DSC3707 2012 101-E Fin

DSC3707/101/3/2012
Tutorial letter 101/3/2012

MATHEMATICAL MODELLING II
(DSC3707)
Department of
Decision Sciences
This tutorial letter contains important
information about your module
2
CONTENTS
Page
1. Introduction and welcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Purpose and outcomes of the module . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Lecturer and contact details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. Module related resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Student support services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6. Module specic study plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7. Module practical work and work integrated learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8. Assessments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9. Examinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
10. Other Assessment methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11. Frequently asked questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Appendix A. First semester compulsory assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Appendix B. Second semester compulsory assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Appendix C. Self evaluation exercises and solutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Appendix D. Errata - prescribed textbook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
1. INTRODUCTION AND WELCOME
Welcome to the Mathematical Modelling II module in the Department of Decision Sciences. Mathematical
techniques form the basis of any attempt to model economic and nancial reality in a quantitative way. This
module is designed to introduce you to some of the most useful of these techniques.
Please re-read the information in Tutorial letter 301 thoroughly!
This module runs in both semesters of 2012. Please ensure that
you know for which semester you are registered.
You have already passed Mathematical Modelling I or Mathematics 1, DSC2602, DSC2604, DSC2605 and
DSC2606 (or DSC2601). There the foundations were laid for what we want to do in this module. The
emphasis shifts in this module from technique to application. The techniques are still important, though
without them many of the problems in economics and nance can not be addressed effectively. Please
also remember that techniques cannot be applied thoughtlessly. Techniques are the tools that are used
3 DSC3707/101/3
once insight has been used to formulate a model of reality. The interpretation of a calculation must always
be approached with circumspection.
We expect you to work through all examples and exercises. Most of the examples are given not only to
illustrate a point, but to give you the opportunity to work with us through a certain procedure. Skills can
only be acquired by doing. You should use every opportunity to practise your new skills.
Throughout this module you must strive to integrate existing knowledge (including what you have learnt in
other modules in the Department of Decision Sciences, and also in other departments) with what is written
in the textbook, and what your own common sense tells you.
The Department of Despatch will, as soon as it becomes available, send you the following study material.
These letters will also be available on myUnisa.
The study guide for DSC3707(Mathematical modelling II). This is a wrap-around guide based on the
prescribed textbook, and is used in conjunction with the textbook. It is not a replacement for the
prescribed textbook.
Tutorial letter 301 (general information).
Tutorial letter 101 (module information and assignments).
Tutorial letter 201 (solutions to assignment 1 and 2).
Some of this tutorial matter may not be available when you register. Tutorial matter that is not available
when you register will be posted to you as soon as possible, but is also available on myUnisa.
Your attention is directed to the importance of myUnisa and regular use of the Internet. You must be
registered on myUnisa to be able to submit assignments, to have access to the Library functions, download
study material, chat to your lecturers or fellow students and participate in online discussion forums and
obtain learning resources.
2. PURPOSE AND OUTCOMES OF THIS MODULE
Contents of the module
This module is based on the prescribed textbook. In the wrap-around guide and the study schedule (in this
section) you will nd pointers on how to approach this subject, and also which parts are more important
than others.
The textbook uses conventions that may differ from what you are used to. The most noticeable is perhaps
the use of a decimal point instead of a decimal comma. You can use the convention that you are familiar
with in the assignments and examination questions.
You will also nd that there is some overlap between the textbook and the work covered on the rst and
second level. Use this opportunity to do revision, and to consolidate your knowledge and skills.
Learner outcomes
Learner outcome 1
Learners are able to use the correct mathematical language and techniques to describe and model situa-
tions which occur in economics and nance.
4
Required background
Describe and manipulate sets, real and integer numbers and their subsets.
Dene and use functions, inverse functions and composite functions.
Draw and interpret graphs of functions.
Find solutions of equations.
Describe and use integer, rational and irrational powers of positive numbers.
Dene and use the trigonometric, exponential and logarithmic functions.
Dene and use vector notation and matrix notation.
Apply differentiation rules and elementary integration rules.
Learner outcome 2
Learners are able to describe economic processes using sequences, recurrences and limits where appli-
cable, and nd the solutions of recurrence equations.
Assessment criteria
Model and solve rst-order recurrence equations.
Determine time-independent solutions and interpret their asymtotic behaviour.
Dene interest, capital growth, present and future value and the interval of compounding, and give
mathematical representations thereof.
Use recurrence equations to model and solve annuity problems.
Calculate capital growth and present value under continuous compounding.
Describe a simplied national economy using second-order recurrence equations.
Find the general solution of a homogeneous and a non-homogenous second-order linear recurrence.
Determine a specic solution using initial conditions.
Describe the qualitative behaviour of solutions to recurrence equations.
Find solutions to the multiplier-accelerator equations.
Describe business cycles.
Learner outcome 3
Learners are able to model market equilibrium using supply and demand sets.
Assessment criteria
Express supply and demand functions in mathematical notation and graph the functions.
Calculate market equilibrium points.
Determine the effects of excise tax and calculate optimal excise tax rates.
Dene and use the cobweb model.
Derive and solve a recurrence equation when the supply and demand are linear.
5 DSC3707/101/3
Analyse the stability of the cobweb model.
Learner outcome 4
Learner should be able to use calculus techniques (differentiation and integration) to model and solve
problems in economics and nance.
Required background
Calculate the derivative of a function.
Calculate the integral of a function.
Calculate partial derivatives of multivariable functions.
Assessment criteria
Apply and interpret marginal analysis.
Model and solve prot optimisation problems in one variable.
Calculate and interpret the elasticity of demand.
Calculate the derivative of an implicit function.
Mathematically describes monopolies and perfect competition.
Mathematically describes the efcient rm in a perfectly competitive market.
Model and solve prot optimisation problems in two variables.
Model and solve constrained optimisation problems using the Lagrange method.
Dene and graphically represent budget constraints, utility functions and indifference curves.
Calculate the optimal bundle subject to budget constraints.
Model consumers preferences.
Apply the method of Lagrange multipliers to the consumer choice problem.
Maximise a consumers utility subject to the budget constraint.
Apply the relation between the price-ratio and the tangency condition.
Dene and determine the indirect utility function.
Apply elementary integration rules.
Calculate the consumer surplus.
Apply differential equations to model continuous-time macro-economic models.
Solve separable rst-order differential equations.
Model market trends using second-order differential equations.
Calculate the solution of a homogeneous second-order differential equation.
Calculate the solution of non-homogenous second-order differential equations.
Describe the behaviour of the solution of a differential equation.
Learner outcome 5
Learners are able to apply linear algebra to model and solve economic and nancial problems.
6
Required background
Dene vectors, matrices and perform calculations (addition, scalar and matrix multiplication).
Solve linear equations.
Assessment criteria
Express economical problems in matrix form and solve the system of linear equations.
Solve linear equations to justify investment decisions involving arbitrage and state prices.
Apply IS-LM analysis.
Dene a technology matrix.
Derive and solve equations for the total production of each commodity.
3. LECTURER AND CONTACT DETAILS
Please remember always to provide your student number when contacting the University.
Please contact your lecturer by sending an email message via myUnisa.
econ@unisa.ac.za Undergraduate enquiries (CEMS)
CEMSenquiries@unisa.ac.za General enquiries (CEMS)
+27 +12 429-4171 Undergraduate enquiries (CEMS)
+27 +12 429 4424 Departmental Secretary
+27 +12 429 4898 Departmental Fax
General Unisa contact details will be found in the my Studies @ Unisa brochure.
4. MODULE RELATED RESOURCES
4.1 Prescribed textbook (A list of errata appears in APPENDIX D.)
This module is based on the following textbook:
Anthony, M. and Biggs, N., Mathematics for economics and nance; Methods and Modelling. Cam-
bridge University Press. You may buy any edition.
You are advised to obtain this book as soon as possible in order
to avoid any possible delay in your studies.
Please refer to the list of ofcial booksellers and their addresses in the my Studies @ Unisa brochure.
Prescribed books can be obtained from the Universitys ofcial booksellers. If you have difculty in
locating your book(s) at these booksellers, please contact the Prescribed Book Section at Tel: 012
429-4152 or e-mail vospresc@unisa.ac.za.
4.2 Recommended books There are no recommended books for this module.
4.3 Electronic Reserves (e-Reserves) There are no e-Reserves for this module.
7 DSC3707/101/3
5. STUDENT SUPPORT SERVICES
Notices and information will be available on the my Unisa site. Please refer to it for dates, information and
study material.
Please refer to my Studies @ Unisa brochure for other information.
6. MODULE SPECIFIC STUDY PLAN
This section contains a study schedule to help you to pace your studies and includes study hints.
The references and exercises refer to the textbook Mathematics for Economics and Finance by M Anthony
and N Biggs.
The worked examples at the end of each chapter are the most important part of this module. After working
through each chapter, you should work through these examples and make sure you understand the solu-
tions. Do the exercises indicated in this study schedule and the exercises in the assignments. The nal
answers of the exercises in the textbook are given on page 375.
In the study schedule we assume that you use a computer package to enhance your learning experience.
Since MuPAD is not free of charge anymore you will receive a CD with Maxima. You may however continue
to use your old version of MuPAD. You may also use OCTAVE or MAPLE. The notes for MuPADand Maxima
are included in the Study guide.
In order to get an early start, we recommend that you download and install Maxima from
http://maxima.sourceforge.net instead of waiting for the CD.
8
Study Schedule
Please note that the time allocation is only an indication.
Unit Chapters Topic
1 1-2 Supply/Demand (Revision)
2 3-5 First-order recurrence
Cobweb model
3 6-7 Differentiation (Revision)
1-7 Compulsory assigment 01
4 8-10 Optimisation/Applications
1-10 Self-evaluation exercise 1
5 11-13 Functions of two variables
Optimisation/Differentiation
6 14-20 Vector and matrix algebra
8-20 Compulsory assignment 02
7 21-24 Constrained optimisation
Second-order recurrence
8 25-28 Integral calculus
Differential equations
Studying for the examination
Time allocation: (A total of at least 120 hours should be spent on the module)
Units 1-2: two weeks
Units 4-6: ve weeks
Units 7-9: ve weeks
Studying: 2 weeks
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STUDY UNIT 1
Chapters 1 to 2
This rst two chapters summarise and revise concepts explained in your previous modules using the text-
books terminology.
Chapter 1: Mathematical models in economics
Purpose: To explain and dene the mathematical notation used to describe supply en demand sets in the
economical environment.
Study hints
At the end of the chapter you should be able to:
Understand, apply and represent graphically the following:
demand and inverse demand function;
supply and inverse supply function.
Determine the market equilibrium.
Determine the inuence on the equilibrium market price and quantity if tax is imposed.
Note that in the economic models the quantity, q, is represented on the x-axis and the price, p, is repre-
sented on the y-axis. The demand function (q
D
) and the supply function (q
S
) are expressed in terms of
p (the price). However, we want to represent the functions on a (q; p) plane. Thus the inverse demand
function (p
D
) and the inverse supply function (p
S
), expressed in terms of q (the quantity), are required to
draw the graphs.
Exercises: 1.2 to 1.5
MuPAD: Do Computer 1 , Appendix A.1, Study guide.
Maxima: Do Computer 1 , Appendix D.1, Study guide.
Chapter 2: Revision: Mathematical terms and notation

Purpose: To revise basic set and function notations.
Study hints
At the end of this chapter you should be able to:
Understand set notation.
Understand the concept of a function and its inverse.
Determine the expression for a composite function.
Characterise the roots of a quadratic function and draw a graph of a quadratic function or parabola.
Determine the solution of simultaneous quadratic and linear equations.
10
Exercises: 2.1, 2.2, 2.3, 2.4, 2.5
MuPAD: Computer 2, A.2, Study guide.
Maxima: Computer 2, D.2, Study guide.
STUDY UNIT 2
Chapters 3 to 5
In this unit elementary nancial and economical problems are modelled and solved.
Chapter 3: Sequences, recurrences, limits
Purpose: To model and solve economical problems using rst-order recurrence equations.
Study hints
Dene a rst-order recurrence equation.
Calculate the time-independent solution of the recurrence equation.
Determine the general solution of a recurrence equation.
Determine the solution of a recurrence equation if the initial condition is given.
Explain the behaviour of the general solution if t .
Model and solve problems using rst-order recurrence equations. See, for example, worked examples
3.4, 3.5 and 3.6.
Exercises: 3.1, 3.2, 3.3, 3.4, 3.5, 3.6
Maxima: Computer 3, D.3, study guide.
Chapter 4: The elements of nance

Purpose: To apply recurrence equations to model basic nancial concepts encountered in DSC1630 and
DSC2604.
Study hints
Explain present value, capital growth and interest.
Apply rst-order recurrence to model an annuity.
Calculate the present and future value (nal capital) if interest is added more frequently per annum.
11 DSC3707/101/3
Note that it is initially difcult to understand the formulae used in the textbook, since the format differs
from the formulae used in QMS102/DSC1630. You may verify the solutions using the QMS102/DSC1630
formulae or your pocket calculator.
Exercises: 4.1, 4.2. 4.3, 4.4(a), 4.5
Chapter 5: The cobweb model

Purpose: To apply the cobweb model to model market equilibrium.
Study hints
Describe and interpret the effect of a change in price or quantity on the stability of the market for a
single good using the cobweb model.
Derive and solve recurrence equations when demand and supply are linear.
Analyse the stability of the cobweb model.
Exercises: 5.1, 5.2, 5.3, 5.4
STUDY UNIT 3
Chapters 6 to 7
In this unit the differentiation rules covered in previous modules are revised.
Chapter 6: Introduction to Calculus
Purpose: To apply differentiation rules to polynomials.
Study hints
At the end of this chapter you should be able to:
Understand the denition of the derivative as the rate of change.
Apply the sum, product and quotient rules.
Apply the chain rule.
Determine and interpret marginal cost.
Exercises: Do at least exercises 6.2, 6.4, 6.5, 6.6
Chapter 7: Some special functions

