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Essential reading
Simon and Blume (1994) parts of 13.1–13.2, parts of 14.1–14.6 and 14.8, parts of
15.1–15.2.
To understand that functions of two variables represent surfaces and see how to
visualise these surfaces using sections and contours.
5.1 Introduction
In Section 1.1, we saw that a function f : R → R was a ‘rule’ which takes an input,
x ∈ R, and gives us a unique output, f (x) ∈ R. We now turn our attention to functions
of two variables, i.e. functions where the input consists of a pair of numbers, (x, y) ∈ R2 ,
and whose output is a unique number f (x, y) ∈ R.1 In particular, we will mainly be
concerned with functions of two variables where the variables are independent, i.e. the
value of x can be chosen independently of the value of y and vice versa. As we shall see,
functions of two variables often occur in economics and other fields where we might
1
The theory we consider extends to the general case where the input consists of n numbers
(x1 , x2 , . . . , xn ). This extension to functions of n variables (with n ≥ 3) should be obvious and so we
do not spend much time on it here. However, although we will mainly be dealing with the two-variable
case, we will occasionally consider functions of more than two variables.
171
5. Functions of several variables
wish to apply mathematical techniques. Two important examples of such functions from
economics are:
The production function of a firm, q(k, l), gives the amount it produces when using
k units of capital and l units of labour.
5
5.2 Surfaces
Let f : R2 → R be a function of the two independent variables x and y. We can think of
any input (a, b) as a point in the (x, y)-plane and the output will be the corresponding
value of f , i.e. f (a, b), which we can take to be the number c. That is, generally
speaking, each point (x, y) in the (x, y)-plane will have an output given by the
corresponding value of f , i.e. f (x, y), which we can take to be the value of another
variable z. As such, to visualise a function of two variables we need three axes, two to
represent the inputs, i.e. x and y, and one to represent the output, i.e. z. Drawing these
as in Figure 5.1, we take the (x, y)-plane of the inputs to correspond to points where
z = 0, i.e. the input (a, b) is represented on our axes by the point (a, b, 0), and then the
output of z = f (x, y) is represented on our axes by the point (a, b, c) which is a vertical
distance c above the point (a, b, 0) in the (x, y)-plane.
z
c
(a, b, c)
a x
O
b (a, b, 0)
y
Figure 5.1: Representing the point (a, b, c) using the x, y and z-axes in R3 .
172
5.2. Surfaces
x y
x y
5
x y
Of course, it would be difficult for us to sketch such surfaces by hand and, indeed, it is
hard enough to even contemplate how and why they look like they do without a
computer. But, as we shall soon see, it is possible to get some feel for what these
surfaces look like by thinking about how we can represent them in a two-dimensional
way. However, before we do that, let’s take a moment to look at some far simpler
surfaces than the ones in Figure 5.2, namely those that can arise from linear functions
of two variables, as these turn out to be planes.
5.2.1 Planes
The simplest kind of two-variable function is one which is linear in x and y, i.e. where
z = f (x, y) = ax + by,
for some constants a and b. Such functions represent planes and, generally speaking,
any surface which has an equation of the form
ax + by + cz = d,
where at least one of the constants a, b and c is non-zero will represent a plane. For
what follows, the important kinds of plane are, basically, those that fall into the
following categories:
The (x, y), (y, z) and (x, z)-planes which have equations z = 0, x = 0 and y = 0
respectively. (These are the planes in the middle of the three planes illustrated in
Figures 5.3(a), (b) and (c) respectively.)
173
5. Functions of several variables
Planes parallel to the (x, y), (y, z) and (x, z)-planes which, for some constant c, will
have equations z = c, x = c and y = c respectively. (These are the other planes
illustrated in Figures 5.3(a), (b) and (c) respectively.)
z
z z
x x y
y
y
x
Figure 5.3: Planes parallel to the (x, y), (y, z) and (x, z)-planes: (a) From bottom, z =
−10, 0, 10; (b) From left x = −10, 0, 10 and (c) From right y = −10, 0, 10. (Note, in
particular, how the axes are labelled in these pictures.)
Planes which don’t fall into either of the above categories, i.e. those with equations of
the form
ax + by + cz = d,
for some constants a, b, c and d (where at least two of the constants a, b and c are
non-zero) will not overly concern us here.
