MATHEMATICS FOR ECONOMICS

MARKING SCHEME
FOR THE COURSE

• Practice Problems: 20 marks

• Written Tests: Total 35 marks

• Attendance: 5 marks

• Final Assessment: 40 marks

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 WHY IS MATHEMATICS
IMPORTANT IN ECONOMICS

• Mathematics is a language through which

the experts communicates precisely

• Not a distinct branch but an approach to

economic analysis in any branch

• We are requiring more data and doing

more analysis day by day

• Purpose of the approach is always to bring

out clarity in theory

• Mathematical Economics (application of

mathematics to the purely theorical
concepts of economic analysis) vs
Econometrics (measurement of economic
data) 3
 1. K Sydsaeter and P Hammond:
Mathematics for Economic Analysis,
2nd Edition, Pearson Education
India, 2002
2. A C Chiang: Fundamentals Methods
of Mathemtical Economics, 3rd
Edition, McGrawHill, 1984
REFERENCES 3. C P Simon and L Blume:
Mathematics for Economists, 1st
Edition Viva Books, 2018
 LECTURE 1

• Natural Numbers

• Whole Numbers

• Integers

• Rational Numbers

• Irrational Numbers

• Real Numbers

• Intervals

• Absolute Values

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• Natural Numbers: The numbers we use every day = 1, 2, 3, 4,….......
• Whole Numbers: Natural Numbers + 0 = 0, 1, 2, 3,….
• Integers: Both sides of 0 = 0, ±1, ±2, ±3,…..
• Representation of Integers on a number line: Arrows depict infinity

• Rational Numbers: All those numbers which can be written in the form of p/q
where p and q are integers (and q ≠ 0). Example: ½, 11/70, 0/1, -19/1
• Irrational Number: But not all the numbers can be written in the form of p/q.
Example: √2, √3, 𝜋 there is no p and no q which can give a value of root 2 or
root 3 or pie. (what about 22/7 written for 𝜋 then?)

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 More refined way to differentiate between rational and irrational
numbers
• We can have 2 cases:
• Finite Decimal Fractions: 1.25 where the decimal finishes after 2
points
• Infinite Decimal Fractions: 100/3 = 33.3333... where the decimal is
never ending
• Infinite Decimal Fractions can further have 2 cases:
• Periodic/Repeating Infinite Decimal Fractions: Where there is a
pattern in the decimal points. Example: 11.275275275
• Non-Periodic/Non-Repeating Infinite Decimal Fractions: Where
there are random numbers, and no pattern followed in the
decimal points
• Rational Numbers includes Finite Decimal Fractions and Periodic
Infinite Decimal
• Irrational Number includes Non-Periodic Infinite Decimal
Fractions
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REAL NUMBERS
• Defined as an arbitrary infinite decimal fraction For example: X =
±m.α1α2α3... where m is an integer and alphas are any digit from 0 to 9
• Collection of Rational and Irrational numbers is called real numbers
• Arithmetic Operations (+, -, x, ÷) performed on real numbers will
generate real number only
• The only exception is that we cannot divide by 0 i.e A/0 is not defined
for any real number A.
• So, if the question is for which real number x, 3/x-4 is defined?

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LECTURE 2

1. Intervals

2. Absolute Values

3. Inequalities

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INTERVALS AND ABSOLUTE VALUES
1. Intervals: If a and b are two numbers on a number line. We call the set of all the numbers
that lie between a and b an interval

2. Types of intervals: There can be 4 different types:

A. (a, b): Open interval from a to b. Also written as a < x < b
B. [a, b]: Closed interval from a to b. Also written as a ≤ x ≤ b
C. (a, b]: Half Open bracket. Also written as a < x ≤ b Name depending on the
first bracket
D. [a, b): Half Closed bracket. Also written as a ≤ x < b
( - Curved bracket. It means that the number a is not the part of that set of numbers
between a and b and not a part of the interval
[ - Square bracket. It means that the number a is a part of the set of numbers between a and
b and is a part of the interval
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BOUNDED AND UNBOUNDED INTERVALS
1. Till now these were bounded intervals between some numbers
2. There can be unbounded intervals also:
Example: If we have to give set of numbers which are greater than 2?
Then we can represent it as x ≥ 2. it does not have any ending point. It can go as
high as possible. There's no limit/bound. Therefore, it is called unbounded
interval.
3. How can we write in the form of brackets?
Since 2 is included, therefore a closed bracket with 2 and since it has no bound
therefore an open bracket with infinity
[2, ∞): Always have an open bracket after infinity because infinity is not a
number but a notion or an idea
4. How will you represent x < -2?
5. How will you represent real numbers in an interval?
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ABSOLUTE VALUE
• Let 'a' be a real number and imagine its position on the number line.
• The distance between a and 0 is called absolute value of a

• Notation of absolute value of a: |a|

• |a| = a, a ≥ 0
-a, a < 0
• Find the absolute value of 3 and –5?
• How to write absolute value of |x-2| given the above definition?
• Distance between two points: Formula: {x 1 – x2}
• Example: If x1 = -1 and x2= 1

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INEQUALITIES
• Properties of Inequalities:
I. If a > 0 and b > 0, imply that a + b > 0 and ab > 0
II. If a > b that means a – b > 0
III. If a ≥ b that means a – b ≥ 0
IV. If a > b and c is an arbitrary number, then a +c > b+ c
Example: Find the values of x which satisfies 2x – 5 > x –3 using above property.
(Hint: Add 3 – x on both the sides) (Write the answer in interval form)
V. If a > b and b > c then a > c.
VI. If a > b and c > 0 only then ac > bc
VII. If a > b and c < 0 only then ac < bc (if we multiply an inequality by a negative
number then the direction of inequality is reversed)
VIII. If a > b and c > d then a + c > b + d
All the properties are application when sign is ≥ instead of >

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QUESTIONS
1. If given (x-1)(3-x) > 0. Then find all the values of x that satisfies the above
inequality. Write in the form of double inequalities.
2. Find the solution set of
2p-3 >3-p
p-1

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LECTURE 3
1. Logic

2. Propositions

3. Implications

4. Necessary and Sufficient

Conditions

5. Direct/ Indirect Proof

6. Proof by Contradiction

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LOGIC/PROPOSITIONS/IMPLICATIONS
NECESSARY/SUFFICIENT CONDITIONS
• We move every step logically in mathematics
• To move forward with logic, there are a few concept which are important
• Propositions: Assertions that are either false or true.
Example: All individuals who breath are alive (True Proposition)
All individuals who breath are healthy (False Proposition)
2x – 1 = 0 (Open proposition) (True/False will depend on what is the value of x)
• Implications: Suppose p and q are two propositions such that whenever p is
true, then q is necessarily true. Then we write,
• p ⇒ q (implication arrow)
• p implies q
• If p then q
• q is a consequence of p.
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Examples:
1. If x > 2 then x2 must be greater than 4. So, x > 2 ⇒ x2 > 4
2. xy = 0 ⇒ Either x = 0 or y = 0
3. If x is square ⇒ x is a rectangle
4. x is a healthy person ⇒ x is breathing

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DOUBLE SIDED IMPLICATION
• If p ⇒ q and q ⇒ p. So, whenever p is true, q is true and whenever q is true, p is true
• Then we can write both implications together in a single logical equivalence,
• P ⇐⇒ q: Equivalence arrow
• P is equivalent to q
• P if and only if q
• P iff q
Examples:
• If xy = 0 ⇒ either x = 0 or y = 0. we can also say if either x = 0 or y = 0 ⇒ xy = 0
So, xy = 0 ⇐⇒ x = 0 or y = 0.
• If x > 2 ⇒ x2 > 4 and can we say x 2 > 4 ⇒ x > 2?
• X is healthy ⇒ X is breathing. Does X is breathing ⇒ X is healthy?