Purpose: To revise differentition rules applied to exponential, logarithmic and trigonometric functions.
12
Study hints
Dene and sketch the exponential function e
x
.
Know the exponential rules.
Differentiate the exponential function.
Understand and apply continuous compounding interest.
Dene and sketch the logarithmic function ln x.
Differentiate the logarithmic function.
Apply differentiation rules to functions involving the exponential and the logarithmic function.
The exponential function is used in the modelling of nancial problems involving continuous compounding.
Exercises: 7.2, 7.3, 7.4, 7.5, 7.6, 7.7
NBNBNBNBNBNBNBNBNBNBNBNBNBNBNBNBNBNBNB
COMPULSORY ASSIGNMENT 01
Complete compulsory Assignment 01. Please submit the compulsory assignment as soon as possible
and before the due date.
STUDY UNIT 4
Chapters 8 to 10
Purpose: In this unit differentiation techniques for one variable are applied to describe, model and solve
economic problems.
General remark: In study unit 4 the mathematical techniques of the rst chapters are revised. However, the
important aspect is the application and interpretation in the economic environment.
Chapter 8: Introduction to optimisation
Purpose: To model and solve single variable optimisation problems.
Study hints
Understand the meaning of the rst- and second-order derivatives.
Determine the critical points.
Classify critical points using the second-order derivative.
13 DSC3707/101/3
Determine the maximum and minimum values of a function on a closed interval and on an innite
interval.
Apply the optimisation procedure to maximise prot or minimise cost.
Exercises: 8.1, 8.2, 8.3, 8.4, 8.5, 8.6, 8.7
MuPAD/Maxima: Plot the functions in exercises 8.3, 8.4 and 8.5.
For example, to plot the function 8.5 in MuPAD enter:
plotfunc2d(x*x*exp(-x),x=0..5)
In Maxima: Choose [Plotting] and then [plot2d]. Complete the pop-up menu and press [OK]. See also
the examples in the Maxima tutorial.
Chapter 9: The derivative in Economics I

Purpose: To illustrate the application of derivatives in the economic environment.
Study hints
Calculate and interpret the elasticity of demand.
Understand the relation between the optimumproduction level, the marginal revenue and the marginal
cost.
Distinguish between a perfect competition and a monopoly in the market.
Optimise the prot function in a monopoly.
Exercises: 9.1, 9.2, 9.3, 9.4, 9.5, 9.6
MuPAD/Maxima: Use MuPAD/Maxima to verify whether your sketch of the function in 9.6 is correct.
Chapter 10: The derivative in Economics II

Purpose: To apply derivatives to economic problems in an efcient small rm in a perfectly competitive
market.
Study hints
Dene an efcient small rm.
Determine and sketch the supply function for an efcient small rm.
Dene startup en breakeven points.
Know the relation between the startup point, the marginal cost and the average variable cost.
Know the relation between the breakeven point, the marginal cost and the average cost.
14
Determine the startup and breakeven points for an efcient small rm.
Exercises: 10.1, 10.2, 10.3
SELF-EVALUATION EXERCISE
Complete the self-evaluation exercise 1. The self-evaluation exercise covers chapters 1 to 10 and is a good
revision exercise of the study material and the type of questions you may expect in the examination.
STUDY UNIT 5
Chapters 11 to 13
In this unit differentiation and optimisation techniques are applied to functions of two variables.
Chapter 11: Partial derivatives
Purpose: To determine the partial derivatives of a function of two variables.
Study hints
Determine rst and second order partial derivatives.
Apply the chain rule to a function of two variables.
Determine and interpret the marginal product of capital and labour (see bottom of page 115).
Exercises: 11.1, 11.3, 11.4, 11.5, 11.6
Maxima: Computer 4, D.4,Study guide.
Chapter 12: Applications of partial derivatives

Purpose: To apply partial derivatives to implicitly dened functions.
Study hints
Distinguish between implicitly and explicitly dened functions.
Determine the derivative of an implicit function.
Understand and sketch contours and isoquants.
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Determine the gradient of a contour and an isoquant.
Show that a function is homogeneous of degree d.
What is the difference between contours and isoquants? See the comment before section 12.4 of the
textbook.
Eulers Theorem is not for examination purposes.
When determining the derivative of an implicit function, you may also apply the method described in
DSC3706 (QMS201). For example, the problem in section 12.2 could also be done using differentiation
rules directly.
Example in section 12.2.
If g(x,y) = e
x+y
+ 2(x +y) = 5 determine
dy
dx
.
You may use the partial derivatives technique explained in the textbook on page 127 or you may apply the
following method.
e
x+y
+ 2(x +y) = 5
Differentiate to x :
e
x+y
1 +
dy
dx
+ 2
1 +
dy
dx
= 0
dy
dx
e
x+y
+ 2
= e
x+y
2
dy
dx
=
e
x+y
2
e
x+y
+ 2
Example:
If x
4
+xy
3
y
4
= 0 determine
dy
dx
.
Method 1.
g(x,y) = x
4
+xy
3
y
4
g
x
= g
1
(x,y) = 4x
3
+y
3
g
y
= g
2
(x,y) = 3xy
2
4y
3
then
dy
dx
=
g
1
(x,y)
g
2
(x,y)
=
4x
3
+y
3
3xy
2
4y
3
=
4x
3
y
3
3xy
2
4y
3
Method 2.
16
x
4
+xy
3
y
4
= 0
Differentiate to x :
4x
3
+
1 y
3
+x 3y
2
dy
dx
4y
3
dy
dx
= 0
then
dy
dx
3xy
2
4y
3
= 4x
3
y
3
dy
dx
=
4x
3
y
3
3xy
2
4y
3
Exercises: 12.1,12.2,12.3 ,12.4.12.5, 12.6
Chapter 13: Optimisation in two variables

Purpose: To model and solve optimisation problems in two variables.
Study hints
Model the prot maximisation problem for a rm which makes two goods.
Determine the critical points.
Classify critical points as maxima, minima or saddle points.
Solve optimisation problems for a rm which makes two goods.
Exercises: 13.1, 13.3, 13.5, 13.6, 13.7
STUDY UNIT 6
Chapters 14 to 17
In this unit vector and matrix concepts are revised and applied to a variety of economic problems.
Chapter 14: Vectors, preferences and convexity
Purpose: To determine optimal bundles.
Study hints
Dene a vector.
Dene vector addition, multiplication by a scalar and the dot product.
Use vector notation to represent a bundle and prices of items in a bundle.
17 DSC3707/101/3
Determine a budget constraint.
Represent the budget set graphically.
Explain what a utility function is.
Rank bundles in order of preference.
Explain what an indifference curve is.
Sketch an indifference curve.
Dene a convex combination of two vectors.
Dene a convex set.
Determine the optimal bundle subject to a given budget constraint. Represent the optimal bundle
graphically.
Exercises: 14.1, 14.2, 14.3, 14.4 (Mick and Charlie).
In exercise 14.2 Micks utility function is u
M
= 10x
1
+x
2
.
MuPAD/Maxima: Use MuPAD/Maxima to plot the utility and indifference curves in the exercises. To plot
Charlies indifference curve, x
1
x
2
= 1, enter the MuPAD instruction:
plot(plot::implicit(x*y=1,x=0..10,y=0..10))
Maxima instructions:
load(implicit plot)
implicit plot(x*y=1,[x,0,10],[y,0,10])
Chapter 15: Matrix algebra

Purpose: To model nancial and economic problems using the algebra of matrices.
Study hints
Apply addition, scalar multiplication and multiplication of matrices.
Model investment portfolios with matrices.
Dene a riskless and an arbitrage portfolio.
Use recurrence equations to determine an explicit formula for A
n
.
This chapter is a revision of basic matrix concepts done in the previous modules. However take care to
understand the examples illustrating the applications of matrices.
Exercises: 15.3, 15.4, 15.5, 15.6
MuPAD: Use MuPAD instructions to do matrix manipulations. See Mupad appendix in the Study guide.
18
Maxima: Use Maxima instructions to do matrix manipulations. See the Maxima tutorial (Appendix C, Study
guide).
Chapter 16: Linear equations I

Purpose: To solve a system of linear equations with a unique solution using elementary row operations.
Study hints
Write a set of linear equations in matrix form.
Solve a system of equations using row operations.
Express a solution as a linear combination of vectors.
Exercises: 16.1, 16.2, 16.4, 16.5, 16.6,16.7, 16.8
MuPAD/Maxima: Use MuPAD/Maxima instructions to verify the solutions of the exercises.
Example: Use matrix notation and MuPAD instructions to solve the following set of equations:
x + 2y = 1
3x + 4y = 2
MuPAD instructions:
a:=matrix([[1,2],[3,4]])
b:=matrix([[-1],[-2]])
linalg::matlinsolve(a,b)
Maxima instructions:
Choose [Equations], then [Solve linear system] and complete the pop-up menu. You may also enter
the coefcient matrices a =
1 2
3 4
and b =
1
2
. If the system a.x = b has an unique solution, you

can use the instruction invert(a).b to determine the solution. The adjoint matrix can also be entered in
Maxima, then the instruction echelon(a) reduce the matrix to echelon form.
Chapter 17: Linear equations II

Purpose: To solve a set of linear equations with innitely many solutions.
Study hints
Describe a consistent and an inconsistent system.
Determine the general solution of a system of linear equations with innitely many solutions.
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Determine the rank of a matrix.
Express the general solution in vector notation.
Determine the state price vector for a returns matrix.
Determine an arbitrage portfolio if state prices do not exist.
Exercises: 17.2, 17.3, 17.5, 17.7, 17.8, 17.9
MuPAD/Maxima: Verify the solution in exercise 17.2.
Chapter 18: Inverse matrices

Purpose: To determine the inverse of a matrix and apply the inverse in IS-LM analysis.
Study hints
Dene an inverse matrix.
Know the relationship between the existence of the inverse of a matrix and a unique solution to a
system of equations.
Calculate the inverse of a 2 2 and a 3 3 matrix using row operations.
Apply IS-LM analysis in an elementary model.
Exercises: 18.1, 18.7, 18.8, 18.9, 18.10
MuPAD/Maxima: Determine the inverse of the matrix in exercise 18.3 with MuPAD (see C.12, Study
guide. In Maxima enter the matrix and choose [Algebra], then [invert matrix].
Chapter 19: The input-output model

Purpose: To determine the production schedule in an economy with interdependent production processes.
Study hints
Dene the technology matrix.
Dene the Leontief matrix.
Determine the production schedule for a given technology matrix and external demand.
Exercises: 19.1, 19.2. 19.3
MuPAD/Maxima: Verify the solution of worked example 19.3 using MuPAD/Maxima.
20
Chapter 20: Determinants
Purpose: An introduction to determinants.
Study hints
Understand the concept of the determinant of a matrix.
Understand the relationship between the determinant of a matrix A, the invertibility of A and the
solution of a system of equations Ax = b.
Calculate the determinant of a 2 2 matrix.
For a 2 2 matrix the following formula is easy to memorise and to apply:
Let A =
a b
c d
. Then det(A) = ad bc and the inverse of A is given by

A
1
=
1
det(A)
d b
c a
.
See also section 18.4 of the textbook.
Exercise: Write the set of equations in exercise 20.6 in matrix notation Ax = b. Calculate the determinant
of A, inverse of A, and x = A
1
b. Show that x solves the system of equations.
Note that you do not need to use Cramers rule and Cramers rule will not be asked in the examination.
If det(A) = 0, A
1
does not exist and the system does not have a unique solution (it may either have
innitely many solutions or may have no solution). If det(A) = 0, A
1
exists and the system has an unique
solution.
SELF-EVALUATION EXERCISE 2
Complete the self-evaluation exercise 2. The self-evaluation exercise covers chapters 11 to 20 and is a
good revision exercise of the study material and the type of questions you may expect in the examination.
Time: 4 hours
COMPULSORY ASSIGNMENT 02
Complete compulsory Assignment 02. Please submit the assignment as soon as possible and before the
due date.
21 DSC3707/101/3
STUDY UNIT 7
Chapters 21,22, 23 and 24
This unit describes discrete-time models to solve specic economic problems.
Chapter 21: Constrained optimisation
Purpose: To model and solve constrained optimisation problems using Lagrange multipliers.
Study hints
Model the cost of a rm in terms of the capital and labour.
Understand why and when Lagrange multipliers are used.
Determine the Lagrangean equations to solve an optimisation problem subject to a constraint.
Determine and solve the Lagrangean equations when a rm has a Cobb-Douglas production function
with known parameters and subject to a budget constraint.
Determine the supply function of an efcient small rm.
Exercises: 21.1, 21.3, 21.4, 21.5, 21.6, 21.7
Chapter 22
Purpose: To apply Langrean-multipliers to consumer choice problems.
Study hints
Maximise the utility subject to a budget function.
Understand why the gradient of the budget line and the indifference curve are equal.
Determine the indirect utility function.
Determint and interpret the marginal utility of income.
Exercises: 22.1, 22.2, 22.3, 22.4, 22.5, 22.6
Chapter 23: Second-order recurrence equations
Purpose: To solve and apply second-order recurrence equations.
Study hints
Model a simplied national economy in terms of investment, production, income and consumption.
Understand what a second-order recurrence equation is.
Solve a linear homogeneous recurrence equation.
(Note that the general solution to the homogeneous equation is determined by the properties of the
roots of the auxiliary equation.)
22
Determine the general solution of a non-homogeneous recurrence equation.
Apply initial conditions to nd the specic solution.
Exercises: 23.1, 23.2, 23.4, 23.5, 23.7, 23.9, 23.10 (Note the equations is: y
t
t
t1
= 3x
t1
; x
t
= 3y
t1
+3)
Chapter 24: Macroeconomic applications