Although curve sketching (which is sketching the graph of a function of one variable) is
important in this course, you will not be asked to sketch surfaces (such as the ones
illustrated above in Figure 5.2) for functions of two variables. However, there are useful
ways of visualising such surfaces which do not involve sketching it in three dimensions.
One of these is to use planes, such as the ones we saw in Figure 5.3, to ‘carve up’ a
three-dimensional illustration of a surface into two-dimensional representations in terms
of contours and sections. In particular, these ideas may be familiar to you from your
experiences with maps (for contours) and other technical diagrams (for sections).
One way of visualising a surface is to look at its contours, which are the curves of
intersection that arise when we look at the points of intersection of a surface with
planes that are parallel to the (x, y)-plane. To find the contours, we take a plane
parallel to the (x, y)-plane, say the plane z = c, and find the curve of intersection
between it and the surface z = f (x, y), i.e. the curve with equation c = f (x, y). This
curve is the z = c contour, i.e. the set of points (x, y) which give z = c when we put
them into the equation z = f (x, y).
174
5.2. Surfaces
2 = x − y + 4.
Rearranging this gives the equation y = x + 2 which is the equation of a straight line.
8 8 3
2
6 6
1
z
z
4
4 0
−5 −4 −3 −2 −1 0 1 2 3 4 5
2 x −1
2
−2
0 5.0
0 2.5 y
5.0 −5.0 0.0
2.5 −2.5 0.0 −2.5 −3
−5.0 0.0 2.5 5.0−5.0
−2.5 0.0 −2.5 y
2.5 x
5.0−5.0 y
x −4
−5
Figure 5.4: For Example 5.1. (a) The surface z = x − y + 4 and, from the bottom, the
planes z = 2, 4, 6. (b) The curves of intersection of the surface and the planes in (a)
with their corresponding values of z. (c) The contours: Each line represents a contour
(i.e. the points with coordinates (x, y) that map to a particular value of z) — in this
case, the further to the right the line is, the larger the corresponding value of z is, as we
have z = 2, 4, 6 as we move from left to right. Notice that, here, the contours are parallel
straight lines (i.e. they have the same gradient but different y-intercepts).
Activity 5.1 Find the equations of the z = −10, z = 0 and z = 10 contours of the
surface z = 4x + 2y − 2 and sketch these in the (x, y)-plane clearly labelling the
value of z which is associated with each contour.
Example 5.2 Find the z = 16 contour of the surface z = x2 + y 2 . What are the
z = c contours of the surface z = x2 + y 2 when (i) c > 0, (ii) c = 0 and (iii) c < 0?
175
5. Functions of several variables
x2 + y 2 = 16.
This is the equation of a circle, centred on the origin, with a radius of four.
To find the z = c contours in the three cases indicated we just need to find out what
the curve
x2 + y 2 = c,
looks like in the three cases. So, we have:
√
If c > 0, the contour is a circle, centred on the origin, with a radius of c.
If c = 0, the contour is the point (0, 0) as this is the only solution to the
5 equation x2 + y 2 = 0.
4
70
3
60
2
50 70
60 1
40
50
0
30
40 −5 −4 −3 −2 −1 0 1 2 3 4 5
z
x −1
20 30
20 −2
10
−5.0 10 y
−2.5 −5.0 −3
0 0.0 y −2.5
0 0.0 y
2.5 2.5
5.0 2.5 5.0 5.0 2.5 5.0
0.0 0.0 −2.5
−4
−2.5 −5.0
−5.0 x
x
−5
Figure 5.5: For Example 5.2. (a) The surface z = x2 + y 2 , which we saw in Figure 5.2(a),
and the planes z = 4, 16, 25. (b) The curves of intersection of the surface and the planes
in (a) with their corresponding values of z. (c) The contours: Each circle represents a
contour (i.e. the points with coordinates (x, y) that map to a particular value of z) — in
this case, the larger the radius of the contour, the larger the corresponding value of z as
we have z = 4, 16, 25. Notice that, here, the contours are concentric circles (i.e. they have
the same centre but different radii).
Activity 5.2 Find the z = −25 contour of the surface z = −x2 − y 2 . What are the
z = c contours of this surface when (i) c > 0, (ii) c = 0 and (iii) c < 0?
