Review on Relevant

Mathematics
Dosen:
Dr.Ir. Hermanto Siregar, MEc
Pertemuan Ke-2
) ( ) 1 ( ) ( ) (
0
b f a f x f o o + >
b a x ) 1 (
0
o o + =
1 0 < <o
) ( ) 1 ( ) ( ) ( b f a f x f
o
o o + >
f(x)
f(xo)
A function f(x) is said to be concave over the interval (a,b) if
for all
where
(a < x
o
< b)
If then the function is said to be strictly
concave
f (b)
f (a)
a x0 b x
b xo
a
Concavity and Convexity :
( ) ( ) ( ) b f a f o o + 1
( ) ( ) ( ) b f a f o o + 1
Strictly concave function

Concave but not strictly
concave

A function f(x) is quasi-concave over the interval (a,b) if

For all where (a < x
o
< b)

If f(x
o
) > min { f(a),f(b) } then the function is said to be strictly
quasi-concave


( ) ( ) { } b f a f x f
o
, min ) ( >
b a x ) 1 (
0
o o + =
1 0 < <o
Strictly quasi-concave but not concave

Quasi-concave but not strictly quasi-concave

f(x)
a x
o
b x
0
a
b
x
f(x)
x
f(a)



f(xo)
A function is convex over the interval (a,b) if


If then the function is said to be
strictly convex

A function f(x) is quasi- convex over the interval (a,b) if


If then the function is said to be
strictly quasi-convex


) ( ) 1 ( ) ( ) (
0
b f a f x f o o + s
b x a < <
0
) ( ) 1 ( ) ( ) (
0
b f a f x f o o + <
{ } ) ( ), ( max ) (
0
b f a f x f s
b x a < <
0
( ) ( ) { } b f a f x f , max ) (
0
<
strict concavity (convexity) => concavity (convexity)
strict quasi-concavity (convexity) => quasi- concavity
(convexity)
(strict) concavity (convexity) => (strict) quasi-concavity
(convexity)

For single variable function, f(x),
f (x) < 0 => strict concavity
f (x) 0 => concavity
f (x) > 0 => strict convexity
f (x) 0 => convexity

s
>
Functions of Several Variables :

Often in economics, we have to optimize over several
decision variables.

Example : U(x) = f(x
1
, x
2
, , x
n
) defines a utility function
of n goods.
Q(x) = f(x
1
, x
2
, , x
n
) defines a production
function with n inputs.
Level Curves or Contour Map show different combinations
of (x
1
, x
2
, , x
n
) that yield the same value for f(x).
Examples : Indifference curves for utility function.
Isoquants for production function.

Partial Derivaties :
Consider a function y = f(x
1
, x
2
, , x
n
). The partial derivate
of y with respect to x
i
is defined as



i
n n i i
x
i i
x
x x f x x x x f
x y f
i A
A +
= c c =
A
) ,..., ( ) ,..., ,..., (
lim /
1 1
0
In general, this is the same as the change in y due to a
change in x
i
holding all other variables constant, which
implies that the ordinary rules of differentiation applies.

Examples : (a) U (x
1
,x
2
) = x
1
ln

x
2
(b) Q (K,L) = KL
=> MU (x
1
) = = ln x
2
=> MP
k
= L
1
/ x U c c
Total Derivatives :
Consider a function y = f(x
1
, x
2
, , x
n
). The total derivative
of y is defined as



Example : Q = LK
dQ = dQ/dK. dK + dQ/dL. dL = L dK + K dL
i
n
i
i n n
dx f dx f dx f dx f dy

=
= + + + =
1
2 2 1 1
...
The total derivative of y with respect to c
i
is therefore
defined as




Example : Q = LK
dQ/dK = L + K(dL/dK)
i
n
n i
i i
dx
dx
f f
dx
dx
f
dx
dy
+ + + + = ... ...
1
1
Chain Rule :