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NECESSARY/SUFFICIENT CONDITIONS
Example:
1. You got 100 marks in mathematics (p) ⇒ You have passed in mathematics exam (q)
P ⇒ q. Left side statement is a sufficient condition
P is a sufficient condition. Q is a necessary condition

2. X is a square (p) ⇒ X is a rectangle (q)

3. Breathing is a ______ condition for a person to be healthy?

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MATHEMATICAL PROOFS
1. Every mathematical theorem can be formulated as follows:
P⇒q
2. P is series of propositions we know - Premise
3. q is series of propositions that we want to know – conclusions
If p ⇐⇒ q or q ⇐⇒ p
Then this can be treated as two theorems. We will have to prove two times both the ways
Example: Suppose premise = -x2+5x-4 > 0 (Premise) ⇒ x> 0 (Conclusion)

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METHODS OF PROOFS

1. Direct Method: Start with premise, and then work forward to the conclusion q
Prove -x2+5x-4 > 0 ⇒ x> 0
2. Indirect Proof: We begin by supposing q is not true, on that basis, we demonstrate
that p cannot be true. i.e. p⇒ q and not q ⇒ not p. It is raining ⇒ the grass is getting
wet.
3. Proof by contradiction: Suppose if we have a proposition R and we to derive a
contradiction based on R is false, then it follows that R is true.
Suppose we have a proposition R and we assume R is false and we get a result which
cannot be possible, then it means R is not false.
p⇒ q and we assume p is true but q is not true.
Suppose -x2+5x-4 > 0 is true but x> 0 is not true.
So, x> 0
These are all called proof by deductive reasoning. (Direct/Indirect/Contradiction)

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LECTURE 4: SET THEORY
1. Sets

2. Subsets

3. Set operations

4. Venn Diagrams

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SET THEORY
1. Set: Collection of objects. They can numbers, words, items. Any kind of collection is set.
2. Objects of the set are called Elements/Members of the set.
Example: S = {a, b, c} where a, b and c are the members of the set S.
3. If we have 2 equal sets A and B. It means every element of A should be an element of B and
every element of B should be an element of A. All members of both the sets are same.
Example: A = {1, 2, 3} and B = {3, 2, 1} So, A = B
4. Sometimes it's not possible to write every member of set. Then we just specify the property of
that set.
Example: If we want to represent set of natural numbers
A = {x : x is a natural number}
S = {typical member : defining property}

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BUDGET SET
• Example: We buy 2 goods x and y at prices p and q respectively.
• Total expenditure = px + qy and income = m
• The spending should be less than equal to m, so px + qy ≤ m. This is budget set
• Now we want to represent it in set form,
• First thing is x ≥ 0 and y ≥ 0.
• S = {(x, y): px + qy ≤ m, x ≥ 0 and y ≥ 0}. This is called budget set.

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SUBSET

• A = {1,2,3} when we say 1 is a member of A. We can also write it as, 1 ∈ A.

• 1 ∈ A is read as 1 belongs to A.
• If 1 does not belongs to A, then we write it as 1 ∉ A.
• SUBSET
• If there are two sets A and B. Such that A = {1,2} and B = {1,2,3} Then we can say A is a
subset of B if it true that every member of A is also a member of B.
• We represent it as A ⊂ B. But B ⊄ A
• If A = {1,2, 3} and B = {1,2,3} then we can say A ⊆ B and B ⊆ A
• So, if we want to prove that A =B then we just need to prove that A ⊂ B and B ⊂ A.
• Proper Subset: If A ⊂ B and A ≠ B. Atleast one member should be different.

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SET OPERATIONS
• A ∪ B = A union B = This set contains all the elements that belongs to at least one of
the sets A and B.
• A ∩ B = A intersection B = This set contains elements that belongs to both A and B
• A\B = A minus B = This set contains the elements that belongs to A but not B
• A ∪ B = {x: x ∈ A or x ∈ B}
• A ∩ B = {x: x ∈ A and x ∈ B}
• A\B = {x: x ∈ A and x ∉ B}
• Example: A = {1,2,3,4,5} and B = {3,6}
• A ∪ B = {1,2,3,4,5,6}
• A ∩ B = {3}
• A\B = {1,2,4,5}
• B\A = {6}

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SET OPERATIONS
• If set A and set B have nothing in common, then A ∩ B = φ (phi)
• φ (phi) is an empty set. It has no members.
• Those sets whose intersection is phi, those sets are called disjoints
• Ω = Universal set. It is set of whom all the other sets are a subset of.
• Universal set varies as per the context. It is fixed.
• If A is a subset of universal set. Then, Ω\A i.e. components present in universal set but
not in A, that is called a complement of A. It is represented as Ac or A bar.
• So every time we want to find a complement of a set, we will require the universal
set.
• Example: Ω = {1,2,3,4,5,6}
• A = {1,2} then Ac = {3,4,5,6} and A ∪ Ac = {1,2,3,4,5,6} = Ω

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VEN DIAGRAM

• A⊂B A∩B=φ A∪B

• A\B A complement or A bar A∩B

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SET FORMULAS
1. N (A ∪ B) = n(A) + n (B) - n(A ∩ B)

2. N (A ∪ B ∪ C) = n(A) + n(B) + n(C) - n(A ∪ B) - n(B ∪ C) -n(A ∪ C) + n(A ∪ B ∪ C)

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LECTURE 5
1. Definition of function

2. Independent and Dependent

Variable

3. Domain

4. Range

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FUNCTION OF ONE VARIABLE
• Example: Profit function, Demand Function, Cost Function etc.
• Example: Area of a circle is a function of radius
• Infant mortality rate is a function of quality of health
• GDP is a function of level of investment in the country
• What sense can we make out of the above statements?
• There is some variable on whom we are dependent to determine the value of the other
variable
• A definite rule which relates each value of one variable to a definite value of another variable.
• A variable for whose each value we are obtaining another different value
• Example: A = πr2. So for every value of r we will get a definite value of the area.
• Formal Definition of a Function: A function of a real variable x with domain D (all possible
values of x) is a rule that assigns a unique real number to each number x in D.

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 INDEPENDENT AND DEPENDENT VARIABLES

• Functions can be represented by f, g, F, φ

• f = function and x is a number in domain D. Then, f(x) = number that function f assigns to x
it is called f of x. Sometimes also written f(x) = y
• X is called the independent variable. Because we choose the value of x. Argument of x.
Exogeneous variable
• Y is called endogenous variable or dependent variable

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EXAMPLES
• Suppose Domain: All the real numbers and y = 8x 2
• If we take any value of x from real numbers, we will get a value for y.
• Now suppose x = 1, then y = 8 and if x = -1 then also y = 8. So, can it be a function?
• Now suppose we have a graph x 2 + y2 = 16, when x = 1 then value of y can be
positive and negative root of 15.
• Suppose a cost function is given, cost of producing x units of a product
• C(x) = 100x +500
• Suppose firm produces a units, then find the increase in the cost of producing one
more additional unit
• So, C(a) - C(a+1)
• This is called marginal cost.

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DOMAIN AND RANGE
• So suppose if cost function c(x) = 100x +500. Then what will be the domain of x?
• X can take only positive values. If x are pens then only positive integers. Why?
• If company can only produce maximum n number of pens then D = {0,1,2....,n}
• This set of numbers will be the domain of x
• So, domain will consist of all values of the indepent valriables for which the
function gives a meaningful value.
• Suppose f(x) = 1/x+3. What is its domain? (Set all of real numbers except –3)
• Suppose f(x) = Root of 2x + 4? What is its domain? (x greater than equal to –2)
• Range: f ----> D : The set of all values f(x) that the function assumes is called
the range of f
• If f(x) = x 2, then range of this function would be [0,infinity)
• Domain if represented by Df and Range by Rf

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DOMAIN AND RANGE
• Function is therefore like a machine which supports only the values of the domain
• Which supports

• If f(x) = root of 2x+4 and its domain was [-2,infinity)

• Range of it would be [0, infinity)

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DOMAIN AND RANGE
• Y = 2x – 1 / x2 – x. What is its domain?

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LECTURE 6
1. Graphs of line

2. Basics

3. Graph of function

4. Changing units in graph

5. Shifting of graph

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GRAPHS
• When we wanted to represent real numbers – we used number line
• Now we have moved ahead and instead of one value, we have now two values, x and y as
in dependent and independent variable or input and output variable.
• So, now we have a pair of real numbers which we cannot represent on single number line.
• So, we use graph for that. We draw perpendicular lines. One is X axis, and the other is Y
axis
• There are 4 quadrants
• Just like two number lines
• At origin, both takes value 0
• If we take any point 'p' on the graph, we will be able
to tell the coordinates of x and y. To find the values, draw a
perpendicular towards both the axis to find the values of x
and y.
This is also called cartesian / coordinate system/ x-y plane/ rectangular system

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PLOT THE FOLLOWING
1. Plot (3,4)
• (4,3)
• (-2,1)
• (-3,-4)
• (2,-1)
• X = 3 (a vertical line parallel to y axis)
• Y = 2 (a horizontal line parallel to x axis)
• X ≥ 0 and y ≥ 0
• -2 ≤ x ≤ 1 and –2 ≤ y ≤ 3
• Suppose you have an equation y = 2x – 1
• Then the solution set will be different values of x and y
• When we plot solution set, that is the graph of the equation

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GRAPHS
• How to identify if a curve represents the function?
• Function: a rule which assigns to each point x in the domain a unique value
• Identify whether it is a function or not?

