2013.11.
04
Calculus of many variables
• Models:
– Cobb–Douglas production function. Isolines of production volume
– Utility function. Indifference curves
– Revenue function for two commodities
– Marginal productivity
– Substitute and complementary commodities
• Mathematical tools:
– Functions of several variables
– Level curves
– Partial derivatives
– Higher-order partial derivatives
http://www.math.umn.edu/~rogness/quadrics/index.shtml
http://houseof3d.com/pete/applets/graph/index.html, 2013 10
http://virtualmathmuseum.org/Surface/gallery_o.html#MiscellaneousSurfaces
Cobb–Douglas production function
x – labor input (the total number of person-hours worked in a year)
y – capital input (the monetary value of all machinery, equipment, and
buildings)
z – total production (the monetary value of all goods produced in a
year)
z/x – total productivity (production volume created by a unit
of the labor force)
y/x – capital investment for one unit of labor force
z/x is some function of y/x:
z
f ( y / x)
x
z y 1 3
k z ky x1 z kx 4 y 4
x x
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Constants in the Cobb–Douglas production function
z ky x1
• k – total factory productivity
• α and β are the output elasticity of labor and capital.
These values are determined by available technology
and show output sensitivity to labor or capital
investment
1. α + β = 1: the production function has constant returns to
scale: doubling capital y and labor x will also double
output z. Thus, α and β are labor and capital's share of
output
2. α + β < 1, returns to scale are decreasing
3. α + β > 1, returns to scale are increasing
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3D Cartesian coordinate system
René Descartes
(x, y)
http://commons.wikimedia.org/wiki/File:Coord_system_CA_0.svg
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Geometrical interpretation of a function in two
independent variables
z = f(x, y)
(x, y, z)
Domain D of f(x, y)
(x, y)
Geometrical interpretation of a function in two
independent variables
http://houseof3d.com/pete/applets/graph/index.html, 2013 10
http://virtualmathmuseum.org/Surface/gallery_o.html#MiscellaneousSurfaces
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Cobb–Douglas production function
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http://en.wikipedia.org/wiki/File:Cobbdouglas.jpg
Level curves
http://www.slu.edu/classes/maymk/banchoff/LevelCurve.html, 2013 10
http://mathinsight.org/level_sets 2013 10
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Level curves
z f ( x, y ) z2 x2 y2
f ( x, y ) C x2 y2 C2
C=6
C=5
C=4
C=3
C=2
C=1
http://www.slu.edu/classes/maymk/banchoff/LevelCurve.html, 2013 10
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Given the graph of the level curves of Given the graph of the level curves of
function z = f(x, y), determine what is function z = f(x, y), determine what is
the least value it takes along the green the greatest value it takes along the line
line? x=4?
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Partial derivatives
http://ocw.mit.edu/ans7870/18/18.02/f07/tools/FunctionsTwoVariables.html 2013 10
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Given the graph of the level curves of function z = f(x, y),
determine the sign of the partial derivatives f x ( x, y ) and
f y ( x, y ) at point P.
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Definition and notation of partial derivatives
of function f(x, y)
f (x x, y ) f ( x, y )
f x ( x, y ) lim
x 0 x
f ( x, y y) f ( x, y )
f y ( x, y ) lim
y 0 y
Alternative notation:
f f
; ; f x ( x, y ); f y ( x, y )
x y
Value at the point (a, b): f
f x ( a, b)
x (a, b)
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Exercise. Compute partial derivatives
f x and f y:
f ( x, y ) x2 y2
f ( x, y ) 4 x2 y2
x2
f ( x, y ) ey
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Exercise. Marginal profit
Profit for producing and selling x units of product A and y
units of product B is given by the profit function
P(x, y) = –5000 + 130x + 210y – 5x2 – 10y2 + 4xy.
Find marginal profit of the productA and product B if
current output is 20 units of product A and 30 units of
product B.
MPA = P′x(x, y) =
P′x(20, 30) =
MPB = P′y(x, y) =
P′y(20, 30) =
What is the economical interpretation of the result?
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Marginal revenue
For the two commodity demand functions
qA = e–5p + 2r, qB = e3p – 4r,
where qA and qB is quantity demanded for the price p
and r, respectively, develop the revenue function and
compute the marginal revenue at (20; 30)
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Marginal product
Marginal product of an input (labor, MPL, or capital, MPC) is an
extra output that can be produced by using one more unit of the
input, assuming that the quantities of no other production inputs
change. Thus, it is expressed in terms of partial derivatives of
production function.
The MPL represents the real wage
The MPC represents the rate of return on capital
Compute marginal product of labor and capital for the production
function z, if present investment into labor is x = 20 and capital
investment is y = 160 units:
1 2
z 20 x 3 y 3
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Higher order partial derivatives of f(x, y)
Definition:
z xx ( z x ) x , z yy (z y ) y z xy ( z x ) y , z yx (z y ) x
2 y2
Notation: f ( x, y ) ex
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Exercise
Calculate the second order partial derivatives of the
function:
2 y2
f ( x, y ) ex
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