CH 3. Derivatives

Econ 1011: Calculus For Economists
Chapter-3: Derivatives
Lemi Taye
Addis Ababa University

[email protected]
December 12, 2018
Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 1 / 62

Overview
1 Rate of Change and the Derivative
2 The Derivative and the Slope of a Curvilinear Function
3 Continuity and Differentiability of a Function
4 The Derivative as a function
5 Rules of Differentiation
6 Differentiation of Exponential and Logarithmic Functions
7 Higher-Order Derivatives
8 Increasing and Decreasing Functions
9 Convex and Concave Functions
10 L’Hospital’s Rule
11 Single Variable Optimization
12 Economic Applications

Rate of Change and the Derivative
Let us consider the rate of change of a variable, y, in response to a

change in another variable, x, where the two variables are related to
each other by the function
y = f (x)
When x changes from an initial value x0 to a new value (x0 + ∆x),

the value of the function y = f (x) changes from f (x0 ) to f (x0 + ∆x).
The change in y per unit of change in x can be represented by the
difference quotient.
∆y f (x0 + ∆x) − f (x0 )
=
∆x ∆x
This quotient, which measures the average rate of change of y, can be
calculated if we know the initial value of x, or x0 , and the magnitude
of change in x, or ∆x. That is, ∆y/∆x is a function of x0 and ∆x.
Frequently, we are interested in the rate of change of y when ∆x is

very small.
This can be computed by finding the limit of the difference quotient as
∆x approaches zero, i.e.,
f (x0 + ∆x) − f (x0 )

lim
∆x→0 ∆x
This special type of limit is called a derivative and it arises whenever
we calculate a rate of change in any of the sciences or engineering,
such as a rate of reaction in chemistry or a marginal cost in economics.

Example
Elementary economics tells us that, given a total-cost function

C = f (Q), where C denotes total cost and Q the output, the marginal
cost (M C) is defined as the change in total cost resulting from a unit
increase in output; i.e., M C = ∆C/∆Q. For the case of a product that
has discrete units (integers only), a change of one unit is the smallest
change possible; but for the case of a product whose quantity is a
continuous variable, ∆Q can refer to an infinitesimal change. In this case,
the marginal cost is the derivative of the total cost function, i.e.,
∆C
M C = f 0 (Q) = lim
∆Q→0 ∆Q

Definition 3.1
The derivative of a function f at a number a, denoted by f 0 (a), is
f (a + h) − f (a)
f 0 (a) = lim
h→0 h
if this limit exists.
If we write x = a + h, then we have h = x − a and h approaches 0 if and
only if x approaches a. Therefore, an equivalent way of stating the
definition of the derivative is
f (x) − f (a)
f 0 (a) = lim
x→a x−a

Example
Find the derivative of the function f (x) = x2 − 8x + 9 at the number a.
Solution
From Definition 3.1 we have
f (a + h) − f (a)
f 0 (a) = lim
h→0 h
[(a + h)2 − 8(a + h) + 9] − [a2 − 8a + 9]
= lim
h→0 h
a2 + 2ah + h2 − 8a − 8h + 9 − a2 + 8a − 9
= lim
h→0 h
2ah + h2 − 8h
= lim = lim (2a + h − 8)
h→0 h h→0
= 2a − 8
The Derivative and the Slope of a Curvilinear Function
The slope of a curvilinear function is not constant; it differs at

different points on the curve.
In geometry, the slope of a curvilinear function at a given point is
measured by the slope of a line drawn tangent to the function at that
point.
A tangent line is a straight line that touches a curve at only one point.
Measuring the slope of a curvilinear function at different points
requires separate tangent lines.

The slope of a tangent line is derived from the slopes of a family of

secant lines.
If a curve C has equation y = f (x) and we want to find the tangent
line to C at the point P (a, f (a)), then we consider a nearby point
Q(x, f (x)), where x 6= a, and compute the slope of the secant line
P Q:
f (x) − f (a)
mP Q =
x−a
Then we let Q approach P along the curve C by letting x approach a.
If mP Q approaches a number m, then we define the tangent t to be
the line through P with slope m.
This amounts to saying that the tangent line is the limiting position of
the secant line P Q as Q approaches P . See Figure 1.

