MATHEMATICS FOR ECONOMISTS

Dr. Hứa Thanh Xuân

1
Phần dành cho đơn vị

WHY WE HAVE THIS COURSE?

Macroeconomics

Math for economists

Microeconomics

Statistics in Economics
Economic research
----

Course objectives

- Understand linear algebra, derivatives of one

and many variable function; optimization
problems; integrals and differentials.
- Relate and apply the theories to economic
problems
- Understand and be able to construct economic
models.
- Acquire analytical skill, problem sloving skill to
economic models.

1
 Studying materials

• Textbook: Essential mathematics for

economic analysis
• Additional materials: any books about
statistics both English and Vietnamese.
• Software: Excel

Assessment

• Group assignment: 20% of final grades

• Midterm exam: 30% of final grades.
• Final exam: 50% of final grades.
• Both are closed exams.

CONTENTS

• MATRIX - DETERMINANT
• LINEAR EQUATION
• ONE-VARIABLE FUNCTION
• MULTI-VARIABLE FUNCTION

2
 Part 1: Matrix - Determinant
(Chapter 15 and 16)

Contents

1. Matrices
2. Matrix Operations
3. The Transpose
4. Determinants
5. The inverse matrix
6. Rank of the matrix

Matrices

• A matrix: a rectangular array of numbers

considered as one mathematical object.
• When there are m rows and n columns in the
array, we have an m-by-n matrix (written as m × n).
• We usually denote a matrix with bold capital letters
such as A, B, and so on.
• In general, an m × n matrix is of the form

3
 Matrices

• The matrix A has order m × n.

• mn: elements or entries.
• aij: element in the ith row and the j th column.
• For brevity, the m × n matrix is often expressed as (aij)m×n
• A matrix with either only one row or only one column is
called a vector: row vector and column vector
• Ex1:

• Ex2: Construct the 4 × 3 matrix A = (aij )4×3 with aij = 2i − j .

10

Example

• Ex 3: Consider a chain of stores with four

outlets labelled B1, B2, B3, and B4, each
selling eight different commodities, V1, V2, ...,
V8. Let aij denote the dollar value of the sales
of commodity Vi at outlet Bj during a certain
month.

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Square matrix

• When m = n: a square matrix of order n.

• If A = (aij )n×n, then the elements a11, a22, . . . ,
ann constitute the main diagonal that runs
from the top left (a11) to the bottom right (ann).
• Note that only a square matrix can have such
a main diagonal.

 a11 a12 ... a1n  1 3 5 7

a  3 2 1 4
21 a22 ... a 2n  A 
A 5 1 3 6
 ... ... ... ... 
a  7 4 6 4
 n1 an2 ... ann  
12

4
 Diagonal matrix
 Diagonal matrix:
a11 0 ... 0  a11 
 0 a  
22 ... 0  a22
A A 
 ... ... ... ...   ... 
   
 0 0 ... ann   ann 

If aij = 0 with i ≠ j, A is a diagonal matrix

 Indentity matrix: I = [aij]n x n with aii=1; aij = 0, i≠j
1 0 ... 0 
0 1 ... 0 
I 
... ... ... ...
0 0 ... 1 

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Zero matrix

 Zero matrix:
0 0 ... 0 
0 0 ... 0 
A
... ... ... ...
 
0 0 ... 0 

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THE TRANSPOSE MATRIX

We have A=[aij]m x n then AT=[aji]n x m

10 12 15 27 30 
9 14 18 16 24 
A
13 15 20 19 28 
 
11 18 17 25 31

Rule

15

5
 Matrix operations

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Matrix operations

2. Matrix addition
A=[aij]mxn; B=[bij]mxn => A+B =[aij+bij]mxn

  2 1 4   4 9 3
 2  3 0    1 3 5
   
3. Multiplication by scalars
A=[aij]m x n, kR => kA=[kaij]m x n

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Matrix operations

Note:
• The matrix (−1)A is usually denoted by −A, and
the difference between the two matrices A and B
of the same dimension, A − B, means the same
as A + (−1)B.
• In our chain store example, B − A denotes the
(net) change in sales revenue for each commodity
from each outlet between one month and the
next. Positive components represent increases
and negative components represent decreases.
• More: exercise for section 15.2 (page 587)
18