Purpose: To understand the behaviour of the solutions of recurrence equations in the macroeconomic
environment.
Study hints
Understand that the qualitative behaviour of the solutions of recurrence equations can be used to
describe business cycles.
Make sure you understand the worked examples.
Exercises: 24.1, 24.2, 24.3, 24.4
MuPAD/Maxima: Use MuPAD/Maxima to verify the behaviour of the solutions in the examples in para-
graph 24.1 and 24.2.
STUDY UNIT 8
Chapters 25-28
In this unit integral calculus is applied to economic problems.
Chapter 25: Areas and integrals
Purpose: To apply the rules of integration to determine areas.
Study hints
Apply standard integration rules.
Calculate the enclosed area between functions.
Sketch the consumer surplus area.
Calculate the consumer surplus.
This chapter is a revision of the basic integral calculus covered in the previous modules. The important
aspect is the application of integral calculus to determine the consumer surplus.
Exercises: 25.1, 25.2, 25.3, 25.4, 25.5, 25.6
MuPAD/Maxima: Use MuPAD/Maxima to plot the functions and identify the areas in the above exercises.
23 DSC3707/101/3
Chapter 26: Techniques of integration

Purpose: To revise integration rules.
Study hints
Do integration by substitution.
Apply integration by parts.
Rewrite a rational function in partial fractions and then integrate the function.
Exercises: 26.1, 26.3, 26.2, 26.4, 26.6, 26.7, 26.8, 26.9, 26.10
Apply integration by parts in exercise 26.4. Then:
ln x
x
=
ln(x) x
1
2
dx
= ln(x)
x
1
2
1
2
1
x

x
1
2
1
2
dx
x
5
e
x
3
dx =
x
3
x
2
e
x
3
dx
= x
3
1
3
e
x
3
3x
2
1
3
e
x
3
dx
MuPAD: Verify your solutions using the MuPAD instruction:
int(f(x),x)
with f(x) the given function.
Maxima: Choose [Calculus], then [integrate] and complete the pop-up menu to verify your solutions.
Chapter 27: First-order differential equations

Purpose: To explain how rst-order differential equations are used to model continuous-time economic
problems and to solve separable differential equations.
Study hints
Know what the difference between a rst-order differential equation and a second-order differential
equation is.
Solve rst-order separable differential equations with initial conditions.
Apply differential equations to a continuous-time model of price adjustment.
Know and apply the law of price adjustment where
dp
dt
depends on the excess of demand over supply.
24
Determine the demand function if the elasticity of demand is given.
Determine the future value of an investment when the rate increase is proportional to the amount
(worked example 27.5).
Exercises: 27.1, 27.2, 27.3, 27.4, 27.5, 27.6, 27.7, 27.8, 27.0
Maxima: Computer 9, D.7, Study guide .
Note that only one technique to solve rst-order differential equations is covered in the syllabus. For more
techniques see any calculus textbook on differential equations.
Chapter 28: Second-order differential equations

Purpose: An introduction to solve elementary second-order differential equations.
Study hints
Identify a second-order linear differential equation.
Solve second-order homogeneous linear differential equations.
Determine the solution of a non-homogeneous differential equation of the form
d
2
y
dt
2
+a
1
dy
dt
+a
2
y = k,
with k a constant (thus f(t) = k with k a real number).
Determine the solution of a non-homogeneous differential equation of the form
d
2
y
dt
2
+a
1
dy
dt
+a
2
y = f(t).
if f(t) is a polynomial of degree 1 ( for example f(t) = t), try the particular solution y
(t) = dt +e;
if f(t) is a polynomial of degree 2 (for example f(t) = t
2
), try the particular solution // y
(t) =
ct
2
+dt +e;
if f(t) = e
kt
try the particular solution y
(t) = ce
kt
.
Discuss the behaviour of the solutions.
Note the similarities and differences between the solution of homogeneous second-order differential equa-
tions and the solution of homogeneous second-order recurrence equations. The solutions depend on the
characterisation of the roots of the auxiliary parabola.
Exercises: 28.1, 28.2, 28.3, 28.4(note: q = 4820p7
dp
dt
+
d
2
p
dt
2
) and 28.5 (note: q = 9210p+10
dp
dt
+
d
2
p
dt
2
)
7. MODULE PRACTICAL WORK AND WORK INTEGRATED LEARNING

There is no practical work for this module.
25 DSC3707/101/3
8. ASSESSMENTS
Self evaluation exercises and assignments
This tutorial letter (Tutorial letter 101) contains general information, self evaluation exercises with their
solutions and two assignments. With self evaluation exercises are meant exercises that you complete at
your own pace, and then evaluate yourself with the aid of model answers that are provided in this letter. If
you experience problems with the exercises, please contact the lecturer.
Assignment 01 and Assignment 02 are compulsory. Model solutions for the assignments will be provided
in Tutorial letter 201.
Appendix A contains Assignments 01 and 02 for the 1st Semester and Appendix B the assignments
for the 2nd Semester.
First semester
Assignment 01 (Compulsory) Due date : 12 March 2012 Chapters 1 7, Maxima
Assignment 02 (Compulsory) Due date : 10 April 2012 Chapters 8 20
Second semester
Assignment 01 (Compulsory) Due date : 3 September 2012 Chapters 1 7, Maxima
Assignment 02 (Compulsory) Due date : 1 October 2012 Chapters 8 20
Importance of self evaluation exercises and assignments Self evaluation exercises and assignments
are important for the following reasons:
1. Self evaluation exercises and assignments aid you in understanding the study material.
2. The due dates give you an indication of the pace at which you must work throughout the semester.
3. The self evaluation exercises and assignment questions test your knowledge and understanding of
the study material. They serve to provide you with feedback on your progress.
You are therefore advised to do all the self evaluation exercises and assignments.
Assignments
You are required to submit Assignment 01 to obtain admission to the examination. Admission will be
obtained by submitting Assignment 01 and not by the marks you obtain for it. Compulsory Assignment 01
contributes 10% towards your semester mark for the module.
Assignment 02 contributes 90% towards your semester mark.
The semester mark contributes 10% towards your nal mark.
Please ensure that these assignments reach the University before the due date. Late submission of the
Assignment 01 may result in you not being admitted to the examination. Late admission of assignment 2
wil result in a very poor semester mark.
Note that neither the Department nor the School of Economic Sciences will be able to conrm whether the
University has received your assignment or not. For any queries not strictly concerning the study material,
26
e.g. whether your assignment has been received, registered, processed or returned, please contact the
Assignment Section by e-mail to study-info@unisa.ac.za or consult myUnisa.
Students may submit the compulsory assignments either by post or electronically via myUnisa.
The compulsory assignments may not be submitted by fax or e-mail. For detailed information and require-
ments as far as assignments are concerned, see Unisa: services and procedures, which you received with
your tutorial matter. To submit an assignment via myUnisa:
Go to MyUnisa.
Log in with your student number and password.
Select the module from the orange bar.
Click on assignments in the left menu.
Click on the assignment number you want to submit.
Follow the instructions.
9. EXAMINATIONS
Only students that submitted the compulsory assignment have admission to the examination, which will be
written during May/June or October/November 2012.
The semester mark contributes 10% towards the nal mark, en the examination mark contributes 90%
towards the nal mark. The nal mark should be at least 50% to pass.
The duration of the examination paper is two hours.
The use of a (programmable) calculator during the examination is allowed. You will not have access to a
micro-computer with MuPAD or Maxima during the examination. The questions will test your insight, and
not your computational skills. Where necessary, tables with relevant information will be supplied.
If you are able to answer the questions in the textbook, self evaluation exercises and assignments, and
you understand what you are doing, you should be able to successfully complete the examination paper.
Remember this module focuses on the application of Mathematics in the nancial and economic
environment. The assessment criteria (in this tutorial letter) will help you in the nal study process.
10. OTHER ASSESSMENT METHODS
There are no other assessment methods for this module.
11. FREQUENTLY ASKED QUESTIONS
The my Studies @ Unisa brochure contains an A-Z guide of the most relevant study information.
27 DSC3707/101/3
APPENDIX A. FIRST SEMESTER COMPULSORY ASSIGNMENTS
ONLY FOR SEMESTER 1 STUDENTS
ASSIGNMENT 01
DSC3707
FIXED CLOSING DATE: 12 MARCH 2012
NOTE THAT THE COMPULSORYASSIGNMENTSFORTHE TWO SEMESTERSDIFFER. PLEASE SUB-
MIT THE CORRECT ASSIGNMENT.
In Assignment 01 we encourage the use of a computer package. Hints for the use of Maxima are included,
however you may use any other relevant package or procedure.
You may even Copy and Paste the solutions you obtain from Maxima directly into your assignment.
Assignment 01 covers the rst 7 chapters in the textbook (study units 1 to 3).
This assignment contributes 10% towards your semester mark and 1% towards the nal module mark.
Questions: Assignment 01 Semester 1
Students registered to complete the module in the rst semester should submit this assignment.
Question 1
Suppose the supply and the demand functions for a product is:
q
S
(p) = m
1
p c
1
q
D
(p) = m
2
p +c
2
,
where m
1
, m
2
, c
1
and c
2
are constants.
Calculate the equilibrium price and quantity in terms of m
1
, m
2
, c
1
and c
2
.
(Maxima: Choose [Equations], then [Solve linear system].)
Questions 2 to 5 refer to the demand function
q
D
(p) = 5 p ln(p), p 0,10
where p is the price per unit and q the number of units per hour.
Question 2
Sketch the function on the interval [0 ; 10].
(Maxima: Choose [Plot2D] and complete the pop-up menu. Note that you should change the variable x
to p in the pop-up menu.)
Question 3
Determine the gradient of the demand function.
(Maxima: Choose [Calculus] and then [Differentiate].)
28
Question 4
For which values of p will there be no demand?
(Maxima: Choose [Equations], then [Solve numerically].)
Question 5
Determine

(5 p lnp) dp.
(Maxima: Choose [Calculus] then [Integrate]. Remember in Maxima ln p is indicated by log(p) and
e
x
by exp(x).)
29 DSC3707/101/3
Questions 6 and 7 refer to the following problem.
Suppose a the population of a country has a growth rate of 4% per year and an attrition due
to emigration limited to 0,5 million per year. If the current population is 30 million, what will
the population be in t years? Formulate and solve the recurrence equation, then answer the
following questions.
Question 6
Determine the population y(t) after 10 years. Describe the behaviour of y(t) if t tends to innity.
(In Maxima: See page 63, Tutorial letter 101. Dene y(t) and calculate y(t), for a few t values. What do
you notice? )
Question 7
When will the population be doubled?
Questions 8 to 10 refer to the following problem. A certain car depreciates according to the
formula
v(t) =
90 000
1 + 0,4t + 0,1t
2
, t 0
where t = 0 represents the time of the purchase.
Question 8
Sketch the function.
In Maxima: note the shape of the function on the interval [5; 5] although the function is only relevant for
t 0. )
Question 9
Determine the rate of change after t years.
Question 10
Determine the rate at which the car depreciates after t = 1,2, . . . 7 years. Discuss the behaviour of the rate
of depreciation.
(Maxima: Plot the derivative of the function v(t) and compare your discussion with the shape of this func-
tion.)
30
ASSIGNMENT 02
DSC3707
FIXED CLOSING DATE: 10 APRIL 2012
Do this assignment if you are registered for the rst semester.
Question 1
ABC is a monopoly with cost function
C(q) = q
3
105q
2
+ 140q + 200.
The demand for the product is
D =
(q; p)|p +q
2
5q = 100
where p is the price per unit and q is the number of units. The upper limit on the production is 50 units.
1.1 Determine the level of production which maximises the rms prot and determine the maximum prot.
Justify you answer.
1.2 Determine the level of production which minimises the the rms prot and determine the minimum
prot. Justify your answer.
1.3 Draw a graph the cost function on the interval [0; 50].
1.4 Draw a graph of the prot function on the interval [0; 50].
Question 2
Suppose the Cobb-Douglas production function is
u(k; l) = 2k
1
4
l
1
2
where k is the units of capital and l is the units of labour needed to produce u(k; l) products.
2.1 Draw a graph of at least two isoquants u(k; l) = c with c > 0. Use a suitable scale on the axis.
2.2 What is the equation of the contour (or isoquant) through the point (1; 1)? Determine the gradient of
this isoquant in the point (1; 1).
2.3 Suppose the the capital and the labour vary in time t as follows:
k(t) = 2t and l(t) = t
2
+ 1.
Determine the rate at which production changes with time.
Question 3
3.1 Determine the (x; y; z) coordinates of the critical values of the function Z = f(x; y) = x
4
8xy 2y
2
3
and classify them. Justify all your answers.
3.2 Use a computer package to sketch the function.
31 DSC3707/101/3
Question 4
Three homeowners Mike, Dan and Bob, each with certain skills, agreed to pool their talents to make repairs
on their houses. Mike spent 20% of his time on his own house, 40% of his time on Dans house and 40%
of his time on Bobs house. Dan spent 10% of his time on Mikes house, 50% of his time on his own house,
and 40% of his time on Bobs house. Bob spent 60% of his time on Mikes house, 10% of his time on Dans
house and 30% of his time on his own house. After the project has been completed they want to decide
how much money each should get for his work, including the work performed on his own house, so that
each person comes out even. They agreed in advance that Bobs wage should be R3 000.
Suppose x
1
is Mikes wage, x
2
is Dans wage and x
3
is Bobs wage. For a fair system the total amount paid
out by each one is equal to the total amount received by each one. For example, Mikes expenditure for
work done on his house is 0,2x
1
+ 0,1x
2
+ 0,6x
3
, thus the rst requirement is x
1
= 0,2x
1
+ 0,1x
2
+ 0,6x
3
.
4.1 Determine the equations to represent the wages of Dan and Bob.
4.2 Write the equations in matrix form.
4.3 Solve the system using elementary operations and express x
1
and x
2
in terms of x
3
. If x
3
= 3 000, what
are the wages of Mike and Dan?
Question 5
Please give us feedback on your experience using computer technology to complete the assignments and
exercises in this module. This question does not have a correct solution, any comments are welcomed.
5.1 Where do you have computer access? (At home/at work/at a Unisa centre/not at all)?
5.2 Which computer package(s) do you use in this module? (for example Maxima/MuPad/Excel)
5.3 Did the use of a computer package improves your understanding of the study material?
32
APPENDIX B. ASSIGNMENTS FOR SECOND SEMESTER
ASSIGNMENT 01
DSC3707
FIXED CLOSING DATE: 3 SEPTEMBER 2012
This assignment is for students registered to complete the module in the second semester.
Question 1
Suppose the supply and the demand functions for a product is:
q
S
(p) = 10 000p 25 000
q
D
(p) =
90 000
p
where p is the price in rand and q is the number of products.
Calculate the equilibrium price and quantity.
(Maxima: Choose [Equations], then [Solve algebraic system]. Sketch (plot) the functions, and notice
that the demand is not a linear function.)
Questions 2 to 5 refer to the the demand function
q
d
(p) =
8 000
p
2
+ 1
, 0 p 10,
where p is the price per unit and q the number of units per hour.
Question 2
Sketch the function on the interval [0; 10].
(Maxima: Choose [Plot2D] and complete the pop-up menu. Note that you should change the variable
x to p in the pop-up menu. You could also plot the function on the interval [5; 5] to notice the interesting
shape.)
Question 3
Determine the gradient of the demand function.
(Maxima: Choose [Calculus] and then [Differentiate].)
Question 4
For which values of p will the demand be equal to 1560?
(Maxima: Choose [Equations], then [Solve].)
Question 5
Determine
8 000
p
2
+ 1
dp.
(Maxima: Choose [Calculus] then [Integrate].)
33 DSC3707/101/3
Questions 6 and 7 refer to the following problem:
Suppose that the population of a country has a growth rate of 5% per year. Newcomers due to
immigration are limited to 0,1 million per year. If the current population is 15 million, what will
the population be in t years? Formulate and solve the recurrence equation, then answer the
following questions.
Question 6
Determine the population y(t) after 5 years. Describe the behaviour of y(t) if t tends to innity.
(In Maxima: See page 63, Tutorial letter 101. Dene y(t) and calculate y(t), for a few t values. What do
you notice? )
Question 7
When will the population be equal to 40 million?
(Maxima: Choose [Equations], then [Solve numerically]. Note the boundaries t
1
and t
2
asked by the
pop-up menu in Maxima should satisfy y(t
1
) > 0 and y(t
2
) < 0.)
Questions 8 to 10 refer to the following function. The cost function to produce x products is
c(x) =
ln x
40 3x
x 1.
Question 8
Sketch the function.
(In Maxima: the function log(x) indicates the logarithmic function with base e, thus is used to indicate
ln(x). Also exp(x) indicates e
x
. Use Maxima to investigate the shape of the function on the interval [0,1; 5]
although the function is only relevant for x 1. )
Question 9
Determine the marginal cost.
Question 10
Determine marginal cost if x = 1,2, . . . 5. Discuss the behaviour of the rate of change.
(Maxima: Calculate c
(1), . . . c
(5). Use Maxima to plot c
(x) and compare your discussion with the shape