Hence, The tangent line to the curve y = f (x) at the point

P (a, f (a)) is the line through P with slope
f (x) − f (a)
m = lim (1)
x→a x−a
provided that this limit exists.
Figure 1
There is another expression for the slope of a tangent line that is

sometimes easier to use. If h = x − a, then x = a + h and so the
slope of the secant line P Q is
f (a + h) − f (a)
mP Q =
h
Notice that as x approaches a, h approaches 0 (because h = x − a )
and so the expression for the slope of the tangent line in Definition 1
becomes
f (a + h) − f (a)
m = lim (2)
h→0 h

We defined the tangent line to the curve y = f (x) at the point

P (a, f (a)) to be the line that passes through P and has slope m
given by Equation 1 or 2.
Since, by Definition 3.1, this is the same as the derivative f 0 (a), we
can now say the following.
The tangent line to y = f (x) at (a, f (a)) is the line through (a, f (a))
whose slope is equal to f 0 (a), the derivative of f at a.
If we use the point-slope form of the equation of a line, we can write

an equation of the tangent line to the curve y = f (x) at the point
(a, f (a)):
y − f (a) = f 0 (a)(x − a)

Example
Find an equation of the tangent line to the parabola y = x2 − 8x + 9 at
the point (3, −6).
Solution
From the previous example we

know that the derivative of
f (x) = x2 − 8x + 9 at the number
a is f 0 (a) = 2a − 8. Therefore,
the slope of the tangent line at
(3, −6) is f 0 (3) = 2(3) − 8 = −2.
Thus an equation of the tangent
line, shown in Figure 2, is
y − (−6) = (−2)(x − 3) or
y = −2x
Figure 2
Continuity and Differentiability of a Function
A function is differentiable at a point if the derivative exits at that

point.
To be differentiable at a point, a function must (1) be continuous at
that point and (2) have a unique tangent at that point.
Figure 3

Continuity and Differentiability of a Function
In Figure 3(a), the function is not differentiable at a because it has a

jump discontinuity at a.
Continuity alone, however, does not ensure (is not a sufficient
condition for) differentiability.
In Figure 3(b), the function is continuous at a, but is not differentiable
at a because at a sharp point or kink an infinite number of tangent
lines (and no one unique tangent line) can be drawn.

The Derivative as a function
In the preceding section we considered the derivative of a function f

at a fixed number a.
Here we change our point of view and let the number a vary. If we
replace a in Definition 3.1 by a variable x, we obtain
f (x + h) − f (x)
f 0 (x) = lim (3)
h→0 h
Now we can regard f 0 as a new function, called the derivative of f
and defined by Equation 3.
We know that the value of f 0 at x, f 0 (x), can be interpreted
geometrically as the slope of the tangent line to the graph of f at the
point (x, f (x)).

The Derivative as a function
Example
If f (x) = x3 − x, find a formula for f 0 (x).
Solution
When using Equation 3 to compute a derivative, we must remember that
the variable is h and that x is temporarily regarded as a constant during
the calculation of the limit.
f (x + h) − f (x) [(x + h)3 − (x + h)] − [x3 − x]
f 0 (x) = lim = lim
h→0 h h→0 h
x3 + 3x2 h + 3xh2 + h3 − x − h − x3 + x
= lim
h→0 h
3x2 h + 3xh2 + h3 − h
= lim
h→0 h
= lim (3x + 3xh + h2 − 1) = 3x2 − 1
2

h→0

Rules of Differentiation
The Constant Function Rule
The Constant Function Rule

The derivative of a constant function f (x) = k, where k is a constant, is
zero.
Given f (x) = k,
f 0 (x) = 0
Example
Given f (x) = 8, f 0 (x) = 0
Given f (x) = −6, f 0 (x) = 0

The Power Function Rule
The Power Function Rule

The derivative of a power function f (x) = kxn , where k is a constant and
n is any real number, is equal to the coefficient k times the exponent n,
multiplied by the variable x raised to the n − 1 power.
Given f (x) = kxn ,
f 0 (x) = k · n · xn−1
Example
Given f (x) = 4x3 , f 0 (x) = 4 · 3 · x3−1 = 12x2
Given f (x) = 5x2 , f 0 (x) = 5 · 2 · x2−1 = 10x
Given f (x) = x4 , f 0 (x) = 1 · 4 · x4−1 = 4x3