6
 Matrix operations

Rules for matrix addition and multiplication by scalars

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Matrix Multiplication

Suppose A=[aik]m x p; B=[bkj]p x n,

Then: AB = C=[cij]m x n with order: m rows và n columns
The element cij is:
p
cij  a i1b1j  a i2 b2j  ...a ip b pj   aik b kj
k 1

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Matrix Multiplication

1 2 3  1
 2  1 1  
 3 2 0 2  1 1 0 
 
3 0 2 1 

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7
 Matrix Multiplication

Rules
• (A.B).C = A.(B.C)
• A(B+C) = AB + AC
• (B+C)A = BA + CA
• k(BC) = (kB)C = B(kC)
• Phép nhân nói chung không có tính giao hoán
• A=[aij]n x n => I.A = A.I = A

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Exercise

1. Initially, three firms, A, B, and C, share the

market for a certain commodity. Firm A has 20%
of the market, B has 60%, and C has 20%. In the
course of the next year, the following changes
occur: firm A keeps 85% of its customers, while
losing 5% to B and 10% to C; firm B keeps 55%
of its customers, while losing 10% to A and 35%
to C; and firm C keeps 85% of its customers,
while losing 10% to A and 5% to B. Calculate the
market share of three firms next year.
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Revenue calculation

2a. Calculate the quantity sold in two months of a store with

two outlets (Unit: 1.000 products)
Month 1 A B C D Month 2 A B C D
Outlet 1 10 2 40 15 Outlet 1 12 4 20 10
Outlet 2 4 1 35 20 Outlet 2 10 3 15 15

b. Calculate the revenue gained in two months, given the

prices of A, B, C and D correspondingly being 10, 20, 30 and
40 thousands in VND.

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8
 Revenue calculation
3. Suppose quantity of goods sold (items) and price
(USD/item) of 4 types of goods at three markets are
given:
.
Quantity 1 2 3 4 Price 1 2 3 4
M-A 50 40 65 100 M- A 8 15 20 30
M- B 20 80 40 80 M- B 9 14 21 29
M- C 20 100 90 75 M- C 7 13 22 27

a. Calculate revenue for each goods.

b. Calculate revenue for each market.

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Rules for Matrix Multiplication

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Calculating daily international flights

27

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 Matrix of daily international flights
from country A to C

Problem 15.4 (1,4)

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Symmetric matrices

1 3 5 7
3 2 1 4
A 
5 1 3 6
7 4 6 4 


Gaussian emilination
(later in the next lecture)

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Problems for chapter 15

( 1-6)

Problems for section 15.5 (1-3) on page 564

Problems for chapter 15 (1-6) on page 582

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 DETERMINANTS

1. Definition
A is an square matrix by order 1:
A= [a11] => det(A) = a11

A is an square matrix by order 2:

a a12 
A   11 
a
 21 a 22 

det(A) = a11a22 – a12a21

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DETERMINANTS

a11 a12... a1n 

a a22... a2n 
A is a square matrix by order n A   21
 ... ... ... 
...
 
 an1 am2 ... ann 

And cofactor of aij is Cij = (-1)i+jdet(Aij)

Then det(A) is det(A) = a11C11 + a12C12 + …+ a1nC1n

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DETERMINANTS

Exam: Calculting determinants of a matrix A

1 2 3
A   4 5 6
 
 7  8 9
5 6 4 6 4 5
det(A )  (1)11.1.  (1)1 2 .2.  ( 1)13 .3.
8 9 7 9 7 8

Det(A) = 1(45+48) – 2(-36-42) + 3(32-35) = 240

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11
 DETERMINANTS

2. Rules
No 1:AT=A
1 2 1 3
3 4 2 4
No 2: If two rows (or two columns) of A are interchanged, the
determinant changes sign, but the absolute value remains
unchanged