• Do a vertical line test to check whether any equation is a function or not

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CHOICE OF UNITS
• Suppose we are measuring time in terms of minutes. Then the relationship
would be y = x/60
• Whereas while measuring time in terms of seconds. Then the relationship
would be y = x/3600
• While measuring the same thing, graph of both the functions would look
different because of different units.
• Famous saying: Data will tell you what you want it to tell.
• For example, graph of profit of 2 companies:
• One which plots from 1-7 and other who plots from 3-7

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SHIFTING OF GRAPHS
• If the function given is y = f(x) : y = x 2
• Case 1: Plot y = f(x) +c like y = x 2+2
• Case 2: y = f(x+c) like y = (x + 2) 2
• Case 3: y = - f(x) like y = -x2
• Case 4: y = f(-x) like y = (-x) 2 = x2
• Then how to plot these graphs?

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CASE 1
• Plot y = f(x) +c like y = x 2+2
• Now for each unit the graph would
shift above by 2 units
• So, if any type of graph is given
and a positive integer is added,
and you have to find out the graph
of new function then just shift up
every point by the magnitude of the
positive integer keeping the shape
same.
• Opposite for the negative

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 CASE 2
• Plot y = f (x+c) like y = (x+2) 2
• Now y takes value 0 at x = -c
• So, the graph starts at –2
• Then all the points keep repeating
• Graph just shifts towards left
• Similarly, if we have –c then, graph
will shift towards right

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 CASE 3
• Plot y = - f (x) like y = - (x) 2
• Now y will take all the negative
values
• Sign of y will become the opposite
• So, assume the x axis as a mirror
and plot the new curve
• Plot y = x

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 CASE 4
• Plot y = f (-x) like y = (- x) 2
• Here this won't be an interesting
case because even if we take
negative values of x, y will still take
positive values and there would be
no change in the graph
• Take an example of y = x
• Then y axis becomes a mirror for
the graph

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 SUMMARY
• If f(x) +c : Then shift upwards if positive number & downwards if negative
number
• If f(x+c) : Then shift leftwards if positive number & shift rightwards if negative
number
• If - f(x) : Then plot the opposite graph assuming x axis as the mirror
• If f(-x) : Then plot the opposite graph assuming y axis as the mirror

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LECTURE 7
• Practice Questions

• Linear Function

48
PROBLEMS
• If A = {4,5}, B = {3,6,7} and C = {2,3}. Find, (A ∪ B) ∩ (A ∪ C) and A ∪ (B ∩ C). Also, find (A ∩
B) ∪ (A ∩ C) and A ∩ (B ∪ C). This is called Distributive law. [same as a x (b+c) = (axb) +
(axc)
• A ∪ B = B ∪ A and A ∩ B = B ∩ A. This is called commutative law
• A ∪ (B ∪ C) = (A ∪ B) ∪ C and A ∩ (B ∩ C) = (A ∩ B) ∩ C. This is called associative law

• If the domain of the function y = 5 + x is the set {x | 1≤ x ≤ 9}, find the range of the function
and express it as a set.
• For the function y = -x2, if the domain is the set of all nonnegative real numbers, what will
its range be?

• In the theory of the firm, economists consider total cost C to be a function of the output level
Q: C = f(Q)
A. According to the definition of a function, should each cost figure be associated with a unique
level of output?
B. Should each level of output determine a unique cost figure?
49
LINEAR FUNCTIONS
• When we have to find a linear combination between x and y, we represent generally in
the form of y = ax + b.
• It means as x is changing, y is also changing linearly with a constant proportion of a.
• F(x) = ax + b where f is called a linear function.
• Characteristics of this linear function: a is called the slope and b is called y intercept
• If the value of the function is f(x) at x and if x increases by 1 unit, then f(x) = ?
• F(x) at x and f(x+1) at x+1. If I want to see how much the value of my function
changed when x increases by one unit then,
= f(x+1) - f(x)
= a(x+1) +b – ax – b
= ax + a + b – ax – b
= a which the called the slope of my function.
So, slope measures the change in the value of function if my x increases by one unit.
50
LECTURE 8
Linear equations and Inequalities

51
SLOPE OF LINEAR FUNCTION
• If a is positive, then we say that the function is upward sloping
• If a is negative, then we say that the function is downward sloping
• |a| will measure the steepness of the line
• If a = 0, it means that the line is parallel to the x axis.
• B is the value of the function when x = 0

52
GRAPHICAL REPRESENTATION OF LINEAR FUNCTION
• F(x) = ax + b
• F(x) = -ax + b
• F(x) = ax – b
• F(x) = b

53
SLOPE OF LINE
• If equation of a line is given, then we can easily say a is the slope
• But if there are two distinct points given (x1,y1) and (x2,y2), then slope?
• Then slope = y2-y1/x2-x1 where x2 not equal to x1.
• We were measuring the change in function with one unit change in x. here in the
formula of slope of we are measuring if x2 changes to x1 then how much y is
changing.
• If the slope is given and a point is given, then we can also find the equation of a
line.
• For example, a point (-2,3) is given with slope = -4, then equation of line?
• Another general form Ax + By + C = 0

54
SOLVING LINEAR EQUATION
• Solve x + y = 5 and x - y = -1
• Solve them algebraically and graphically

55
LINEAR INEQUALITIES
• Draw set of points that satisfy 2x+y less than equal to 4
Or {(x,y): 2x+y less than equal to 4}
Budget Set where B = {(x,y): px+qy less than equal to m, x and y are positive}

56
LECTURE 9
• Quadratic Functions

• Zeros in the quadratic

function

• Coordinates of max/min
point

57
QUADRATIC FUNCTIONS
• F(x) = ax2 + bx + c where a, b and c are constants. Any function of this type is
called a quadratic function. Where a is not equal to zero otherwise it will be a
linear function.
• Graphs of quadratic functions looks in either U shaped or inverse U shaped. Also
called parabolas.
• It will depend on the value of a. If a is negative, we get an inverted U and if a is
positive, we get a U.

58
PLOTTING QUADRATIC FUNCTION
• Now we want to find out the values of max/min and find out values where
parabola intersects both the axis
• First, we want to understand, for which all values of x is f(x) = 0
• Or for which values of x, ax 2 + bx + c =0.
• Second, we want to know what are the coordinates of maximum or minimum
points.
• If we know these 2 things, then we will be able to make correct parabola
• Former thing is called zeros of the quadratic function. It is nothing but x such
that f(x) = 0 i.e. ax + bx + c =0
• How many zeros are possible in the following graphs: One, two or zero
• (a) (b) (c)

59
ZEROS OF QUADRATIC FUNCTION
• So, there are three possible cases when f(x) can take 0,1 and 2 zeroes
• Now, in which case we would know whether 0 or 1 or 2?
• F(x) = ax2 + bx +c. Example, f(x) = x2 + 2x + 16. Here, a = 1, b = 2 and c = 16
• When b 2 < 4ac i.e. 4 < 4x1x16, then the curve will have no zero
• As in our example the smallest value what f(x) can take can never be zero as if
you solve the equation, x 2 + 2x + 16 = x 2 + 2x + 1 + 15 = (x+1) 2 + 15. So,
minimum value can be 15.
• When b2 ≥ 4ac, and a is not equal to 0, then the value where x = 0 will be

• So, we find the value of x and we know at which values our x will be zero.
• Now if b = 4ac, then only one value where x = 0 i.e. x = -b/2a otherwise 2 zeros
value
60
ZEROS OF QUADRATIC FUNCTIONS
• For example, we have x 2 + 2x + 1
• Then, a = 1, b = 2 and c = 1
• Here 4ac = 4 x 1 x1 = 4 which is equal to b 2
• So, we will have only I zero value which will be x = -b/2a = -2/2 = -1
• Another example: x 2 + 4x + 1 where a = 1, b = 4 and c = 1
• Here, 4ac = 4 and b 2 ≥ 4ac because 16 ≥ 4. So, points where x will be zero
▪ Substitute value in this formula, we get 2 values of x

61
COORDINATES OF MAX/MIN OF QUADRATIC FUNCTION
• We know if a is negative, then we have inverted U. it means we will have a
maximum in this case.
• If a is positive, then we have a U and we will have a minimum case.
• I know that function if f(x) = ax 2 + bx + c
• We try to twist this function, the method is called completing the squares,
• If a is positive, then f(x) = ax 2 + bx + c has a minimum value at
(-b/2a, c-b2/4a)
• If a is negative, then f(x) = ax 2 + bx + c has a maximum value at
(-b/2a, c-b2/4a)

62
EXAMPLE
• F(x) = x2 –4x +3 [Ans: 2 zeros at 3,1 and min at (2,-1)]
• F(X) = -3x 2 + 30x –30 [Ans: No zeros and max at ?]