176
5.2. Surfaces
Another way of visualising a surface is to look at its sections, which are the curves of
intersection that arise when we look at the points of intersection of a surface with
planes that are perpendicular to the (x, y)-plane. To find the sections, we take a plane
perpendicular to the (x, y)-plane and find the curve of intersection between it and the
surface z = f (x, y). In particular, in this course, we shall only need to consider sections
that arise from planes that are parallel to the (x, z)-plane (i.e. y = c for some constant
c) or parallel to the (y, z)-plane (i.e. x = c for some constant c).
As such, the easiest sections to sketch are the ones we get when we consider the (x, z)
and (y, z)-planes which are both perpendicular to the (x, y)-plane. In particular, we find
that the section which we get from the:
(x, z)-plane, which has the equation y = 0, is the curve of intersection between it
and the surface z = f (x, y), i.e. the curve with equation z = f (x, 0). 5
(y, z)-plane, which has the equation x = 0, is the curve of intersection between it
and the surface z = f (x, y), i.e. the curve with equation z = f (0, y).
Let’s look at what these sections look like in the case of the two surfaces we considered
above when we were looking for contours.
Example 5.3 Find the (x, z) and (y, z)-sections of the surface z = x − y + 4.
For the (x, z)-section, we have y = 0 and so the curve of intersection is given by
z = x + 4 and this is a straight line in the (x, z)-plane.
For the (y, z)-section, we have x = 0 and so the curve of intersection is given by
z = −y + 4 and this is a straight line in the (y, z)-plane.
The surface and these sections are illustrated in Figure 5.6.
Activity 5.3 Find the (x, z) and (y, z)-sections of the surface z = 4x + 2y − 2 and
sketch these in the appropriate planes.
Example 5.4 Find the (x, z) and (y, z)-sections of the surface z = x2 + y 2 .
For the (x, z)-section, we have y = 0 and so the curve of intersection is given by
z = x2 and this is a parabola in the (x, z)-plane.
For the (y, z)-section, we have x = 0 and so the curve of intersection is given by
z = y 2 and this is a parabola in the (y, z)-plane.
The surface and these sections are illustrated in Figure 5.7.
177
5. Functions of several variables
8.0 8.0
7.2 7.2
6.4 6.4
5.6 5.6
4.8 4.8
8
z 4.0 z 4.0
6
3.2 3.2
z
4 2.4 2.4
Figure 5.6: For Example 5.3. (a) The surface z = x − y + 4 and the planes x = 0 (which
goes diagonally from bottom left to top right) and y = 0 (which goes diagonally from top
left to bottom right). (b) The (x, z)-section is the line z = x + 4. (c) The (y, z)-section is
5 the line z = −y + 4.
8.0 8.0
7.2 7.2
6.4 6.4
5.6 5.6
4.8 4.8
8
z 4.0 z 4.0
6 3.2 3.2
z 2.4 2.4
4
1.6 1.6
4
2
2 0.8 0.8
0 0
y 0.0 0.0
−4
−2 −2 −5 −4 −3 −2 −1 0 1 2 3 4 5 −5 −4 −3 −2 −1 0 1 2 3 4 5
0 x y
2 −4
x
4
Figure 5.7: For Example 5.4. (a) The surface z = x2 + y 2 and the planes x = 0 (which
goes diagonally from bottom left to top right) and y = 0 (which goes diagonally from top
left to bottom right). (b) The (x, z)-section is the parabola z = x2 . (c) The (y, z)-section
is the parabola z = y 2 .
Activity 5.4 Find the (x, z) and (y, z)-sections of the surface z = −x2 − y 2 and
sketch these in the appropriate planes.
More generally, we may want to look at the sections we get when we consider planes
that are parallel to the (x, z) and (y, z)-planes which we considered above. In
particular, we find that the sections we get from the planes that are parallel to the:
(x, z)-plane, which have equations of the form y = c where c is a constant, are the
curves of intersection between it and the surface z = f (x, y), i.e. the curve with
equation z = f (x, c).
(y, z)-plane, which have equations of the form x = c where c is a constant, are the
curves of intersection between it and the surface z = f (x, y), i.e. the curve with
equation z = f (c, y).
