Mathematics for Economic Analysis

4ECON007C

Lecture 1
Univariable Functions

Semester One, 2017-2018

Outline

Modeling

Sets

Properties of univariable functions

Applications of univariable functions

Linear Models
Mathematical modeling

Mathematical model is an approximate description or representation of a

real-life situation expressed in terms of mathematical symbols (constants,
variables, equations, inequalities, etc.)

Understand Formulate the Check the Use the model

the real world problem and validity of the subject to the
situation solve model conditions
Mathematical modeling

Example: A water-pipe for a distance of 191 m has to be laid in an animal

farm. There are tubes of lengths 5 m and 7 m of the same diameter. Find the
most economically reasonable number of the tubes to be used, provided that
it is not recommended to cut the tubes.
Modeling: Let x be the number of 5 m and y of 7 m tubes
5x + 7y = 191 where x, y N
(x + y) minimum
Solution: (34; 3) (27; 8) (20; 13) (13; 18) (6; 23)
Sets
A collection of distinct objects, which are called the elements (members)
of the set. Sets are often named with capital letters.
Examples: A = {Andijon, Buxoro, }, B = {4EC1, 4EC2, }, C = {1991,
1992, , 2015}.
Membership in a set is indicated by or
Examples: Jizzax A, 4 BIS1 B, 2014 C.
Two ways of presenting sets:
1) Enumeration: A = {a1, a2, , an} Examples: D = {2, 4, 6}, E = {1, 2, 3}.
2) Description: A = {a | Property} Examples: F = {x | x is an even number},
G = {x | 0 < x < 10}.
Sets
D = {2, 4, 6}, E = {1, 2, 3, 4, 5, 6}, F = {x | x is an even number},
G = {x | 0 < x < 10}, H = {4, 6, 2}, I = {2, 3, 5, 7}
Sets can be finite or infinite
Examples: D, E, H and I are finite; F and G are infinite.
Two sets are equal if they contain exactly the same elements
Examples: D E; D = H
Universal set is a set that contains all of the objects being discussed
Examples: All natural numbers for E or F; All real numbers for G.
Sets
D = {2, 4, 6}, E = {1, 2, 3, 4, 5, 6}, F = {x | x is an even number},
G = {x | 0 < x < 10}, H = {4, 6, 2}, I = {2, 3, 5, 7}
A set is a subset of another set if every element of one is also an element of
the other.
Examples: D E; F G
Every set is a subset of itself. The empty set is also a subset of every set.
Examples: D D; D
Hence, subsets of set D are , {2}, {4}, {6}, {2, 4}, {4, 6}, {2, 6}, {2, 4, 6}
Operation on sets
D = {2, 4, 6}, E = {1, 2, 3, 4, 5, 6}, F = {x | x is an even number},
G = {x | 0 < x < 10}, H = {4, 6, 2}, I = {2, 3, 5, 7}
Given a set A and a universal set U, the set of all elements of U that do not
belong to A is called the complement of A, written as A or A
Examples: Let E = U = {1, 2, 3, 4, 5, 6}, then D = {1, 3, 5}; = U; U =
Given two sets A and B, the set of all elements belonging to both set A and set
B is called intersection of the two sets, written as A B
Examples: H and I = H I = {2}; F D = (disjoint sets)
The set of all elements belonging to set A or to set B, or to both sets, is called
union of the two sets, written as A B
Examples: H or I = H I = {2, 3, 4, 5, 6, 7}; D E = E
Summary of operation on sets (Venn diagrams)
Univariable functions
A rule that assigns a unique value y to every allowed value of x
Denoted as y = f (x) where x is an independent (exogenous) variable and y
is a dependent (endogenous) variable
A univariable (univariate) function is a function with one independent
variable
A function domain D (y) is a set of all possible values of x
A function range E (y) is a set of all possible values of y
Examples:
1) y = x2 + 3, D (y) = (, +), E (y) = [3, +)
1, if x rational number ,
2) Dirichlet function: D( x)
0, if x irrational number .
Main elementary functions
Linear function:
f (x) = ax + b, where a and b are constant
Quadratic function:
f (x) = ax2 + bx + c, where a 0, a, b and c are constant
Polynomial function of degree n:
f (x) = anxn + an-1xn-1 + + a1x + a0, where an, an-1,, a0 are constant
Exponential function:
f (x) = ax, (a > 0 and a 1)
Logarithmic function:
f (x) = log a x, (a > 0, x > 0 and a 1)
Rational function:
P( x)
f (x) = , where P (x) and Q (x) are polynomials and Q (x) 0
Q( x)
Ways of representing function
Analytical:
Given as a formula or a set of formulas, which shows the necessary operations
Graphical:
Given as a set of points on the Cartesian plane
Tabular:
Given as a table of values of x and y
Parametrical:
Corresponding values of y and x are given in terms of the third variable t, which is a
parameter (x = f (t), y = g (t)).
Examples:
1) x = 0.5t and y = t2 1 is a quadratic equation
2) x = cos(t) and y = sin(t), 0 t < 2 is a parametrical equation of a circle
Types of functions