The Rules for Sums and Differences
The Rules for Sums and Differences

The derivative of a sum of two functions f (x) = g(x) + h(x), where g(x)
and h(x) are both differentiable functions, is equal to the sum of the
derivatives of the individual functions. Similarly, the derivative of the
difference of two functions is equal to the difference of the derivatives of
the two functions.
Given f (x) = g(x) ± h(x),
f 0 (x) = g 0 (x) ± h0 (x)
Example
Given f (x) = 12x5 − 4x4 , f 0 (x) = 60x4 − 16x3
Given f (x) = 9x2 + 2x − 3, f 0 (x) = 18x + 2

The Product Rule
The Product Rule

The derivative of a product f (x) = g(x) · h(x), where g(x) and h(x) are
both differentiable functions, is equal to the first function multiplied by the
derivative of the second plus the second function multiplied by the
derivative of the first.
Given f (x) = g(x) · h(x),
f 0 (x) = g(x) · h0 (x) + h(x) · g 0 (x)
Example
Given f (x) = 3x4 (2x − 5), let g(x) = 3x4 and h(x) = 2x − 5. Taking the
individual derivatives, g 0 (x) = 12x3 and h0 (x) = 2.

The Product Rule
Example (continued )
Then by substituting the values in the product-rule formula,
f 0 (x) = 3x4 (2) + (2x − 5)(12x3 )
and simplifying algebraically gives
f 0 (x) = 6x4 + 24x4 − 60x3 = 30x4 − 60x3

The Quotient Rule
The Quotient Rule

g(x)
The derivative of a quotient f (x) = , where g(x) and h(x) are both
h(x)
differentiable functions and h(x) 6= 0, is equal to the denominator times
the derivative of the numerator, minus the numerator times the derivative
of the denominator, all divided by the denominator squared.
g(x)
Given f (x) = ,
h(x)
h(x) · g 0 (x) − g(x) · h0 (x)

f 0 (x) =
[h(x)]2

The Quotient Rule
Example
5x3
Given f (x) = , where g(x) = 5x3 and h(x) = 4x + 3, we know that
4x + 3
g 0 (x) = 15x2 and h0 (x) = 4. Substituting these values in the quotient-rule
formula,
(4x + 3)(15x2 ) − 5x3 (4)
f 0 (x) =
(4x + 3)2
Simplifying algebraically,
60x3 + 45x2 − 20x3 40x3 + 45x2 5x2 (8x + 9)

f 0 (x) = = =
(4x + 3)2 (4x + 3)2 (4x + 3)2

The Chain Rule
The Chain Rule

Given a composite function, in which y is a function of u and u in turn is a
function of x, that is, y = f (u) and u = g(x), then y = f [g(x)] and the
derivative of y with respect to x is equal to the derivative of the first
function with respect to u times the derivative of the second function with
respect to x;
dy dy du
= ·
dx du dx
Example
Consider the function y = (5x2 + 3)4 . To use the chain rule, let y = u4
and u = 5x2 + 3.

The Chain Rule
Then dy/du = 4u3 and du/dx = 10x. Substituing these values in the
formula for the chain rule:
dy
= 4u3 · 10x = 40xu3
dx
Then to express the derivative in terms of a single variable, substitute
5x2 + 3 for u.
dy
= 40x(5x2 + 3)3
dx

Differentiation of Exponential and Logarithmic Functions
The Natural Exponential Function Rule

The derivative of the natural exponential function f (x) = ex is equal to
the function itself. That is,
f (x) = ex =⇒ f 0 (x) = ex
The Exponential Function Rule for Base a Other Than e

Given f (x) = ax , where a > 0, a 6= 1, the derivative is
f 0 (x) = ax ln a

Example
Find the derivatives of
(a) f (x) = ex /x
(b) g(x) = 10−x
Solution
(a) The quotient rule yields
dy ex · x − ex · 1 ex (x − 1)
= =
dx x2 x2
(b) g(x) = 10−x = 10u where u = −x. Using the chain rule gives
g 0 (x) = −10−x ln 10.

