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Lecture 2
Functions with more than one variable
Renshaw - Chapter 14 & Chapter 17
University of Essex - Department of Economics
Week 17
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 1 / 38
Topics for this week
Denition of a function with more than one variable
Graphs of functions with two variables: level curves
Linear functions
Leontief functions
The Cobb-Douglas function
Homogeneous functions and and returns to scale
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 2 / 38
Denition
A function of several variables is a relation between
some independent variables x
1
, x
2
, x
3
, ...x
n
and some
dependent variable z such that
z = f (x
1
, x
2
, x
3
, ...x
n
)
species the value of z given the values of
x
1
, x
2
, x
3
, ...x
n
.
For example, we might encounter functions of the
following form
z = 100 2x
1
+ 5x
2
+ 3x
3
57x
4
z = 3x
2
1
9x
2
x
3
+ 10x
3
4
z = e
2x
1
+3x
2
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 3 / 38
A few examples - 1
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 4 / 38
A few examples - 2
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 5 / 38
A few examples - 3
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 6 / 38
A few examples - 4
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 7 / 38
Graph of a function
How can we graph these functions?
Only functions of at most TWO independent variables
can be graphed!
Consider any function
z = f (x, y)
This type of function can be graphed in a three
dimensional space.
Hence we have to extend the techniques we learned
about functions of the form z = f (x) and try to use
them for this new set of functions.
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 8 / 38
Three-dimensional graph: z = f (x, y)
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 9 / 38
Example:
Consider the following linear function
z = f (x, y) = 3x + 2y 10
This is an example of a plane or a at surface.
This is the extension of a straight line into three
dimensions or R
3
.
Example of coordinates:
(x
1
, y
1
, z
1
), (1,1,-5);
(x
2,
y
2
, z
2
), (2,-0.5,-5);
(x
3
, y
3
, z
3
), (10,-12.5,-5).
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 10 / 38
Here is the graph: z = 3x + 2y 10
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 11 / 38
Sections (slices) through the surface of a function
Three dimensional graphs sometimes are very hard to
graph and could lead to confusion.
In Economics we normally analyze these functions by
looking at their sections.
To obtain a particular section of the function we should
ask the following question:
What are the values of x, y such that z = a, where a is
a constant?
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 12 / 38
Why is this useful?
For instance, consider the previous equation:
z = 3x + 2y 10
and assume z = a. Then we have:
a = 3x + 2y 10
but since a is a constant we can rewrite our equation as:
y =
3
2
x +
a + 10
2
So what we have here is our old friend y = f (x), which
can be graphed on a x, y plan!
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 13 / 38
All we have to do now is to impose some values for a so
that we can see how the relation between x and y changes
when a changes. So, for example if a = 0 we get
y =
3
2
x + 5
while if we impose a = 10 what we get is:
y =
3
2
x + 10
and so on.
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 14 / 38
z = 3x + 2y 10 A two dimensional graph
14
16
Y
12
14
a=20
8
10
a 0
6
8
a=10
2
4
0
2
a=0
2
0 1 2 3 4 5
X
4
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 15 / 38
Holding constant x or y
So holding z constant we can nd the underlined
relation between x and y. Of course we can repeat the
procedure holding any of the three variables constant.
What are the values of z, y such that x = b, where b is
a constant? These can be represented in the y, z plane
by
y =
1
2
z +
10 3b
2
for example if x = 0,
y =
1
2
z + 5
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 16 / 38
What are the values of x, z such that y = c,where c is
a constant? These can be represented in the x, z plane
by
x =
1
3
z +
10 2c
3
for example if y = 0,
x =
1
3
z +
10
3
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 17 / 38
Level curves - 1
Hence, by holding constant a variable (x, y or z) we
have reduced a three dimensional function into a two
dimensional function (a function of one-variable).
Here these are represented by straight lines since the
original function was linear in a two dimensional space.
In general, we call level curves any two dimensional
representations of z = f (x, y) when holding a variable
constant.
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 18 / 38
Level curves - 2
Can we hold z constant?
Sure! Thats exactly what we do for drawing the
indierence curves of a utility function.
Imagine:
U = 100xy
Indierence curves? Fix U = U where U is a constant and
the solve for y
y =
U
100x
As U varies we obtain a map of indierence curves.
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 19 / 38
Level curves: z = x
2
+ y
2
holding z constant
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 20 / 38
Level curves: z = x
2
+ y
2
holding z constant
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 21 / 38
Economic Applications:
Consumer Theory and the Utility Function
= u = U(x, y) (indierence curves)
Producer Theory and the Production Function
= y = F(L, K) (isoquants)
The typical functions we encounter in economics are:
1
Cobb-Douglas functions
2
Linear Functions
3
Quasi-linear Functions
4
Leontief Functions
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 22 / 38
Cobb-Douglas function:
u = Ax
Utility function
y = AL
Production function
where A, and are usually positive constants.
u = 100x
1/2
y
1/2
y =
z
2
100x
u = 100x
7
y
3
y =
z
100x
7
1/3
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 23 / 38
Cobb-Douglas functions level curves - u = 100x
1/2
y
1/2
90
100
70
80
90
50
60
30
40
0
10
20
0
1 2 3 4 5 6 7 8 9 101112131415161718192021222324252627282930
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 24 / 38
Linear Function:
u = ax + by,
y = aL + bK,
where a and b are usually positive constants.
Quasi-Linear function:
u = Ay + v(x),
y = AK + v(L),
where A is usually a positive constant and v() is a
function of one variable.
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 25 / 38
Quasi-linear function, an example: z = 100x + y
3
3.5
4
2
2.5
3
1
1.5
2
0
0.5
1 4 7 10 13 16 19 22 25 28
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 26 / 38
Leontief or Fixed Proportions function:
u = Amin(ax
, by
),
y = Amin(aL
, bK
)
where A, a, b, and are usually a positive constants
and the word min simply means minimum, i.e. the the
smallest between the two inputs
This function is also called: function with Complementary
Inputs
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 27 / 38
Leontief functions, examples
In order to produce 1 mobile phone (P) we need 1 keyboard
(K) and 1 software (S). The production function is:
P = min {K, S}
In order to produce 1 bike (B) we need 1 frame (F) and 2
tyres (T). So the production function is:
B = min
F,
1
2
T
(tK)
= t
+
(AL
a
K
)
= t
+
F(L, K).
The degree of homogeneity is just = +
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 35 / 38
Returns to Scale of a Cobb-Douglas
If + = 1, the function is homogeneous of degree
1 = Constant Returns to Scale.
If + > 1,the function is homogeneous of a degree
> 1 = Increasing Returns to Scale.
If + < 1,the function is homogeneous of a degree
< 1 = Decreasing Returns to Scale.
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 36 / 38
Variable Returns to Scale
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 37 / 38
Partial Dierentiation
Consider a function z = f (x, y)
partial derivative of z wrt x
z
x
partial derivative of z wrt y
z
y
We use the usual rule of derivation, because when we do
the partial derivative wrt x we held the rest of the variables
xed.
Domenico Tabasso (University of Essex - Department of Economics) Lecture 2 Week 17 38 / 38