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Rules Of Differentiation And Their

Use
In Comparative Statics

Alpha Chiang, Fundamentals of


Mathematical Economics
Function of One Variable

Constant Function Rule:


y x
f() k
d
y dk
 0  x
0 f'() 0
d
x dx
Power Function Rule:
y  f (x)  xn

d n n1
x  nx
dx
Function of One Variable

Generalized Power Function Rule

y  f (x) cxn

d n
cx cnxn1
dx
Two Or More Functions
Of The Same Variable

d
Sum-Difference Rule: [ 
fxg
() (
x)
]fxg
'
()'
(x)
d
x

d
Product Rule: [f
(x)
g(
xf
)
](
x)
g'
(x
)g(
x)
fx
'
( )
d
x

df(
x) fx
'
( )
g(
xf
) (x
)g
'
(x)
Quotient Rule: [ ]  2
d
xg
(x) g(
x)
Relationship between Marginal
Cost and Average Cost Functions
CCQ
( ) -costfunction
CQ
( )
AC , Q0 -averagecost
Q
d CQ
( ) [CQQ ( )1 1
'( ) CQ ( )
CQ
  CQ
'( )
dQ Q Q2
Q Q 
for Q0
d CQ( )  CQ
( )
0 iff CQ'( )
dQ Q   Q

therefore: w henA Cisincreasing, MC>AC,whenACisminimum,


A C =M C , andw henACisdecreasing, MC<AC .
Relationship between Marginal
Cost and Average Cost Functions

Book example:

 
CQ 12Q6
03
Q 2
Rules Of Differentiation Involving
Functions Of Different Variables
 Chain Rule - If we have a function where y is in turn
a function of another variable x, say then the
derivative of z with respect to x is equal to the
derivative of z with respect to y, time the derivative
of y with respect to x:
dz dz dy
  f '(y)g '(y)
dx dy dx
via g via f
x y z
z y z

y x x
Rules Of Differentiation Involving
Functions Of Different Variables
Example 1:
If z  3y2, where y  2x5, then
dz dz dy
 6y(2) 12y 12(2x5)
dx dy dx

Example 2:
If z  y-3, where y  x3, then
dz
1(3x2) 3x2
dx
Rules Of Differentiation Involving
Functions Of Different Variables
Example 3:

z
(x2
3
x2
)1
7

y2
x3
x2
zy1
7
a
nd y x2
3
x2
dz dzdy
 1
7y1
6
(2
x 
3)
17(
x2
3
x21
6
)( 2
x3
)
dxd ydx
Rules Of Differentiation Involving
Functions Of Different Variables

Exam ple4:
GivenatotalrevenuefunctionofafirmRf (Q )
w hereoutput Qisafunctionoflaborinput L,orQgL
( ),
derivethem arginalrevenueproduct oflabor.

dR dRdQ
 f '(Qg
) '(L)
dL dQdL

M L M
RP RMPP
L
Inverse Function Rule
 If a function y = f(x) represents a one-to-one
mapping, i.e. if the function is such that a
different value of x will always yield a different
value of y, the function f will have an inverse
function x=f-1(y).
 This means that a given value of x yields a
unique value of y, but also a given value of y
yields a unique value of x.
Inverse Function Rule
 The function is said to be monotonically
increasing: if
x
12
x fx)
(1 fx
(2)

Practical way of ascertaining monotonicity: if


the derivative f’(x) always adheres to the
same algebraic sign.
Inverse Function Rule
 Examples y  5 x  25 dy dx  5
x  15 y  5 dx / dy  15
dx 1

dy dy dx

y  x5  x dy dx  5 x 4  1
dx 1 1
  4
dy dy dx 5 x  1
Partial Differentiation

y f (x1,x2,...,xn)

y f (x1x1,x2,...,xn)f (x1,x2,...,xn)

x1 x1

y y
f1  lim
x1 x10x1
Techniques of Partial Differentiation

Example 1:

yf (x1,x2)3x12 xx


1 2 4x2
2

y
f1 6x1x2
x1
y
f2 x18x2
x2
Techniques of Partial Differentiation

Example 2:


yfu 
(,)
v (
u4
)
( 
32
u v
)

y( )
32
uvu
/(
3v
) 2
Applications To Comparative-static
Analysis: Market Model
F o u r p a rtia l d e riv a tiv e s :
QabP (ab, 0) [demand] P 1

QcdP (cd
, 0) [Supply] a b  d

P  (a  c)

ac b (b  d )2
P
bd
adbc P 1
Q c

b  d
bd
P  (a  c)

C
on
cl
usi
on: d (b  d )2


PP 
PP
 0a
nd  0

ac 
bd
Applications To Comparative-static Analysis:
National Income Model

Y CI0 G0
C(YT) (0;0 1)
T  Y ( 0;0 1)

solution:
 I0 G0
Y
1
Applications To Comparative-static Analysis:
National Income Model

    I0 G0
Y
1   
Government expenditure multiplier
Y 1
 0
G0 1   
Non-income-tax multiplier
Y 
 0
 1   
Income tax rate multiplier
Y (    I0 G0 ) Y
  0
 (1    )2
1   
Jacobian Determinants
 Purpose: use of partial derivatives to test whether there exists
functional (linear or nonlinear) dependence among a set of n
functions in n variables
 If we have n differentiable functions in n variables, not necessarily
linear,
y1  f 1(x1, x2,..., xn)
y2  f 2(x1, x2,..., xn)
................
yn  f n(x1, x2,..., xn)
Jacobian Determinants
 we can derive n2 partial derivatives to give us
the Jacobian

y1 
y1 
y1


x1 
x2 
xn
(y
1,.
..,yn)
J 
(x
1,.
..,x
n)
n 
y yn 
yn

x
1 
x2 
xn
Jacobian Determinants
 Jacobian test for existence of functional
dependence among a set of n functions:
|J|=0
if the n functions are linearly or non linearly
dependent.
Jacobian Determinants
 Example: y
12
x13
x2

y
24
x2
11
2xx
129
x2
2

y
1 y
1
x 
x 2 3
J 1 2


y2 
y2 (81
x 12x
2) (
1 1
2x 1
8x2)
x
1 
x2

(2
4x13 2)
6x (2
4x136x2)
0

Therefore the two functions are dependent. Note that y2 is


simply y1 squared.
Jacobian Determinants
 Note that for the special case of linear
functions, we recall that the rows of a linear
equation system are linearly dependent if and
only if the determinant A  0.
 Since yi xj aij the Jacobian J  A .
 Thus the Jacobian criterion of function
dependence amounts to the same thing,
functional dependence among the row of the
coefficient matrix A.

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