Explicit function: a function of the form y = f (x)

Example: y = 2x 3
Implicit function: a function of the form F (x, y) = 0
Example: x2 + y2 9 = 0
Inverse function: if y = f (x), then inverse is x = f 1(y)
Example: y 2 x 6, x 3, 5; Inverse: y 0.5 x 3, x 0, 16
Bounded function: a function, for which there can be found such a number M that for
every value of x the following condition holds true: f ( x) M or M f x M
Examples: 1) y = sinx; 2) y = 1/(1 + x2); 3) y = x2, 0 x 2
Composite function: a superposition of elementary functions
2 3 3

Example: f x , g x 1, y f g x f x 1 x 1
3

2

Linear function y = ax + b

Demand function: Q = f (P) = aP + b

where a < 0, P 0, Q 0

Example: Q = 0.5P + 25, where P 0, Q 0

Q 0 0.5P + 25 0 P 50
D (Q) = [0, 50], E (Q) = [0, 25]

Values of variables
P 0 10 20 30 40 50
Q 25 20 15 10 5 0
Graph of a linear function

QD = 0.5P + 25
60

50

40
Price

30

20

10

0
0 5 10 15 20 25

Quantity
Linear function y = ax + b

Supply function: Q = f (P) = aP + b

where a > 0, P 0, Q 0

Example: Q = 2P 50, where P 0, Q 0

Q 0 2P 50 0 P 25
D (Q) = [25, +), E (Q) = [0, +)

Values of variables
P 25 30 35 40 45 50
Q 0 10 20 30 40 50
Graph of a linear function

QS = 2P 50
55
50
45
40
35
Price

30
25
20
15
10
5
0
0 10 20 30 40 50

Quantity
Equilibrium point

Demand = Supply

QD = QS or PD = PS

1
Example: QD P 25 and QS 2P 50
2
1
Qd Qs P 25 2 P 50 P 30
2
Q (30) = 2P 50 = (2)(30) 50 = 10

(P, Q) = (30, 10) is an equilibrium point

Equilibrium point graphically

QD = 0.5P + 25 QS = 2P 50
60

50

40
Price

30

20

10

0
0 5 10 15 20 25

Quantity
Quadratic function y = ax2 + bx + c
Graph is called a parabola

U - shaped, when a > 0

- shaped, when a < 0

Example: y = x2 2x + 2

Values of variables
x 2 1 0 1 2 3
y 10 5 2 1 2 5
Graph of a quadratic function

18
16
Axis of symmetry
14
12
Branches
10
8
6 Vertex
4
2
0
-4 -3 -2 -1 0 1 2 3 4 5 6
Revenue, cost and profit