1 2 3 4
3 4 1 2

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DETERMINANTS

No 3: If all the elements in a row (or column) of A are 0, then det(A)=

0
No 4: If all the elements in a single row (or column) of A are
multiplied by a number a, the determinant is multiplied by a.
No 5: If the two rows (or two columns) of A are proportional, then
det(A) = 0.
No 6: The value of determinant of A is unchanged if a multiple of one
row (or one column) is added to a different row (or column) of A.
No 7: The determinant of the product of two nxn matrices A and B is
the product of the determinants of each of the factors:
|AB| = |A| |B|
No 8: If A is an n x n matrix and a is a real number, then:
|aA|  an |A|
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DETERMINANTS

No 9: If all elements in a row (or a column) is sum of other two

rows (or two columns), then its determinant is sum of other
determinants.
Row (i) of A: aij = a’ij + a”ij
then det(A) = det(A’) + det(A”)

 a11 a12 ... a1n   a11 a12 ... a1n 

a a 22 ... a 2n  a a 22 ... a 2n 
 21   21 
,  ... ... ... ...  "  ... ... ... ... 
A  , A  "
a i1 a ,i 2 ... a ,in  a i1 a"i 2 " 
... a in
   
 ... ... ... ...   ... ... ... ... 
a ... a nn  a n1 a n 2 ... a nn 
n1 a n 2 36

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 DETERMINANTS

No 10: det(A) if A is a triangle matrix defined by

a11 a12 ... a1n

0 a 22 ... a 2n
 a11a 22 ...a nn
... ... ... ...
0 0 ... a nn

a11 0 ... 0
a 21 a 22 ... 0
 a11a 22 ...a nn
... ... ... ...
a n1 a m 2 ... a nn
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DETERMINANTS

Ex: Find det (A):

5 6 7 8
1 2 3 4
det( A) 
0 9 8 1
2 3 4 8

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THE INVERSE OF THE MATRIX

• Given a matrix A, an inverse of A if there exists

a matrix X such that
AX = XA = I
• Only square matrices can have inverses
• The inverse of A is unique
• Ex1:

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 THE INVERSE OF THE MATRIX

• The first way to find the inverse matrix

 C11 C 21 ... C n1 
 ... C n 2 
1 1 T 1 C12 C 22

A  C 
A A  ... ... ... ... 
C C 2 n ... C nn 
 1n

With Cij is cofactor of aij.

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THE INVERSE OF THE MATRIX

Example
 3 1 2
A   2 1  1
 
 0 2 1

 3 3  3  1 1  1
1
A 1   2 3  1   2 / 3 1  1 / 3
3   
 4  6 5  4 / 3  2 5 / 3

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THE INVERSE OF THE MATRIX

The second way to find the inverse matrix by

Elementary Row Operations: applying the Gauss rule

1. Multiply a row by a non-zero constant

2. A constant multiple of another row is added to a given
row
3. Interchanged two rows in a matrix

So that [A│I] = [I│A-1]

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14
 THE INVERSE OF THE MATRIX

Example:
1 1 2
A  1 2 2
 
2 4 3 
1 1 2 1 0 0 H1 H2 1 1 2 1 0 0
 
A I  1 2 2 0 1 0  1   0 1 0  1 1 0
 2H H3

 
2 4 3 0 0 1 0 2  1  2 0 1

 H 2  H1
 1 0 2 2  1 0 2 H H 1 0 0 2  5 2
 
1 0  1 0
3 1

2 H2 H3
0 1 0  1 
1H 3
0 1 0  1
 
0 0  1 0  2 1 0 0 1 0 2  1
43

Exercise

Prolem 16.6 (1, 2, 5a, 6a, 7a, 8, 10)

Problem 16.7 (1, 2, 3, 5)

44

RANK OF THE MATRIX

Matrix rank
Matrix rank is the highest order of the non-zero
determinant of the matrix

If r is the matrix rank then:

• The matrix determinant of order r is different 0.
• All matrix determinants is 0 for the orders higher than r.
• And: rankA = r

45

15
 RANK OF THE MATRIX

Two ways of finding matrix rank

By the matrix determinant
- Example:

 1 3 4 2
A 2 1 1 4
 
1  2 1  2

46

RANK OF THE MATRIX

Two ways of finding matrix rank

By a row echelon form: A non-zero matrix A is said to be

in a row-echelon form if:
• All zero rows of A occur below every non-zero row of A.
• The first non-zero element in any row i of A occurs in the
jth column of A, and then all other elements in the jth column
of A below the first non-zero element of row i are zeros.
• The first non-zero entry in the ith row of A lies to the left of
the first non-zero entry in ( i + 1)th row of A.

