ECON1003 Quantitative Methods in Economics
Tutorial 3 (Wk4): Nonlinear Function + Sequence and Series
Carlton Li
School of Economics
The University of Sydney
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Tutorial Outline
1 Logarithm Function
Textbook questions: P206-207;
2 Rectangular Hyperbolic Functions
P207 Q5(b)
3 Sequence and Series
P217 Q2, 5, 6
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Logarithm Rules
By definition, the logarithm is the inverse function to exponentiation:
b y = x → y = logxb
where b ̸= 0 or b ̸= 1.
Accordingly, logarithms and exponentials with the same base cancel each
other:
x x
b logb = x and logbb = x
Operations rules:
(xy )
Product: logb = logxb + logyb
(x/y )
Quotient: logb = logxb − logyb
p
Power: logxb = p logxb
√
y x logxb
Root: logb = y (Power rule + Change sign of exponents)
Change of base: logxb = logxk / logbk
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Logarithm Function: y = f (x) = logxb , b > 0, b ̸= 1
Must go through (1, 0) since b 0 = 1 → log1b = 0
Must go through (b, 1) since b 1 = b → logbb = 1
Upward slopping if b > 1; downward slopping if 0 < b < 1.
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Logarithm: Importance
The logarithm is one of the most important methods in economics...
Log-linearization to simplify nonlinear functions:
▶ E.g. Cobb-Douglas production function:
Y (L, K ) = Lα K β → ln Y = αL + βK
▶ Coefficient α, β can be estimated by linear regression
Logarithmic scale allows displaying numerical data over a very wide
range of values in a compact way
Log transformation reduces skewness of data.
You will learn more about them in Econometrics/Stat classes
Note: In economics, we mainly care about the natural logarithm. If the
base is not specified in a notation, the base is e. i.e. log x ≡ ln x ≡ logxe
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P206-207: Simplification
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P206-207: Simplification
x
(i) = 2 log x − (log 2 + log x) = log x − log 2 = log
2
(ii) = e 5x−x+5−x = e 3x+5
(iii) = 3 log x + log 10 − log x − 2 (log 10 + log x) = − log 10
1 1 1
(iv ) = a2 a 2 a2 = a4.5
2 2
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P207 Q6(b)
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P207 Q6(b)
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P207 Q6(b)
(ii) Calculate the time taken for the demand to increase to 300.
300 = 200(1.025)t
(1.025)t = 1.5
log1.025 1.025t = log1.025 1.5
t = log1.025 1.5
ln 1.5
t= (Change of base)
ln 1.025
t ≈ 16.42
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Remarks: You need to use the change of base rule to obtain numerical
results on most calculators - they only support logarithm calculation with
base 10 and e.
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Tutorial Outline
1 Logarithm Function
Textbook questions: P206-207;
2 Rectangular Hyperbolic Functions
P207 Q5(b)
3 Sequence and Series
P217 Q2, 5, 6
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a
Rectangular Hyperbolic Function: y = bx+c +d
The vertical asymptote is at x that solves bx + c = 0
The horizontal asymptote is at y that solves y − d = 0
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P207 Q5(b) - (i)
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P207 Q5(b) - (i)
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P207 Q5(b) - (ii)
(ii) Calculate the time when sales are equal.
Sold = Snew
4 21
=
t +2 12 − t
4(12 − t) = 21(t + 2)
6
t= = 0.24
25
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Tutorial Outline
1 Logarithm Function
Textbook questions: P206-207;
2 Rectangular Hyperbolic Functions
P207 Q5(b)
3 Sequence and Series
P217 Q2, 5, 6
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Sequence and Series
Sequence: a list of numbers which follow a definite pattern or rule:
a1 , a2 , ...an
Series: the sum of the terms of a sequence,
n
X
Sn = a1 + a2 + ...an = an
1
Arithmetic progression:
an = a1 + (n − 1)d (d ̸= 0)
n
Sn = (a1 + an )
2
n
= [2a1 + (n − 1)d]
2
dn(n − 1)
= a1 n +
2
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Geometric progression:
an = ar n−1 (r ̸= 0, 1)
a1 (1 − r n )
Sn =
1−r
If 0 < |r | < 1, when sum to infinity:
a1
lim Sn =
n→∞ 1−r
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P217 Q2
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P217 Q2
(a)
This is an Arithmetic progression with a common difference d = −15, 200,
first term a1 = 190, 000.