• 1. Find out the zeros of the quadratic equation 2. Find the min/max points

63
LECTURE 10
• Polynomial Function

• General representation

• Finding zeros of polynomial

equation

• Division of Polynomial
Functions

64
POLYNOMIAL FUNCTIONS
• Linear function: f(x) = ax + b
• Quadratic function: f(x) = ax2 + bx + c
• Cubic Function: f(x) = ax3 + bx2 +cx + d
• General Polynomial of degree n: P(x) = a nxn + an-1xn-1 + an-2xn-2 +….+ a1x1 + a0
• Also called general n th order equation
• Here maximum power of x is n. and "a" are constant where a n is not equal to zero
• If I want to write a polynomial of degree 4. It means n = 4
• So, P(x) = a4x4 + a3x3 + a2x2 + a1x + a0
• Most of the time we are interested in knowing when will the polynomial function take
the value zero. So, find value of x such that P(x) = 0
• Or P(x) = anxn + an-1xn-1 + an-2xn-2 +….+ a1x1 + a0 = 0

65
FINDING ALL POSSIBLE INTEGER
VALUES OF X S.T. P(X) = 0
• Theorem: Suppose that a n, an-1,…,a 1, a 0 are all integers. Then all the possible integer
values of x for the polynomial equation anxn + an-1xn-1 + an-2xn-2 +….+ a1x1 + a0 =0 must
be factors of the constant term a 0.
• For example: x3 – 2x 2 + x – 2 = 0. Now, find all the possible integer roots to this
equation. The above theorem says that all such factors will be a factor of –2.
• All the factors of –2 = +1, -1, +2, -2 because all these numbers are perfectly divisible
with –2
• Now, we put each of these factors in polynomial equation to find if it is zero.
• Check!
• The only integer solution to the equation comes out to be 2
• Example: f(x) = -2x 3 + 2x 2 + 10x + 6

66
REMAINDER THEOREM
• The Remainder Theorem:
• Let P(x) and Q(x) be two polynomials for which degree of P(x) is greater than or equal to
the degree of Q(x). Then there always exists a unique polynomial q(x) and r(x) such that
P(x) = q(x)Q(x) + r(x) where degree of r(x) is less than the degree of Q(x).
• What is a degree of a polynomial? (Highest power of the polynomial)
• Dividend = Quotient x Divisor + Remainder
• For example: (x 4 + 3x 2 - 4) / (x2 + 2x)
• Dividend = x4 + 3x 2 – 4. Divisor = x 2 + 2x. Quotient = x2 – 2x + 7 and remainder = -14x – 4
• P(x) = q(x)Q(x) + r(x). We can verify through this equality if we have done the division
process correctly.
• Practice problem: P(x) = -2x 3 + 2x 2 + 10x + 6; Q(x) = x-3 ;q(x) = -2x 2 -4x – 2; r(x) = 0

67
LECTURE 11
• Power Functions

• Graphs of power
function

68
POWER FUNCTIONS
• General form of a power function: F(x) = xr
• If r is any integer: can be positive, negative and zero
• If positive, the f(x) = x 2 = x.x
• If zero, the f(x) = x 0 = 1
• If negative, then f(x) = x-2 = 1/x 2
• If r take any rational number
• For example: 51/3 = such a number whose cube is 5. Also called cube root of 5
• Can also be written as, x 3 = 5.
• If we have xp/q, then [x 1/q]p
• These are defined for the negative values of x also. Example: -81/3
• These can be written in the root form also ∛5.
• Solve, (25)3/2
• If (xy)p then it can be written as xp.y p
• But (x+y)p cannot be written as xp+y p
69
GRAPHS POWER FUNCTIONS
• Draw:
• Y=x
• Y = x2
• Y = x3
• Y = x4
• One common thing among all is that all the graphs pass through (1,1)
• Y = x 0.5 or x 1/2. Compare only y = x2 and y = x1/2
• Similarly compare y=x 3 and y = x1/3
• This phenomenon of mirror image will be applicable for all the powers
• Y = x-1. Negative relation between y and x. As x increases, y decreases.
• Y = x–2 or x–3 The common phenomenon with negative powers if the downward sloping curves

70
EXPONENTIAL FUNCTIONS
• In power functions, the power was constant, now in exponential function, the power will
be variable
• Exponential functions would look like: 2 x or ex

71
LECTURE 12
Slope of a curve

Derivative

72
SLOPE OF A CURVE
• In economics, most of the time we are very interested in knowing a unit change,
be it a unit increase in the production, then how much will the profit grow? How
much will the cost grow? If the consumption increases by one unit, then how
much utility/happiness of the consumer increase etc.
• Whenever we draw a graph, in case of linear equation, it is always a straight
line, and it can be positive, negative or flat line.
• These are well behaved curve we can easily tell the impact on y if we increase
or decrease x by some units.
• But every time, we won't get these well-behaved curves
• In such cases, when we don't have straight lines, we describe slope at the
particular point.
• And how to find slope at that particular point? Just draw a tangent which
touches only that particular point and whatever will be the slope of that
particular tangent, it will be the slope at that particular point as well.

73
SLOPE OF A CURVE
• Now suppose, we have a diagram like this.
• A graph for y = f(x)
• If you have to find the slope at point p, q and r?
• At p, value of x = 1, at q, x = 4 and at r, x = 7
• Slope is also called derivative of a particular function
• It can be written as f'(x)
• So, question can be to find out f'(1), f'(4) and f'(7)
• Why are we trying to find out slope? Because we are interested in knowing if value of
x is changing by one unit, then what impact it is having on y whether it is going
down/up etc. (see def of slope in lec. 8)
• So, at point x = 1, we draw a tangent and try to find out the slope of that particular
line and that slope will be the slope of point p as well.
• So, f'(1) = (y1-y0)/(x1-x0) = 3-2/2-1 = 1.
• Similarly, f'(4) = 3-3/5-4 = 0 and f'(7) = 3-2/6-8 = -0.5
• Derivative: it is a rate of change of a function at a specific point. Since we are
measuring that rate of change through the slope of tangent. Therefore, it's also the
slope of the tangent line to the function's graph at that point.
74
SLOPE OF A CURVE
• It this is a function given, where f'(a) is the slope
and we are asked to find out the equation of the line
at point a. The, we know the slope, and value of
(x0,y0), so, y1-y0 / x1-x0 = m. Here,
= y - f(a) / x – a = f'(a)
= y – f(a) = f'(a) [x-a]
This will be the equation of line passing through point (a, f(a)).

75
DERIVATIVE FORMULAS
• Symbols of derivatives:
• f'(x)
• dy/dx
• df(x)/dx
• All of the above means the same thing

76
LECTURE 13
• Rules of Differentiation

77
BEFORE GOING TO RULES OF DIFFERENTIATION
1. Why do we need rules if we can simply find out slope of a tangent at every point?
Calculating slope at every point would be a tedious task when the functions will become complex. In
such cases derivative of the function would give a single slope function for the whole curve.
2. In a curve where we find some spots where it is increasing and some spots where it is decreasing,
how is it possible to find out a single derivative of a function?
While calculating derivative a function through the derivative rules, we are finding a common derivative
function but not a single value such that if we substitute the values of x in that function, it will take
values which might be -/+ or zero.
Example: A cubic function: x3 . Its derivative is 3x 2 .
Now if we put any value less than 0, then the function is decreasing.
If we put a value more than 0, then the function is increasing.
If we put a value equal to 0, then the curve is flat.
3. Is every function differentiable?
No, not every function is differentiable. The function should be continuous and smooth in order to be
differentiable at every point. If the function has any sharp ends, edges and vertical points, then it won't
be differentiable at those points.