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-

RANK OF THE MATRIX

Example:

1 2 3 4
0 2 3 4 1 2 0
1 2 0 2 4 0
B  2 1 0
A   C 
  D  0 0 0
0 0 0 1 0 0 1  
0 0 0 0 0 1 3
 0 0 0

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 RANK OF THE MATRIX

Find the matrix rank for the following

 2 5  1 3
A   1 11  7 6
 
 1  2 2  1

Ex: 16.7 (1c, 3(of matrix A) page 652

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Part 2: LINEAR EQUATION

1. Definition
2. The Crame’s rule (16.8)
3. The Gauss’s rule (15.6)

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DEFINITION

1.1 System of linear equation is a system of m

equations and n unknown x

a11x1  a12 x 2  ...  a1n xn  b1


a21x1  a 22 x 2  ...  a 2n xn  b2

.......... .......... .......... .......... ........
am1x1  am2 x 2  ...  amn xn  bm

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17
 DEFINITION

Matrices:
 a11 a12 ... a1n 
 a21 a22 .... a2n 
A
 ... ... ... ... 
 
am1 am2 ... amn 

 x1  b1 
 x 2  b2  Then AX = B
X  B 
 ...   ... 
   
 xn bm

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DEFINITION

 a11 a12 ... a1n b1 

 
a 21 a 22 .... a 2n b2 
A  A| B  
 ... ... ... ... ... 
 
 am1 am2 ... amn bm 

Solution of linear equations is a set of real numbers (c1,

c2, ..., cn) satisfied the equations

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DEFINTION

The set of linear equation has solutions as rank

of (A) = rank of (A|B)

Example: Find a so that

A
the following system
of equations has solution
ax1  x2  x3  1

 x1  ax2  x3  1
 x  x  ax  1
 1 2 3
Ex: 15.6 (3)
54

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 THE CRAME’S RULE

Apply for the system of linear equations in which

the determinant of matrix A is non-zero

Solution of linear equations by Crame’s rule

X = A-1B.
or
det( A j)
xj 
det( A )
Ex: 16.1 (3,8); 16.2 (3); 16.6(3); 16.8 (1,2)

55

THE CRAME’S RULE

Find solution for the following systems of

equation

x1  2x 3  6

 3x1  4 x 2  6x 3  30
 x  2 x  3 x  8
 1 2 3

56

THE GAUSS’S RULE

Apply for the equations has |A| = 0 or the

numbers of equations (m) is different to the
numbers of x

Use the Gauss’s rule to rebuild the [A|B] to be a

row echelon form

57

19
 THE GAUSS’S RULE

Find the solution for the equations

2x1  4x 2  3x3  4

3 x1  x 2  2x 3  2
4 x  11x  7 x  7
 1 2 3

Ex: 15.6 (all)

58

Homogeneous Systems of
Equations

a11x1  a12 x 2  ...  a1n xn  0


a21x1  a22 x 2  ...  a2n xn  0

...
am1x1  am2 x 2  ...  amn xn  0

59

Homogeneous Systems of
Equations

Example

 x1  2 x2  4 x3  3 x4  0
3x  5 x  6 x  4 x  0
 1 2 3 4

4
 1 x  5 x 2  2 x3  3 x4 0
3x1  8 x2  24 x3  19 x4  0

60

20
 Applying in economics

1. Market balance
The market balance is condition in which
the product price (and quantity) expected
by consumers and the price (and quantity)
offered by the producer is the same.

61

Applying in economics

Demand is an economic concept that relates to a

consumer's desire to purchase goods and
services and willingness to pay a specific price
for them.

Ex: Demand of student to purchase laptop at the

beginning of the school year

62

Applying in economics

The demand function:

Qd= f(P)
or Qd= a - bP
or P= a – b Qd
- In which: Qd is quantity of demand, P is
demand price, a,b are constant.
- Quantity and price have negative relationship.