Total revenue function: TR = PQ

Total cost function: TC = FC + (VC)Q

Profit function: = TR TC
Profit function

Example: If the fixed costs are 4, variable costs per unit are 1 and the
demand function is P = 10 2Q,
1) obtain an expression for in terms of Q
2) find for what values of Q the firm breaks even
3) calculate the maximum profit
Solution:
TC = FC + (VC)Q = 4 + (1)Q = 4 + Q
TR = PQ = (10 2Q)Q = 10Q 2Q2
= TR TC = (10Q 2Q2) (4+Q) = 2Q2 + 9Q 4

Thus, = 2Q2 + 9Q 4 is a quadratic function

Breakeven point

TR = TC or = 0

Algebraically:
TR = TC 10Q 2Q2 = 4 + Q
2Q2 + 9Q 4 = 0 Q1 = 0.5, Q2 = 4

Graphically:
Sketch the graphs
TR = 10Q 2Q2 (parabola) and TC = 4 + Q (straight line)
The intersection points are breakeven points
Breakeven point graphically

14

12

10 TR TC
8
Cost

0
0 1 2 3 4 5
Quantity
Maximum profit

Maximum value of the profit function:

= 2Q2 + 9Q 4
8
Max = 6.125
6
4

2
Profit

0
-2 0 1 2 3 4 5
Quantity
-4
-6
-8
-10
Rational function
f ( x)
y
g ( x)
where f (x) and g (x) are polynomials and g (x) 0
6

4
Example:
2

1
y -3 -2 -1
0
0 1 2 3
x -2

Asymptotes y = 0, x = 0 -4

-6
Average cost function
TC Q 4
For the case above: TC = 4 + Q, then AC
Q Q
25 where D(AC) = (0, +), E(AC) = (1, +)

20
Average cost

15

10

0
0 1 2 Quantity 3 4 5
Linear Models

Linear Regression
Linear Models
The number of students enrolled at WIUT in selected years is shown in the
following table.
Year 2010 2013 2015 2017 2019 2020

Number of 764 814 917 991 1038 ?

Students

a) Let x=1 correspond to 2010, use the data points (5, 917) and (9, 991) to find a
line that models the data;

b) Use the points (3, 814) and (5, 917) to find another line that models the data.
Hint: find the equation of the line which passes through two points
Solution
Solution
a) The slope of the line through (5,917) and (7,991) is 37
y= 37x+732

b) The slope of the line is 51.5

y=51.5x+659.5

So we have question which line best fits the data? And one way to compute the
difference between the number of students and (y) and the amount () given by
the model, (y-) residual
Solution
For each model, determine the residuals, square of each residual, and the sum
of the squares of the residuals.
y=51.5x + 659.5
Data Point Model Point Residual Squared Residual
(x,y) (x,) y- (y-)*2
(1, 764) (1, 711) 53 2809

(3, 814) (3, 814) 0 0

(5, 917) (5, 917) 0 0

(7, 991) (7, 1020) -29 841

(9, 1038) (9, 1123) -85 7225

Sum=10875
Solution
y=37x+732

Data Point Model Point Residual Squared Residual

(x,y) (x,) y- (y-)*2
(1, 764) (1, 769) -5 25

(3, 814) (3, 843) -29 841

(5, 917) (5, 917) 0 0

(7, 991) (7, 991) 0 0

(9, 1038) (9, 1065) -27 729

Sum = 1595
Solution
y=37x+732 is a better fit for the data because the sum of the squares of its
residuals is small
The line of best fit is called the least-squares regression line, and the
computational process for finding its equation is called linear regression.
Linear-regression formulas are quite complicated and require a large amount of
computation. Most spreadsheet programs can do linear regression quickly and
easily.
Correlation coefficient, we calculate correlation coefficient to assess the fit of
the regression line to the scatterplot, (r is always between -1 and 1, when
absolute value is close to 1, the line fits the data quite well)
Reading
Any of the recommended textbook, any edition, sections on:
sets
univariable functions
linear functions
quadratic functions
rational functions
system of linear/nonlinear equations
supply and demand analysis
revenue, cost and profit