Suppose y = f(x
1
,x
2
) and x
1
=

g(z) & x
2
= h(z) then the
derivative of y wrt z is given by



Example : y = ln (x
1
+ 3x
2
); x
1
=

z and x
2
= z
2
=>

dg/dz =1 dh/dz =2z

|
.
|

\
|
|
|
.
|

\
|
c
c
+
|
.
|

\
|
|
|
.
|

\
|
c
c
=
dz
dh
x
f
dz
dg
x
f
dz
dy
2 1
( )
2 1 1
3
1
x x x
f
+
=
c
c
) 3 (
3
2 1 2
x x dx
f
+
=
c
( )
( )
( )
( )
( ) ( )
2 1 2 1
2 1 2 1
3
6 1
3
6 1
2
3
3
1
3
1
x x
z
x x
z
d
d
z
x x x x d
d
z
y
z
y
+
+
=
+
+
= =>
+
+
+
= =>
Simple check : y = ln (z+3z
2
)
( )
|
.
|

\
|
+
+
= +
|
|
|
|
.
|

\
|
|
.
|

\
|
+
= =>
2
3
6 1
6 1
2
3
1
z z
z
z
z z
dz
dy
Concavity and Convexity :
Consider a function f(x) = f(x
1
, x
2
, , x
n
) and let x
1
=
and x
2
= be two points in the domain.


(a) The function is said to be concave if
f[ ]
and if the inequality is strict, then the function is said to
be strictly concave.
( )
1 1
1
,...,
n
x x
( )
2 2
1
,...,
n
x x
( ) ) ( 1 ) (
2 1
x x f f o o + >
2 1
) 1 ( x x o o +
(b) Conversely, if inequality is reverse, then the function is said
to be convex; and if the reversed inequality is strict, we
have a strictly convex function.
(c) The function is said to be quasi-concave if
f[ ]
and if inequality is strict, the function is said to be strictly
quasi-concave.
(d) Conversely, if f[ ]
then the function is said to be quasi- convex; and if the
inequality is strictly, we have a strictly quasi- convex
function.

( )
2 1
) 1 x x o o +
( )
2 1
1 x o o + x
{ } ) ( ), ( max
2 1
x x f f s
{ } ) ( ), ( min
2 1
x x f f >
Homogeneous and Homothetic Functions :

A function f(x) = f(x
1
, x
2
, , x
n
) is said to be homogeneous
of degree r if and only if
f(tx
1
, tx
2
, , tx
n
) = t
r
f

(x
1
, x
2
, , x
n
)

Increasing all arguments by the same proportion t will
Increase f(x) by t
r
.

Examples : (a) Consider the production function : Q = KL
If we double all inputs,Q = (2K) (2L) = 2Q,
output doubles.
=> this is a homogeneous function of degree one

(b) Consider the production function : Q = KL
If we double all inputs,Q = (2K) (2L) = 4Q = 2
2
Q
=> this is a homogeneous function of degree two

If f(x) = f(x
1
, x
2
, , x
n
) is homogeneous of degree r, then first
partials (f
1
,,f
n
) are homogeneous of degree r-1.

Example : Consider the production function, Q = KL, which is
homogeneous of degree two.
f
1
= L and f
2
= K therefore, (f
1
, f
2
) = (L,K) which is
homogeneous of degree one.


If f(x) = f(x
1
, x
2
, , x
n
) is homogeneous of degree r, then


Example : Consider the production function, Q = KL,
which is homogeneous of degree two.
f
L
L + f
k
K = KL + LK = 2LK

If f(x) = f(x
1
, x
2
, , x
n
) is homogeneous of degree r and z =
F(y) is a monotonic transformation of y with F (y) > 0, then
function z(x) = z(x
1
, x
2
, , x
n
) is a homothetic function.




