Lecture Notes on Mathematics for Economists / 2024

CHAPTER SIX

6. MULTIVARIATE DIFFERENTIAL CALCULUS & ITS APPLICATIONS

6.1. Partial Derivatives

Study of the derivative in chapter 5 was limited to functions of a single independent variable

such as y=f ( x ) . Many economic activities, however, involve functions of more than one

independent variable. z=f ( x , y ) is defined as a function of two independent variables if there

exists one and only one value of z in the range of f for each ordered pair of real numbers ( x , y )

in the domain of f . By convention, z is the dependent variable; x and y are independent

variables.

To measure the effect of the change in a single independent variable x or y on the dependent

variable ( z ) in a multivariable function, the partial derivative is needed. The partial derivative of
z with respect to x measures the instantaneous rate of change of z with respect to x while y is

held constant. It is written∂ z /∂ x, ∂ f /∂ x, f x (x , y), f x or z x . The partial derivative of z with

respect to y measures the rate of change of z with respect to y while x is held constant. It is

∂ z /∂ y , ∂f /∂ y ,f x ( x , y ), f y or z y
written . Expressed mathematically,

∂z f (x + Δx , y )−f ( x , y )
= lim
∂ x Δx→0 Δx

∂z f ( x , y +Δy )−f ( x , y )
= lim
∂ y Δy→ 0 Δy

Partial differentiation with respect to one of the independent variables follows the same rules as
ordinary differentiation while the other independent variables are treated as constant.

∂z ∂z
and ) (
Example: Find the partial derivative ∂ x ∂ y of the following functions

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 Lecture Notes on Mathematics for Economists / 2024

1. z=3 x 2 y 3

2. z=5 x 3 −3 x 2 y 2 +7 y 5
Solution

1. z=3 x 2 y 3
a. When differentiating with respect to x , treat the y term as a constant.

∂z 3 d
=z x =[ 3 y ]⋅ ( x )
2
∂x dx
=[ 3 y ]⋅2 x
3

Recalling that a multiplicative constant remains in the process of differentiation, simply

multiply and rearrange terms to obtain

∂z
=z =6 xy 3
∂x x
b. When differentiating with respect to y , treat the x term as a constant.
∂z 2 d
=z y =[ 3 x ]⋅ ( y )
3
∂y dy
=[ 3 x ]⋅3 y =9 x 2 y 2
2 2

2. z=5 x 3 −3 x 2 y 2 +7 y 5
a. When differentiating with respect to x , treat the y term as a constant. Then take the

derivative of each term, remembering that in differentiation multiplicative constants

remain but additive constants drop out, because the derivative of a constant is zero.
∂z d 3 2 d 2 d 5
=z x = (5 x )−(3 y )⋅ ( x )+ (7 y )
∂x dx dx dx
2 2
=15 x −(3 y )⋅2 x +0
=15 x2 −6 xy 2
b. When differentiating with respect to y , treat the x term as a constant.

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 Lecture Notes on Mathematics for Economists / 2024

∂z d 3 2 d 2 d 5
=z y = (5 x )−(3 x )⋅ ( y )+ (7 y )
∂y dy dy dy
2 4
=0−(3 x )⋅2 y +35 y
=−6 x 2 y +35 y 4

6.2. Higher-order partial derivatives and Young’s Theorem

Given a function z=f ( x , y ) , the second-order (direct) partial derivative signifies that the
function has been differentiated partially with respect to one of the independent variables twice
while the other independent variable has been held constant;

The partial derivative of

f x with respect to x is:

f xx =( f x ) x= ∂
( )
∂z
=
∂2 z
∂ x ∂ x ∂ x2

f
The partial derivative of y with respect to y is:

f yy =(f y ) y = ∂
( )
∂ z ∂2 z
=
∂ y ∂ y ∂ y2

In effect,
f xx measures the rate of change of the first-order partial derivative f , with respect to

x while y is held constant and f yy is exactly parallel.

