Lecture Notes on Mathematics for Economists / 2024

CHAPTER FIVE
5. UNIVARIATE DIFFERENTIAL CALCULUS AND ITS
APPLICATIONS
5.1. Definition of derivative and its basic rules
The derivative

Given a function y=f ( x ) , the derivative of the function f at x, written f ( x ) or dy /dx , is

'

defined as

f ( x + Δx )−f ( x )
f ' ( x )= lim
Δx → 0 Δx
'
Where f ( x ) is read “the derivative of f with respect to x” or “ f prime of x.”
'
The derivative of a function f ( x ) , or simply f’, is itself a function which measures both the
slope and the instantaneous rate of change of the original function f ( x ) at a given point.

In the previous section, we showed that the slope of the tangent line for the function
f ( x )=x 2 at x=1 is 2 and so this is also its derivative; i.e., f ' ( x )=2 x at x=1 is 2 or
dy/dx=2 x at x=1 is 2.

Rules of differentiation
Differentiation is the process of finding the derivative of the function. It involves nothing more
complicated than applying a few basic rules or formulas to a given function.

1. The constant function rule

The derivative of a constant function f ( x )=k , where k is a constant, is zero.

Given f ( x )=k , f ' ( x )=0
Examples: Given f ( x )=7 , f ' ( x )=0
Given f ( x )=−5 , f ' ( x )=0
2. The linear function rule

The derivative of a linear function f ( x )=mx +b is equal to m, the coefficient of x. The

derivative of a variable raised to the first power is always equal to the coefficient of the variable,
while the derivative of a constant is simply zero.

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 Lecture Notes on Mathematics for Economists / 2024

Given f ( x )=mx +b , f ' ( x )=m

Examples: Given f ( x )=3 x +2 , f ' ( x )=3
1 1
f ( x )=5− x , f ' ( x )=−
Given 4 4

Given f ( x )=12 x , f ' ( x )=12

3. The power function rule
n
The derivative of a power function f ( x )=kx , where k is a constant and n is any real number, is
equal to the coefficient k times the exponent n, multiplied by the variable x raised to the n−1
power.
n
Given f ( x )=kx f ' ( x )=k⋅n⋅x n−1
3
Examples: Given f ( x )=4 x f ' ( x )=4⋅3⋅x 3−1 =12 x 2
2
Given f ( x )=5 x , f ' ( x )=5⋅2⋅x 2−1=10 x
4
Given f ( x )=x , f ' ( x )=1⋅4⋅x 4−1 =4 x3
4. The rules for sums and differences

The derivative of a sum of two functions f ( x )=g( x )+h( x ) , where g( x ) and h( x ) are both
differentiable functions, is equal to the sum of the derivatives of the individual functions.
Similarly, the derivative of the difference of two functions is equal to the difference of the
derivatives of the two functions.
' ' '
Given f ( x )=g( x )±h( x ) , f ( x )=g ( x )±h ( x )
5 4
Examples: Given f ( x )=12 x −4 x , f ' ( x )=60 x 4 −16 x 3
2
Given f ( x )=9 x +2 x−3 , f ' ( x )=18 x +2

5. The product rule

The derivative of a product f ( x )=g( x )⋅h( x ) , where g( x ) and h( x ) are both differentiable
functions, is equal to the first function multiplied by the derivative of the second plus the second
function multiplied by the derivative of the first. Given f ( x )=g( x )⋅h( x ) ,

f ' ( x )=g( x )⋅h' ( x )+h( x ). g ' ( x )

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 Lecture Notes on Mathematics for Economists / 2024

4 4
Example: Given f ( x )=3 x (2 x −5) , let g( x )=3 x and h( x )=2 x −5 . Taking the individual
3
derivatives, g '( x )=12 x andh '( x )=2 . Then by subtracting this values in the product rule
formula,

f ' ( x )=3 x 4 (2)+(2 x−5 )(12 x 3 )

4 4 3 4 3
And simplifying algebraically gives f ' ( x )=6 x +24 x −60 x =30 x −60 x