of this function.)
34
ASSIGNMENT 02
DSC3707
FIXED CLOSING DATE: 1 OCTOBER 2012
Do this assignment if you registered for the second semester.
Question 1
A manufacturer sells two related products. The demand functions for the two products are:
q
1
= 150 2p
1
p
2
q
2
= 200 p
1
3p
2
where p
j
is the price (in rand) of product j and q
j
is the demand (in thousand of units) of product j.
The demand for one product depends not only on the price charged for the product itself, but also on the
price charged for the other product. Determine the price for each product in order to maximise the total
revenue from the sales of the two products. What will the expected demand be if the revenue is maximised?
Draw a graph of the revenue function on the interval [0; 30]
Question 2
Suppose the Cobb-Douglas production function is
u(k; l) = 3k
1
3
l
2
3
where k is the units of capital and l is the units of labour needed to produce u(k; l) products.
2.1 Draw a graph of at least two isoquants u(k; l) = c with c > 0.
2.2 What is the equation of the contour (or isoquant) through the point (1; 1)? Determine the gradient of
this isoquant in the point (1; 1).
2.3 Suppose the the capital and the labour vary in time t as follows:
k(t) = t
2
and l(t) = 2t + 1.
Determine the rate at which production changes with time.
Question 3
3.1 Determine the (x; y; z) coordinates of the critical values of the function z = f(x; y) = 2x
3
+ 2xy
2y
2
13
2
x
2
and classify them. Justify all your answers.
3.2 Use a computer package to sketch the function.
Question 4
Suppose a country has three productive sectors: agriculture (x
1
), manufacturing (x
2
), and services (x
3
).
Suppose the output of each sector is sold to the other sectors (including itself), which use its output as
an input in their production process, and to nal consumers. For example the output of the manufacturing
sector may be sold
35 DSC3707/101/3
as input to the agriculture sector (eq. agricultural machinery);
as input to the manufacturing sector itself (eq. machine-tools);
as an input tot the services sector (eq. hair-dressing equipment);
to nal consumers (eq. cars).
Each sector has an inow of inputs purchases from each sector and an outow of its output which is sold
to other sectors(including itself) and to nal consumers (i.e. nal demand).
Suppose the input-output matrix is
A =
1
5
1
3
0
1
4
1
3
1
2
0
1
5
1
5
.
The rst row indicates the output from agriculture to the different sectors, the second row the output from
manufacturing and the third row the output from services. The rst column indicates the output used by
agriculture, the second column the output used by manufacturing and the third column the output used by
services.
To interpret the matrix, the second column shows that the production of one unit of manufacturing requires
1
3
units of agriculture input,
1
3
units of manufacturing input and
1
5
units of services input. The rst row
indicates
1
5
units of agriculture are used by agriculture,
1
3
units of agriculture are used by manufacturing
and 0 units of agriculture are used by services. Suppose a
ij
is an element of A, then a
ij
indicates how
much of the ith output is used as an input in the production of each unit of the jth output. Suppose x
1
is
the total output of agriculture, x
2
is the total output of manufacturing and x
3
is the total output of services.
Then a
12
=
1
3
indicates that
1
3
units of x
1
is used as an input in the production of each unit of x
2
.
Suppose the nal customer demand for agriculture, manufacturing and services are denoted by d
1
, d
2
and
d
3
respectively.
4.1 Represent the three-sector input-output system by a matrix equation to model the output levels of the
three sectors. Show why you need to determine the inverse of (I A), where I is the identity matrix, to
determine the output levels.
4.2 Express the output levels of the three sectors in terms of d
i
, i = 1,2,3. Show all the steps in the
calculation of the inverse matrix. (You may verify your solution using Maxima.)
4.3 Assume d
1
= 6 units, d
2
= 10 units and d
3
= 2 units. How many units of each sector is necessary to
satisfy the demand?
4.4 Assume government implement t a new development programme in which d
1
= 9, d
2
= 15 and d
3
= 3,
what is the new output level for each sector?
Question 5
Please give us feedback on your experience using computer technology to complete the assignments and
exercises in this module. This question does not have a correct solution, any comments are welcomed.
5.1 Where do you have computer access? (At home/at work/ at a Unisa centre/not at all)?
5.2 Which computer package(s) do you use in this module? (for example Maxima/MuPad/Excel)
5.3 Did the use of a computer package improves your understanding of the study material?
36
APPENDIX C. SELF EVALUATION EXERCISES
Self evaluation exercise 1
Question 1
1. Determine the values of x and y for the system of equations:
2x +y = 12
5x +y = 65.
2. For which values of p and q will the following two equations both hold?
2 p + q = 12
5 p 2,5 q = 30.
3. If r +s = 4 and 2r + 2s = 5, what are r and s?
Question 2
1. The supply and demand functions of a commodity are
q
S
(p) = 10p 45, q
D
(p) = 75 3p.
Find the inverse supply function p
S
and the inverse demand function p
D
. Sketch the supply set S and
the demand set D and determine the equilibrium set E = S D.
2. If an excise tax of T is charged on each unit of the commodity in part 1 of this question, what price will
the consumers end up paying for each unit? What is the price if T = 1, assuming that the currency
unit is rand?
3. Find a formula for the total amount of tax that the government will collect if the excise duty is T per unit
of the commodity. Ignoring all other factors, nd the optimal value for T (as seen by a government
who wishes to maximise income).
Question 3
Find the derivative of the following functions:
1. e
x
7
+x
2. ln(x
7
+x)
Question 4
1. Find the solution of the following recurrence:
y
t
=
y
t1
2
+ 2 with y
0
= 2.
2. What happens when t goes to innity in the recursion given above?
37 DSC3707/101/3
Question 5
An investor pays an amount of A into an account yielding interest at i per period, and makes a periodic
payment of R into the account at the end of every period. The future value of the investment after n
periods is
S
n
= Rs
n i
+A(1 +i)
n
= R
(1 +i)
n
1
i
+A(1 +i)
n
=
A +
R
i
(1 +i)
n
R
i
.
1. What is S for an initial investment of R5 000, a periodic payment of R1 000 and an interest rate of 10%
per period after 5 periods?
2. Model this investment with a rst-order recurrence relation. Find the time-independent solution. How
does it compare to the standard formula given above? Test your solution using the values given in
part 1.
Question 6
1. A certain country has a population growth rate of 3% per annum and an attrition due to emigration
(brain drain) of potentially 1 000 000 per year. The government decides to limit the number of people
who are allowed to emigrate every year in order to keep the economy from collapsing. If the current
population is 40 000 000, and the government wants a population of 52 000 000 in ten years, what is the
limit that they should impose on emigration?
2. As a result of AIDS the real population growth rate over the next ten years is not 3%, but rather 1%.
Assuming that the limit calculated in part 1 stays in place, what is the expected population after ten
years?
Question 7
1. Consider an annuity that pays interest of i per interest period. Payments are R per interest period
during the rst m periods, and then increases by a certain percentage, say s. This increase is
repeated every mperiods. Find a formula for the future value of this annuity after n cycles of mperiods
each. (Warning: this is not a trivial exercise. You will have to spend some time (and experiment in
MuPADor Maxima) in order to nd a solution. Use a spreadsheet or part 2 to test your formula.)
2. Consider an annuity with monthly payments starting at R1 000, an increase of 15% every year in the
monthly payment (to compensate for ination) and an interest rate of i = 0,015 per month. Use your
formula to nd the value of the annuity at the end of ve years.
Question 8
1. Describe the cobweb model in not more than 100 words.
38
2. Suppose that the supply and demand sets for a certain commodity are
S = {(q; p)|8p 13q = 21} , D = {(q; p)|13p 21q = 34} .
Assuming that the suppliers operate according to the cobweb model, nd a recurrence relation for the
sequence p
t
of prices. Suppose also that the initial price is p
0
= 119. Find the explicit solution for p
t
.
How do p
t
and q
t
behave as t tends to innity? Does it make (economic) sense?
Question 9
The cost function for the production of compact discs in terms of the quantity q produced is
C(q) = 200
qe
1
q
6
+ 2q
for any quantity more than one.
1. What is the cost of producing ve compact discs? And the price per CD? And for six? A thousand
and a thousand and one?
2. Find the marginal cost function for the production of compact discs.
3. Use this marginal cost function to estimate the marginal cost at ve and 1000 units respectively.
Question 10
Suppose the demand function for a certain computer game is
q
D
(p) =
100 000 000
p
2
+
p
in the interval 0 p 2 000 where p is the price in rand and q the quantity.
1. If the price increases from R200 to R201, what is the approximate decrease in the number of games
sold?
2. If the demand function is really
q
D
(p) =
100 000 000
p
2
+
p
in the interval 0 p 2 000 and cost per unit is constant at R10, which price would be better? What
would be the best and worst possible prices (if one wants to maximise prot)?
Question 11
We use the following notation:
P The original capital or principal, or the present value of S.
S The future value of P, or the accumulated sum.
n The total number of compound or interest periods. (This need not be
an integer.)
m The number of compounding periods per year; also known as the
frequency of compounding.
j
m
The nominal interest rate with compounding m times per year.
i The interest rate per compounding period.
t The term (or lifetime of the transaction) in years. (This need not be an
integer.)
39 DSC3707/101/3
The interest rate per period, i, can be written as
jm
m
. Similarly t =
n
m
or n = mt.
1. What is the compound amount at the end of 2 years if C100 000 is borrowed at 18% per annum
compounded semi-annually (twice a year)?
2. The town council of Anyburg needs to borrow an amount of C1 000 000 for the next 4 years. They have
to choose between two institutions. The rst, BCTB, offers them a loan with an interest rate of 16%
per annum, compounded annually. The second institution, CDUC, tells them that they have to repay
C1 800 000 at the end of the four years. Which option is the most attractive?
3. Find the effective rate if money is worth 11,1% per annum compounded continuously.
4. Convert a nominal rate of interest of 15% compounded quarterly via a continuously compounded rate
to a monthly compounded rate.
Question 12
1. Suppose the supply and demand sets for a particular commodity are
S = {(q; p)|p 6q = 500 000} , D =
(q; p)|q
2
+ 40 000q + 200p = 20 000 000
.
Sketch S and D and determine the equilibrium set E = S D.
2. What is p
S
q
S
(p) for the supply set given above? Is this always the case?
Question 13
Find the minimum and maximum values of the following functions:
1.
x
5
5
+
x
4
2

