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Chapter 4: Differentiation: Nguyen Thi Minh Tam

This document covers topics related to differentiation and elasticity, including calculating derivatives of functions, rules of differentiation, marginal functions, elasticity, and exercises related to these topics. Marginal functions are introduced, including marginal revenue, marginal cost, and marginal product of labor. Elasticity is also discussed, including definitions of price elasticity of demand and supply.

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Phương Anh Nguyễn
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62 views20 pages

Chapter 4: Differentiation: Nguyen Thi Minh Tam

This document covers topics related to differentiation and elasticity, including calculating derivatives of functions, rules of differentiation, marginal functions, elasticity, and exercises related to these topics. Marginal functions are introduced, including marginal revenue, marginal cost, and marginal product of labor. Elasticity is also discussed, including definitions of price elasticity of demand and supply.

Uploaded by

Phương Anh Nguyễn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter 4: Differentiation

Nguyen Thi Minh Tam

[email protected]

November 17, 2020


1 4.1 The derivative of a function

2 4.2 Rules of differentiation

3 4.3 Marginal functions

4 4.5 Elasticity
4.1 The derivative of a function

The derivative of a function f at x = a, denoted by f 0 (a), is

f (x) − f (a) ∆y
f 0 (a) = lim = lim
x→a x −a ∆x→0 ∆x

provided this limits exist.


df
The derivative of f , denoted by f 0 or , is a function that
dx
assign to x the number f 0 (x).
d 2f
The second derivative of f , denoted by f 00 or , is the
dx 2
derivative of the f 0 .
f 00 = (f 0 )0
4.2 Rules of differentiation

The Derivatives of the constant and power functions

(c)0 = 0 if c is a constant,
(x n )0 = nx n−1

Note.
 0
1 1
a) =− 2
x x
√ 0 1
b) ( x ) = √
2 x
Constant Multiple, Sum, Difference, Product and Quotient Rules

(ku)0 = ku 0 , for any constant k


(u + v )0 = u 0 + v 0
(u − v )0 = u 0 − v 0
(uv )0 = u 0 v + uv 0
 u 0 u 0 v − uv 0
=
v v2

dy
Example 1. Find for each following function:
dx
3
a) y = 9x 5 +
x
√ 18
b) y = 3 x − + 13
x √
c) y = (2x 3 + 1)( x − 1)
4.3 Marginal functions

Marginal revenue
The marginal revenue, MR, is defined by

d(TR)
MR =
dQ
If Q changes by a small amount ∆Q, then the corresponding
change in TR is
∆TR ≈ MR × ∆Q

Note. MR gives the approximate change in TR when Q increases


by 1 unit.
Example 2. Given the demand function

P = 60 − Q

a) Write down an expression for the marginal revenue function.


b) If the current demand is 50, estimate the change in the value
of TR due to a 2-unit increase in Q.
Marginal cost
The marginal cost, MC, is defined by

d(TC)
MC =
dQ
If Q changes by a small amount ∆Q, then the corresponding
change in TC is
∆TC ≈ MC × ∆Q

Note. MC gives the approximate change in TC when Q increases


by 1 unit.
Example 3. Find the marginal cost given the average cost function
15
AC = + 2Q + 9
Q
If the current output is 15, estimate the effect on TC of a 3-unit
decrease in Q.
Marginal product of labour
When Q is a function of one input L, we define the marginal
product of labour, MPL , by
dQ
MPL =
dL
MPL gives the approximate change in Q when using 1 more
unit of L.
Example 4. A Cobb-Douglas production function is given by

Q = 5L1/2 K 1/2

Assuming that capital, K , is fixed at 100, write down a formula for


Q in terms of L only. Calculate the marginal product of labour
when
a) L = 1
b) L = 10000
Verify that the law of diminishing marginal productivity holds in
this case.

The law of diminishing marginal productivity: once the size of the


workforce has reached a certain threshold level, the marginal
product of labour will get smaller.
Consumption and savings
Assume that national income (Y ) is only used up in
consumption (C ) and savings (S) then

Y =C +S

To analyse the effect on C and S due to variations in Y we


use the concepts marginal propensity to consume, MPC, and
marginal propensity to save, MPS, which are defined by
dC dS
MPC = , MPS =
dY dY
MPC + MPS = 1.
Example 5. If the savings function is given by

S = 0.02Y 2 − Y + 100

calculate the values of MPS and MPC when Y = 40. Give a brief
interpretation of these results.
4.5 Elasticity

Price elasticity of demand


The price elasticity of demand is a measure of the
responsiveness of demand to price change. It is usually
defined as
percentage change in demand
E=
percentage change in price
Demand is said to be
- inelastic if |E | < 1
- unit elastic if |E | = 1
- elastic if |E | > 1
The elasticity formula:
P ∆Q
E= ×
Q ∆P
The arc elasticity of demand between points (Q1 , P1 ) and
(Q2 , P2 ) is defined by
1
2 (P1 + P2 ) ∆Q
1
×
2 (Q1 + Q2 ) ∆P

The price elasticity at a point (point elasticity) is

P dQ
E= ×
Q dP
Example 6. Given the demand function

P = 100 − 2Q

a) Calculate the arc elasticity as P falls from 20 to 10.


b) Find the elasticity when the price is 50. Is demand inelastic,
unit elastic or elastic at this price?
dQ 1
Note. = 
dP dP
dQ

Example 7. Given the demand function

P = −Q 2 − 10Q + 150

a) Find the price elasticity of demand when Q = 4.


b) Estimate the percentage change in price needed to increase
demand by 10%.
Price elasticity of supply
The price elasticity of supply is define by
percentage change in supply
E=
percentage change in price

Example 8. If the supply equation is

Q = 150 + 5P + 0.1P 2

calculate the price elasticity of supply


a) averaged along an arc between P = 9 and P = 11;
b) at the point P = 10.
Relationship between elasticity and marginal revenue
 
1
MR = P 1 +
E

If −1 < E < 0, then MR < 0 ⇒ the revenue function is


decreasing in regions where demand is inelastic.
If E < −1, then MR > 0 ⇒ the revenue function is increasing
in regions where demand is elastic.
Exercises

Exercise 4.3, 4.3* 1, 3-6 (page 301-302), 1, 3, 6, 8 (page 302-303)

Exercise 4.5, 4.5* 1, 4, 5, 8 (page 326-327), 1, 6 (page 327, 328)

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