178
5.2. Surfaces
Let’s see what these sections look like in the case of the two surfaces we considered
above.
6
8
6 z
4
z
4
2
2 4
2
0 x
0
−2 0
5 4 −4 −3 −2 −1 0 1 2 3
3 2 1 0 −1 x
y
(a) (b)
Figure 5.8: For Example 5.5. (a) The surface z = x − y + 4 and the planes y = 0, y = 2
and y = 4 as we move from right to left. (b) The y = 0, y = 2 and y = 4 sections (as
we move from top to bottom) all drawn in the (x, z)-plane. Note that, the y = 0 section
is the (x, z)-section and, of the three sections illustrated, this is the only one that really
‘lives’ in the (x, z)-plane. Also notice that, as the value of c increases when we look at
the plane y = c, the value of the z-intercept decreases when we look at the section.
179
5. Functions of several variables
Find the y = −2, 0, 2 sections of this surface and sketch them in the (x, z)-plane.
Find the x = −2, 0, 2 sections of this surface and sketch them in the (y, z)-plane.
6
z
4
z
4
2
2
4
2
0
0 0 y
−4 −2 0 2 4
−2
−3 y
−2 −1 −4
0 1 2 3
x
(a) (b)
Figure 5.9: For Example 5.6. (a) The surface z = x2 + y 2 and the planes x = 0, x = 1 and
x = 2 as we move from left to right. (b) The x = 0, x = 1 and x = 2 sections all drawn
in the (y, z)-plane. Note that, the x = 0 section is the (y, z)-section and, of the three
sections illustrated, this is the only one that really ‘lives’ in the (y, z)-plane. Notice that,
as the value of c increases when we look at the plane x = c, the value of the z-intercept
increases when we look at the section.
180
5.3. Partial differentiation
and what did we call it? Of these three sections, which is the only one that really
‘lives’ in the (x, z)-plane?
Find the y = 0, 1, 2 sections of this surface and sketch them in the (x, z)-plane.
Find the x = 0, 1, 2 sections of this surface and sketch them in the (y, z)-plane.
181
5. Functions of several variables
function of x and y. This function of x and y is what is denoted by the symbols in (5.1).
But, what does this partial derivative mean? In effect, what we have done when we
consider the function f (x, y) for some fixed value of y, say y0 , is to look at the section of
the curve z = f (x, y) we get when y = y0 , i.e. the section given by the equation
z = f (x, y0 ) which lies in a plane that has y = y0 and is parallel to the (x, z)-plane.
Then, when we differentiate f (x, y0 ) with respect to x, we are finding the gradient of
this section, i.e. it tells us how z = f (x, y0 ) is varying with x. Consequently, this partial
derivative is telling us something about the gradient of the surface when we are at the
point (x, y0 ) and we are ‘looking’ in the x-direction.
Activity 5.9 Describe what the partial derivative of f (x, y) with respect to y
evaluated at the point (x0 , y) tells us about the gradient of the surface at the point
(x0 , y).
Example 5.7 Given that f (x, y) = x2 y + 5xy 3 + y 2 , find fx (x, y) and fy (x, y).
Let’s do this ‘slowly’ so that we get the idea. To find fx (x, y), we treat y as if it were
a constant and let’s say that this constant is c. So, we have a function of one
variable given by
g(x) = f (x, c) = cx2 + 5c3 x + c2 ,
and differentiating this with respect to x gives
dg
= 2cx + 5c3 .
dx
But, c is the constant we’re using to represent y and so replacing all the ‘c’s with ‘y’s
we have
∂f
= 2xy + 5y 3 ,
∂x
which is the partial derivative of f (x, y) with respect to x.
Similarly, to find fy (x, y), we treat x as if it were a constant and (again) let’s say
that this constant is c. So, we have a function of one variable given by
182
5.3. Partial differentiation
But, c is the constant we’re using to represent x and so replacing all the ‘c’s with
‘x’s we have
∂f
= x2 + 15xy 2 + 2y,
∂y
which is the partial derivative of f (x, y) with respect to y.
Obviously, there is no need to go through all this detail whenever we calculate a partial
derivative — all you have to do is remember what you are keeping constant and then
differentiate whatever is left. Let’s look at another example.