63

21
 Applying in economics

Supply is an economic concept that relates to a

firm's desire to supply quantity of goods and
services at a specific price.

Ex: Supply of laptop at the beginning of the

school year

64

Applying in economics

The supply function:

Qs= f(P)
or Qs= -c + dP
or P= -c + bQs
- In which: Qs is quantity of demand, P is
demand price, a,b are constant.
- Quantity and price have positive relationship.

65

Apply in economics

• Other factors affecting on demand :

- Income of customers.
- ???

. Other factors affecting on supply:

- Development in technology and innovation.
- ???

66

22
 Apply in economics

For one product:

• QD = 75 – 3P and QS = -20 + 2P
• Market balance: QD = QS = > 75 – 3P = -20 + 2P => P67
= 19 và Q = 18

Apply in economics

For n products and services:

We have
Qsi = ai0 + ai1P1 + ai2P2 + …. + ainPn.
Qdi = bi0 + bi1P1 + bi2P2 + …. + binPn

Then, the market balance as: Qdi = Qsi

68

Apply in economics

Then:
 a 10  a 11 P1  a 12 P2  ...  a 1 n Pn  b 10  b 11 P1  b 12 P2  ...  b 1 n Pn
a  a 21 P1  a 22 P2  ...  a 2 n Pn  b 20  b 21 P1  b 22 P2  ...  b 2 n Pn
 20

 .......... .......... .......... .......... .......... .......... .......... .......... .....
 a n 0  a n 1 P1  a n 2 P2  ...  a nn Pn  b n 0  b n 1 P1  b n 2 P2  ...  b nn Pn

 (a11  b11 ) P1  (a12  b12 ) P2  ...  (a1n  b1n ) Pn  b10  a10

(a  b ) P  (a  b ) P  ...  (a  b ) P  b  a
 21 21 1 22 22 2 2n 2n n 20 20

 .....................................................................................
(an1  bn1 ) P1  (an 2  bn 2 ) P2  ...  (ann  bnn ) Pn  bn0  an0

Solutions of this system are quantity and price of each

goods.. 69

23
 Apply in economics

2. Input – Output (I/O) Model - The general Leontief model :

Describes an economy with n interlinked industries, each of which
produces a single good using only one process of production (xi).
•To produce its good, each industry must use inputs from at least some
other industries (inter-industry demand-x ij). For example, the steel
industry needs goods from the iron mining and coal industries, as well as
from many other industries.
•In addition to supplying its own good to other industries that need it,
each industry also faces an external demand for its product from
consumers, governments, foreigners, and so on. The amount needed to
meet this external demand is called the final demand (di)

70

Apply in economics

We have:
xi = xi1+ xi2+ xi3 + …+ xin + di
With xi : the total value or number of units of good i that industry i
is going to produce in a certain year.
xij the number of units of good i which is the input of
industry j or the number of units good i that to be needed by good
j
di the final demand that are used by the customers, the
households, the government, and are exported.
All these variables should be used in value which is measured in
a certain currency

71

Apply in economics

The input-output matrix for these demand are:

Output Input Di
G1 G2 ... Gn
G1 X11 X12 ... X1n D1
G2 X21 X22 ... X2n D2
...
Gn Xn1 Xn1 ... Xnn Dn

Since : xi = xi1+ xi2+ xi3 + …+ xin + di

Hence
x x x
xi  i1 x1  i 2 x 2  ...  in x n  di
x1 x2 xn
72

24
 Apply in economics

xij
Let a ij  we have the following system of linear equations:
xj
 x1  a11 x1  a12 x2  ...  a1n xn  d1
 x  a x  a x  ...  a x  d
 2 21 1 22 2 2n n 2

 .......... .......... .......... .......... .......... .
 xn  an1 x1  a n 2 x2  ...  a nn xn  d1

 d 1  (1  a11 ) x1  a12 x 2  ...  a1n x n

 d   a x  (1  a ) x  ...  a x
 2 21 1 22 2 1n n
 (1)
 .......... .......... .......... .......... .......... .
 d n   a n1 x1  a n 2 x 2  ...  (1  a nn ) x n

