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Lecture 08 Partial Differentiation

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Lecture 08 Partial Differentiation

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Partial Differentiation

Reading: Jacques: Chapter 5, Section 5.1 – 5.2

Lecturer: Mr. Anh Vu, CMA, MSA

4/16/2020 Prepared by Anh Tuan Vu 1

Lecture Outlines

1. Functions of several variables

2. Partial differentiation
3. Implicit differentiation
4. Application I: Elasticity
Application II: Utility
Application III: Production Function

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Functions of several variables

Learning objectives:
1. Use the function notation, z = f(x,y).
2. Determine the first-order partial derivatives, fx and fy.
3. Determine the second-order partial derivatives, fxx, fxy, and fyy.
4. Appreciate that, for most functions, fxy = f yx .
5. Use the small increments formula.
6. Perform implicit differentiation.

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Functions of several variables

• More realistic in economics to assume an economic variable

is a function of a number of different factors:
– Demand may depend on the price of the good and the
income level of the consumer
Qd =f(P,Y)
– Output of a firm depends on inputs into the production
process like capital and labour
Q =f(K,L)

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Functions of several variables
• Sketching functions of two variables y=f(x,z) :
– Sketch this function in 3-dimensional space or plot
relationship between 2 variables for constant values of
the third
– For example consider a linear function form:
y =a+bx+cz
For different values of z we can represent the relationship
between x and y

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Functions of several variables
•

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Functions of several variables
• Consider a non-linear
function form:Y=X  Z 
0<< 1 & 0<<
1
(e.g. Production Function)
• For different values of z
we can represent the
relationship between x
and y

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Functions of several variables
•

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Differentiation Functions of several variables –
Partial Differentiation
• Differentiating functions of one variable y = f(x):

• Differentiating functions of 2 variables y = f(x,z):

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Differentiation Functions of several variables –
Partial Differentiation

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Partial Differentiation
• Second order derivative of a function of 1 variable y = f(x):

• Second order derivatives of a function of 2 variables y = f(x,z):

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Differentiation Functions of several variables –
Partial Differentiation

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Differentiation Functions of several variables –
Partial Differentiation

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Interpretation of partial derivatives
• Functions of one variable:

Change in y as a result of a small change in x:

• Functions of several variables:

Y = f(x,z)
Holding z fixed, if x changes by a small amount the change in y is given by:

If x and z change simultaneously

This is the small increments formula

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Differentiation Functions of several variables –
Partial Differentiation

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Implicit Differentiation
Y = f(x,z) = c
Small increments formula:

Since dy = 0 then we can rearrange to find:

In general if we have the function f(x,y) we can find:

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Implicit Differentiation

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DO IT !!!

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Application I: Elasticity quantity demanded as
a function of 1 variable
Learning objectives:
1. Calculate partial elasticities
2. Calculate marginal utilities
3. Calculate the marginal rate of commodity substitution along an indifference
curve
4. Calculate marginal products
5. Calculate the marginal rate of technical substitution along an isoquant
6. State Euler’s theorem for homogeneous production functions.

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Application I: Elasticity quantity demanded as
a function of 1 variable

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Application I: Elasticity quantity demanded as
a function of several variables

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Application I: Elasticity quantity demanded as
a function of several variables

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Application I: Elasticity quantity demanded as
a function of several variables

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Application I: Elasticity quantity demanded as
a function of several variables

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Application II: Utility

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Application II: Utility

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Application II: Utility

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Application II: Utility
Indifference curves:
Displays all possible combinations of x1 and x2 that produce a constant level of
Utility (Illustrate)

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Application II: Utility

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Application II: Utility

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Application II: Utility