78
RULES OF DIFFERENTIATION
1. If f is a constant function, y = f(x) = A, the derivative y' = f'(x) = 0. Because the rate of
change is zero. Example if y = 3, then y' = 0
2. Adding constants to a function, suppose y = A + f(x), then y' = f'(x). Example, if y = 3+x then
y' = 0 + d(x)/dx
3. If multiplied with a constant then, y = Af(x) then y' = Af'(x). Example if y = 3x. Then y' =
3d(x)/dx
4. Power Rule: f(x) = xn then f'(x) = nxn-1 where n is an arbitrary constant where a ∈ R
Example 1: Differentiate f(x) = 3x 5, then use both product and power rule to find the answer.
3 will be as it is and derivation of the rest of the function, so, f'(x) = 3 d/dx (x5) = 3.5x5-1 = 15x 4
Example 2: Differentiate f(x) = 1/x2.
5. a'(x) = f'(x) + g'(x)
Example: d/dx(3x 8 + x100/100). Both these functions can be differentiated separately and added.

79
RULES OF DIFFERENTIATION
1. Product Rule: If there is a function in the form of F(x) = f(x).g(x) where the 2 functions f(x)
and g(x) are both differentiable at point x, then its derivation would be:
F(x) = f(x).g(x) then F'(x) = f'(x)g(x) + g'(x)f(x)

2. Quotient Rule: If there is a function in the form of F(x) = f(x)/g(x) where the 2 functions f(x)
and g(x) are both differentiable at point x, and g(x) is not equal to zero, then
F(x) = f(x)/g(x) then F'(x) = [ f'(x)g(x) - g'(x)f(x) ] / g(x) 2

80
EXAMPLE PROBLEMS
1. y = 25 13. If average revenue is AR = 15-Q. Calculate total revenue
and marginal revenue
2. y = 3x
14. y = (2x+3)(3x 2)
3. y = 10 + x
15. y = (9x 2–2)(3x+1)
4. y = x 9
16. y = (2x-3)/(x+1)
5. y = 2 + x 0
17. y = 5x/x2+1
6. y = 4x 3
18. If cost function is given as C(q) = q 3 – 12q 2 + 60q. Then
7. y = 3x-2
find average cost and marginal cost.
8. y = -x-4
19. If total product is Q = aL + bL2 + cL3. Find out the
9. y = 3/4x 4/3 marginal product and average product.
10. y = 5x 3 + 9x 3 20. Total cost = C = Q 3 + 5Q2 + 12Q + 75. Find out the
11. y = 7x 4 + 2x 3 + 3x + 37 variable cost function. Find the derivative of the VC function
and interpret the economic meaning of that derivative.
12. y = 2x 3 + 13x 3 + x3

81
LECTURE 14
Practice Questions Part 2

82
LECTURE 15
Higher Order Differentiation

Implicit Differentiation

83
HIGHER ORDER DERIVATION
1. Compute f'(x) for f(x) = 2x 5-3x 2+2x. Further compute f''(x) i.e. double derivative.
It is also written as d2f(x)/dx 2
Similarly, we can also find triple derivative or nth derivative.
It can be written as d3f(x)/dx 3 or dnf(x)/dx n

84
GENERALIZED POWER RULE
1. The generalized power rule says, y = [g(x)] a. Y' = a[g(x)]a-1.g'(x)
2. Suppose there is a function with y = (x 3 + x2)50.
3. So, the derivative of the above function would be y' = 50((x3 + x2)49. (3x 2+2x)
4. If y = √(x2+1) then y' = ?
5. If y = (1 - x3)5 then y' = ?
6. If y = (9x3 + x4)25 then y' = ?

85
IMPLICIT FUNCTIONS
1. Sometimes, when the function is given where we cannot separate y and x
2. Like x + y3 = y5 – x2 + 2y
3. In such cases if we have to find out dy/dx, there are two steps,
4. A. Differentiate both sides with respect to x
5. B. Solve the resulting equation for dy/dx
6. So, dy/dx = 1 + 3y 2. dy/dx = 5y4. dy/dx -2x +2. dy/dx
7. Now we want dy/dx, for that, we just bring all dy/dx one side and solve
8. 1+2x = 5y4.dy/dx +2.dy/dx - 3y2.dy/dx
9. 1+ 2x = (5y4 + 2. - 3y2)dy/dx
10. (1 + 2x)/(5y4 + 2. - 3y2) = dy/dx

86
 PRACTICE QUESTIONS
1. The production function for a firm is given by Q=10L 0.5K 0.5, where L is labor, and K is
capital. Differentiate this function to find the marginal products of labor and capital.
2. The utility function of a consumer is U(X,Y)=X 2Y, where X and Y are the quantities of two
goods. Find the marginal utility of X and Y.
3. The total cost function of a firm is C(Q) = 4Q 3−6Q2+12Q. Find the rate of change of total
cost when Q=3
4. The total revenue function of a monopolist is given by TR(Q)=120Q−2Q 2. Find the quantity
at which the firm maximizes total revenue and calculate the price at that quantity.
5. The total revenue function is TR(Q)=300Q−5Q2. Find the average revenue (AR) and
marginal revenue (MR) functions. Also, calculate the average revenue and marginal
revenue when Q=10.
6. A firm’s profit is given by π(Q)=100Q−5Q 2−200. Find the quantity Q that maximizes profit
and calculate the maximum profit.
7. The total cost function of a firm is C(Q)=2Q 3−5Q2+7Q+50, where Q is the output level. Find
the marginal cost (MC) function and determine the marginal cost at Q=5.
8. A firm's total revenue function is given by TR=500Q−4Q 2, where Q is the quantity of goods
sold. Find the marginal revenue function and determine the marginal revenue when Q=10.
87
LECTURE 17
Elasticity with Differentiation

88
 ELASTICITY
1. In economics, we are always very interested to know what is an effect on a variable if
another variable changes.
2. Be it absolute change, relative change or percentage change.
3. Example of absolute change : change in the value of revenue because of one unit
change in price
4. Example of relative change : change in the value of revenue compared to the original
revenue because of one unit change in price
5. Example of percentage change: %age change in the value of revenue if there is one
percent change in price
6. Why do we need percentage change? Because sometimes one unit change is not so
significant. Example: change in the demand of houses due to one rupee change in the
land? Doesn't make so much sense. So, instead of absolute terms we try to calculate
in percentage forms.
7. If land price is one crore and one percentage change would be whatever, then what is
the impact on the demand
89
 ELASTICITY
1. Elasticity helps us to be unitless. Everything is then measured in percentage terms.
2. Being unitless will help us compare things, be it to compare elasticity of houses or
elasticity of mangoes, we can easily compare them.
3. This is the basic rational behind the idea of elasticity
4. Price elasticity of demand: Q = D(P). It means demand of some quantity of goods Q is
a function of its price. This function will give different values of Q at different prices.
5. Price elasticity then become: D'(p) x P/D(P)
6. This is just regard to price elasticity, this can also be generalized:
7. To define elasticity generally: Elasticity of f(x) w.r.t x = Elxf(x) = f'(x). x/f(x)

90
 PROBLEMS
1. The demand curve is Q=500−3P. Compute the price elasticity of demand at P=50.
2. Given the demand function Q=200−6P, determine whether the demand is elastic,
inelastic, or unitary at P=20
3. For the demand function Q=100−4P, find the total revenue function TR=P×Q and then
calculate the elasticity of demand when P=15.
4. The supply function is given by S=20+5P, where PPP is the price. Calculate the price
elasticity of supply at P=10
5. 4: The demand for a product as a function of its price can be expressed as D(p) = 675 −
0.25p2. Calculate price elasticity of demand
6. Suppose D(p) = 8000 p -1.5. Calculate price elasticity of demand.

91
LECTURE 19
Continuity

Intermediate Value Theorem

92
 CONTINUITY
1. It means that things are continuous, like height, temperature

2. Anywhere if you require to pick up your pen, it is discontinuous function

3. All the polynomial functions are continuous function.
4. For example: If I want to know whether f(x) = (x 5 +4x3 – 1)/(x-2)(x-1)
5. Since we know that polynomial function in the numerator is continuous, we just need to find
out where is the whole function undefined. Where is it?

93
CONTINUITY AND DIFFERENTIABILITY
• Suppose our function looks like:
• Is the function continuous at c?
• Is the function differentiable at c?
• So even if your function is continuous, there is no guarantee
that your function is differentiable also.
• So, continuity ⇏ Differentiability
• Does the other way is possible? Can we say if a function is differentiable, it will be continuous
also?
• Yes, you can calculate the rate of change can only be if the function is continuous.
• Note: A function is not differentiable at any kinks or corners
• Plot the graph for absolute value of x, does it have any kink/corner?