73

Apply in economics

aij called input (or technical) coefficients: industry j have to pay for
industry i an amount of money aij in order to produce 1$ output.
Ex: a13 = 0.2: to have an output $1, the industry 3 have to pay $0.2 for
industry i
To find solution x1, x2, ..., xn we need to solve the system of linear
equation (1)

 a11 a12 ... a1n   x1  d 1

   x 2 d 2
a a 22 ... a11  X   D 
A   21
... ... ... ...   ...   ... 
     
 a11 an2 ... ann   xn   dn 

The system (1) is presented in matrix form: (I-A)X = D

Ex: 16.9

74

Part 3: Functions of one variable

and Derivatives in Use

1. Definition of one variable functions

2. Derivatives of one variable functions
3. Apply in business and economics

(Chap 4 and Chapter 7 in book)

75

25
 Part 3: Functions of one variable
and Derivatives in Use

Basic functions used in economics:

- Supply function
- Demand function
- Total revenue
- Total cost
- Profit
- Product function

76

Part 3: Functions of one variable

and Derivatives in Use
Total revenue (TR): TR = P*Q

Marginal revenue (MR): Marginal revenue is the

increase in revenue that results from the sale of one
additional unit of output.
MR = TQ’(Q)

77

Part 3: Functions of one variable

and Derivatives in Use
Total cost (TC): TC = FC + VC.Q
Fixed cost (FC): Fixed cost refers to the cost of a
business expense that doesn’t change even with an
increase or decrease in the number
of goods and services produced or sold
Variable cost (VC): A variable cost is a corporate
expense that changes in proportion to how much a
company produces or sells. Variable costs increase
or decrease depending on a company's production or
sales volume—they rise as production increases and
fall as production decreases.

78

26
 Part 3: Functions of one variable
and Derivatives in Use
Average cost (AC): is the cost per output unit
AC = TC/Q = (FC + VC.Q)/Q

Marginal cost (MC): the marginal cost is the change

in total production cost that comes from making
or producing one additional unit.
MC = TC’(Q)

79

Part 4: Functions of one variable and

Derivatives in Use

Ex: TC =3000 + 25Q

1. Find total cost in case of producing 1 unit,
10 units and 100 units.
2. Find average cost in case of producing 1
unit, 10 units and 100 units.

80

Part 4 : Functions of one variable and

Derivatives in Use
Profit function
π = TR –TC
Marginal profit:
π’Q = (TR –TC)’Q = MR – MC

81

27
 Part 4 : Functions of one variable and
Derivatives in Use
Applied
1. In management:
Ex: TC = 0.1Q2+ 10Q + 1000; and P = 50 – 0.1Q
a. Find TR, TC, and π in case of Q = 10 units.
b. Find TR, TC, and π in case of Q = 100 units
c. Find break even Q (is the point of balance making
neither a profit nor a loss).
d. Find Q so that the company has profit.

82

Part 4 : Functions of one variable

and Derivatives in Use
2. Marginal meaning :
Ex 1: TC = 0,001Q3 - 0.02Q2 + 5Q + 100
Find and interpret meaning of MC at Q = 50; Q
=100 Q=150 and Q =200 units.
Ex 2: TR = -0,1Q2 + 50Q
Find and interpret meaning of MR at Q = 50; Q
=100; Q = 150 and Q =200 units.
Ex 3: Q = 5(L)1/2
Find and interpret meaning of MQ at L = 50; L =
100; L=150 and L = 200 persons.
83

Part 4 : Functions of one variable and

Derivatives in Use

3. Maximum of revenue: MR = 0.
4. Maximum of profit: MR= MC
5. Elasticity of a function: p.228

ey,x = (y/y)(%)/(x/x)(%)
= (y/ x)*x/y
= (dy/dx)*x/y
= f’(x)*(x/y)
Meaning: x change 1%, y change ey,x %

Problem: 7.7 (1-3 page 232)

Problem: 8.5 (1, 3, 4 and 5a page 280) 84

28
 Part 4 : Functions of one variable and
Derivatives in Use
1. Suppose we have:
Qd = 20 – P
Qs = -30 + 2P
a. Find quantity and price as market balance?
b. Find elasticity of demand and supply at market
balance?
2. Price balance is 40 USD/unit, if price increase to 80
USE/unit, the quantity demand decrease from 160
units to 120 units. Find elasticity of demand?