6. The quotient rule

The derivative of a quotient f ( x )=g( x )÷h( x ) , where g( x ) and h( x ) are both differentiable
functions andh( x )≠0 , is equal to the denominator times the derivative of the numerator, minus
the numerator times the derivative of the denominator, all divided by the denominator squared.
Given f ( x )=g( x )/h( x ) ,

h( x )⋅g ' ( x )−g( x )⋅h' ( x )

f ' ( x )= 2
[ h( x )]
5 x3
f ( x )=
Example: Given 4 x +3
3 ' 2 '
Where g( x )=5 x and h( x )=4 x +3 , we know that g ( x )=15 x and h ( x )=4 . Substituting
these values in the quotient rule formula,

( 4 x+3)(15 x 2 )−5 x3 (4 )
f ' ( x )=
(4 x+3 )2

Simplifying algebraically,

60 x 3 + 45 x 2−20 x 3 40 x 3 + 45 x 2 5 x 2 (8 x +9 )
f ' ( x )= = =
( 4 x +3)2 (4 x +3 )2 ( 4 x +3)2

7. The generalized power function rule

n
The derivative of a function raised to a power, f ( x )=[ g( x ) ] , where g( x ) is a differentiable
function and n is any real number, is equal to the exponent n times the function g( x ) raised to the
n−1 power, multiplied in turn by the derivative of the function itself g '( x ) , Given
n
f ( x )=[ g( x ) ] ,

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 Lecture Notes on Mathematics for Economists / 2024

n−1
f ' ( x )=n [ g( x ) ] ⋅g ' (x )
3 5 3 2
Example: Given f ( x )=(x +6 ) , let g( x )=x +6 , then g '( x )=3 x . Substituting these values
in the generalized power function formula gives

f ' ( x )=5( x 3 +6 )5−1⋅3 x 2

3 4 2 2 3 4
Simplifying algebraically, f ' ( x )=5( x +6 ) ⋅3 x =15 x ( x +6 )

Note: the generalized power function rule is derived from the chain rule which follows below.

8. The chain rule

Given a composite function, also called a function of a function, in which y is a function of u and
u in turn is a function of x, that is, y=f (u ) and u=g ( x ) , then y=f [ g ( x ) ] and the derivative of
y with respect to x is equal to the derivative of the first function with respect to u times the
derivative of the second function with respect to x:

dy dy du
= ⋅
dx du dx
2 4
Example: Consider the function y=(5 x +3) . To use the chain rule, let y=u 4 and
3
u=5 x 2 + 3 . Then dy /du=4 u and dy/du=10 x . Substitute these values in the chain rule
formula gives

dy
=4 u 3⋅10 x=40 xu3
dx
2
Then to express the derivative in terms of a single variable, substitute 5 x +3 for u.

dy
=40 x (5 x2 +3)3
dx

Note: For more complicated functions, different combinations of the basic rules must be used.

5.2. Economic applications of derivatives

Examples

1. Suppose a manufacturer’s profit from the sale of radios is given by the function
P( x )=400(15−x )( x−2) , where x is the price in dollars at which the radios are sold. Find
the selling price that maximizes profit.

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 Lecture Notes on Mathematics for Economists / 2024

Solution

Your goal is to find the value of x that maximizes the profit P( x ) . This is the value of x for
which the slope of the tangent line is zero. Since the slope of the tangent line is given by the
derivative, begin by computing P '( x ) . For simplicity; apply the definition of the derivative to the
unfactored form of the profit function.

P( x )=−400 x 2 +6800 x−12000

To find the value of x for which the slope of the tangent is zero, set the derivative equal to zero
and solve the resulting equation for x as follows:

P '( x )=0
−800 x +6800=0
800 x=6800
6800
x= =$ 8 .5
800

It follows that x=8 . 5 are the x coordinates of the peak of the graph and that the optimal selling
price is x=$ 8 .50 per radio.

