟖𝒙 𝒅𝒙 𝒃) ∫ (𝟔𝒙𝟐 + 𝟓)𝒅𝒙
𝟐 𝟏

5.3. Techniques of Integration Solutions:

𝟔 𝟔
5.3.1. Integration by Substitution 𝒂) ∫ 𝟖𝒙 𝒅𝒙 = 𝟒𝒙𝟐 𝟐 = 𝑭(𝟔) − 𝑭(𝟐) ⇒ 𝟒(𝟔)𝟐 − 𝟒(𝟐)𝟐 = 𝟏𝟐𝟖
5.3.2. Integration by Part 𝟐
𝟑 𝟑
5.3.3. Integration by Partial Fraction 𝒃) ∫ (𝟔𝒙𝟐 + 𝟓) 𝒅𝒙 = (𝟒𝒙𝟑 + 𝟓𝒙)𝟏 = 𝑭(𝟑) − 𝑭(𝟐)
𝟏
5.4. The Definite Integral ⇒ (𝟒(𝟑)𝟑 + 𝟓(𝟑)) − (𝟒(𝟏)𝟑 + 𝟓(𝟏)) = 𝟕𝟐
The definite integral is used to computeareas, probabilities, 5.4.1. Properties of Definite Integral
averagevalues of functions, futurevalues of continuous Below are basic properties of definite integrals:
incomestreams, and many other quantities.
Property #1:Reversing the order of the limits of integration changes
Unlike the indefinite integral, which is a set offunctions containing all the sign of the definite integral.
𝒃 𝒂
the anti-derivatives of 𝒇(𝒙),the definite integral is areal number
∫ 𝒇(𝒙) 𝒅𝒙 = − ∫ 𝒇(𝒙) 𝒅𝒙
which can be evaluated, using the fundamental theorem of calculus. 𝒂 𝒃

Property #2:If the upper limit of integration equals the lower limit of
Definition:
integration, the value of the definite integral is zero.

Compiled Note for Calculus for Economists (ECON 1011) Page-42

 𝒂
∫ 𝒇(𝒙) 𝒅𝒙 = 𝑭(𝒂) − 𝑭(𝒂) = 𝟎
𝒂

Property #3:The definite integral can be expressed as the sum of

component sub-integrals.
𝒄 𝒃 𝒄
∫ 𝒇(𝒙) 𝒅𝒙 = ∫ 𝒇(𝒙) 𝒅𝒙 + ∫ 𝒇(𝒙) 𝒅𝒙, given that 𝒂 ≤ 𝒃 ≤ 𝒄
𝒂 𝒂 𝒃

Property #4:The sum or difference of two definite integrals with

identical limits of integration is equal to thedefinite integral of the
sum or difference of the two functions.
𝒃 𝒃 𝒃
Mathematically,
∫ 𝒇(𝒙) 𝒅𝒙 ± ∫ 𝒈(𝒙) 𝒅𝒙 = ∫ [𝒇(𝒙) ± 𝒈(𝒙)] 𝒅𝒙 𝑸
𝒂 𝒂 𝒂
Consumer’s surplus = ∫ 𝒇(𝑸)𝒅𝑸 − 𝑷𝑸
Property #5:The definite integral of constant times a function is 𝟎

equal to the constant times the definiteintegral of the function. And similarly, the inverse supply function 𝑷 = 𝒈(𝑸),represents the
𝒃 𝒃 prices at which producers will supplydifferent quantities of a good.
∫ 𝒌𝒇(𝒙) 𝒅𝒙 = 𝒌 ∫ 𝒇(𝒙) 𝒅𝒙
𝒂 𝒂
Producer surplus is an economic measure of the difference between
the amount a producer of a good receives and the minimum amount
5.4.2. Integral and area under the curve
the producer is willing to accept for the good.

5.5. Economic Applications of Integrals

5.5.1. Consumers and ProducersSurplus
An inverse demand function 𝑷 = 𝒇(𝑸),represents the different
prices consumers arewilling to pay for different quantities of a good.
Consumer surplus is a buyer’s willingness to pay minus the amount
the buyer actually pays for [Link] benefit to consumers, called
consumers’ surplus, is depicted by the shaded area in the following
graph.
Mathematically,

