BASIC MATHEMATICS FOR ECONOMISTS

DEFFERENTIATION
5.1 Slope of Curves

5.2 The Derivative versus Tangents

5.3 Increasing and Decreasing Functions

5.4 Rates of Change

5.5 Limits

5.6 Some Basic Rules for Differentiation

5.7 Chain Rule

5.8 Higher Derivatives

5.9 Rules for Differentiation of Exponential and Logarithmic functions

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5.1 Slope of Curves
The use of derivative is ____________
very important in economics.

For an arbitrary function , what is the steepness of its graph at a point?

has a coordinate ( , ( )). The slope of the tangent to the graph at is

called derivative of at point , and we denote this number by ( ).

Therefore, ( ) = the slope of the tangent to the curve y at =

( ) 1/2 = 0.5
________
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5.2 The Derivative Tangents
Geometric intuition of derivatives: The straight line through and is called
secant.

Keeping fixed and letting rotate along the curve yields the limiting
straight line which is called the _______
tangent (line) to the curve at .

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How to find the slope of a tangent line?

( ) ( ) ( ) ( )
The slope of the line = = .
( )
[Recall: The slope of the straight line is equal to = , where .]

If we push hard enough to a point very close to the point with the coordinate
( + , ( + )), where 0, then we can calculate the slope.

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Using these two points, we can calculate the slope of the curve at point =
.

Definition: the derivative of the function at point , denoted by ( ), is

given by the formula

( ) ( )
( ) = lim .

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Exercise: Consider the example ( ) = . Use the above formula to find the
slope of the function at point .

Rotate the straight in a clockwise direction. ( + ) will be getting close to

___

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In summary,

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5.3 Increasing and Decreasing Functions

Remark: represents the interval of .

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5.4 Rates of Change.
Recall the marginal cost example in Lecture Note 3. The cost of producing
units of a product is given by the linear function ( ) = 200 + 10 .

We use ( ) for the marginal cost at . According to the definition,

marginal cost is equal to
( + ) ( )
( ) = lim
( ) ( )
Or ( ) for a very small

The marginal cost is the extra cost of producing additional very small unit of
that product.
( + ) ( )
( ) = lim = ( )
200 + 10( + ) (200 + 10 )
= lim = 10

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Note
(i) Let ( ) represent the profit function, where ( ) = ( ) ( ).
Therefore, ( ) represents the revenue from selling units of a product,
and ( ) represents the total cost of producing units of the product.
(ii) Marginal Revenue: = ( )
(iii) Marginal Profit: ( )

Exercise: Use the definition (on page 5) to compute the marginal cost, marginal
revenue, and marginal profit in the following case, where a, b, c, d are constants.
( )= , and ( )= + +

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5.5 Limits
Suppose that function ( ) and ( ) are defined in a neighborhood of
(but not necessarily at ). That is, lim ( ) = and lim ( ) = . Then,
the following identities are correct.

(i) lim ( )± ( ) = ±

(ii) lim ( )× ( ) = ×

( )
(iii) lim ( )
= , where 0

(iv) lim ( ( )) = , where is defined and r is any real number

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Exercise:
(a) lim 6

(b) lim

(c) lim

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5.6 Some Basic Rules for Differentiation
The derivative of a function ( ) was defined by the formula
( ) ( )
( ) = lim . (*)

They are all equivalent ( ) = ____ dy/dx = _______.

y’ = _____ d(f(x))/dx

In Section 5.2, we used the formula (*) to find the derivatives of some simple
functions, for example marginal cost and marginal revenue functions.
However, this approach is inefficient. Sections 5.6 and 5.7 provide a
systematic and efficient way for finding the derivative.

Rule 1: If is a constant function, then its derivative is 0. That is ( ) = _.

( )= = = 0
[ ( )] = ____

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 Rule 2: Suppose A is constant, then at the same value of , ( ) + and
( ) and must have _________.
a same slope

[ ( ) + ]______
= [ ( )]

Rule 3: [ ( )] = [ ( )] = ( ) (why?)
( ) ( ) ( ) ( )
o lim = A___ lim A
= ___ ( )

Exercise:

(1) [3 + ( )] = _____ (Rule 2)

(2) [4 ( )] = ______ (Rule 3)

( )
(3) = _______ (Rules 1, 2 and 3)
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 Power Rule: ( )= ( ) = _________ , where is an arbitrary
constant.