2. A manufacturer estimates that when x units of a particular commodity are produced, the
1 1
C ( x )= x 2 +3 x +98 P( x )= (75−x )
total cost will be 8 dollars, and that 3 dollars per unit is
the price at which all x units will be sold.
a. Find the marginal cost and the marginal revenue.
b. Use marginal cost to estimate the cost of producing the 9th unit.
c. What is the actual cost of producing the 9th unit?
d. Use the marginal revenue to estimate the revenue derived from the sale of the 9th unit.
e. What is the actual revenue derived from the sale of the 9th unit?
Solution
1
C ' ( x )= x +3
a. The marginal cost is 4 . Since x units of the commodity are sold at a price of
1
P( x )= (75−x )
3 dollars per unit, the total revenue is

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 Lecture Notes on Mathematics for Economists / 2024

R( x )=(number of units sold )×( price per unit )

1
[
=xP ( x )=x (75−x ) = 25 x− x 2
3
1
3]
2
R '( x )=25− x
The marginal revenue is 3
b. The cost of producing the 9th unit is the change in cost as x increase from 8 to 9 and can
be estimated by the marginal cost
1
C ' ( x )= ×8+3=$ 5
4
c. The actual cost of producing the 9th unit is
ΔC =C( 9)−C (8 )=$ 5 .13
which is reasonable well approximated by the marginal cost C ' (8)=$ 5
d. The revenue obtained from the sale of 9th unit is approximated by marginal revenue:
2
R '(8 )=25− ×8=$ 19 . 67
3
e. The actual revenue obtained from the sale of the 9th unit is
ΔR=R (9)−R(8 )=$ 19. 33
3. A firm is a monopoly seller of good q and faces the demand schedule p=200−2 q , where p
0. 5
is the price in dollars, and the short-run production functionq=4 L . If it can buy labour at
a fixed wage of $8, how much L should be employed to maximize profit, assuming other
inputs are fixed?

Solution

Using the chain rule we need to derive a formula for MRP L in terms of L and then set it equal to
$8, given that MCL is fixed at this wage rate. As

dTR dTR dq
MRP L= = ............................................................................................(1)
dL dq dL

we need to find dTR /dq and dq /dL .

Given p=200−2 q ,then

TR=pq=(200−2 q )q=200 q−2q 2

,

Therefore

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 Lecture Notes on Mathematics for Economists / 2024

dTR
=200−4 q........................................................................................................(2)
dq

q=4 L0. 5
Given , then the marginal product of labor will be

dq
=2L−0.5 ...............................................................................................................(3)
dL

Thus, substituting (2) and (3) into (1)

MRP L=(200−4 q )2 L−0 . 5=(400−8 q ) L−0. 5

As all units of L cost $8, setting this function for MRP L equal to the wage rate we get

400−8q
=8
L0 .5
400−8q=8 L0 .5 ...............................................................................................( 4)

Substituting the production function q = 4L 0.5 into (4), as we are trying to derive a formula in
terms of L, gives

400−8 (4 L0 .5 )=8
400−32 L0. 5 =8 L0. 5
400=40 L0 . 5
10=L0. 5
100=L
which is the optimal employment level.

Point elasticity of demand

The chain rule can help the calculation of point elasticity of demand for some non-linear demand
functions.
0.5
4. Find point elasticity of demand when q=10 If p=(120−2 q ) .

Solution

Point elasticity is defined as

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 Lecture Notes on Mathematics for Economists / 2024

p 1
e=(−1) ...............................................................................................................(1)
()
q dp
dq
0.5
Create a new variable z=120−2 q . Thus p=z and so, by differentiating:
dp dp dz
=
dq dz dq
=0 . 5 z −0 . 5 (−2 )
=0 .5 (120−2 q )−0. 5 (−2 )
−1
= 0 .5
(120−2 q)
and so, inverting this result,
1
=−(120−2 q )0. 5
dp/dq
q=10
when , then from the original demand function price can be calculate as
p=(120−20 )0 .5 =100 0. 5 =10
Thus, substituting these results into formula (1), point elasticity will be
10
e=(−1 ) (−1 )(120−2 q )0 .5 =(120−20 )0. 5 =1000 . 5=10
10
Sometimes it may be possible to simplify an expression in order to be able to differentiate it, but

one may instead use the chain rule if it is more convenient. The same result will be obtained by

both methods, of course.