Compiled Note for Calculus for Economists (ECON 1011) Page-43

 𝑸  A firm’s Marginal Cost function is given as 𝑴𝑪 = 𝑸𝟐 − 𝟔𝑸 +
Producer’s surplus = 𝑷𝑸 − ∫ 𝒈(𝑸)𝒅𝑸
𝟎 𝟏𝟐𝟓where 𝑸 is the unit of output produced. Fixed cost is given to
be $𝟐𝟖𝟎. Find the 𝑻𝑪asa functionof 𝑸.
Example:if the inverse demand function is given as 𝑷 = 𝟏𝟏𝟎 − 𝑸𝟐
and assuming that at market equilibrium𝑸 = 𝟗then estimate the Solution:
consumers’ surplus.
𝑻𝑪 = ∫(𝑴𝑪)𝒅𝑸 = ∫(𝑸𝟐 − 𝟔𝑸 + 𝟏𝟐𝟓)𝒅𝑸
Solution: 𝟏 𝟑
𝟗 𝑻𝑪 = 𝑸 − 𝟑𝑸𝟐 + 𝟏𝟐𝟓𝑸 + 𝑪
𝟑
Consumer’s surplus = ∫ (𝟏𝟏𝟎 − 𝑸𝟐 )𝒅𝑸 − 𝑷𝑸 Substituting the 𝑭𝑪information 𝑻𝑪(𝑸 = 𝟎) = 𝟐𝟖𝟎we can get
𝟎
𝟏 𝟗 𝟏
(𝟏𝟏𝟎𝑸 + 𝑸𝟑 ) 𝟎 = [𝑭(𝟗) − 𝑭(𝟎)] − 𝑷𝑸 𝟐𝟖𝟎 = (𝟎)𝟑 − 𝟑(𝟎)𝟐 + 𝟏𝟐𝟓(𝟎) + 𝑪 ⇒ 𝑪 = 𝟐𝟖𝟎
𝟑 𝟑
𝟏 𝟑
= (𝟕𝟒𝟕 − 𝟎) − (𝟐𝟗)(𝟗) = 𝟒𝟖𝟔 Thus, 𝑻𝑪 = 𝑸 − 𝟑𝑸𝟐 + 𝟏𝟐𝟓𝑸 + 𝟐𝟖𝟎
𝟑
Note: in integrating a 𝑴𝑪 fucntion to get the 𝑻𝑪 function, the 𝑭𝑪will
Example:Given an inverse supply function as 𝑷 = (𝑸 + 𝟔)𝟐 and
always be the constant of the integration.
assuming that at market equilibrium at 𝑸 = 𝟑estimate the
producer’s surplus.
 Find the total cost function given the marginal cost
Solution:
𝟑
function𝑴𝑪 = 𝑸𝟐 − 𝟓𝑸 + 𝟖𝟗for a fixed cost is $𝟐𝟐𝟓.
Producer’s surplus = 𝑷𝑸 − ∫ ((𝑸 + 𝟔)𝟐 )𝒅𝑸 Answer:
𝟎 𝟏
𝟏 𝟑 𝑻𝑪 = 𝑸𝟑 − 𝟐. 𝟓𝑸𝟐 + 𝟖𝟗𝑸 + 𝟐𝟐𝟓
𝑷𝑸 − (𝑸 + 𝟔)𝟑 𝟎 = 𝑷𝑸 − [𝑭(𝟑) − 𝑭(𝟎)] 𝟑
𝟑
𝟏 𝟏
 A producer’s marginal cost is given as 𝑴𝑪 = 𝟖 𝑸𝟐 − 𝑸 + 𝟑𝟐𝟎.
= [(𝟑)(𝟖𝟏)] − (𝟗𝟑 − 𝟔𝟑 ) = 𝟕𝟐
𝟑
What is the 𝑻𝑪 of producing 2 extra units if 6 units are currently
5.5.2. Total Function Derivation from Marginal Function being produced?
Using integrals total functions and their values can be estimated
from a given marginal [Link] a look at into the following Solution
practical application exercises: 𝟖 𝟖
𝟏
𝑻𝑪(𝟖) − 𝑻𝑪(𝟔) = ∫ (𝑴𝑪)𝒅𝑸 = ∫ ( 𝑸𝟐 − 𝑸 + 𝟑𝟐𝟎) 𝒅𝑸
𝟔 𝟔 𝟖

Compiled Note for Calculus for Economists (ECON 1011) Page-44

 𝟏 𝟑 𝟏 𝟐 𝟖
[ 𝑸 − 𝑸 + 𝟑𝟐𝟎𝑸] 𝟔
𝟐𝟒 𝟐
𝟏
= 𝟔𝟑𝟖𝟑

 A firm’s marginal revenue is𝑴𝑹 = 𝟒𝟐𝟓 − 𝟎. 𝟓𝑸 − 𝟎. 𝟏𝟓𝑸𝟐 , then

find the total revenue 𝑻𝑹

Solution:
𝟐
𝑻𝑹 = ∫(𝑴𝑹)𝒅𝑸 = ∫ (𝟒𝟐𝟓 − 𝟎. 𝟓𝑸 − 𝟎. 𝟏𝟓𝑸 ) 𝒅𝑸

𝑻𝑹 = 𝟒𝟐𝟓𝑸 − 𝟎. 𝟐𝟓𝑸𝟐 + 𝟎. 𝟎𝟓𝑸𝟑 + 𝑪

𝑻𝑹 = 𝟒𝟐𝟓𝑸 − 𝟎. 𝟐𝟓𝑸𝟐 + 𝟎. 𝟎𝟓𝑸𝟑
Note: since when there are no sales (i.e. when 𝑸 = 𝟎) there is no 𝑻𝑹.
Thus, in integrating 𝑴𝑹 functions to find 𝑻𝑹 functions the constant
of integration 𝑪always be equal to 𝒛𝒆𝒓𝒐.

 Find the additional total revenue derived from increasing daily

sales from 𝟓 to 𝟗 units, given 𝑴𝑹 = 𝟐𝟕𝟎 − 𝟖𝑸

Solution:
𝟗 𝟗
𝑻𝑹(𝟗) − 𝑻𝑹(𝟓) = ∫ (𝑴𝑹)𝒅𝑸 = ∫ (𝟐𝟕𝟎 − 𝟖𝑸) 𝒅𝑸
𝟓 𝟓

𝟗
= [𝟐𝟕𝟎𝑸 − 𝟒𝑸𝟐 ]𝟓 = 𝟐𝟏𝟎𝟔 − 𝟏𝟐𝟓𝟎 = 𝟖𝟓𝟔

Compiled Note for Calculus for Economists (ECON 1011) Page-45