x
3
3
x
2
in the interval [2; 1,5].
2. 2 sin 3x in the interval [0; ].
Question 14
Let p be the fee per module at a certain university. The demand function for module registrations is
q
D
(p) = 2,0805 10
8
p
5
0,000 090 187p
4
+ 0,146 31p
3
111p
2
+ 38 453p 4 280 000,
for fees of between R200 and R1 000.
1. Determine the elasticity of demand (p) as a function of p.
2. For what values of p is the demand inelastic?
3. What is the optimal magnitude of the fee, rounded to the nearest R50 (of course seen from the
viewpoint of the university!)?
4. If the optimal fee calculated in the previous part of the question is used, the average number of
modules that a student registers for in a year is 4,98. What is the total number of students registered
at this university?
40
Question 15
Laser Reduction Concepts (LRC) is a monopoly manufacturing holographic image reduction equipment.
Their cost function is
C(q) = 3q
3
q
2
+ 10
2
q + 10
2
and the demand set is
D =
(q; p)|p +q
3
4q
2
q = 1 000
.
(Prices are measured in thousands of rand.)
1. Determine the maximum prot.
2. Sketch a graph of the prot function (q).
Question 16
Indicate which of the following statements are true. Try to do this problem without resorting to the textbook!
1. Under perfect competition a rms inverse supply function is equal to its marginal cost function.
2. At the startup point, marginal cost is equal to variable cost.
3. At the startup point, the derivative of the average variable cost is zero.
4. At the breakeven point, the derivative of the average cost is zero.
5. At the breakeven point, the marginal cost is equal to the average cost.
Question 17
Suppose that an efcient small rm has a cost function of C(q) = 0,01335q
3
2,4q
2
+ 486q + 30 000, and
a maximum production capacity of 200 units per month. Determine
1. their xed cost,
2. their prot function,
3. their startup point,
4. their breakeven point,
5. their supply set.
6. Sketch the prot function and the supply set.
41 DSC3707/101/3
0.2 Self evaluation exercise 2
Question 1
1. Find the rst and second partial derivatives of the following functions:
(a) f(x; y) = x
1
2
y
4
+
xy
(b) g(x; y) = x
3
(y
3
+xy
2
)
1
3
(c) h(x; y) = x
3
y
3
+xy
2
2. Find
f
x
and
f
y
for f(x; y) = x
y
2
.
Question 2
1. Suppose that a rms capital and labour vary in time as follows:
k(t) = 2t
2
, l(t) = 2t + 5.
If the rm has production function q(k; l) = kl
2
, determine the rate at which production changes with
time.
2. Suppose that production q, capital k and labour l satisfy g(q(k; l); k; l) = 0. How do you think we might
calculate the partial derivatives q/k and q/l in a manner similar to that developed for functions
of only two variables? Illustrate your method by calculating the partial derivatives when q is dened
by the equation q
2
k +l
2
+qk
2
l
3
= 0.
Question 3
1. Let g(x; y) = x
2
y
3
2
for x; y > 0. Sketch some typical contours g(x; y) = c with c > 0. Calculate
the rst-order partial derivatives of g. Find the slope at the point (1; 2) of the contour which passes
through that point.
2. Find the critical points of the functions
(a) u(x; y) = y
3
+ 3xy x
3
(b) v(x; y) = x
3
3xy
2
+y
4
and classify them.
42
3. A rm manufactures two products, X and Y , and sells these in related markets. Suppose that the
rm is the only producer of X and Y and that the inverse demand functions for X and Y are
p
X
= 13 2x y; p
Y
= 13 x 2y.
Determine the production levels that maximise prot, given that the cost function is C(x; y) = x +y.
Question 4
Suppose the price of a chicken thigh is R2,50, and the price of a small cup of mango atchar is R1,25.
Bachus, Moeti, Ophelia and Thr all have R10 to spend. Show on a diagram the budget set, the set of
all possible bundles of chicken and atchar which they can purchase. Their utility functions for bundles
x = (x
1
; x
2
) of chicken and atchar are
Bachus: 5x
1
+ 2x
2
Moeti: x
2
1
+ 2x
2
2
Ophelia: x
1
+ 2x
2
Thr: x
1
x
2
2
.
1. Sketch some typical indifference curves for each person and in each case say whether or not the sets
U
c
= {x|u(x) c} are convex.
2. If each of the persons chooses the bundle in the budget set which maximises his utility, determine
how many chicken thighs and cups of atchar they can purchase. First assume that small pieces of
chicken and small amounts of atchar can be purchased. Then nd integer answers.
Question 5
1. Suppose that A is the matrix
A =
3 1
0 1
and, for n 1 suppose that

A
n
=
a
n
b
n
c
n
d
n
.
Find recurrence equations for a
n
, b
n
, c
n
and d
n
and solve them to determine an explicit formula for
A
n
.
2. Find a general formula for B
n
, where
B =
1 1
0 1
.
Question 6
The demand function for a commodity takes the form
q
D
(p) = a +bp +
c
p
for some constants a, b and c. When p = 1, the quantity demanded is 60, when p = 2, it is 40, and when
p = 4, it is 15. Find the constants a, b and c.
43 DSC3707/101/3
Question 7
5x
1
+ 3x
2
+ 2x
3
+ x
4
= 66
x
1
+ 3x
2
+ 4x
3
+ 2x
4
= 48
x
1
+ x
2
+ 2x
3
+ x
4
= 10
2x
1
+ 2x
2
+ 2x
3
+ x
4
= 38
1. Reduce the given system to echelon form, determine its rank, and express the general solution in
vector notation.
2. Rewrite the system as a matrix equation, and use or MuPAD or Maxima to nd the solution.
Question 8
Suppose an investor invests her money in three different assetsland, equities and stocksand that
three possible states can occur.
1. Show that there is no state price vector for the returns matrix
R =
1,05 1,20 1,10

1,05 1,05 1,05
0,90 1,05 0,95
.
2. Find an arbitrage portfolio.
Question 9
1. Find the inverse of the following matrix:
A =
1 1 1 2
2 2 3 4
3 4 5 6
5 5 5 5
2. Using elementary row operations, show that the matrix

B =
1 2 3
4 5 6
7 8 9
is not invertible. Conrm this nding using a determinant.

44
Question 10
Suppose that the national economy is described by the following IS-LM equations (where the symbols
have their usual meanings, and where C, I, M
d
, M
s
and G are measured in 10
9
rand).
C = 30 + 0,2Y
I = 10 20r
G = 10
M
s
= 10
M
d
= 0,1Y + 5 10r
Find the equilibrium values Y
and r
.
Question 11
A factory makes three productsX, Y and Z. The production processes for these products are interre-
lated. To produce R1 of X requires 0,05 units (in rand) of X, 0,1 of Y and 0,1 of Z. To produce R1 worth
of Y requires 0,4 worth of X and 0,1 of Z. To produce R1 worth of Z requires 0,1 of X and 0,2 of Y . Each
week the external demands for X, Y and Z are 200, 500 and 1 500 units, respectively. What should be the
weekly production level of each good?
Question 12
Let A =
0,2 0,3
0,1 0,4
. Calculate (I A)
1
with the aid of MuPAD or Maxima. Find a few approximations
to (I A)
1
using powers of A. How many decimal digits are correct if 25 terms are used?
Question 13
Let A =
3 k k
2
2 k 3
0 4 k
. For which values of k is A not invertible?

45 DSC3707/101/3
0.3 Self evaluation exercise 3
Question 1
1. Given that a rm has a production function
q(k; l) = Ak
,
and unit capital and labour costs of v and w respectively, with all constants positive, derive a general
expression for the cost function of the rm.
2. A rm has a Cobb-Douglas production function q(k; l) = 350k
1
3
l
2
3
, and unit capital and labour costs of
50 and 100 respectively.
(a) What is the maximum output achievable in a week if the maximum that the rm can spend is
R50 000 per week?
(b) The unions negotiate an increase in their remuneration packages with the result that the unit
labour cost rises to 150. What is the maximum output achievable if the production function is
unchanged?
(c) If the production function changes simultaneously with the change in labour costs to
q(k; l) = 350k
1
4
l
3
4
, what is the maximum output?
Question 2
1. Every month a consumer purchases quantities of two commoditiesmaize and spinach. The con-
sumers utility function is
u(x
1
; x
2
) = 4
x
1
+ 2 ln x
2
for a bundle (x
1
; x
2
) of x
1
units of maize and x
2
units of spinach. She has R80 to spend on these two
products every month. Maize costs R4 per unit, and spinach R6. How many units of each should she
buy each month in order to maximise her utility? (Assume that fractions of units can be bought.)
2. If the utility function should change to
u(x
1
; x
2
) = 4
x
1
+ 6 ln x
2
,
calculate the optimal bundle of commodities.
Question 3
1. Find the general solution of the Lucas equation
y
t
= y
t1
+ 2y
t2
,
with initial values y
0
= y
1
= 1. Calculate the rst 20 values of this recurrence relation.
2. Find the general solution of
y
t
= y
t1
+ 2y
t2
,
with initial values y
0
= 1 and y
1
= 2. Try to nd the answer without using an auxiliary equation.
46
Question 4
Suppose the consumption in an economy this year is a constant times the investment of last year:
C
t
= lI
t1
.
Suppose also that the relationship between next years income and current investment is Y
t+1
= kI
t
, for
some positive constant k.
1. Assuming that the usual equilibrium conditions hold, derive a recurrence for Y
t
.
2. Suppose that Y
0
= 2, and nd a general solution to the recurrence equation. What behaviour can be
expected from the economy if k = 3 and l = 2? Is it feasible that k = l = 2?
Question 5
The demand and supply sets for a good are given by
D =
(q; p)|p(q
2
+ 1) 4q = 0
and S =
(q; p)|100pq q
2
+ 1 = 0
.
Determine the equilibrium price and the consumer surplus.
Question 6
1. Find the integral
x
3
e
x
2
dx.
2. Evaluate

dx
x
1 x
.
3. Consider the following function:
f(q) =
q + 1
q
3
+q
2
6q
.
Find the integral

5
3
f(q)dq.
Question 7
1. The elasticity of demand for a good is
(p) =
4p
2
p
2
+ 16
.
Given that q = 1 when p = 3, nd the demand function q
D
(p).
2. Use the MuPAD ode function or Maxima [Solve ODE] to solve the differential equation.
Question 8
1. Given that consumer demand is given by
q = p
+p
p + 1,
and that the supply function is q
S
(p) = p 1, write down the condition for equilibrium. If p(0) = 1 and
p
(0) = 1, determine the equilibrium price p(t).

47 DSC3707/101/3
Solutions: Self evaluation exercise 1
Self evaluation exercise 1.1:1
Eliminate y, for example, by subtracting the second equation from the rst to get 7x = 77. This gives x = 11.
Substitute this value of x into any of the two equations to get y = 10.
In Maxima choose on top of the screen [Equations] and then [Solve linear system]. Enter the functions.
See also solution to exercise 1.2:1
This system has innitely many solutions. Any pair (p; q) satisfying the relation q = 12 2p will make both
equations true. Examples are (0; 12), (6; 0) and (2; 16).
No solutions exist. (It is not possible to choose values for r and s to simultaneously satisfy both equations.)
The inverse supply function is p
S
(q) =
q + 45
10
, and the inverse demand function p
D
(q) = 25
q
3
. Use the
inverse functions to plot the supply and demand sets in MuPADor Maxima.
The instructions in MuPAD:
pS:=(q+45)/10
MuPAD returns:
q
10
+ 9/2
Enter:
pD:=25-q/3
MuPAD returns:
25
q
3
To draw the graph, enter:
plotfunc2d(pS,pD, q = 0..80,p = 0..25)
Or you can use the implicit function of MuPAD:
plot(
plot::implicit(p-(q+45)/10,p = 0..25,q = 0..40),
Labels=["p","q"]
)
Or
plot(
plot::implicit(p-(q+45)/10,q=0..40,p=0..25),
Labels=["q","p"]
)
48
80 60 40 20 0
25
20
15
10
5
0
q
p
q
p
1/10*q + 9/2, 25 - 1/3*q
To nd the equilibrium point the instructions in MuPAD are:
linsolve({p=(q+45)/10, p = 25-q/3} ,[p,q])
The answer is: [p=120/13, q=615/13]
The equilibrium set is the single point (q; p) =
615
13
;
120
13
(47,31; 9,23) or (p; q) =
120
13
;
615
13
(9,23; 47,31).
With Maxima:
To plot the supply and demand functions:
49 DSC3707/101/3
Maxima instructions to determine the equilibrium point are:
On the menu (on top of the screen):
choose [Equations];
choose [Solve linear system]. Enter the correct values as follows:
You may also enter directly the following instruction:
linsolve([p=(q+45)/10, p=25-q/3], [p, q]);
Maxima output: [p=120/13,q=615/13]
50
The price is p
T
=
10(T + 12)
13
. For a tax of R1 per unit the price will increase by 77c to R10.
q
T
=
15(41 2T)
13
. The total income for the government will be the tax per unit times the number of units
sold:
T
15(41 2T)
13
=
615T
13