The Natural Logarithmic Function Rule

Given f (x) = ln x, the derivative is
1
f 0 (x) =
x
The Logarithmic Function Rule for Base a Other Than e

Given f (x) = loga x, where a > 0, a 6= 1, the derivative is
1
f 0 (x) =
x ln a

Example
Find the derivatives of
√
(a) f (x) = ln 5 x
(b) g(x) = log x
Solution
√ 1 1
(a) f (x) = ln 5
x=ln x =⇒ f 0 (x) = .
5 5x
1
(b) g(x) = log x = log10 x =⇒ g 0 (x) = .
x ln 10

Higher-Order Derivatives
The derivative f 0 of a function f is often called the first derivative of

f.
If f 0 is also differentiable, then we can differentiate f 0 in turn. The
result (f 0 )0 is called the second derivative, written more concisely as
f 00 .
We use f 00 (x) to denote the second derivative of f evaluated at the
particular point x.
If y = f (x), the derivative of y 00 = f 00 () is called the third derivative,
customarily denoted by y 000 = f 000 (x).
It is notationally cumbersome to continue using more and more primes
to indicate repeated differentiation, so the fourth derivative is usually
denoted by y (4) = f (4) (x).

In general,
dn y
y (n) = f (n) (x) or
dxn
denotes the nth derivative of f at x.
The number n is called the order of the derivative. For example,
f (6) (x0 ) denotes the sixth derivative of f calculated at x0 , found by
differentiating six times.

Example
Compute all the derivatives up to and including order 4 of
f (x) = 3x−1 + 6x3 − x2 (x 6= 0)
Solution
Repeated differentiation gives
f 0 (x) = −3x−2 + 18x2 − 2x

f 00 (x) = 6x−3 + 36x − 2
f 000 (x) = −18x−4 + 36
f (4) (x) = 72x−5

Increasing and Decreasing Functions
A function f (x) is said to be increasing (decreasing) at x = a if in the

immediate vicinity of the point [a, f (a)] the graph of the function rises
(falls) as it moves from left to right.
Since the first derivative measures the rate of change and slope of a
function, a positive first derivative at x = a indicates the function is
increasing at a; a negative first derivative indicates it is decreasing.
The same is true over an interval I. That is,
f 0 (x) ≥ 0 for all x in the interval I ⇐⇒ f is increasing in I

f 0 (x) ≤ 0 for all x in the interval I ⇐⇒ f is decreasing in I

Increasing and Decreasing Functions
Example
Given f (x) = 21 x2 − 2, examine where f is increasing/decreasing.
Solution
We find that f 0 (x) = x, which

is ≥ 0 for x ≥ 0 and ≤ 0 if
x ≤ 0. We conclude that f is
increasing in [0, ∞) and
decreasing in (−∞, 0]. The
graph is shown in Figure 4.
Figure 4
Convex and Concave Functions
The sign of the first derivative determines whether a function is

increasing or decreasing on an interval I.
The second derivative f 00 (x) is the derivative of f 0 (x). Hence:
f 00 (x) ≥ 0 on I ⇐⇒ f 0 is increasing on I (4)

00 0
f (x) ≤ 0 on I ⇐⇒ f is decreasing on I (5)
The equivalence in (4) is illustrated in Figure 5a. The slope of the

tangent, f 0 (x), is increasing as x increases.
On the other hand, the slope of the tangent to the graph in Figure 5b
is decreasing as x increases.

Figure 5

Suppose that f is continuous in the interval I and twice differentiable

in the interior of I. Then we can introduce the following definitions:
f is convex on I ⇐⇒ f 00 (x) ≥ 0 for all x in I

f is concave on I ⇐⇒ f 00 (x) ≤ 0 for all x in I
Whether a function is concave or convex is crucial to many results in

economic analysis, especially the many that involve maximization or
minimization problems.
We note that often I is the whole real line, in which case the interval
is not mentioned explicitly.