The cross (or mixed) partial derivatives

f xy and f yx indicate that the first the primitive
function has been partially differentiated with respect to the other independent variable:

The partial derivative of

f x with respect to y is:

f xy =( f x ) y= ∂ ( )
∂z
=
∂2 z
∂ y ∂ x ∂ y∂ x

f
The partial derivative of y with respect to x is:

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 Lecture Notes on Mathematics for Economists / 2024

f yx =(f y )x = ∂( )
∂z
=
∂2 z
∂x ∂ y ∂x∂ y

In brief, a cross partial measures the rate of change of a first-order partial derivative with
respect to the other independent variable. Notice how the order of independent variable
changes in the different form of the notation.

Example: Compute the four second-order partial derivatives of the function

z=f ( x , y )=xy 3 +5 xy 2 +2 x+1

Solution

∂z ∂z
=z x = y 3 +5 y 2 +2 =z y =3 xy 2 +10 xy
a. ∂ x ∂y
∂2 z ∂2 z
2
= z xx = 0 = z yy = 6 xy +10 x
b. ∂ x ∂ y2

∂2 z
= ∂
∂z
c. ∂ y ∂ x ∂ y ∂ x
( )
=z xy= ∂ ( y 3 +5 y 2 +2)=3 y 2 +10 y
∂y

∂2 z
=∂
∂z
( )
d. ∂ x ∂ y ∂ x ∂ y
=z yx = ∂ (3 xy 2 +10 xy )=3 y 2 +10 y
∂x
By Young’s theorem, if both cross partial derivatives are continuous, the will be identical.

6.3. Total differential

For a function of two or more independent variables, the total differentials measures the change
in the dependent variable brought about by a small change in each of the independent variables.

If z=f ( x , y ) , the total differential dz is expressed mathematically as

dz=z x dx +z y dy

where
z x and z y are the partial derivatives of z with respect to x and y respectively, and dx and

dy are small changes in x and y . The total differential can thus be found by taking the partial

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 Lecture Notes on Mathematics for Economists / 2024

derivatives of the function with respect to each independent variable and substituting these
values in the formula above.

Example:

1. Given z=x 4 +8 xy +3 y 3
z x=4 x 3 +8 y z y =8 x +9 y 2 which, when substituted in the total differential formula, gives

dz=(4 x 3 +8 y )dx +(8 x +9 y 2 )dy

( x− y )
z=
2. Given ( x +1 )
( x +1)(1 )−( x− y )(1) y +1
z x= 2
=
( x+ 1) ( x+ 1)2
( x+ 1)(−1)−( x− y )(0 ) −1( x+1 ) −1
z y= = =
( x+1 )2 ( x +1)2 x +1

The total differential is

dz=
y+ 1
(x +1 )2
dx( )
−
1
x+ 1
dy

If one of the independent variables is held constant, for example, dy =0 , we then have a partial
differential:

dz=z x dx

6.4.Total derivatives of implicit functions

Example

Suppose we want to differentiate the implicit function

y 2 + x 3 − y 3 +6=3 y with respect to x.

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 Lecture Notes on Mathematics for Economists / 2024

d 2 d 3 d 3 d d
( y )+ ( x )− ( y )+ (6 )= (3 y )
dx dx dx dx dx
d dy d dy d dy
( y 2 )× +3 x 2− ( y 3 )× = (3 y )×
dy dx dy dx dy dx
dy dy dy
2 y⋅ +3 x 2 −3 y 2⋅ =3
dx dx dx
dy dy dy
3 x 2 =3 −2 y +3 y 2
dx dx dx
dy
3 x 2=(3−2 y +3 y 2 )
dx
2
dy 3 x
=
dx 3−2 y +3 y 2

Note that to differentiate a function of y with respect to x, differentiate with respect to y and then
dy
dx .
multiply by

6.5. Economic applications of multivariate calculus

0.5
1. Suppose that the production function Q ( L , K )=2000 L K 0 .5 is known. Determine the
marginal productivity of labor and the marginal productivity of capital when 16 units of labor
and 144 units of capital are used.
∂Q ∂Q
|(16,144)=3000 units |(16,144)=333.33 units
(Answer: ∂ L and ∂ K )
2. Suppose the output Q at a factory depends on the amount K of capital invested in the plant
and equipment and also on the size L of the labor force, measured in worker hours. Give an
∂2 Q
2
economic interpretation of the sign of the second-order partial derivative ∂ L .