85

Part 5
Functions of two
variables and Derivatives
in Use
(Chap 11)

86

Contents

• Definition
• Partial derivatives
• Economic applications
+ Marginal functions
+ Partial Elasticities
+ Multivariable optimization

87

29
 Functions of Two Variables

• A function f of two real variables x

and y with domain D is a rule that
assigns a specified number f (x, y) to
each point (x, y) in D.

88

Partial Derivatives with Two Variables

If z = f(x,y), then:
z f
  z x,  f x, ( x, y )  f1, ( x, y )
x x
z f
  z,y  fy, ( x, y )  f2, ( x, y )
y y

89

Partial Derivatives with Two Variables

Ex: Have f(x,y) = 2x3y2.

' '
Find f x ( 2 ,2 ) and fy (1,2)

Excersie: Find the partial derivatives with two variables:

a. f(x,y) = x3y + x2y2 + x +y2
b. f(K,L) = 10K1/2L1/3 => f’L = 10/3 K1/2L(-2/3)

Problem 11.2

90

30
 Solution

• f(x,y) = 2x3y2 • f(x,y) = 2x3y2

• f’x = 6x2y2 • f’y = 4x3y
• f’’xy = 12x2y • f’’yx = 12x2y

• f’’xx = 12xy2 • f’’yy = 4x3

91

Higher-Order Partial Derivatives

 f  2f
( )( )  f ' ' x 2 ( x, y )  f ' ' xx ( x, y )
x x x 2

 f 2 f
( )( )  f ' ' yx ( x, y )
x y xy
 f 2 f
( )( )  f ' ' xy ( x, y )
y x yx
2
 f  f
( )( )  f ' ' yy ( x, y )
y y y y
92

Interior Extreme

1. Interior Extreme without condition:

Have f(x,y) define in D ∈R and M0 (x0,y0).
Let p = f’x(x,y); q= f’y(x,y); r = f’’xx(x,y); s=f’’xy(x,y);
t= f’’yy(x,y).
If f has interior extreme at M0 then p = 0 and
q = 0 tại M0(x0,y0).

93

31
 Interior Extreme

To find maximum or minimum:

- Let p= f’x(x,y) = 0 and q= f’y(x,y) = 0 to find M0.
M0 can be an interior extreme or not
- If s2 – rt <0; M0 is an interior extreme;
and if r > 0: minimum; r <0: maximum
- If s2 – rt > 0; M0 is not an interior extreme.
- If s2 – rt = 0; need to test more.
Ex: Find interior extreme
a. f(x,y) = x3 + 2y3 -3x -6y
b. f(x,y) = 3xy –x3 – y3

94

Interior Extreme

Ex: A firm produces two different kinds A and B of

a commodity. The daily cost of producing x
units of A and y units of B is:
C(x,y)= 0.04x2 + 0.01xy+0.01y2+4x+2y+500
Suppose that the firm sells all its output at a price
per unit of 15 for A and 9 for B. Find the daily
production levels x and y that maximize profit
per day

95

Interior Extreme

2. Interior Extreme with condition:

The interior extreme of the function (1) f(x,y) in
which the variables need to satisfy the
condition of g(x,y) = 0 is interior Extreme with
condition.
Let L = f(x,y) + α g(x,y)
 L'x  0
To find interior extreme:  '
Ly  0
 '
 La  0
96

32
 Interior Extreme

At interior extreme:
Let ps = g’x , qs = g’y , r = L’’xx , s = L’’xy , t = L’’yy.
We have an Heissen matrix:
 0 p s qs 
H   ps r s
 
 qs s t 
If det H > 0 , f(x,y) is maximum with g(x,y)=b.
If det H < 0 , f(x,y) is minimum with g(x,y)=b.