Example
Check the convexity/concavity of f (x) = x2 − 2x + 2
Solution
Here f 0 (x) = 2x − 2 so
f 00 (x) = 2. Because f 00 (x) > 0
for all x, f is convex. The
graph is shown in Figure 6.
Figure 6
L’Hospital’s Rule
We often need to examine the limit as x tends to a of a quotient in

which both numerator and denominator tend to 0 or ∞(−∞).
If we have a limit of the form
f (x)
lim
x→a g(x)
where both f (x) → 0 and g(x) → 0 as x → a, then this limit may or

may not exist and is called an indeterminate form of type 00 .
And if we have a limit of the form
f (x)
lim
x→a g(x)
where both f (x) → ∞ (or −∞) and g(x) → ∞ or −∞ as x → a,

then this limit may or may not exist and is called an indeterminate
∞
form of type ∞ .
L’Hospital’s Rule can be used to compute limits with such

indeterminate forms.
Suppose f and g are differentiable and g 0 (x) 6= 0 on an open interval I
that contains a (except possibly at a). Suppose that
lim f (x) = 0 and lim g(x) = 0

x→a x→a
or that
lim f (x) = ±∞ and lim g(x) = ±∞
x→a x→a
0
(In other words,we have an indeterminate form of type 0 or ∞/∞.) Then
f (x) f 0 (x)
lim = lim 0
x→a g(x) x→a g (x)

Example
ln x
Find lim .
x→1 x − 1
Solution
Since
lim ln x = ln 1 = 0 and lim (x − 1) = 0
x→1 x→1
we can apply l’Hospital’s Rule:

d
ln x (ln x) 1/x 1
lim = lim dx = lim = lim = 1
x→1 x − 1 x→1 d x→1 1 x→1 x
(x − 1)
dx

Example
ex
Calculate lim .
x→∞ x
Solution
We have lim ex = ∞ and lim x2 = ∞, so l’Hospital’s Rule gives
x→∞ x→∞
d x
ex (e ) ex
lim 2 = lim dx = lim
x→∞ x x→∞ d x→∞ 2x
(x2 )
dx
Since ex → ∞ and 2x → ∞ as x → ∞, the limit on the right side is also
indeterminate, but a second application of l’Hospital’s Rule gives
ex ex ex
lim == lim = lim =∞
x→∞ x2 x→∞ 2x x→∞ 2
Single Variable Optimization
Those points in the domain of a function where it reaches its largest

and its smallest values are usually referred to as maximum and
minimum points.
Thus, if f (x) has domain D, then
c ∈ D is a maximum point for f ⇐⇒ f (x) ≤ f (c) for all x ∈ D

d ∈ D is a minimum point for f ⇐⇒ f (x) ≥ f (d) for all x ∈ D
In this case we call f (c) the maximum value, and we call f (d) the
minimum value.

If f is a differentiable function that has a maximum or minimum at an

interior point c of its domain, then the tangent line to its graph must
be horizontal (parallel to the x-axis) at that point. Hence, f 0 (c) = 0.
Points c at which f 0 (c) = 0 are called stationary (or critical) points for
f . Precisely formulated, one has the following theorem:
Theorem 3.1 (Necessary First-Order Condition)

Suppose that a function f is differentiable in an interval I and that c is an
interior point of I. For x = c to be a maximum or minimum point for f in
I, a necessary condition is that it is a stationary point for f —i.e. that
x = c satisfies the equation
f 0 (x) = 0 (first order condition)

Theorem 3.1 implies that f 0 (x) = 0 is a necessary condition for a

differentiable function f to have a maximum or minimum at an
interior point x in its domain.
But the condition is far from sufficient. This is indicated in Figure 7
where f has three stationary points, x0 ,x1 , and x2 .
Figure 7

At the stationary point x0 the function f has a "local maximum", in

the sense that its value at that point is higher than at all neighboring
points.
Similarly, at x1 it has a local "minimum", whereas at x2 there is a
stationary point that is neither a local maximum nor a local minimum.
In fact, x2 is a special case of an inflection point.
The next theorem provides a test for whether a critical point c is a
local maximum, a local minimum, or neither.