94
IMPLICATIONS OF CONTINUITY AND DIFFERENTIABILITY
• First result of Continuity and Differentiability is:
• INTERMEDIATE VALUE THEOREM
• Statement: Let f be a function that is continuous for all x in the closed interval [a, b] and assume
that f(a) ≠ f(b). Then, as x varies between a and b, f(x) takes on every value between f(a) and
f(b).

• In one line, this theorem says there must be at least one value of x such that function take the
value m 95
 COROLLARY
• Let f be a function which is continuous in [a, b] and assume that f(a) and f(b) have different
signs. Then there is at least one m ∈ (a,b) such that f(m) = 0.
• This theorem helps us to understand why solution for some equations exist
• For example: x 7 – 5x 5 + x3 – 1 = 0. Show that at least one solution of this equation exists
between the interval of (-1, 1)
• First, we see check whether the function is continuous? Yes, since all polynomial functions are
continuous.
• So now according to the corollary, if f(a) and f(b) would have different signs, then there would
be a solution where f(x) = 0
• Similarly, if I ask you if f(x) = x3 + ax2 + bx + c = 0. Does it have any real root?

96
LECTURE 20
Extreme Value Theorem

Mean Value Theorem

97
DEFINING MIN/MAX
• Suppose you have a function f(x)
• Definition of a maximum point:
• And f(x) has a domain D (set of all point where the function is defined or what all values x can
take such that f(x) is meaningful), then there is some point c ∈ D is maximum point for f ⇔ f(x)
≤ f(c) for all x values which belongs to D.
• Definition of a minimum point:
• And f(x) has a domain D (set of all point where the function is defined or what all values x can
take such that f(x) is meaningful), then there is some point d ∈ D is maximum point for f ⇔
f(x) ≥ f(d) for all x values which belongs to D.
• So, f(c) would be the maximum value of the function
• And f(d) would be the minimum value of the function

98
IMPLICATIONS OF CONTINUITY AND DIFFERENTIABILITY
• Second result of Continuity and Differentiability is:
• EXTREME VALUE THEOREM
• Statement: Let f be a function that is continuous for all x in the closed and bounded interval [a,
b] then f attains both a maximum value and a minimum value in [a, b].
• Remember: This is a sufficient condition and not a necessary condition.
• We are giving condition that if continuous, closed and bounded then definitely min and max
• But even if these conditions are not there then also min/max can be there.
• Why do we necessary need only closed interval? Why not open?
• COROLLARY:
• Let f be defined in an interval [a, b] and let c be an interior point of [a,b]. If c is maximum or a
minimum point of f and f'(c) exists, then f'(c) = 0.
• The points at which f'(c) = 0 are called stationery points.
• Example: Check whether maximum and minimum exists for f(x) = (x 6 + 5x 3 + 2x + 8) / (x 4 + 10)
when x ∈ [0, 5]
99
IMPLICATIONS OF CONTINUITY AND DIFFERENTIABILITY
• Second result of Continuity and Differentiability is:
• MEAN VALUE THEOREM
• Statement: Suppose f is continuous on [a, b] and differentiable on (a, b), then there exists a
interior point c such that f'(c) = f(b)-f(a)/b-a.
• Example: Check for f(x) = root (9 + x 2) for interval [0,4]
• First use formula to find f'(c), then equate it to f'(x), since slope is same, so you would have that
interior value of x where slope of line and function is the same.

100
LECTURE 21
Class Test

101
LECTURE 22
Practice Questions

102
PRACTICE PROBLEMS
• The average cost function is given as AC = 1/3x 2 - 10x + 9. The level of output at which average
cost is equal to marginal cost will be?
A. 18
B. 12
C. 15
D. 21
• F(x) = 3x3 – 4x2 + 10 implies:
A. f(1) = 10
B. f'(x) = 9x 2 + 8x + 10
C. f''(x) = 18x – 8
D. F'(2) = 20
• Determine all the values of c, for the function f(x)=x²−5x+7 on interval [-1, 3] which satisfies the
mean value theorem.

103
PRACTICE PROBLEMS
• Determine all the value of c, for the function f(x)= 4x² for the interval [2, 5] which
satisfies the mean value theorem.
• Consider function f(x) = x 3 - 27x + 2. Find the maximum and minimum values of f(x) on
[0, 4] using the extreme value theorem.
• Find the extreme values of the function f(x) = x 3 - 4x2 + 4x + 6 in the interval [-1, 5]
• Find extreme values of the function f(x) = x 3 + 36x in the interval [1, 1]
• Find extreme values for f(x) = x 3 + 4x + 6 in the interval [-1, 5]

104
LECTURE 23
Finding limits

L'Hopital's Rule

105
WHY DO WE FIND LIMIT
• What are limits?
• It means what value does the function takes as we approach closer and closer to a
certain value of x.
• We write it as lim f(x) = f(a) when x --> a.
• When we approach either from right or left side, if the number
we approach towards is the same, then we can say that limit exists.
• For example: A firm owner wants to know if they charge a they reduce the price to $5
when his price is $10 then what is the impact and if his price is $1 then if he increases
to $5 then what is the impact? If the impact from both right and left side is the same,
then we can say that the limit exists when price reach to $5.
• If we get different results from both the sides, then the limit is indeterminant and there
should be different policies which should be made for increasing or decreasing price.

106
PROBLEMS
• Find the total cost function C(Q) = 5 + 2Q +Q 2. Find the limit when Q ---> 0.
• Find the lim AC(Q) = 500/Q + 5 when Q --> ∞
• Find lim Q when P---> if Q = 100/P+1
• Find lim C when if consumption function in marginal propensity to consume in
Keynesian model is C = 50 + 0.8Y when Y---> 0
• Find lim π when π(Q) = -10 + 5Q – Q2 when Q ---> 0
• Find lim P when P = 200/Q + 2 when Q --> ∞
• Find lim MC when TC = 10 + 4Q + Q 2. When Q ---> 0
• Find lim Ed when Q = 60 – 3P. When P ---> 10
• Find lim MUx when U(x) = x 0.5 when x ---> 4

107
SIMPLIFICATION METHOD
• Now, there would be some kinds of functions where we substitute and we would end up
with a form like 0/0, ∞/∞, -∞/∞. These are called indeterminant values.
• In such cases, we might need further simplification to substitute.
• For example: A function given is like y = (x 2 – 16)/(4√x – 8). Find lim y when x-->4
• In this case if you directly substitute then the function will take an indeterminant value
and it will take a form of 0/0.
• So, we should either simplify it or use L'Hoiptal's rule.
• First through simplification:
• = (x + 4) (x – 4) / 4(√x – 2)
• = (x + 4) (√x – 2) (√x + 2) / 4(√x – 2)
• = (x + 4)(√x + 2) / 4
• Now if we substitute x --> 4 then, we will get lim y = 8

108
L'HOPITAL'S RULE
• It is difficult to simplify every time and then substitute, so there's a second method
• The rule says that if function f (numerator) and g (denominator) are differentiable at x =
a and condition is f(a) = 0 and g(a) = 0, and g'(a) is not zero, then:

• Let us try to solve the previous problem again through this rule, then f(x) = (x 2 – 16),
g(x) = (4√x – 8). Now we know f(4) = 0 and g(4) = 0 and both the functions
are differentiable, so according to the rule, f'(x) = 2x and g'(x) = 2x-1/2
• Then, lim = 2x/2x-1/2 = 4.2 = 8

109
L'HOPITAL'S RULE
• Note: If after using L'Hopital's rule also, you get a form like 0/0, then you can
differentiate one more time and equate it to lim y = f''(x)/g''(x)
• Be carefule whether we can apply the rule or not
• For example: find lim y = 2x + 3 / 4x – 2 when x--> 1. Can you apply the rule?
• Find lim y = (1 – 3x2) / (5x2 + x – 1) when x --> ∞. Can we apply the rule?
• Find lim AC when TC = 50 + 10Q when Q -->∞
• Find limit π where π(Q) = 100Q / Q + 1 when Q--> ∞

110
LECTURE 24
How to find:

Maxima

Minima

111
MAXIMA & MINIMA
• If we have a function, then with different values, when can we say that a particular
value is maximum, or value is minimum
• Suppose we have a function and there's one point in the domain called 'c'.
• When can we say that 'c' is a maximum point. We can say that when after putting c in
the function, function value gives us the maximum value compared to all the other
points from the domain.
• We can also write it as f ⟺ f(x) ≤ f(c) for all x ∈ D
• Similar definition for the minimum value. f ⟺ f(x) ≥ f(d) for all x ∈ D
• So, f(c) is maximum value and f(d) is minimum value.
• They also called with certain other names: optimum values, extreme values, optimum
points, extreme points.
• Any point is a stationary point if at that particular point the f'(x) = 0.
• F'(x) being equal to zero means that the tangent is flat

112
MAXIMA & MINIMA
• Flat means it is parallel to x axis.
• So, in the figure, when you draw a tangent at the point
x0, it will be flat and parallel to x axis which also means
that derivative at that point would be zero.
• Now we are very interested in finding out extremes.
• Let's see what are different possibilities of maxima/minima graphically.