5.3. Extreme points and further topics on Applications

5.3.1. Higher-order derivatives
f ( x)
As we have seen above, when we differentiate a function, , we find that its derivative,
f ' ( x) f ' ( x) f ( x)
, is also a function of x. in this context, we call the first-order derivative of and

we can differentiate again to get the second-order derivative.

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 Lecture Notes on Mathematics for Economists / 2024

f ''( x )
The second-order derivative, written , measures the slope and the rate of change of the first

derivative, just as the first derivative measures the slope and the rate of change of the original or

f '''( x )
primitive function. The third-order derivatives measures the slope and rate of change of

the second-order derivative, etc. Higher-order derivatives are found by applying the rules of

differentiation to lower-order derivatives, as illustrated in the following example .

y=f ( x ) f ''( x )
Example: Given , common notation for the second-order derivatives includes ,

d 2 y /dx 2 y '' D2 y f '''( x ) d 3 y /dx 3 y ''' D3 y

, , and ; for the third-order derivative, , , , and ; for
( 4)
f ( x ) d 4 y /dx 4 y ' ( 4) D4 y
the fourth-order derivatives, , , , and ; etc.

Higher-order derivatives are found by successively applying the rules of differentiation to

4 3 2
derivatives of the previous order. Thus, if f ( x )=2 x +5 x +3 x ,

f ' ( x )=8 x 3 +15 x 2 +6 x

f ' ' ' ( x )=24 x 2 +30 x +6
f '''' ( x )=48 x +30
f 4 ( x )=48
f 5 ( x )=0
In general the nth derivative

For any positive integer n, the nth derivative of a function is obtained from the function by
differentiating successively n times. If the original function is y=f ( x ) , then n derivative is
th

denoted by

dn y ( n)
n
or f ( x )
dx
5.3.2. Implicit differentiation
Introductory economics deals most often which explicit functions in which the dependent
variable appears to the left of the equal sign and independent variable appears to the right.
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 Lecture Notes on Mathematics for Economists / 2024

Frequently encountered in more advanced economics courses, however, are implicit functions in
which both variables and constraints are to the left of the equal sign. Some implicit functions can
be easily converted to explicit functions by solving for the dependent variable in terms of the
independent variable; others cannot. For those not readily convertible, the derivative may be
found by implicit differentiation.

Example: samples of explicit and implicit functions include:

x 4 −9 x3
y=4 x y =x2 +6 x−7 y=
Explicit: x 2−13

Implicit: 8 x +5 y−21=0 3 x 2 −8 xy−5 y =0 35 x 3 y 7 −106=0

4 5
Example: Given3 x −7 y −86=0 , the derivative dy / dx is found by means of implicit
differentiation in two easy steps.

1) Differentiate both sides of the equation with respect to x while treating y as a function of x,
d 4 5 d
(3 x −7 y −86)= (0) ...................................................................................(1)
dx dx
d d d d
(3 x 4 )− (7 y 5 )− (86)= (0)
dx dx dx dx
d d d
(3 x 4 )=12 x 3 , (86 )=0 , (0)=0
where dx dx dx . Using the generalized power function rule for
d d dy
(7 y 5 ) ( y )=
dx and noting that dx dx , we get

d d dy
(7 y 5 )=7⋅5⋅y5−1⋅ ( y )=35 y 4
dx dx dx
Substitute the above values in (1)

dy
12 x3−35 y 4 =0 ..............................................................................................................(2)
dx

2) Now simply solve (2) algebraically for dy/dx :

4 dy 3
−35 y =−12 x
dx
dy 12 x 3
=
dx 35 y 4

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 Lecture Notes on Mathematics for Economists / 2024

5.3.3. Extreme points: Minima and Maxima

When a function goes up and then smoothly turns around and comes back down again, it has
zero slope at the top. A place where, then, could represent a place where was at a maximum. On
the other hand, it could be concave up, in which case we'd have a minimum. The term extremum
refers to either a maximum or a minimum.