Theorem 3.2 (Second-Derivative Test)

Let f be a twice differentiable function in an interval I, and let c be an
interior point of I. Then:
(a) f 0 (c) = 0 and f 00 (c) < 0 =⇒ x = c is a strict local maximum point.
(b) f 0 (c) = 0 and f 00 (c) > 0 =⇒ x = c is a strict local minimum point.
(c) f 0 (c) = 0 and f 00 (c) = 0 =⇒ ?
The theorem leaves unsettled case (c) where f 0 (c) = f 00 (c) = 0. Then
"anything" can happen.
Usually, the first-derivative test can be used to classify stationary
points at which f 0 (c) = f 00 (c) = 0.

Example
Classify the stationary points of
1 1 2
f (x) = x3 − x2 − x + 1
9 6 3
by using the second-derivative test.
Solution
1 1 2 1
We get f 0 (x) = x2 − x − = (x + 1)(x − 2), with two stationary
3 3 3 3
2 1
points x = −1 and x = 2. Furthermore, f 00 (x) = x − , so that
3 3
f 00 (−1) = −1 and f 00 (2) = 1. From Theorem 3.2 it follows that x = −1 is
a local maximum point and x = 2 is a local minimum point.

Economic Applications
Marginal Concepts
Marginal cost in economics is defined as the change in total cost

incurred from the production of an addition unit.
Marginal revenue is defined as the change in total revenue brought
about by the sale of an extra good.
Since toal cost (TC) and total revenue (TR) are both functions of the
level of output (Q), marginal cost (M C) and marginal revenue (M R)
can each be expressed mathematically as derivatives of their respective
total functions. Thus,
dT C
MC =
dQ
dT R
MR =
dQ

Marginal Concepts
In short, the marginal concept of any economic function can be

expressed as the derivative of its total cost function.
Example
If T R = 75Q − 4Q2 , then M R = dT R/dT Q = 75 − 8Q
If T C = Q2 + 7Q + 23, then M C = dT C/dQ = 2Q + 7.
Example
Given the demand function P = 30 − 2Q, the marginal revenue function
can be found by first finding the total revenue function and then taking the
derivative of that function with respect to Q.

Marginal Concepts
Thus,
T R = P · Q = (30 − 2Q)Q = 30Q − 2Q2
Then
dT R
MR = = 30 − 4Q
dQ
If Q = 4, M R = 30 − 4(4) = 14; if Q = 5, M R = 30 − 4(5) = 10.

Optimizing Economic Functions
Finding the best way to do a specific task involves what is called an

optimization problem.
Optimization problems frequently occur in economics. For instance, a
firm tries to maximize profits and levels of physical output and
productivity, as well as to minimize costs, levels of pollution, and the
use of scarce natural resources.
This is done with the help of techniques developed earlier in this
chapter.
Example
Maximize profits π for a firm, given total revenue R = 4000Q − 33Q2 and
total cost C = 2Q3 − 3Q2 + 400Q + 5000, assuming Q > 0.

Solution
First, set up the profit function
π = 4000Q − 33Q2 − (2Q3 − 3Q2 + 400Q + 5000)

= −2Q3 − 3Q2 + 3600Q − 5000
Take the first derivative, set it equal to zero, and solve for Q to find the
critical points.
π 0 = −6Q2 − 60Q + 3600 = 0

= −6(Q2 + 10Q − 600) = 0
= −6(Q + 30)(Q − 20) = 0
=⇒ Q = −30 or Q = 20 (critical points)

Solution (continued )
Then take the second derivative; evaluate it at the positive critical point
and ignore the negative critical point.
π 00 = −12Q − 60
π 00 (20) = −12(20) − 60 = −300 < 0 (concave, relative maximum)
Hence, profit is maximized at Q = 20 where
π(20) = −2(20)3 − 30(20)2 + 3600(20) − 5000 = 39, 000

Finding the Point Elasticity
Given a demand function Q = f (P ), its elasticity is defined as

(∆Q/Q)/(∆P/P ) = (∆Q/∆P )(P/Q).
The point-elasticity measure can alternatively be interpreted as the
∆Q/∆P
limit of as ∆P → 0, which gives the following result:
Q/P
dQ/dP dQ P
εd ≡ =
Q/P dP Q
As a matter of convention, the absolute value of the elasticity measure

is used in deciding whether the function is elastic at a particular point.