97

Interior extreme

1. Find interior extreme of f(x,y) =xy + 2x, with

8x + 4y = 120.
2. Find interior extreme of f(x,y) = 5 –x –y, with
g(x,y) =x2 + y2 = 1

98

Applied

1. Maximum profit:
A company produces two products A and B. We have:
Demand function of A: Q1 = 14 – ¼ P1
And B: Q2 = 24 -1/2 P2
Total cost: TC = Q12 + 5Q1Q2 + Q22
Find Q1, Q2 to maximize profit

99

33
 Applied

• Ta có Q1 = 14 – ¼ P1 => P1 = 56 – 4 Q1
• Ta có Q2 = 24 -1/2 P2 => P2 = 48 – 2 Q2
• DT = P1Q1 + P2Q2= 56Q1 -4Q12 + 48Q2 -2Q22
• LN = DT –TC = - 5Q12 - 5Q1Q2 + 56Q1 + 48Q2 -3Q22
• LN’(Q1) = - 10Q1 - 5Q2 + 56 = 0
• LN’(Q2) = - 6Q2 - 5Q1 + 48 = 0
• => Q1 = 2.7 ; Q2 = 5.7
• r = LN’’(Q1Q1) = -10
• s = LN’’(Q1Q2) = -5
• t = LN’’(Q2Q2) = -6
• S^2 –rt = 25 – 60 < 0; Vì r < 0 => Q1 = 2.7; Q2 = 5.7 là điểm cực
đại.
• Vậy LN_max =
100

Applied

2. Maximum Q
We have a production function: q=10K1/2L1/2
• Price of K (w) and L (v) both are 4; and with
TC=400=vL+wK.
• Find K and L to maximize quantity (q)? And find
q?

101

Applied

3. Minimum total cost

Suppose: q=f(K,L) = K1/2L1/2.
We need to produce 100 units of product.
With cost per unit of K and L are 20 and 5
respectively, find K and L so that the total cost is
minimum.

102

34
 Applied

4. Partial elasticity:
Let l = f(x,y,z…).
Partial elasticity of I w.r.t x defined:
ef,x = (f/f)(%)/(x/x)(%)
= (f/ x)*x/f
= (δf/ δ x)*x/f
= f’x (x/f)

103

Applied

Ex:Supposed
Qxd = 100 – 2Px + 3Py – 0.3I + 1Ax.
In which:
Px is price of X,
Py is price of Y,
I is income of customers,
A is units of advertisement of X.
If Px=20 (unit); Py = 30 (unit), I=25 (unit) và Ax = 50
(unit).
Find partial elasticity of X demand w.r.t Px (eQd,pX),
w.r.t Py (eQd,Py), and w.r.t income (eQd,I).

104

• Qxd = 100 – 2Px + 3Py – 0.3I + 1Ax

• Px=20 (đvt); Py = 30 (đvt), I=25 (đvt) và Ax = 50 đơn
vị, thì Qxd = 192.5
• e(Qxd, Px) = -2*(20/192.5) = -16/77 = -0.2078
• e(Qxd, Py) = 3*(30/192.5) = 0.4675
• e(Qxd, I) = -0.3*(25/192.5) = -0.039

105

35
• Let Y = F(K, L) be the number of units produced when
K units of capital and L units of labour are used as
inputs in a production process. What is the economic
interpre tation of F K(100, 50) = 5?
• Solution: F K(100, 50) = 5 means that, starting from K
= 100 and holding labour input fixed at 50, a small
increase in K increases output by five units per unit
increase in K.

106

Marginal functions

• Marginal products of capital, labour and

land

• Other marginal fuctions

Problem: 11.7 (1, 2 page 405)

107

Partial Elasticities

108

36
 Problem: 11.8 (1 page 408)

Review Problem: 11 (4, 5 8, 13 page 409)

109

Profit maximization

• NECESSARY CONDITIONS FOR

INTERIOR EXTREMA

110

SUFFICIENT CONDITIONS FOR A MAXIMUM OR MINIMUM

111

37
 112

Problem: 13.1 (1, 3 and 4 page 465)

Problem: 13.2 (2 and 4 page 469)

113

114

38