113
MAXIMA & MINIMA
• How many stationary points are there?

• What are the maximum and minimum value here? Point x1 and x2

114
MAXIMA & MINIMA
• How many stationary points are there?

• What are the maximum and minimum value here? Point c and b

115
MAXIMA & MINIMA
• How many stationary points are there?

• What are the maximum and minimum value here? Point a and b

116
RESULTS
• Suppose f(x) is differentiable on an interval I, and suppose f(x) has only one stationary
point x = c, and if f'(x) ≥ 0 for all x ≤ c and f'(x) ≤ 0 for all x ≥ c, then we can say that x
= c is the maximum point.

• Similarly, if f'(x) ≤ 0 for all x ≤ c and f'(x) ≥ 0, x ≥ the minimum point for function f.

117
RESULTS
• Now if I don't have such clean function where only one stationary point is there, then
how to find the extreme points in general?
• In case 1 we saw: Both stationary points were extreme values
• In case 2 we saw: minimum was where derivative did not exist and minimum was at
border point or end point
• In case 3: We have three stationary point, but neither of them are extreme point, but
the border points are maximum and minimum both.

118
RESULTS
• Let's say 'c' is a point where function is taking maximum value in the defined interval,
then
C

C is an end point C is an interior point

C is a stationary point C is where derivative does

where f'(c) = 0 not exist
• f'(c) = 0 is a necessary condition but not a sufficient condition to have a optimum point
in the interior of the interval. 119
RESULTS
• So, all the candidates which run for elections to become maxima or minimum are either
end points, stationary points or where derivative does not exist
• In economics, mostly we deal with only first two categories as mostly we deal in those
functions only which does give us information about change.
• If you are given 10 such candidates, then you can just substitute the value of all of them
in the function and decide which gives you the maximum value and which gives you the
maximum value.
• So, the steps would be, if you are given a function which is differentiable in the interval
[a,b], then,
• Step 1: find all the stationary points
• Step 2: Find function value at those stationary points
• Step 3: Find the function value at the end points
• Step 4: Decide which of them gives you minimum and maximum value, and that value
of x would be your minima and maxima.
120
PROBLEMS
• Find the maximum and minimum of f(x) = 4x 2 – 40x + 80 in the interval [0,8]
• Find the maximum and minimum of f(x) = 3x 2 + 60x in the interval [0, 1]
• Find the maximum and minimum of f(x) = x 3 - 9x in the interval [1,2]

121
LECTURE 25
Local Maxima

Local Minima

Global Maxima

Global Minima

122
LOCAL MAXIMA/MINIMA
• Global Maxima/Minima: When we find the maximum/minimum as compared to all the
points in the domain.
• But sometimes we might be interested in finding local maxima or minima. And we find
local maxima and minima by comparing the function values

• Here P1, P2 are local maxima and Q1, Q2 are local minima
• Definition: Function f(x) is defined on domain A, function f has a local maximum at
point c if there is an interval (a, b) about c, such that f(x) ≤ f(c) for all those A that also
lie in (a,b)
• If first order derivative changes from +ve to –ve: then local maxima
• If first order derivative changes from –ve to +ve: then local minima 123
SECOND ORDER DERIVATIVE TEST
• Now we have to check the rate of change of first order derivative
• Let f be a twice differentiable function in an interval I. Suppose c is an interior point of
I, then,
• 1. If f'(c) = 0 and f''(c) < 0, it means c is a strictly local maximum point
• 2. If f'(c) = 0 and f''(c) > 0, it means c is a strictly local minimum point
• 3. If f'(c) = 0 and f''(c) = 0 then ? Consider case of x 4, -x4, x 3

124
SECOND ORDER DERIVATIVE TEST
• So, local maximum for f => f''(c) ≤ 0
• Local minimum for f => f''(c) ≥ 0

125
PRACTICE PROBLEMS

126
LECTURE 26
Exponential Functions

Logarithmic Functions

127
EXPONENTIAL FUNCTIONS
• Power function vs Exponential functions
• In power function, power remains constant, and base is a variable. Example: x 2, x 3, 2x5
• Whereas, in the exponential functions, base remains a constant whereas power is
variable. Example: 2 x, 3 x.
• Exponential function with base a: f(x) = a x where 'a' is a factor by which function
changes when x increases by 1 unit.
• F(x+1) = ax.a where = f(x).a
• Whenever we talk about exponential function, the first function which comes to our
mind is ex. This e is just one of the values of a.
• Plot these values on Desmos and see the graph: 2 x, 3 x, 5 x, ex
• Are they all strictly increasing/upward sloping or decreasing/downward sloping?
• Every single graph passes through one single point. Which is that?
• Now if we want to find out f'(0) for 2 x, how to find that out? By drawing a tangent at x
= 0. Then plot 3x, is the slope of 3x at x = 0 higher or lower? 128
EXPONENTIAL FUNCTIONS
• As a becomes higher and higher, tangent becomes steeper and steeper that means it
increases continuously.
• Then there will be at least one such value of a where the slope of will be 1 i.e. f'(0) = 1
• This a is called 'e' where the slope at f'(0) would be 1
• This e is an irrational number whose value [e = 2.718281828459025......]. at this point,
f'(0) = 1
• So, derivative value of f(x) = ex would be f'(x) = ex.1 = ex
• F(x) = ex is called natural exponential function. Its function value is exactly same as its
derivative value.
• Its first, second, third and so on order of derivatives are all same.

129
EXPONENTIAL FUNCTIONS
• Differentiate f(x) = x 2.ex
• Differentiate (x2 – 2x – 3)ex
• Differentiate e 2x
• Differentiate ex4
• Differentiate ex + e-x

130
LOGARITHMIC FUNCTIONS
• We see a lot of statements like these, example: at present rate of inflation, how long
will it take for the prices to double?
• 2x = 4. What should be the value of x such that we get 4?
• That is represented by logarithmic functions: log 24 = 2
• What should be power of 10 to get result as a?
• It will be represented by log 10a = x or 10x = a
• What should be the power of e such that we get 1, so log ee = 1
• Log vs ln. For ln, we assume that the base is e whereas for log, bases can be different.

131
LOGARITHMIC FUNCTIONS
• Differentiation of natural log functions is ln x = 1/x

132
LECTURE 27
Concave Functions

Convex Functions

133
CONCAVE/CONVEX FUNCTIONS
• Suppose we have a function x which is differentiable,
• Then if f'(x) ≥ 0 ⟺ f is _______ in the interval
• If f'(x) ≤ 0 ⟺ f is _______ in the interval
• Now, f''(x) is the derivative of f'(x)
• f''(x) ≥ in the interval ⟺ f'(x) is _______ in the interval
• f''(x) ≤ in the interval ⟺ f'(x) is _______ in the interval

134
CONCAVE/CONVEX FUNCTIONS

1. 2.

1. The first order derivative is increasing or

decreasing?

3. 2. It goes from –3 ----> 3

3. What is happening to the second order derivative?

135
CONCAVE/CONVEX FUNCTIONS

1. 2.

1. The first order derivative is increasing or

decreasing?

3. 2. It goes from 3 ----> - 3

3. What is happening to the second order derivative?

136
CONCAVE/CONVEX FUNCTIONS
• Suppose f is continuous on the interval I and twice differentiable in the interval I,
denoted by I0.
• F is convex in I ⟺ f''(x) ≥ 0 for all x in I0
• F is concave in I ⟺ f''(x) ≤ 0 for all x in I0
• So, convex function can be increasing also and decreasing also, we will have four
possibilities,

o (a) (b) (c) (d)

137
CONCAVE/CONVEX FUNCTIONS
• (a) and (c) are increasing functions
• (b) and (d) are decreasing functions
• Increasing Function. f'(x) is increasing for (a), so convex
• Decreasing Function, f'(x) is increasing for (b), so convex
• Increasing Function, f'(x) is decreasing for (c), so concave
• Decreasing Function, F'(x) is decreasing for (d), so concave

138
CONCAVE/CONVEX FUNCTIONS
• Check concavity/convexity of (a). f(x) = x 2 – 2x + 2 and (b). f(x) = ax 2 + bx + c
• (a) f(x) = x2 – 2x + 2; f'(x) = 2x – 2; f''(x) = 2; convex
• (b) f(x) = ax 2 + bx + c; f'(x) = 2ax + b; f''(x) = 2a; convex if 2a ≥ 0 and concave if 2a ≤ 0
• If f''(x) = 0, then? Example = line
• Question: Y = AKa where (A>0; 0<a<1)
• Y' = AaKa-1 and Y'' = Aa(a-1)Ka-2. What is the sign of overall function? Concave
• What if a>1. Then?