Rule: If both and are differentiable at the point , then the sum + and
the difference is differentiable at .
( )= ( )± ( ) ( )= ( )± ( )

Example:
(a) If ( ) = 5 , then ( ) = 10 = 10
(b) If ( ) = 3 + + 2, then ( )= +

Exercise: Compute the marginal cost, marginal revenue, and marginal profit in
the following case.

( )= , and ( )= + +

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 Rule (derivative of a product): If both and are differentiable at the point
, then so is = × , and
( )= ( )× ( ) ( )= ______ × ( ) + ( ) × _____

Example: ( ) = ( + 1) × ( + 1)

Method 1: ( ) = ( + 1) × ( + 1) = + + +1
Therefore, ( )=3 +1+2

Method 2: We use the derivative of a product rule, i.e.,

( )= ( ) × ( ) + ( ) × ( )
Therefore, ( )= _______________________________ = 3 + 2 + 1

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 Rule (the derivative of a quotient): If both and are differentiable at the
point , and ( ) 0, then = is differentiable at , and
( ) ( )× ( ) ( )× ( )
( )= ( )=
( ) ( ( ))

A simplified expression is =( ) =

Exercise:
Suppose ( ) = . Find the derivate of ( ). What is the slope of the
function ( ) at = 3?

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5.7 Chain Rule
Suppose that is a function of , and is a function of . Then, is a
composite function of .

Suppose that changes; this leads to a change in , which in turn results in

a change in y. A change in , therefore, causes a chain reaction: .

A change in leads to a change in , denoted as . Once the changes,

it affects , and the change of due to change is .

Consequently, it turns out that the change of y due to is

= × . (Chain Rule)

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Example:

(a) Find when = and =1 .

[Answer]

We know that . In other words, = ×

= × = (5 ) × (0 3 ) = 15 = 15 (1 )

Exercise:
Differentia the function =( + 1)

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 An alternative formulation of the chain rule: If is differentiable at point
and is differentiable at = ( ), then ( ) = ( ) is differentiable
at , and
( ) = ( ) ( ) = ( ( )) × ( )

Example:
Differentia the function =( + 1)

[Ans] = _______________________ = ____________________

Exercise

Differentia the function =( )

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5.8 Higher Derivatives
The derivative of a function is often called the first derivative of , i.e., .
If is also differentiable, then we can take the derivative on .

The derivative of is called second derivative of , that is ( ) . It

represents the second derivative of evaluated at a particular point .

Example: Find the first and second derivatives of ( ) = 2 3 +2 .

[Ans]
= 10 9 +2
( ) = 40 18

What is the third derivative?

( ) = 120 18

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Remark:
( )
= = = ( )= = (2 3 + 2 ) = 10 9 +2
( ) ( )
=( ) =( ) = ( )= = = (10 9 + 2) =
40 18
( )
More generally, the derivative is = ( )= . We take
derivative on the ( ) for n times.

What does really mean? In other words, what does it measure?

If 0, the is ______.
increasing
If 0 for all , the is a ______
convex function.
If 0, the is ________.
decreasing
If 0 for all , the is a _______
concave function.
If = 0, the ________.
flat
If = 0 for all , the is both a concave and convex function.

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Graph
The distinction between convexity and concavity of a function is absolutely
important in many economic models.

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5.9 Rules for Differentiation of Exponential and Logarithmic functions
The natural exponential function ( ) = has the unique property that its
derivative is equal to the function itself. This property is a key reason why
the exponential function is frequently used in mathematics and various
applications.

If ( ) = , then = . And, = , where = 1,2,3, …

By combining the chain rule and = , we can compute the derivative of

very complicated function.
If ( ) = ( ) , then = ( ) × ( ) (Why?)
Because let = ( ), and = ( ) = ( ) , we can set there is a
chain reaction, .
(Please refer to section 5.7 Chain rule, = × )
Example:
Find the derivative of ( ) = . (Ans): = _________

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The natural logarithmic function, ( ) = ln( ). = _________ by the
definition and it is the inverse of ( ).
The inverse function does exist as and ( ) (= ) is one-to-one.

Differentiate _______________ with respect to , i.e. .

= ___________________ = ______________

1= ( ). In other words, ( )=

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 Suppose we have a function = ( ) = ln( ). The first derivative of
( ) is , i.e., ( )=

( )
More generally, if the function is = ln ( ), then = .
( )

Example:
Find the first derivative of the function = ln ( + 1).
[Answer] = = _________

Exercise:
Find the first derivative of the function = a b , where a and b are constants.

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