) ,..., , ( ...
2 1 2 2 1 1 n n n
x x x rf x f x f x f + + +
Example : Consider the production function, Q = KL,
which is homogeneous of degree two and the
monotonic transformation, F(Q) = log (Q) which
has the property that F (Q) = 1/Q > 0, then log
(KL) is a homothetic function; it is however, not a
homogeneous function.

z (K,L) = log (KL) = log (K) + log (L)
z (tK, tL) = log (tK) + log (tL) = 2 log(t) + log(K) +
log(L) = log (t
2
KL) t
2
log(KL)
=> not a homogeneous function
=
Matrix Algebra :

General (m x n) matrix: A = [ a
ij
] i = 1,2,,m j = 1,2,,n
Where a
ij
is the element in the ith row and jth column of A.

Addition : Suppose A = [ a
ij
] is (mxn), B = [ b
ij
] is (mxn)
C = A + B => c
ij
= a
ij
+ b
ij

Multiplication : Suppose A = [ a
ij
] is (mxn), B = [ b
ij
] is (nxp),
then C = AB is (mxp) and

j i,
kp
n
k
ik ij
b a c

=
=
1
Identity Matrix : I is a (nxn)matrix where I
ij
= 1 i = j and
I
ij
= 0

Inverse Matrix : A or A
-1
is said to be the inverse of A if
AA = I and AA = I

Basic Operations :
AI = A, IB = B
(A+B) + C = A + (B+C)
(AB)(C) = A (BC)
A(B+C) = AB + AC

j i =
Determinants : Suppose A is a 2x2 matrix, then the determinant
of A: det(A) = |A| = a
11
a
22
a
21
a
12.

Suppose A is 3x3, then det(B) = |B| = a
11
a
22
a
33
-
a
11
a
23
a
32
+ a
12
a
23
a
31
- a
12
a
21
a
33
+ a
13
a
21
a
32

a
13
a
22
a
31



The determinants of higher dimension matrices
can be obtained using Laplace Expansion.



Minor : |M
ij
| is determinant of A obtained by removing row i
and colum j.
Example : Suppose A is a 2x2 matrix, then |M
11
| = a
22

Suppose A is 3x3, then |M
13
| = a
21
a
22


a
31
a
32

Cofactors: A cofactor is a minor with a prescribed algebraic
sign and is given as |C
ij
| = (-1)
i+j
|M
ij
|

Laplace Expansion : det (A) = for any i = 1,2,,m

=
n
i j
ij ij
C a
Adjoint matrix : Adj (A) is the transpose of the matrix of
cofactors and is given by

|C
11
|.. |C
n1
|
Adj (A) C .
|C
1n
|.. |C
nn
|


Inverse Matrix : A = A
-1
=
A
A adj ) (
Cramers Rule : Given an equation system Ax = d where A is
(mxn), x is (nx1) and d is (mx1), the solution
is given by , provided A is
non-singular.

a
11
a
12
.. d
1
... a
1n


a
21
a
22
.. d
2
a
2n

...................................

a
n1
a
n1
..

d
n
...

a
nn







d
A
A adj
d A x
) (
*
1
= =

A
x
j
1
*
=
Example : Solve 5x
1
+ 3x
2
= 30 and 6x
1
- 2x
2
= 8
5 3
6 -2



Positive Definite Matrix : A symmetric matrix A is positive
definite if all submatrices A
k
have
positive determinants.

2 -1 0
Example : A = -1 2 -1 => A
1
= [2]
0 -1 2







det(A) = = -28 |A
1
| = -84 |A
2
| = -140
3 28 / 84
*
1
= = x
5 28 / 140
*
2
= = x
A
2
= 2 -1 A
3
= 2 -1 0
-1 2 -1 2 -1
0 -1 2

det(A
1
) = 2 det(A
2
) = 3 det(A
3
) = 4
Therefore, matrix is positive definite.

Positive Semi-Definite Matrix : All submatrices A
k
have
non-negative determinants.

Example : A = is positive semi-definite



0 0
0 1



Negative Definiteness : If the principal minors alternate in
signs ( odd negative and even
positive ) then the matrix is negative
definite.

Negative Semi-Definiteness : The odd-order principal minors
are non-positive and the even-
order principal minors are non-
negative.

Example : 0 0 is negative semi-definite.
0 -1