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)
