Functions

• A function is a rule that describes a relationship between numbers. For each

number x, a function assigns a unique number y according to some rule.
• Often we want to indicate that some variable y depends on some other variable
x, but we don’t know the specific algebraic relationship between the two
variables.
• In this case we write y = f(x), which should be interpreted as saying that the
variable y depends on x according to the rule f.
• Given a function y = f(x), the number x is often called the independent variable,
and the number y is often called the dependent variable.
• Often some variable y depends on several other variables x1, x2, and so on, so we
write y = f(x1, x2) to indicate that both variables together determine the value of
y.
Functions ctd.
• A monotonic function is one that always increases or always decreases; a
positive monotonic function always increases as x increases, while a negative
monotonic function always decreases as x increases.
• a function has the property that for each value of x there is a unique value of
y associated with it and that a monotonic function is one that is always
increasing or always decreasing.
• This implies that for a monotonic function there will be a unique value of x
associated with each value of y.
• We call the function that relates x to y in this way an inverse function.
• If you are given y as a function of x, you can calculate the inverse function just
by solving for x as a function of y. If y = 2x, then the inverse function is x = y/2.
Linear Functions
• A linear function is a function of the form y = ax + b, where a and b
are constants. Examples of linear functions are y = 2x + 3 y = x − 99.
• Linear functions can also be expressed implicitly in forms like ax+by =
c. In such a case, we often like to solve for y as a function of x to
convert this to the “standard” form: y = c/b − (a/b) x.
Maximization of a Function of One Variable

• Economic theories assume that

• An economic agent is seeking to find the optimal value of some function
• Consumers seek to maximize utility

• Simple example,𝜋 = 𝑓(𝑞)

• Firms seek to maximize profit

• Manager of a firm wants to maximize profits

• The profits (π) received depend only on the quantity (q) of the good sold

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Maximization of a Function of One Variable

• Vary q to see where maximum profit occurs

• An increase from q1 to q2 leads to a rise in 

 2  1 
 0 or 0
q2  q1 q

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Maximization of a Function of One Variable

• If output is increased beyond q*, profit will decline

• An increase from q* to q3 leads to a drop in 


0
q

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Maximization of a Function of One Variable

• Derivatives
• The derivative of  = f(q) is the limit of /q for very small changes in q
• Is the slope of the curve
• The value depends on the value of q1
• The derivative of  = f(q) at the point q1 is:

d  df f (q1  h)  f (q1 )
 lim
dq dq h 0 h
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Maximization of a Function of One Variable
• Value of a derivative at a point (the slope)
• The evaluation of the derivative at the point
q = q1 can be denoted

d
dq q q1
• In our previous example,

d d d
0 0 0
dq q q1
dq q q
dq q q*
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Maximization of a Function of One Variable

• First-order condition for a maximum

• For a function of one variable to attain its maximum value at some point, the
derivative at that point must be zero

df
0
dq q q*

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Maximization of a Function of One Variable
• The first order condition (d/dq)
• Is a necessary condition for a maximum
• But it is not a sufficient condition
• The second order condition
• In order for q* to be the optimum,

d d
 0 for q  q * and  0 for q  q *
dq dq
• At q*, d/dq must be decreasing
• The derivative of dπ/dq must be negative at q*
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Maximization of a Function of One Variable
• Second derivative
• The derivative of a derivative
• Can be denoted by:
d 2
d f 2

2
or 2
or f "(q)
dq dq
• The second order condition
• To represent a (local) maximum is:

d  2

2
 f "( q ) q q*  0
dq q q*
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Rules for Finding Derivatives
da
1. If a is a constant, then 0
dx
d [af ( x)]
2. If a is a constant, then af '( x)
dx
dx a
3. If a is a constant, then ax a  1
dx
d ln x 1
4. 
dx x
da x
5. a x ln a for any constant a
dx
de x
e x May not be scanned, copied or
- special case©:2017 CengageLearning®.
dx
duplicated, or posted to a publicly accessible website, in whole
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Rules for Finding Derivatives
•Suppose that f(x) and g(x) are two functions of x and
f’(x) and g’(x) exist, then:

d [ f ( x)  g ( x)]
6.  f '( x)  g '( x)
dx
d [ f ( x) g ( x)]
7.  f ( x) g '( x)  f '( x) g ( x)
dx
 f (x) 
d 
 g (x)  f '(x)g (x)  f (x)g '(x)
8.  provided that g (x) 0
 g (x)
2
dx
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Rules for Finding Derivatives
• If y = f(x) and x = g(z) and if both f’(x) and g’(z) exist, then:

dy dy dx df dg
9.    
dz dx dz dx dz
• This is called the chain rule
• Allows us to study how one variable (z) affects another
variable (y) through its influence on some intermediate
variable (x)

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Rules for Finding Derivatives
• Some examples axof the chain
ax rule include:
de de d (ax)
10.   e ax a ae ax
dx d (ax) dx
d  ln (ax)  d  ln (ax)  d (ax) 1 1
11.    a 
dx d (ax) dx ax x
2 2 2
d [ln( x )] d [ln( x )] d ( x ) 1 2
12.  2
  2 2 x 
dx d (x ) dx x x

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Functions of Several Variables
• Most goals of economic agents depend on several variables
• Trade-offs must be made
• The dependence of one variable (y) on a series of other variables
(x1,x2,…,xn) is denoted by
y = f(x1, x2,…,xn)

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Functions of Several Variables
• Partial derivatives
• Partial derivative of y with respect to x1:

y f
or or f x1 or f1
x1 x1
• All of the other x’s are held constant
• A more formal definition is

f f (x1  h, x 2 ,..., x n )  f (x1 , x 2 ,..., x n )

lim
x1 x 2 ,..., x n
h 0 h
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Calculating Partial Derivatives
1. If y  f ( x1 , x2 ) ax12  bx1 x2  cx22 , then
f f
 f1 2ax1  bx2 and  f 2 bx1  2cx2
x1 x2
2. If y  f ( x1 , x2 ) e ax1 bx2 , then
f ax1 bx2 f ax1 bx2
 f1 ae and  f 2 be
x1 x2
3. If y  f ( x1 , x2 ) a ln x1  b ln x2 , then
f a f b
 f1  and  f2 
x1 x1 x2 x2
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Functions of Several
• Partial derivatives
Variables
• Are the mathematical expression of the ceteris paribus
assumption
• Law of demand: 𝜕𝑞/𝜕𝑝<0, ceteris paribus
• Show how changes in one variable affect some outcome when
other influences are held constant
• We must be concerned with units of measurement

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Slopes and Intercepts
• The rate of change of a function can be interpreted graphically as the slope of the
function. Consider a linear function y = −2x + 4.
• The vertical intercept of this function is the value of y when x = 0, which is y = 4.
The horizontal intercept is the value of x when y = 0, which is x = 2.
• The slope of the function is the rate of change of y as x changes. In this case, the
slope of the function is −2.
• In general, if a linear function has the form y = ax + b, the vertical intercept will be
y ∗ = b and the horizontal intercept will be x ∗ = −b/a.
• If a linear function is expressed in the form a1x1 + a2x2 = c, then the horizontal
intercept will be the value of x1 when x2 = 0, which is x ∗ 1 = c/a1, and the
vertical intercept will occur when x1 = 0, which means x ∗ 2 = c/a2. The slope of
this function is −a1/a2.