An important practical problem for which differentiation can often provide quick and easy
answers is that of finding the extreme values, that is maximum and minimum values of a
function. To set the stage consider the following graph of a function y=f ( x ) defined on closed
interval a≤x≤b

The points A, B, C, D, E, and F are the extrema (singular extreme points) of the function. In
particular,

 Relative extreme value: is an extreme value when compared with the values near to it.
 f has a relative minimum at A, C and E (i.e f at that point is less than or equal to all values
of f ( x ) in some interval about that point);
 f has a relative maximum at B, D and F (i.e f at that point is greater than or equal to all
values of f ( x ) in some interval about that point);
 Absolute extreme value: is an extreme value that the function attains throughout its
domain.
 f has an absolute minimum at C (i.e at that point f is less than or equal to all values of f
on the interval);
 f has an absolute maximum at F (i.e at that point f is greater than or equal to all values of
f on the interval);
 For example consider a function y=2x+1. As we increase the value of x, the value of y
increases continuously. Again, when we decrease the value of x, the value of y decreases
continuously. However, if the domain is restricted to a closed interval [a, b] which means
and the function is continuous everywhere within the interval, the function will have an
absolute minima and absolute maxima within the interval. They may be located either:

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 Lecture Notes on Mathematics for Economists / 2024

a. At the end points; i.e., a and b or

b. At the interior points

Note that a function may (or may not) have absolute extreme value like there may or may not
exist relative extreme value.

For continuous functions extrema occur at only a limited class of points and the five extrema
above illustrate each class. For a function y = f (x) a point in its graph is They may be located
either:

 A critical point if either

It is a stationary point, that is, its derivative f ' ( x ) is zero there;

It is a singular point, that is, its derivative does not exist there;

 It is an end point, that is, some interval on one side of the point is not in the domain of f .

For example, for the above function, the points B, C and E are stationary and D is singular, so
these are the critical points of the function. The points A and F are the end-points.

And here is the key fact about extreme points:

The extreme points of a continuous function occur only at critical points and end-points.

This pretty clearly makes the task of finding all extreme points a much easier task.

5.3.4. First order and second order tests

To find out relative minima or maxima,

1st find f ' ( x )

2nd Solve for the value of x which will make f ' ( x )

3rd Use the above value to get the extreme value of the function (i.e, insert the value you got in
the 2nd step in f(x) to get the extreme value).

4th Evaluate the first derivative function at some values of x to the left and the right of each
critical point

a. If f ' ( x ) > 0 to the left and f ' ( x ) < 0 to the right of the critical value of f(x), the critical
point is relative maximum
b. If f ' ( x ) < 0 to the left and f ' ( x ) > to the right of the critical value of f(x), the critical
point is relative minima.

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 Lecture Notes on Mathematics for Economists / 2024

3
Example: Let’s find all extreme points of f ( x )=12 x−x on the interval−3≤x≤5 . We begin
our search by finding all critical points and that begins with the derivative:

d
f ' ( x )= (12 x−x 3 )=12−3 x 2
dx

Since this is defined for all values of x on the interval, there are no singular points. But

f ' ( x )=12−3 x 2 =0 ⇔ x 2 =4 ⇔ x =±2

So there are only two critical points: (−2, −16) and (2, 16).

Next, there are only two end-points at x = −3 and x = 5. That is the end-points are (−3, −9) and
(5, −65).

Since these four points are the only possible extreme points, we need only compare them to see
that

f (−3 )≥f (−2), f (−2)≤f (2 ), and f (2 )≥f (5 ),

So

(−2 ,−16 ) and (5 , −65 ) are relative minima;

(−3,−9 ) and (2, 16) are relative maxima.

