IMP 2007 Introductory math course

4. Differentiation
Antonio Farfn Vallespn
Tonifarfan@hotmail.com
2
Derivatives
Why are derivatives so important
in economics?
Derivatives inform us of the effect of
changes of the independent variable
on the dependent variable.
e.g. what happens with GDP if salaries
increase? and with demand?
Derivatives are a tool for solving
optimisation problems.
Humans are assumed to behave
optimising their utility.
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1. Rates of change
Assume function y=f(x).
If x changes from x
0
to x
1
, we say:
And y will change accordingly
The difference quotient is defined
as:
DC measures the change in y per
unit of change in x.
) ( ) (
0 0
x f x x f y A + = A
0 1
x x x = A
x
x f x x f
x
y
A
A +
=
A
A ) ( ) (
0 0
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1. Rates of change
If we assume an infinitesimally
small change in x, what would then
happen to the change in y?
This is the derivative .
x
x f x x f
x
y
x x
A
A +
=
A
A
A A
) ( ) (
lim lim
0 0
0 0
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1. Rates of change
This is the derivative:
OBSERVATIONS:
The derivative is a function.
For each value of x
0
it returns the difference quotient
when
The original function is called the primitive.
The derivative measures the instantaneous rate
of change in y per unit of x.
x
x f x x f
x
y
x x
A
A +
=
A
A
A A
) ( ) (
lim lim
0 0
0 0
0 Ax
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1. Rates of change
Notation:
f(x)
Conveys the idea that the derivative is
itself a function of f(x).
dy/dx
Emphasizes the idea that the derivative
measures a rate of change.
One or the other are used depending on the idea they
want to convey.
Therefore:
x
y
x f
dx
dy
x
A
A

A 0
lim ) ( '
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1. Rates of change
Geometrically, the derivative is the
slope of a curve.
Why?
First, we need to define a secant.
A secant is the line between two
points of the function: (x, f(x)) and
((x+h), f(x+h)).
The slope of a secant is:
h
x f h x f
x h x
x f h x f
m
i
) ( ) (
) (
) ( ) ( +
=
+
+
=
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1. Rates of change
The tangent of a curve is defined
as the secant when
That is, when both points of the
secant are infinitesimally close.
Therefore, the slope of the tangent
will be:
And this is equivalent to the
derivative!
x h x +
h
x f h x f
m
x h x
t
) ( ) (
lim
) (
+
=
+
TANGENT DERIVATIVE !!!!
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1. Rates of change
NON DIFFERENTIABILITY
A function is not differentiable at
point x
0
if it is not possible to find at that point
x
x f x x f
x
A
A +
A
) ( ) (
lim
0 0
0
For being differentiable at one point,
the function must be continuous
at that point.
) ( ) ( lim
0
0
x f x f
x x
=

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1. Rates of change
THE DIFFERENTIAL OF A FUNCTION
The increase of a function f at point x=a is:
We have seen that:
We could approximate
if h is relatively small.
We can assume
therefore
) ( ) ( a f h a f y + = A
h
a f h a f
a f
h
) ( ) (
lim ) ( '
0
+
=

h a f y ~ A ) ( '
x h A ~
x a f y A ~ A ) ( '
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1. Rates of change
THE DIFFERENTIAL OF A FUNCTION
We call differential of the function f at
point x=a to the product
It is designated by dy, and by analogy it is
taken dx=h:
The error committed by taking the
differential instead of the increase is:
h a f ) ( '
dx a f dy = ) ( '
| | dy a f h a f + ) ( ) (
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1. Rates of change
Marginal analysis:
Analysis of the effect of infinitesimal
increases of an independent variable
on a dependent variable.
Marginal cost:
Increase in total costs resulting from
an infinitesimal increase in quantity.
Marginal utility:
Increase in utility resulting from an
infinitesimal increase in consumption.
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1. Rates of change
POINT ELASTICITY
Point elasticity is an important application
of the concept of differential.
Point elasticity = ratio of the incremental
percentage change of the function with
respect to an incremental percentage
change of the argument.
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1. Rates of change
Example point elasticity
Demand function Q=f(P).
Elasticity=
Elasticity expresses the percenta-
ge of increase of the demand for a
percent increase in price.
Elasticity is normally negative
( ) ( ) P P Q Q A A /
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1. Rates of change
Example point elasticity
Elasticity=
We can approximate the elasticity by using
differentials:
( ) ( ) P P Q Q A A /
P
Q
P f
P
Q
dP
dQ
P
dP
Q
dQ
d
) ( '
= = =
if then the demand is elastic at that point.
if then the demand is of unit elasticity at that point.
if then the demand is inelastic at that point.
1 >
d

1 =
d

1 <
d

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1. Rates of change
PARTIAL DIFFERENTIATION
Case of functions with more than one
independent variable:
If variable x
1
undergoes a change
and if the rest of independent variables do
not change
then we can analyse as if the rest of
variables x
2
,x
n
were constants:
) ,..., , (
2 1 n
x x x f y =
1
x A
y A
1
2 1 2 1 1
1
) ,..., , ( ) ,... , (
x
x x x f x x x x f
x
y
n n
A
A +
=
A
A
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1. Rates of change
PARTIAL DIFFERENTIATION
Taking the limit of this when
will give us the partial derivative of y with
respect to x
1
.
The process of taking partial derivatives is
called partial differentiation.
Notation: f
i
or or
Hence
0
1
Ax
1
0
1
1 1
1
lim
x
y
f
x
f
x
y
x
A
A
= =
c
c
=
c
c
A
y
x
i
c
c
i
x
f
c
c
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1. Rates of change
TOTAL DIFFERENTIALS
With partial differentiation we assumed that
only one independent variable was changing
and the others remained constant.
In total differentiation all independent
variables may change.
Assuming the function
Total differentiation is:
) ,..., , (
2 1 n
x x x U U =
n
n
dx
x
U
dx
x
U
dx
x
U
dU
c
c
+ +
c
c
+
c
c
= ...
2
2
1
1
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1. Rates of change
BIBLIOGRAPHY
Alpha C. Chiang (1984) Fundamental Methods of
Mathematical Economics Third edition.
McGraw-Hill, Inc. Ch. 6 8.