139
INFLECTION POINT
• It is called change in curvature. It can be either convex to concave or concave to
convex. (Skiing) Slope will be the steepest at the inflection point.

• Sign of second order derivative will be different before and after the point 'c'.
• So, point c is an inflection point for a twice differentiable function f if there is an
interval (a, b) containing point c such that either of the following two conditions hold .
• a. f"(x) ≥ 0 if a<x<c and f"(x) ≤ 0 if c<x<b OR
• b. f"(x) ≤ 0 if a<x<c and f"(x) ≥ 0 if c<x<b
140
TEST FOR INFLECTION POINT
• Let f be a function with a continuous double derivative in an interval Ind suppose point
c is in the interior of I. Then,
• (a). If c is in inflection point for f, then f"(c) = 0
• (b). If f"(c) = 0 and f" changes sign at c, then c is an inflection point for f.

• Show that f(x) = x 4 does not have an inflection point at x = 0, even though f"(0) = 0.
• So, f'(x) = 4x3; f"(x) = 12x 2. Now f"(0) = 0, but if you take f"(1) then also > 0 and f"(-1)
then also > 0. So, even if f"(0) = 0, but still, it is not an inflection point, but it is
minimum point.
• Suppose f(x) = x 3/9 - x2/6 - 2x/3 + 1. Then, find the possible inflection points. (½)

141
TEST FOR INFLECTION POINT
• Find the possible inflection points for f(x) = x 2ex
• f'(x) = 2xex + x2ex
• f''(x) = 2ex + 2xex + 2xex + x2ex
• f''(x) = ex (2 + 2x + 2x + x2)
• f''(x) = ex (2 + 4x + x 2)
• For x2 + 4x + 2 = 0,

142
TEST FOR INFLECTION POINT
• So, x1 = -2 - √2 and x2 = -2 + √2
• We can write function as ex(x-x1)(x-x2)
• = ex [x-(-2 - √2)] [x-(-2 + √2)]
• Now, we know at x 1 and x2, f''(x) is 0
• Now we should check signs right and left side of these two points.
• So, both x1 and x2 are
inflection points.
▪ What about convex and concave?

143
LECTURE 28
Matrices

Determinants

144
HOW TO FIND MIN/MAX FOR CONCAVE/CONVEX FUNCTIONS
• Let the cost of producing Q units of a commodity be C(Q) = aQ 2 + bQ + c and Q>0,
where a, b and c are positive constants. Prove that the average cost A(Q) = (aQ 2 + bQ +
c)/ Q has a minimum at Q* = √(c/a)

• One other definition of convex and concave function is:

• Function f is called concave (convex) if the line segment joining any 2 points on the
graphs of that function is never above (below) the graph.

145
MATRIX ALGEBRA
• To make things compact
• There are n number of equations, budgets, commodities which should be incorporated
in a single model. Matrices allow us to make them compact
• Further Determinants allow us to find out whether a solution exists or not for the set of
equations put in the matrix format
• As a simple example, say you have been given a linear-equation system:
• 6x1 + 3x2 + x3 = 22
• X1 + 4x2 – 2x3 = 12
• 4x1 – x2 + 5x3 = 10
• Then the matrix form will be:
• A=6 3 1 x = x1 d = 22 A = [3x3]; x =[3x1]; d = [3x1]
• 1 4 -2 x2 12
• 4 -1 5 x3 10
146
MATRIX ALGEBRA OPERATIONS
• When we say two matrices are identical, it means all the elements are same in their
respectives orders.
• Thus,

• Addition and Subtraction of Matrices:

• Dimensional requirement should be met for additon and subraction of the matrices.
• Aij = Bij
• Addition problem
• Scalar multiplication

147
MATRIX ALGEBRA
• Multiplication of Matrices
• Suppose there are two matrices A and B and we want to find their product AB,
• Then condition for multiplication is that column of the first matrix must be equal to the
row of the second matrix.
• Suppose A = [a11 a12] ; B = b 11 b12 b13 Where A = 1x2 and B = 2x3.
• b21 b22 b23
• So, multiplication is thus possible.
• Example: A = 3 -1 2 B = 0 -1/5 3/10
• 1 0 3 -1 1/5 7/10
• 4 0 2 0 2/5 -1/10

148
MATRIX ALGEBRA
• A simple national-income model in two equations for endogenous variables Y and C
• Y = C + I 0 + G0
• C = a + bY
• Rearrange and bring endogenous variables on one side:
• Y – C = I 0 + G0
• -bY + C = a
• Now put in matrix format,
• A = 1 -1 x= Y d = I0 + G0
• -b 1 C a
• Now multiply Ax = Y -C = I0 + G 0
• -bY C a

149
LECTURE 30
Matrices

Determinants

150
MATRIX ALGEBRA

• Matrix Addition
• 1. Commutative Law: A + B = B + A
• 2. Associative Law: (A + B) + C = A + (B + C) and (A + B) - C = A + (B - C)
• Matrix Multiplication
• 1. Not commutative: AB ≠ BA
• 2. Associative Law: (AB)C = A(BC) = ABC (no. of columns of 1st = no of rows of 2nd)
• 3. Distributive Law: A (B + C) = AB + AC = (B + C)A = AB + AC

151
MATRIX
• Identity Matrix
• A square matrix (number of r =c) whose diagonal elements are 1 and 0s elsewhere.
• It is represented by the symbol I n where n refers to the dimension (rows and columns)
• Property of identity matrix:
• AI = IA = A
• Check A = 1 2 and I = 1 0 AI= ?
• 2 0 0 1

• Null Matrix/Zero Matrix

• A matrix where all the elements are 0s. It is denoted by number 0.
• Properties:
• A + 0 = A and A0 = 0; 0A = 0

152
TRANSPOSE
• When rows and columns of a matrix A are interchanged such that first row becomes
first column and vice versa is called transpose.
• It is represented by A' or AT
• Example: A = 3 8 -9 B = 3 1
• 1 0 4 4 7

• So, A' = 3 1 and B' = 3 4

• 8 0 1 7
• -9 4
• Properties of transpose:
• (A')' = A
• (A + B)' = A' + B'
• (AB)' = B'A'
153
MATRIX ALGEBRA
• (AB)' = B'A'
• If A = 1 2 B= 0 -1
• 3 4 6 7
• Then prove the above property.
• AB = 12 13 (AB)' = 12 24
• 24 25 13 25

• AB' = 12 24
• 13 25

• B' = 0 6 A' = 1 3 B'A' = 12 24

• -1 7 2 4 13 25

154
DETERMINANT OF MATRIX
• Determinant of a matrix is only defined for a square matrix.
• It is a unique defined singular number which help us to know whether solution for a
system of equations exist or not.
• If a matrix has only one element say A = aij, then aij will only be the determinant of the
matrix.
• The symbol for determinant is |A|. It is sometimes confused with the symbol of the
absolute value. But, in the case of absolute value |-5| = 5 but determinant of |-5| = -5

155
CALCULATION OF DETERMINANT OF MATRIX

• Determinant of a 2x2 matrix A = a 11 a12 is calculated as:

• a21 a22
• |A| = a11 a12 = a 11 a12 = a11a22 - a21a12
• a21 a22 a21 a22

• Find determinant for A = 10 4 and B = 3 5

• 8 5 0 -1

• Find |A|, |B|, |A'| and |B'|

156
DETERMINANT FOR 3X3 MATRIX

• a11[a 22a33 – a23a32] - a12[a 21a33 – a31a23] + a13[a 21a32-a31a22]

• a11a22a33 – a11a12a32 – a12a21a33 + a12a31a12 + a12a21a32 - a12a31a22

157
DETERMINANT OF MATRIX
• A=213 B = -7 0 3 = c =8 1 3
• 45 6 9 1 4 4 0 1
• 789 0 6 5 6 0 3

158