Finally just comparing the relative extrema, we see that (5, −65) is the absolute minimum and (2,
16) is the absolute maximum.
3
f ( x )=(x −1)
Example: Here is a curious one. Let’s find the extrema of

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 Lecture Notes on Mathematics for Economists / 2024

f ' ( x )=3( x−1)2

So there are no singular points and the only
stationary point occurs when

f ' ( x )=3( x−1)2 =0 ⇔ x−1=0⇔ x =1

But notice that
f ( x )<f (1 ) for x<1 and f ( x )>1 for x>1 .
This has no end-points so we need worry
So (1,0) is neither a relative maximum nor a
only about critical points. But the derivative
relative minimum!! The lesson to be learned
is
here is that Critical points need not be
relative minima or relative maxima.

Example: Find the relative extremas of the following functions

1
f ( x )= x 3 −x 2−3 x +2
a. 3
3 2
b. f ( x )=2 x −6 x +6 x+1

Solution

1 3 2
a ) f (x )= x −x −3 x +2
3
f ' ( x )=x 2 −2 x−3
f ' ( x )=x 2 −2 x−3=0
( x−3 )( x+1 )=0
x=3 or x =−1
1
f (3 )= (3)3 −32 −3(3 )+2=−7
3
1
f (−1)=− −1+3+2
3
1 11
=4− =
3 3
(3,−7) and (−1,11/3)
Thus, the critical values are . To find out which one relative minima or
(−1 , 11/3 ) (3 ,−7 )
maxima, use the number line. Thus, is relative maxima and is relative minima.

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 Lecture Notes on Mathematics for Economists / 2024

b ) f ( x )=2 x 3 −6 x 2 +6 x +1
f ' ( x )=6 x 2 −12 x +6
f ' ( x )=6 x 2 −12 x +6=0
x2 −2 x+1=0
( x−1)2 =0
x=1
f (1)=2−6+6 +1=3

The only critical value is (1,3) . To check whether it is relative minima or maxima, let’s see the
df ( x )
behavior of dx near 1. This shows that the function has no relative extreme value.

Note that instead of taking the number line to check for maxima or minima, we can use the 2 nd
derivative. If λ is the critical value which makes f ' ( x )=0 , then the point ( λ , f ( λ ) is relative
maxima if f ''( λ )<0 and relative minima if f ''( λ )>0 . But when f ''( λ )=0 we can’t use the
2nd derivative test and we have to use the behavior of the first derivative to check for relative
optima.

Example: Use the 2nd derivative test of the previous function to know whether they are relative
maxima or relative minima.

1
f ( x )= x 3 −x 2−3 x +2
a. 3
3 2
b. f ( x )=2 x −6 x +6 x+1
Solution
11
2 (3 ,−7 ) and (−1 , )
a . f ' (x )=x −2 x−3 critical values are 3

11
(−1 , )
f ''( x )=2 x −2 f ''(−1)=2(−1)−2=−4 so 3
is relative maxima

f ''(3 )=2(3 )−2=4 >0 so (3 ,−7 )

is relative minima

b . f ' ( x )=x 2 −2 x +1=0

f ''( x )=12 x−12

The only critical value is (1,3)

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 Lecture Notes on Mathematics for Economists / 2024

f ''( x )=12−12=0

Use the number line in this case.

To find absolute extrema within an interval

a. Find the critical values and critical points and check whether they are within the interval
b. Calculate f(a) and f(b)
c. The largest value and smallest value obtained from the above steps represent the absolute
maxima and the absolute minima of the function over the interval respectively.

Examples
2
1. Find the absolute maxima and minima of f ( x )=x −6 x+ 2 over the interval0≤x≤5 .
2. Find the absolute extrema of f ( x )=x +3 x + 4 over the interval [ −4 ,−2 ]
3 2

Solution

1 . f ' ( x )=0
2 x−6=0
x=3
f (0)=2
f (5)=−3
There is absolute maxima at x = 0 (0, 2) and absolute minima at x = 3 (5, -3) within [0,5].

2 . f ' ( x )=3 x 3 +6 x=0

=3 x ( x+2 )=0
x=0 or x =−2
f (0 )=4 f (−2 )=8 f (2)=24 f (−4 )=−12
There is absolute maxima at x = 2 (2, 24) and absolute minima at x = -4 (-4,-12).

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