30T
2
13
.
(This is of course only an approximation. The number of units sold is in most cases an integer, and some
rounding should be done.) This function has a maximum at T = 10,25. (Find the rst derivative, set it equal
to zero and solve for T).
e
x
7
+x
7x
6
+ 1
.
7x
6
+ 1
x
7
+x
.
We use the common sense method explained on page 31 of the textbook to nd the explicit solution of this
rst-order recurrence relation. We rst determine the value of the time-independent value y
by putting
y
:= y
t
= y
t1
, that is y
=
y
2
+ 2, yielding y
= 4. Now we put y
t
= y
+z
t
, giving
(4 +z
t
) =
1
2
(4 +z
t1
) + 2.
This simplies to z
t
=
1
2
z
t1
with the (obvious) solution z
t
=
1
2
t
z
0
.
Since y
0
= 2 and y
= 4 we have
z
0
= y
0
y
= 2.
This means that
y
t
= 4 +
1
2
t
(2)
= 4 2
1
2
t
= 4 2
1t
.
In MuPAD enter solve(rec(y(t) = y(t-1)/2+2,y(t),{y(0) = 2})).
MuPAD gives the answer as: {4 2(1/2)
t
}.
With Maxima:
Note that to get the last output on the screen you should enter [simplify(r)] at the bottom of the screen.
51 DSC3707/101/3
The term 2
1t
goes to zero, so that lim
t
y
t
= 4.
S =
5 000 +
1 000
0,1
(1,1)
5
1 000
0,1
= (15 000) (1,1)
5
10 000
= 24 157,65 10 000
= R14 157,65.
The amount S
n
after n periods is given by the amount during the previous period (S
n1
) times (1 + i)
(interest for one period is added) plus the payment R that occurred at the end of the period:
S
n
= (1 +i)S
n1
+R, with S
0
= A.
To nd a solution, we set S
=
R
i
, and write down the general solution
S
n
= S
+ (S
0
S
)(1 +i)
n
=
R
i
+
A
R
i
(1 +i)
n
=
A +
R
i
(1 +i)
n
R
i
.
This is identical to the formula given above.
52
We model the situation with a rst-order recurrence relation. Let y
t
denote the population after t years, and
k be the limit on the number of emigrants. Then
y
t
= 1,03y
t1
k, with y
0
= 40 000 000.
To solve this rst-order recurrence relation, we rst nd y
=
k
0,03
=
100k
3
. Then
y
t
= y
+ (y
0
y
)(1,03)
t
=
100k
3
+
40 000 000
100k
3
(1,03)
t
.
After 10 years this should be equal to 52 000 000:
y
10
=
100k
3
+
40 000 000
100k
3
(1,03)
10
= 52 000 000.
Solve for k to nd
k 153 234.
The recurrence relation becomes
y
t
= 0,99y
t1
153 234, with y
0
= 40 000 000.
Now y
=
153 234
0,01
= 15 323 400. Then
y
t
= y
+ (y
0
y
)(0,99)
t
= 15 323 400 + (40 000 000 + 15 323 400) (0,99)
t
.
After 10 years this is
y
10
34 710 091.
One possible form of the formula is
R(1 (1 +i)
m
) (1 +i)
mn
(1 +i)
m
(1 +s)
n
1
i ((1 +i)
m
(1 +s)) .
Keep in mind that there are numerous ways of representing such a formula. The proof of the pudding is in
the eatingif your formula gives the correct answer, it is most probably correct.
The answer is R123 459,82.
See the textbook, pp4647.
53 DSC3707/101/3
The supply and demand functions are given by
q
S
(p) =
8
13
p
21
13
and q
D
(p) =
13
21
p
34
21
;
and the inverse supply and demand functions by
p
S
(q) =
13
8
q +
21
8
and p
D
(q) =
21
13
q +
34
13
.
Since
q
t
= q
S
(p
t1
) and p
t
= p
D
(q
t
),
we have
q
t
=
8
13
p
t1
21
13
and p
t
=
21
13
q
t
+
34
13
.
Eliminating q
t
we obtain
p
t
=
21
13
8
13
p
t1
21
13
+
34
13
=
168
169
p
t1
+
1
169
.
The time-independent solution is
p
=
1
169

169
1
= 1
and the explicit solution is
p
t
= 1 + 118
168
169
t
.
This means that the price tends to 1 over a long period. (This decrease is very slow. It will take more than
a century before the price halves.) The quantity involved will tend to 1. (After approximately 723 years
the quantity will become negative.) This of course means that this cobweb model cannot predict what will
happen far into the future, since the people involved will stop acting according to the model (out of physical
necessity). On the short run, however, it predicts a decrease in both the price and the quantity of the
commodity traded.
C(5) = 200
5e
1
5
6
+ 2 5
R457,24.
The unit price is approximately R91,45.
For six compact discs it is
C(6) = 200
6e
1
6
6
+ 2 6
R501,91.
54
The unit price in this case is approximately R83,65.
Note the increase of R44,67 in the total cost. This marginal cost is appreciably less than the unit price (can
you explain why?).
For a thousand compact discs it is
C(1 000) = 200
1 000e
1
1 000
6
+ 2 000
R8324,56.
The unit price is now approximately R8,32.
For a thousand and one compact discs it is
C(1 001) = 200
1 001e
1
1 001
6
+ 2 002
R8329,72.
The marginal cost (difference in the total amount between 1000 and 1001) is approximately R5,16.
The derivative of the cost function is
d
dx
C(q) = e
1
q
6
100
q

1200
q
13
2
+ 2.
For ve compact discs the marginal cost is approximately R46,69, and for six approximately R42,82. Com-
pare this to the real marginal cost of R44,67. Can you explain this discrepancy? (The derivative gives the
slope at a xed point (either 5 or 6) and this is used to estimate the change over an interval (of one in this
case). If the slope is changing rapidly (as is the case here), the approximation might be inaccurate. It might
be better to use the slope at 5,5 which yields a marginal cost of R44,62.) For q = 1000 the marginal cost is
approximately R5,16. This is more accurate, because the slope is not changing as rapidly at q = 1000.
The derivative of the demand function is given by
200 000 000
p
3
+
1
2
p
.
This gives a decrease of approximately 25 games.
The prot will be the prot per game times the number of games sold:
(p 10) q
D
(p) = (p 10)
100 000 000

p
2
+
.
The price of R200 would yield a prot of approximately R500 828, and a price of R201 a prot of approxi-
mately R498 352. The lower price will thus yield a higher prot. To nd local maxima and minima, we have
to nd the derivative of the prot function. (Use MuPAD or Maxima.) The slope of the prot function is
zero at approximately R20,00 and R1 340,87. Of these two the rst is a maximum (check) and the second a
minimum. There is another minimumat p = 10 the prot will of course be zero.
55 DSC3707/101/3
The capital or principal is P = 100 000, the nominal interest rate is j
2
= 0,18 and the interest rate per
compounding period is 9%. It should be clear that m = 2 and n = 2 2 = 4. We nd that
S = P (1 +i)
n
= 100 000 (1 + 0,09)
4
= 100 000 1,41158161
= C141 158,16.
There are at least two ways of arriving at an answer. We shall show the two most obvious ways. In order
to compare two loans, we have to compare either interest rates or the accumulated values.
Determine the accumulated value of the loan offered by BCTB:
S = P (1 +i)
n
= 1 000 000 (1 + 0,16)
4
= C1 810 639,36.
It is clear that the loan from CDUC will be less expensive (by C10 639,36).
The second approach is to compare the interest rates. The interest rate offered by CDUC is
i =
S
P
1
n
1
=
1 800 000
1 000 000
1
4
1
0,15829.
The interest rate is approximately 15,829% per annum, which is less than the 16% per annum offered by
BCTB, making this option more attractive.
We have = 0,111 and j = e
1 = e
0,111
1 0,1173949 or approximately 11,73949%.
We rst calculate the continuously compounded rate:
= mln
1 +
j
m
m
= 4 ln
1 +
0,15
4
= 4 ln (1,0375)
0,147256.
56
Next we convert to a monthly compounded nominal rate:
j
12
= 12
e

12
1
= 12
e
0,147256
12
1
0,148163.
You can check your calculations by converting it directly:
j
12
= 12
1 +
j
4
4
4
12
1
= 12
1 +
0,15
4
1
3
1
= 12
(1,0375)
1
3
1
0,148163.
First determine the inverse supply and demand functions and use MuPAD or Maxima to graph them.
57 DSC3707/101/3
With MuPAD:
pS:=6*q+500000
pD:=-q^2/200+200*q+100000
plotfunc2d(pS,pD,q=-1000..41500,p=-100000..2500000)
You would have to play around with the ranges for the axes to get the graph in a suitable format.
4e+4 3e+4 2e+4 1e+4 0
2.5e+6
2e+6
1.5e+6
1e+6
5e+5
0
q
p
q
p
6*q + 5, 200*q - 1/200*q^2 + 1
There are two points of equilibrium: (q
1
; p
1
) (2185; 513 109) and (q
2
; p
2
) (36 615; 719 691).
With Maxima:
Maxima input:
58
The output is:
59 DSC3707/101/3
The supply function is q
S
(p) =
p 500 000
6
, and the inverse supply function is p
S
(q) = 6q + 500 000.
Therefore p
S
q
S
(p) = p
S
q
S
(p)
= p
S
p 500 000
6
= 6
p 500 000
6
+ 500 000 = p. Yes.

The derivative of the function is
x
4
+ 2x
3
x
2
2x = (x 1)x(x + 1)(x + 2).
The derivative is zero at x = 2, x = 1, x = 0 and x = 1. Of these the rst and second are relative
maxima, and the other two relative minima. The function values at these points are
4
15
,
11
30
, 0 and
19
30
.
The function value at the endpoints are
4
15
and
27
40
.
The maximum is therefore
27
40
and the minimum
19
30
.
With MuPAD:
y:=x^5/5+x^4/2-x^3/3-x^2
plotfunc2d(y,x=-2.5..1.5)
1 0 -1 -2
0.5
0.25
0
-0.25
-0.5
-0.75
-1
x
y
x
y
1/2*x^4 - 1/3*x^3 - x^2 + 1/5*x^5
60
With Maxima:
The input is:
The output is:
61 DSC3707/101/3
Use Maxima to differentiate the function and determine the roots of the derivative function:
Minimum 2, maximum 2.
The derivative of the demand function is
q
= 1,04025 10
7
p
4
0,000 360 748p
3
+ 0,438 93p
2
222p + 38 453.
The elasticity of demand is
(p) =
q
p
q
=
1,04025 10
7
p
5
+ 0,000 360 748p
4
0,438 93p
3
+ 222p
2
38 453p
2,0805 10
8
p
5
0,000 090 187p
4
+ 0,146 31p
3
111p
2
+ 38 453p 4 280 000
.
The demand is inelastic if (p) < 1. This is the case for 200 p < 456,372933. (Youll probably want to use
MuPAD or Maxima for this calculation. Plot (p) to get an idea of the shape of the function, and then solve
the equation (p) = 1. Also keep in mind that the demand function was dened only for 200 p 1000.)
R450. For fees higher than R456,37 the demand becomes elastic, which means that a further increase in
the fee will result in a drop in revenue.
The demand for modules at a price of R450 is
q
D
(450) = 2,0805 10
8
(450)
5
0,000 090 187(450)
4
+ 0,146 31(450)
3
111(450)
2
+ 38 453(450) 4 280 000
564 529,
62
which means that the number of students should be more or less
564 529
4,98
113 359.
The inverse demand function is p
D
(q) = 1 000 q
3
+ 4q
2
+q and thus the prot function is
(q) = qp
D
(q) C(q)
= q(1 000 q
3
+ 4q
2
+q) (3q
3
q
2
+ 10
2
q + 10
2
)
= q
4
+q
3
+ 2q
2
+ 900q 100.
The derivative is
(q) = 4q
3
+ 3q
2
+ 4q + 900,
with a zero at q 6,399 786. The prot is therefore
(6) = 6
4
+ 6
3
+ 2(6)
2
+ 900(6) 100
= 4 292
or around R4 292 000.
See Figure 1.
0 1 2 3 4 5 6 7 8 9 10
(q)
1 000
2 000
3 000
4 000
Figure 1: The prot function of LRC.
True
False. . . . equal to average variable cost.
True
63 DSC3707/101/3
True
True
The xed cost is R30 000.
The prot function is
(q) = qC
(q) C(q)
= q(0,04005q
2
4,8q + 486) (0,01335q
3
2,4q
2
+ 486q + 30 000)
= 0,0267q
3
2,4q
2
30 000.
The startup point is where q
s
is such that (q
s
) = C(0). Simplifying 0,0267q
3
s
2,4q
2
s
30 000 = 30 000
we nd that q
2
s
(0,0267q
s
2,4) = 0. Solving this equation yields a startup point of q
s
=
2,4
0,0267
89,88764, or
more or less 90 units.
Breakeven happens when the prot changes from negative to non-negative. This is when (q
b
) = 0. We
solve the equation 0,0267q
3
b
2,4q
2
b
30 000 = 0 to nd that q
b
is more or less 144.
The price p
s
corresponding to the startup point of q
s
= 90 is p
s
= 378,41. The rm produces nothing if the
price is lower than R378,41, and for prices higher than this the amount produced is related to p by
p = C
(q)
= 0,04005q
2
4,8q + 486.
This relationship holds as long as the maximum production capacity of the rm is not exceeded. Once this
happens, the rm is restricted to its maximum capacity. This means that q 200. The price corresponding
to this quantity is p
L
= C
(200) = 1128. The supply set is the union of three pieces:

the points (0; p) for which 0 p < 378,41;
the points (q; p) such that p = 0,04005q
2
4,8q + 486 for 378,41 p 1128 and 90 q 200 ;
the points (200; p) for p > 1128.
See Figures 2 and 3.
64
(q)
30 000
0
87 600
q
200 100
Figure 2: The prot set.
S
p
0
378,41
1128
q
200 90
Figure 3: The supply set.
Self evaluation exercise 2.1:1(a)
The rst partial derivatives are
f
1
=
f
x
=
y(y
3
+ 1)
2
x
; f
2
=
f
y
=
x(4y
3
+ 1).
The second partial derivatives are
f
11
=

2
f
x
2
=
y(y
3
+ 1)
4x
3
2
; f
22
=

2
f
y
2
= 12
xy
2
;
f
21
=

2
f
xy
=
4y
3
+ 1
2
x
; f
12
=

2
f
yx
=
4y
3
+ 1
2
x
.
65 DSC3707/101/3
Self evaluation exercise 2.1:1(b)
g
x
=
x
2
y
2
(10x + 9y)
3(y
3
+xy
2
)
2
3
;
g
y
=
x
3
y(3y + 2x)
3(y
3
+xy
2
)
2
3
.
2
g
x
2
=
2x(27y
6
+ 63xy
5
+ 35x
2
y
4
)
9(y
3
+xy
2
)
5
3
;

2
g
y
2
=
2x
5
y
2
9(y
3
+xy
2
)
5
3
;
2
g
xy
=
x
2
y(20x
2
y
2
+ 45xy
3
+ 27y
4
)
9(y
3
+xy
2
)
5
3
;

2
g
yx
=
x
2
y(20x
2
y
2
+ 45xy
3
+ 27y
4
)
9(y
3
+xy
2
)
5
3
.
Self evaluation exercise 2.1:1(c)
h
x
= 3x
2
y
3
+y
2
;
h
y
= 3x
3
y
2
+ 2xy.
2
h
x
2
= 6xy
3
;

2
h
y
2
= 6x
3
y + 2x;
2
h
xy
= 9x
2
y
2
+ 2y;