(i)
an = 190, 000 − 15, 200(n − 1)
a11 = 190, 000 − 15, 200 × (11 − 1) = 38, 000
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(ii) Scaling down begins in week 2, so we need to first figure out a2 . There
are 10 weeks in total.
a2 = 190, 000 − 15, 200 = 174, 800
n=11
X (11 − 2 + 1)
S= = (a2 + a11 )
2
n=2
= (174, 800 + 38, 000) × 5 = 1, 064, 000
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(b) Find the new common difference:
a13 = a1 + d(13 − 1)
0 = 190, 000 + d × 12
d = –15, 833
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P217 Q5
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P217 Q5
Forecast 1: Arithmetic progression: an = 50, 000 + 5000 × (n − 1)
Forecast 2: Geometric progression: bn = 50, 000 × (1.06)n−1
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P217 Q5
Forecast 1: Arithmetic progression: an = 50, 000 + 5000 × (n − 1)
Forecast 2: Geometric progression: bn = 50, 000 × (1.06)n−1
(a)
Forecast 1:
▶ In 2015: a3 = 50, 000 + 5000 × (3 − 1) = 60, 000
▶ In 2020: a8 = 50, 000 + 5000 × (8 − 1) = 85, 000
Forecast 2:
▶ In 2015: b3 = 50, 000 × (1.06)3−1 = 56, 180
▶ In 2020: b8 = 50, 000 × (1.06)8−1 = 71, 182
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Forecast 1: Arithmetic progression: an = 50, 000 + 5000 × (n − 1)
Forecast 2: Geometric progression: bn = 50, 000 × (1.06)n−1
(b)
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Forecast 1: Arithmetic progression: an = 50, 000 + 5000 × (n − 1)
Forecast 2: Geometric progression: bn = 50, 000 × (1.06)n−1
(b)
Forecast 1:
8
X (a3 + a8 ) × (8 − 3 + 1) (60000 + 85000) × 6
S1 = an = =
2 2
n=3
= 435, 000
Forecast 2:
8
X b3 (1 − r 8−3+1 ) 56, 180 × (1 − 1.066 )
S2 = bn = = = 391, 870
1−r 1 − 1.06
n=3
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P217 Q6
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P217 Q6
In part (a), we have the following arithmetic progression:
an = 5500 + 150(n − 1)
In part (b), we have the following geometric progression:
bn = 5500 × 1.05(n−1)
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(i) The weekly output for the 30th week from now; (ii) The total output
over the first 30 weeks; (iii) The number of weeks before the weekly
output exceeds 10 000.
(a) an = 5500 + 150(n − 1)
(i) a30 = 5500 + 150 × (30 − 1) = 9850
(ii) S30 = (a1 +a320)×30 = (5500+9850)×30
2 = 230, 250
(iii) an = 10, 000. Find n.
10, 000 = 5500 + 150(n − 1)
n = 31
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(i) The weekly output for the 30th week from now; (ii) The total output
over the first 30 weeks; (iii) The number of weeks before the weekly
output exceeds 10 000.
(b) bn = 5500 × 1.05(n−1)
(i) b30 = 5500 × 1.05(30−1) = 365, 414
30−1 )
(ii) S30 = b1 (1−r
1−r =
(iii) bn = 10, 000. Find n.
10, 000 = 5500 × 1.05(n−1)
1.05(n−1) = 1.818
log1.05 1.05(n−1) = log1.05 1.818
n − 1 = log1.05 1.818
ln 1.818
n−1=
ln 1.05
ln 1.818
n= + 1 ≈ 13.25
ln 1.05
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Next time...
Financial Economics applications
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