3. For the demand function

q=35−0 . 4 p+0 . 15 m−0 .25 pc +0. 12 p s +0. 003 n price of the
good (p), average consumer income (m), the price of a complement (p c), the price of a

substitute (ps) and population (n). What is price elasticity of demand when p=24 ?
4. Find out whether the law of diminishing marginal utility holds for both goods A and B in the
following utility functions:

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 Lecture Notes on Mathematics for Economists / 2024

0 .6
i) U =A B 0. 8
−1 −1
ii) U =0 .2 A B +5 AB
5. A firm produces two goods, with output levels q1 and q2, and faces the total cost function
TC =45+ 125 q1 + 84 q 2−6 q 2 q 2 +0 . 8 q 3 +1 .2 q
1 2 1 22

What are the two relevant marginal cost functions?

MC 1 =125−12 q 1 q 2 +2 . 4 q and MC 2 =84−12 q 2 q2 + 3. 6 q

(Answer: 2 12 1 22 )

6. A firm produces goods A and B which are complements. Derive marginal revenue functions
for the two goods if the relevant demand schedules are
q A=850−12 .5 p A −3 .8 p B
q B=936−4 . 8 p A−24 p B

Solution
Marginal revenue is usually expressed as a function of quantity. Therefore, in order to derive
total and marginal revenue functions, the demand functions are first rearranged to get price as a
function of quantity.

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 Lecture Notes on Mathematics for Economists / 2024

Thus , for good A Similarly , for good B

q A =850−12 .5 p A −3 .8 p B q B =936−4 . 8 p A −24 p B
12 .5 p A =850−3 . 8 pB −q A 24 p B =936−4 .8 p A −q B
850−3 . 8 pB −q A q
pA = p B =39−0 . 2 p A − B
12. 5 24
TR A = p A q A TR B = pB q B

= ( 850−3 . 8 p B −q A
12 . 5 )
qA ( q
= 39−0 .2 p A − B q B
24)
850 q A −3 . 8 p B q A −q 2 q 2
=
A
=39 q B −0 . 2 p A q B − B
12. 5 24
∂ TR ∂ TR
MR A = MR B =
∂qA ∂ qB
850−3 .8 p B −q A qB
= =39−0 .2 p A −
12 .5 12
=68−0 .304 p B −0 . 16 q A

The marginal revenue functions (1) and (2) for MR A and MRB confirm that, because the demand
functions for the two goods are interrelated, the marginal revenue function for one good will
depend on the price level of the other good.

7. Derive the four second-order partial derivatives for the production function

Q=6 K +0 .3 K 2 L+1 .2 L2 and interpret their meaning.

Solution
The two first-order partial derivatives are
∂Q ∂Q
=6+ 0 .6 KL =0 . 3 K 2 +2 . 4 L
∂K ∂L
and these represent the marginal product functions MPK and MPL.

The four second-order partial derivatives are as follows:

∂2 Q
2
=0 .6 L
i) ∂ K
This represents the slope of the MPK function. It tells us that the MPK function will have a
constant slope along its length (i.e. it is linear) for any given value of L, but an increase in L will
cause an increase in this slope

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 Lecture Notes on Mathematics for Economists / 2024

∂2 Q
2
=2. 4
ii) ∂ L
This represents the slope of the MPL function and tells us that MPL is a straight line with slope
2.4. This slope does not depend on the value of K.

∂2 Q
=0 . 6 K
iii) ∂ K ∂ L
This tells us that MPK increases if L is increased. The rate at which MP K rises as L is increased
will depend on the value of K.

∂2 Q
=0 . 6 K
iv) ∂ L ∂ K
This tells us that MPL will increase if K is increased and that the rate of this increase will depend
on the value of K. Thus, although the slope of the MP L schedule will always be 2.4,from (ii)
above, its actual position will depend on the amount of K used