2
h
yx
= 9x
2
y
2
+ 2y.
f
x
= y
2
x
y
2
1
;
f
y
= 2yx
y
2
ln x.
The production function is
q(k; l) = kl
2
= (2t
2
)(2t + 5)
2
= 8t
4
+ 40t
3
+ 50t
2
.
Note that the production function is a function of time. The rate at which production changes is the rst
derivative of the production function with respect to time:
dq
dt
= 32t
3
+ 120t
2
+ 100t.
We use the same trick that works for two variables. (See page 126 in the textbook.) The function g in this
case is a function of three variables. Call them Q, K and L. (We have Q = q(k; l), K = k and L = l.) The
composite function G(k; l) = g(Q,K,L) is a function of the two variables k and l. Using the chain rule:
G
k
=
g
Q
Q
k
+
g
K
K
k
+
g
L
L
k
.
66
Now K = k and L = l, so
K
k
= 1 and
L
k
= 0. Also the function G is a constant (0) as a function of k, and
Q = q(k; l) is a function of both k and l. The equation then becomes
0 =
g
q
q
k
+
g
k
.
Rearranging, we nd
q
k
=
g
k

g
q
.
Similarly
q
l
=
g
l

g
q
.
For the given function g(q(k; l); k; l) = q
2
k +l
2
+qk
2
l
3
= 0 we have
g
k
= q
2
+ 2qkl
3
;
g
l
= 2l + 3qk
2
l
2
;
g
q
= 2qk +k
2
l
3
.
So
q
k
=
q
2
+ 2qkl
3
2qk +k
2
l
3
and
q
l
=
2l + 3qk
2
l
2
2qk +k
2
l
3
.
The point (1; 2) lies on the curve with equation x
2
y
3
2
= 2
2. The gradient is given by

y
x
=
2xy
3
2
3
2
x
2
y
=
4y
3x
,
that gives a slope of
8
3
when evaluated in the point (1; 2).
67 DSC3707/101/3
68
Maxima solution
Maxima input:
Maxima output:
69 DSC3707/101/3
1. u(x; y) = y
3
+ 3xy x
3
The rst partial derivatives of u have to be calculated to determine the critical points:
u
1
(x; y) = 3y 3x
2
; u
2
(x; y) = 3y
2
+ 3x.
The critical points are given by the rst-order conditions:
3y 3x
2
= 0, (1) 3y
2
+ 3x = 0. (2)
From (1):
3y = 3x
2
y = x
2
. (3)
Substitute (3) into (2):
3(x
2
)
2
+ 3x = 0
3x
4
+ 3x = 0
3x(x
3
+ 1) = 0
x = 0 or x
3
= 1
x = 1 (because 1
3
= 1).
Substitute x = 0 into (3): y = 0
2
= 0. The point (x; y) = (0; 0).
Substitute x = 1 into (3): y = (1)
2
= 1. The point (x; y) = (1; 1).
The critical points are (0; 0) and (1; 1). The second partial derivatives of u have to be calculated to
determine the nature of the critical points.
u
11
(x; y) = 6x; u
12
(x; y) = u
21
(x; y) = 3; u
22
(x; y) = 6y.
At (0; 0): u
11
= 0, u
12
= u
21
= 3 and u
22
= 0.
Thus u
11
u
22
u
2
12
= 0 0 3
2
= 9 and (0; 0) is a saddle point.
At (1; 1): u
11
= 6, u
12
= u
21
= 3 and u
22
= 6.
Thus u
11
u
22
u
2
12
= 6 6 3
2
= 27 and (1; 1) is a minimum.
2. v(x; y) = x
3
3xy
2
+y
4
The critical points are (0; 0), (
3
2
;
3
2
) and (
3
2
;
3
2
). We need to calculate the second partial derivatives
of v:
v
11
(x; y) = 6x; v
12
(x; y) = v
21
(x; y) = 6y; v
22
(x; y) = 12y
2
6x.
At (0; 0) we have v
11
= 0; v
12
= v
21
= 0; v
22
= 0. In this case the second-order conditions do not
allow us to tell what kind of critical point (0; 0) is.
70
At (
3
2
;
3
2
) we have v
11
= 9; v
12
= v
21
= 9; v
22
= 18, so that we know (
3
2
;
3
2
) is a minimum point.
At (
3
2
;
3
2
) we have v
11
= 9; v
12
= v
21
= 9; v
22
= 18, so that we know (
3
2
;
3
2
) is also a minimum
point.
The prot function is
(x; y) = xp
X
+yp
Y
C(x; y)
= x(13 2x y) +y(13 x 2y) x y
= 2x
2
2xy + 12x 2y
2
+ 12y.
The only critical point is (2; 2), which is a maximum and hence the required production levels of X and Y
are two of each.
Self evaluation exercise 2.4
The budget constraint is 2,5x
1
+ 1,25x
2
= 10, where x
1
represents chicken thighs.
x
1
x
2
4
8
See pages 167 and 168 in the textbook for typical indifference curves. The indifference curves of Moeti are
not convex; all others are.
For Bachus the optimal bundle consists of 4 chicken thighs.
For Moeti an Ophelia the optimal bundle consists of 8 cups of atchar.
For Thr the budget line is tangent to the indifference curve. The gradient of the indifference curve x
1
x
2
2
= c
is
x
2
x
1
=
U
c
/x
1
U
c
/x
2
=
x
2
2
2x
1
x
2
=
x
2
2x
1
.
At the point (x
1
; x
2
) where the budget line is tangent to this indifference curve, this must equal the slope of
the budget line, yielding
x
2
2x
1
= 2 or x
2
= 4x
1
. Then
2,5x
1
+ 1,25(4x
1
) = 10 or 7,5x
1
= 10 which gives x
1
=
4
3
and x
2
=
16
3
.
Two possible integer solutions are (2; 4) and (1; 6). A quick calculation yields a utility of 32 in the rst case
and 36 for the bundle (1; 6).
71 DSC3707/101/3
a
n
b
n
c
n
d
n
= A
n
= A
1
(A
n1
) =
3 1
0 1
a
n1
b
n1
c
n1
d
n1
.
It follows that a
n
= 3a
n1
+c
n1
; b
n
= 3b
n1
+d
n1
; c
n
= c
n1
; d
n
= d
n1
. Because c
1
= 0, then c
n
=
0 for all n and because d
1
= 1, then d
n
= 1 for all n. Thus a
n
= 3a
n1
+0 = 3a
n1
; b
n
= 3b
n1
+1; c
n
= 0
and d
n
= 1. It is given that a
1
= 3
1
and then a
2
= 3a
1
= 3 3 = 3
2
; a
3
= 3 3
2
= 3
3
and a
n
= 3
n
. The
case of b
n
is a second order recurrence equation which can be solved with the methods given in Chapter 23
to give b
n
=
1
2
3
n+1
1
2
. Thus
A
n
=
3
n 1
2
3
n+1
1
2
0 1
.
B
n
=
1 n
0 1
.
The three values of p leads to the system of three equations:
a +b +c = 60
a + 2b +
c
2
= 40
a + 4b +
c
4
= 15.
This can be rewritten as a matrix equation:
1 1 1
1 2
1
2
1 4
1
4
a
b
c
60
40
15
. (1)
Method 1: use the inverse of the matrix to determine te solution.
The inverse of the matrix
1 1 1
1 2
1
2
1 4
1
4
is
2 5 2
1
3
1
2
3
8
3
4
4
3
.
Multiplying both sides of equation (1) from the left by the inverse of the square matrix gives the solution:
2 5 2
1
3
1
2
3
8
3
4
4
3
1 1 1
1 2
1
2
1 4
1
4
a
b
c
2 5 2
1
3
1
2
3
8
3
4
4
3
60
40
15
50
10
20
.
Thus a = 50, b = 10 and c = 20.
72
Method 2: Use elementary row operations to solve the system.
R1
R2
R3
1 1 1
1 2
1
2
1 4
1
4
60
40
15
R1
R2 R1
R3 R1
1 1 1
0 1
1
2
0 3
3
4
60
20
45
R1
R2
R3 3R2
1 1 1
0 1
1
2
0 0
3
4
60
20
15
Then:
3
4
c = 15, thus c = 20
b
1
2
(20) = 20, thus b = 10
a + (10) + (20) = 60, thus a = 50.
The augmented matrix is
5 3 2 1 66
1 3 4 2 48
1 1 2 1 10
2 2 2 1 38
,
and the row echelon form is

1 0
1
2

1
4
9
2
0 1
3
2
3
4
29
2
0 0 0 0 0
0 0 0 0 0
.
The rank of the system is 2. A solution is
x
1
=
9
2
+
1
2
s +
1
4
t
x
2
=
29
2

3
2
s
3
4
t
x
3
= s
x
4
= t,
where s and t are free unknowns. We can now write
x = v +su
1
+tu
2
,
where
x =
x
1
x
2
x
3
x
4
; v =
9
2
29
2
0
0
; u
1
=
1
2
3
2
1
0
; u
2
=
1
4
3
4
0
1
.
73 DSC3707/101/3
MuPAD solution:
Maxima solution
Choose [Equations] form the top menu on the screen.
Choose [Solve linear system] and complete the pop-up menus.
74
Maxima input:
Maxima output:
Remember that Maxima indicates free variables that we wrote as u and v with @r1 and @r2.
You may determine the row echelon form of the augmented matrix as follows.
Enter in the input line Input[a:] and then choose [Algebra]; [Enter matrix]. Complete the rst pop-up
menu.
Maxima input:
75 DSC3707/101/3
Maxima responds with a table. Enter the values of the augmented matrix and press OK.
Maxima input:
76
To reduce the matrix to echelon form enter echelon(a).
Maxima output:
The matrix R augmented by the column vector
1
1
1
yields in echelon form a last row

0 0 0 0,14286 ,
which means that it is inconsistent (0 can never be equal to any real number ) and therefore there is no
solution. See elementary row operations below.
Solve Rx = u.
R1
R2
R3
1,05 1,20 1,10

1,05 1,05 1,05
0,90 1,05 0,95
1
1
1
R1
R2 R1
R3
0,90
1,05
R1
1,05 1,05 1,05

0 0,15 0,05
0 0,02143 0,00714
1
0
0,14286
R1
R2
R3 +
0,02143
0,15
R2
1,05 1,05 1,05

0 0,15 0,05
0 0 0
1
0
0,14286

One possibility is the vector Y = (1000; 100; 900), which gives a payoff vector of Y R = (135; 150; 140).
There are of course innitely many possibilities for an arbitrage portfolio.
77 DSC3707/101/3
1 1 1 2 1 0 0 0
2 2 3 4 0 1 0 0
3 4 5 6 0 0 1 0
5 5 5 5 0 0 0 1
Exchange rows two and three:
1 1 1 2 1 0 0 0
3 4 5 6 0 0 1 0
2 2 3 4 0 1 0 0
5 5 5 5 0 0 0 1
Subtract three times row 1 from row 2, two times row 1 from row 3, and ve times row 1 from row 4.
1 1 1 2 1 0 0 0
0 1 2 0 3 0 1 0
0 0 1 0 2 1 0 0
0 0 0 5 5 0 0 1
Divide row 4 by 5, and subtract two times row 3 from row 2.
1 1 1 2 1 0 0 0
0 1 0 0 1 2 1 0
0 0 1 0 2 1 0 0
0 0 0 1 1 0 0
1
5
Finally subtract row 2, row 3 and two times row 4 from row 1.
1 0 0 0 0 1 1
2
5
0 1 0 0 1 2 1 0
0 0 1 0 2 1 0 0
0 0 0 1 1 0 0
1
5
A
1
=
0 1 1
2
5
1 2 1 0
2 1 0 0
1 0 0
1
5

Row operations leads to
1 0 1
0 1 2
0 0 0
.
78
A row of zeros always imply that no inverse exists. The determinant of B is 0, again an indication that no
inverse can exist.
You can either use the explicit formulas given on page 224 of the textbook, or use the matrix equations.
Using the latter approach, we rewrite the IS-LMequations in equilibriumas a system of two linear equations:
0,1Y
10r
= 5
(1 0,2)Y

+ 20r
= 30 + 10 + 10.
This translates to the following matrix equation:
0,1 10
0,8 20
5
50
.
The solution is
0,1 10
0,8 20
5
50
60
0,1
.
The matrix equation is
X
Y
Z
200
500
1500
0,05 0,4 0,1

0,1 0 0,2
0,1 0,1 0
X
Y
Z
.
To solve we need to calculate (to three decimals)
X
Y
Z
1 0 0
0 1 0
0 0 1
0,05 0,4 0,1

0,1 0 0,2
0,1 0,1 0
200
500
1 500
769,495
910,550
1 668,005
.
(Of course you can use MuPAD or Maxima for the calculation!)
Thus X 769,495, Y 910,550 and Z 1 668,005.
(I A)
1
=
1,
3 0,
6
0,
2 1,
When 25 terms are used, 7 decimal digits are correct.