Finding the Point Elasticity
Example
Find εd at P = 25 if the demand function is Q = 100 − 2P .
Solution
We have
dQ Q 100 − 2P
= −2 and =
dP P P
so their ratio will give us
−P
εd =
50 − P
Hence, at P = 25, we have εd = −(25)/(50 − 25) = −1, or |εd | = 1, so
that the demand elasticity is unitary at that point.

Finding the Point Elasticity using Logarithmic Derivatives
So far we have used the elasticity formula to calculate the elasticity of

a linear demand function.
But this formula is cumbersome to use when applied to a constant
elasticity demand function. Hence, we apply logarithmic derivatives to
easily compute the elasticity of such functions.
To begin with, let us define u ≡ ln y and ν ≡ ln x. Then we can
observe a chain of relationship linking u to y, and therefore to x and ν
as follows:
u ≡ ln y y = f (x) x ≡ eln x ≡ eν

Accordingly, the derivative of ln y with respect to ln x is
d(ln y) du du dy dx
= =
d(ln x) dν dy dx dν

d dy d ν
= ln y e
dy dx dν
1 dy ν 1 dy dy x
= e = x=
y dx y dx dx y
But this expression is precisely that of the point elasticity of the

function.

Hence, we have established the general principle that, for a function

y = f (x), the point elasticity of y with respect to x is
d ln y
εyx = (6)
d ln x
Example
Find the point elasticity of demand, given that Q = k/P , where k is a
positive constant.
Solution
This is the equation of a rectangular hyperbola; and, as is well known, a
demand function of this form has a unitary point elasticity at all points. To
show this, we shall apply (6).

Solution(continued )
Since the natural log of the demand function is
ln Q = ln k − ln P
the elasticity of demand (Q with respect to P ) is indeed
d(ln Q)
εd = = −1 or |εd | = 1
d(ln P )

************* End of Chapter Three *************

CH 3. Derivatives

Uploaded by

Copyright:

Available Formats

CH 3. Derivatives

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CH 3. Derivatives

Uploaded by

Copyright:

Available Formats

Econ 1011: Calculus For Economists

Addis Ababa University

December 12, 2018

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 1 / 62

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 2 / 62

Let us consider the rate of change of a variable, y, in response to a

When x changes from an initial value x0 to a new value (x0 + ∆x),

Frequently, we are interested in the rate of change of y when ∆x is

f (x0 + ∆x) − f (x0 )

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 4 / 62

Elementary economics tells us that, given a total-cost function

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 5 / 62

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 6 / 62

The slope of a curvilinear function is not constant; it differs at

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 8 / 62

The slope of a tangent line is derived from the slopes of a family of

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 9 / 62

Hence, The tangent line to the curve y = f (x) at the point

There is another expression for the slope of a tangent line that is

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 11 / 62

We defined the tangent line to the curve y = f (x) at the point

If we use the point-slope form of the equation of a line, we can write

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 12 / 62

From the previous example we

A function is differentiable at a point if the derivative exits at that

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 14 / 62

In Figure 3(a), the function is not differentiable at a because it has a

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 15 / 62

In the preceding section we considered the derivative of a function f

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 16 / 62

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 17 / 62

The Constant Function Rule

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 18 / 62

The Power Function Rule

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 19 / 62

The Rules for Sums and Differences

f 0 (x) = g 0 (x) ± h0 (x)

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 20 / 62

The Product Rule

f 0 (x) = g(x) · h0 (x) + h(x) · g 0 (x)

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 21 / 62

f 0 (x) = 3x4 (2) + (2x − 5)(12x3 )

and simplifying algebraically gives

f 0 (x) = 6x4 + 24x4 − 60x3 = 30x4 − 60x3

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 22 / 62

The Quotient Rule

h(x) · g 0 (x) − g(x) · h0 (x)

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 23 / 62

60x3 + 45x2 − 20x3 40x3 + 45x2 5x2 (8x + 9)

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 24 / 62

The Chain Rule

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 25 / 62

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 26 / 62

The Natural Exponential Function Rule

The Exponential Function Rule for Base a Other Than e

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 27 / 62

Lemi Taye (AAUSC) Ch 3: Derivatives December 12, 2018 28 / 62

The Natural Logarithmic Function Rule

The Logarithmic Function Rule for Base a Other Than e