79 DSC3707/101/3
80
Choose [Algebra] and then [Enter matrix]. Enter the matrices I and A.
Maxima instructions and output:
81 DSC3707/101/3
The determinant of the matrix A is zero when the inverse does not exist.
det A = 9(k
2
4)
For k = 2 and k = 2 the determinant is zero, and hence A is not invertible only if k = 2.
Calculation of the determinant of A:
det A = 3
k 3
4 k
2 3
0 k
+k
2
2 k
0 4
= 3(k
2
12) k(2k 0) +k
2
(8 0) = 9k
2
36
82
See the textbook, pp260261.
Self evaluation exercise 3.1:2(a)
The Lagrangean is
L = 350k
1
3
l
2
3
(50k + 100l 50 000).
The equations that we have to solve are
L
k
=
350
3
k
2
3
l
2
3
50 = 0,
L
l
=
700
3
k
1
3
l
1
3
100 = 0,
50k + 100l = 50 000.
The rst two equations yield k = l. Substituting into the third equation we get 150k = 50 000,
or k =
1 000
3
= l. The maximal output is then
350
1 000
3
1
3
1 000
3
2
3
=
350 000
3
,
which is approximately R116 667.
Self evaluation exercise 3.1:2(b)
Approximately R89 033.
Self evaluation exercise 3.1:2(c)
R87 500
We have to maximise the utility u(x
1
; x
2
) = 4
x
1
+ 2 ln x
2
subject to the constraint 4x
1
+ 6x
2
= 80. The
Lagrangean is
L = 4
x
1
+ 2 ln x
2
(4x
1
+ 6x
2
80).
We have to solve the equations
L
x
1
=
2
x
1
4 = 0,
L
x
2
=
2
x
2
6 = 0,
4x
1
+ 6x
2
= 80.
From the rst two equations we have x
2
=
2
x
1
3
, and together with the third equation this yields
x
1
= 16, x
2
=
8
3
.
The consumer should therefore buy 16 units of maize and 2
2
3
units of spinach.
This time the optimal bundle consists of approximately 10,35 units of maize and 6,43 units of spinach.
83 DSC3707/101/3
The auxiliary equation is z
2
z 2 = 0. This equation has two distinct solutions, namely
= 2 and = 1.
The solution is y
t
= A
t
+B
t
, with A and B constants. Since we know the values y
0
and y
1
, we know that
A+B = 1 and A +B = 1.
Therefore ( )B = 1 , or 3B = 1, yielding B =
1
3
. Then A =
2
3
. Hence
y
t
= A
t
+B
t
=
2
3
2
t
+
1
3
(1)
t
.
The rst 20 values are 1; 1; 3; 5; 11; 21; 43; 85; 171; 341; 683; 1365; 2731; 5461; 10923; 21845; 43691;
87381; 174763; 349525 and 699051.
For MuPAD:
solve(rec(y(t)-y(t-1)-2*y(t-2),y(t),{y(0) = 1, y(1) = 1}))
f:=(t)->((-1)^t/3+2*(2^t/3))
map(f(t)$t=1..20,float)
84
With Maxima:
Important remark
Note that in this case the Maxima answer is incorrect. Maxima gives the answer y
t
= 32
t+1
+
(1)
t
3
and it
should be y
t
=
1
3
2
t+1
+
(1)
t
3
. We informed the Maxima developers of the problem. However we keep the
example to show you that you should never believe that the computer is always correct. If you test whether
the solution satises the initial values and use Maxima to determine y
t
if t = 0 and t = 1 you will notice that
the initial values are not satised. Thus the given y
t
is not a solution at all.
Apply solve rec on the function y(t) = y(t 1) + 2 y(t 2) with initial values y(0) = a and y(1) = b; then
replace a and b with 1 and simplify. Now the Maxima answer is correct.
If you use the recurrence equation to calculate the rst few terms, you would notice very familiar numbers:
1; 2; 4; 8; 16; 32; 64; 128; . . . . The solution is y
t
= 2
t
. (Of course you can also use the tools developed in this
chapter. You should arrive at the same answer.)
The equilibrium condition Y
t
= C
t
+I
t
together with I
t
=
1
k
Y
t+1
yields
Y
t
= C
t
+
1
k
Y
t+1
,
that can be re-written as
C
t
= Y
t
1
k
Y
t+1
, or even as C
t1
= Y
t1
1
k
Y
t
.
Substituting into the consumption equation we get
Y
t
1
k
Y
t+1
=
l
k
Y
t
.
Rearranging and replacing t by t 1, we obtain the equation
Y
t
= (k l) Y
t1
.
85 DSC3707/101/3
The general solution is Y
t
= 2(k l)
(t1)
(l k). If k = 3 and l = 2 this yields a solution of Y
t
=
2(3 2)
(1+t)
(2 3) = 2(1)
(t1)
(1) = 2. The income does not depend on the value of t and the
economy is stable (stagnant). If k = l the economy collapses.
The inverse demand function is
p
D
(q) =
4q
q
2
+ 1
.
The equilibrium quantity q
is the solution of the equation

4q
q
2
+ 1
=
q
2
1
100q
,
which is approximately 20. Thus the equilibrium price p
0,1995. The consumer surplus is then

CS =
0
p
D
(q)dq p
= 2
20
0
2q
q
2
+ 1
dq (20)(0,1995)
= 2 ln(q
2
+ 1)|
20
0
3,99
= 2 (ln(401) ln(1)) 3,99
8.
We use integration by parts. Take u = x
2
and dv = e
x
2
xdx; then du = 2xdx and v =
1
2
e
x
2
. Now
x
3
e
x
2
dx =
1
2
x
2
e
x
2
xe
x
2
dx
=
1
2
x
2
e
x
2
1
2
e
x
2
+C.
We use a substitution: let 1 x = z
2
. Then x = 1 z
2
; dx = 2zdz, and
dx
x
1 x
=
2zdz
(1 z
2
)z
= 2
dz
(1 z
2
)
= ln
1 +z
1 z
+C
= ln
1 +
1 x
1
1 x
+C.
To evaluate this integral we use partial fractions. Write f(q) = q
3
+q
2
6q = q(q 2)(q 3). Then
q + 1
q
3
+q
2
6q
=
A
q
+
B
q 2
+
C
x + 3
86
and
q + 1 = A(q 2)(q + 3) +Bq(q + 3) +Cq(q 2)
= (A +B +C)q
2
+ (A+ 3B 2C)q 6A.
We now solve the system of equations
A + B + C = 0
A + 3B 2C = 1
6A = 1
to obtain A =
1
6
, B =
3
10
and C =
2
15
.
Now
5
3
(q + 1)dq
q
3
+q
2
6q
=
1
6
5
3
dq
q
+
3
10
5
3
dq
q 2

2
15
5
3
dq
q + 3
=
1
6
ln |q| +
3
10
ln |q 2|
2
15
ln |q + 3|
5
3
=
3 ln 3
5

ln 800 000
30
0,20609.
Test the answer with MuPAD or Maxima.
By the denition of elasticity of demand we have
p
q
dq
dp
=
4p
2
p
2
+ 16
,
where q = q
D
(p) is the demand function. This is a separable differential equation
dq
dp
=
4p
p
2
+ 16
q,
which can be solved by separating and integrating:
1
q
dq = 4
p
2
+ 16
dp.
When simplied this yields
ln q = 4
p
2
+ 16 +c.
Taking the exponential of both sides
q = e
4
p
2
+16+c
.
Since we know that q(3) = 1, we have c = 20. The demand function is therefore
q
D
(p) = e
204
p
2
+16
.
87 DSC3707/101/3
For MuPAD:
eq:=ode(q(p)/q(p)=(-4*p)/(sqrt(p^2+16)),q(p))
solve(eq)
MuPAD returns:

C1 exp(4(p
2
+ 16)
1/2
)
With Maxima:
Equilibrium will exist if
p
+p
p + 1 = p 1,
or
p
+p
2p = 2.
A particular solution of this equation is the constant solution p
(t) = 1. (The derivative of a constant is

zero.) The auxiliary equation is
z
2
+z 2 = 0,
which has two roots: z = 1 and z = 2. The general solution for p(t) is
p(t) = Ae
t
+Be
2t
+ 1,
where A and B are constants. Using the initial conditions, we have
p(0) = 1 = Ae
0
+Be
2(0)
+ 1
= A+B + 1,
88
or A +B = 0. From p
(0) = 1 we have
p
(0) = 1 = Ae
0
2Be
2(0)
= A 2B,
so that A =
1
3
and B =
1
3
and therefore
p(t) =
e
t
3

e
2t
3
+ 1.
For MuPAD:
q:=ode({p(t)+p(t)-p(t)+1=p(t)-1,p(0)=1,p(0)=1},p(t)):
solve(q)
With Maxima:
Maxima instructions to determine the general solution to the second-order differential equation:
89 DSC3707/101/3
APPENDIX D. ERRATA - PRESCRIBED TEXTBOOK
Notation:
p
k
: p = page number; k = line from top.
p
k
: p = page number; k = line from bottom.
18
11
: (x +
b
2a
)
2
=
b
2
4ac
4a
2
37
15
: E 80W
52
7
: Solution: Here, q
S
(p) = 3p 21 500 and p
D
(q) = 8 500 q.
52
15
:
p
t
= p
+ (p
0
p
)(3)
t
= 7 500 + (7 499 7 500)(3)
t
= 7 500 + (1)(3)
t
= 7 500 (3)
t
.
63
6
: f f
(3) x = 4(3)
3
0,005 = 0,540.
75
5
:
(cos x)(cos x)(sin x)(sin x)
(cos x)
2
=
(cos x)
2
+(sin x)
2
(cos x)
2
.
90
3
: f
(x) = sin x +xcos x sin x = xcos x.

92
13
: P
(t) = 300exp(0,06t) + (2 000 + 300t)(0,06)exp(0,06t)

121
1
: , and hence F
(2) = 2(15)(1)(12) + ((15)

2
+ 2)(12) = 3 084.
131
6
: 2(2
2
) + 5(2)(1) + 1
2
= 19.
149
6
: At (0, 1/4) we have g
11
= 1, g
12
= 0, g
22
= 4, so g
11
< 0 and D = (1)(4) 0 < 0.
150
10
:
11
= 3,
12
= 1,
22
= 4.
90
166
5
:
2a 5b +c =
12
1
21
2
1
1
10
2
22
173
10
: Mick considers a glass of orange juice to be as desirable as 10 grams of sunower seeds.
180
11
: b
n
= 2b
n1
+d
n1
180
5
: Clearly, given that a
1
= 2, the . . . .
190
5
: x
2
+x
3
= 0
194
6
: +(a
i1
b
12
+a
i2
b
22
+a
i3
b
32
)y
2
228
1
: Example 18.3 Let A be the matrix
1 3 5
2 1 5
4 0 8
.
228
6
: . . . As in the solution of the previous worked example, we see that we can reduce A to . . . .
247
4
:
The last matrix in the row, the a
33
value is wrong:
5 2 1
1 2 3
5 1 1
1 2 3
5 2 1
5 1 1
1 2 3
0 12 14
0 11 -16
260
13
:
L
k
= v Ak
1
l
,
280
3
: q
1
(p
1
, p
2
, M) =
M
2p
1
,
293
1
: y
t
= 2
t
(cos(t/3) sin(t/3)).
300
4
: y
t
y
t1
= 4x
t1
91 DSC3707/101/3
358
3
: 9 6p
+ 5
dp
dt
2
d
2
p
dt
2
= 3 + 4p
dp
dt

d
2
p
dt
2
,
362
11
: y
(0) = 3 implies C 3D = 3, so C = 6 and the required solution is y(t) = (6t + 1)e

3t
.
369
3
: q = 11 p 4
dp
dt
+
d
2
p
dt
2
.
369
8
: 11 p 4
dp
dt
+
d
2
p
dt
2
= 4 + 4p,
369
10
:
d
2
p
dt
2
4
dp
dt
5p = 15.
373
7
: q = 48 20p 7
dp
dt
+
d
2
p
dt
2
.
373
1
: q = 92 10p + 10
dp
dt
+
d
2
p
dt
2
.
376
1
: 6.3 The derivative of f
1
(x) is (y 3)
4/5
/5.
377: 6.5 c
(q) = 20 +
1 + 2q +
q
1+2q
377
4
: 6.6 . . . the increase is 10,7. (The actual change is 11,65.)
377
6
: 7.1 . . . , (b)
1
5
= 0,20, . . . .
379
2
: 12.7 . . . ,
q
l
=
g/l
g/q
.
380
3
: 13.4 . . . v has a saddle point at (0, 0), and a minimum at (3/2, 3/2) and (3/2, 3/2).
380
8
: 14.1 (i) (18 18 9), (ii) (5 22 25)
383
8
: 22.5 . . . ,
=
V
M
=
1
6
5
5/6
2
1/3
7
1/6
p
5/6
1
p
1/3
2
M
1/6
.
385
2
: 26.4 . . . ,
1
3
(x
3
e
x
3
e
x
3
) +c.
385
8
: 27.1
1 y
2
=
1
2
ln(1 t) +
1
2
ln(1 +t) +c.
92
385
5
: 27.4 y(t) =
2
(
1t
4
2c)
, . . .
386
4
: 28.1 . . . ; (c) y = e
t
(E cos t +F sin t)
386
7
: 28.3
1
2
e
t
+
1
2
cos t + 4
1
2
sin t.

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DSC3707/101/3/2012

Tutorial letter 101/3/2012

Chapter 2: Revision: Mathematical terms and notation

Chapter 4: The elements of nance

Chapter 5: The cobweb model

Chapter 7: Some special functions

Chapter 9: The derivative in Economics I

Chapter 10: The derivative in Economics II

Chapter 12: Applications of partial derivatives

Chapter 13: Optimisation in two variables

Chapter 15: Matrix algebra

Chapter 16: Linear equations I

. If the system a.x = b has an unique solution, you

Chapter 17: Linear equations II

Chapter 18: Inverse matrices

Chapter 19: The input-output model

. Then det(A) = ad bc and the inverse of A is given by

Chapter 24: Macroeconomic applications

Chapter 26: Techniques of integration

Chapter 27: First-order differential equations

Chapter 28: Second-order differential equations

7. MODULE PRACTICAL WORK AND WORK INTEGRATED LEARNING

(5). Use Maxima to plot c

(x) and compare your discussion with the shape

and, for n 1 suppose that

1,05 1,20 1,10

2. Using elementary row operations, show that the matrix

is not invertible. Conrm this nding using a determinant.

. For which values of k is A not invertible?

(0) = 1, determine the equilibrium price p(t).

(47,31; 9,23) or (p; q) =

100 000 000

+ 500 000 = p. Yes.

(200) = 1128. The supply set is the union of three pieces:

2. The gradient is given by

yields in echelon form a last row

1,05 1,20 1,10

1,05 1,05 1,05

1,05 1,05 1,05

Self evaluation exercise 2.8:2

Exchange rows two and three:

Divide row 4 by 5, and subtract two times row 3 from row 2.

Self evaluation exercise 2.9:2

0,05 0,4 0,1

0,05 0,4 0,1

When 25 terms are used, 7 decimal digits are correct.

is the solution of the equation

0,1995. The consumer surplus is then

(t) = 1. (The derivative of a constant is

(x) = sin x +xcos x sin x = xcos x.

(t) = 300exp(0,06t) + (2 000 + 300t)(0,06)exp(0,06t)

(2) = 2(15)(1)(12) + ((15)

(0) = 3 implies C 3D = 3, so C = 6 and the required solution is y(t) = (6t + 1)e

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