Example 5.8 Given that f (x, y) = 3x3 + 7xy −1 + 2y 9 , find fx (x, y) and fy (x, y).
Let’s do this ‘quickly’. To find fx (x, y), we treat y as a constant and differentiate
with respect to x to get
∂f
5
= 9x2 + 7y −1 .
∂x
Similarly, to find fy (x, y), we treat x as a constant and differentiate with respect to y
to get
∂f
= −7xy −2 + 18y 8 .
∂y
And, we’re done!
x y3
f (x, y) = 2x + x3 y − + ,
y 2
So far, we have calculated the partial derivatives of very simple functions of x and y.
But, sometimes, we will need to use the chain, product and quotient rules when
calculating partial derivatives. Let’s look at an example to see how this is done.
183
5. Functions of several variables
2
To find fy (x, y), we treat x ex as a constant and we differentiate the function ey
2
using the chain rule to get 2y ey . This gives us
∂f 2 2
= x ex (2y ey ) = 2xy ex+y .
∂y
p
Activity 5.11 Given that f (x, y) = x2 + y 2 , find fx (x, y) and fy (x, y).
Example 5.10 Given that we have the production function q(k, l) = kl where k
and l are functions of time, t, given by
And, in particular, we can now differentiate this to find the rate of change of
production with time, i.e. we have
dQ
= 11 − 12t,
dt
in this case.
More generally, suppose we are given a function f of two variables x and y, both of
which are themselves functions of t. We can think of this as defining a composite
function F (t) = f (x(t), y(t)). In the case of a single variable we have a rule, i.e. the
chain rule, which enables us to work out the derivative of a composite function.
Amazingly, perhaps, there is a similar rule for composite functions of two variables such
as the one we have here which is also known as the chain rule. It states that
dF ∂f dx ∂f dy
= + . (5.3)
dt ∂x dt ∂y dt
4
Notice that, since k and l both depend on t, we can only pick certain pairs of values, (k, l). That is,
in this case, the variables k and l are not independent.
184
5.3. Partial differentiation
Sometimes, in this context, we call F 0 (t) the total derivative of F (t) with respect to t
(in order to distinguish it from the partial derivatives of f with respect to x and y).
To see why the chain rule works, consider that if we change t by a small amount, ∆t,
the corresponding change in F (t) is given by
dF
∆F ' ∆t,
dt
but here, there are two ways in which F (t) = f (x(t), y(t)) can change with t.
Firstly, F can change with t because f changes with x and x changes with t, let’s
denote this change in F by ∆x F . In this case, we have
∂f
∆x F ' ∆x,
∂x
as we are holding y constant to see how F changes with x and this means that
∆x F '
∂f dx
∆t,
5
∂x dt
as the change in x, ∆x, is related to a change in t by ∆x ' x0 (t)∆t.
Secondly, F can change with t because f changes with y and y changes with t, let’s
denote this change in F by ∆y F . In this case, we have
∂f
∆y F ' ∆y,
∂y
as we are holding x constant to see how F changes with y and this means that
∂f dy
∆y F ' ∆t,
∂y dt
as the change in y, ∆y, is related to a change in t by ∆y ' y 0 (t)∆t.
Thus, as the total change in F due to these two changes is given by
∂f dx ∂f dy
∆F = ∆x F + ∆y F ' ∆t + ∆t,
∂x dt ∂y dt
we can now equate our two expressions for ∆F and divide through by ∆t to get the
chain rule which we saw above in (5.3). Let’s see how we could have used it to answer
the question we saw in Example 5.10.
Example 5.11 Consider the functions in Example 5.10. Use the chain rule to find
the rate of change of production with time.
Here q(k, l) = kl, k(t) = 3 + 2t and l(t) = 10 − 3t. In this case, if we again let
Q(t) = q(k(t), l(t)), the chain rule states that
dQ ∂q dk ∂q dl
= + .
dt ∂k dt ∂l dt
As such, using this, we can see that
dQ
= (l)(2) + (k)(−3) = 2(10 − 3t) − 3(3 + 2t) = 11 − 12t,
dt
which agrees with our earlier answer.
185
5. Functions of several variables
Activity 5.12 Suppose that f (x, y) = x2 y and that x(t) = 2 + 3t and y(t) = t2 + 1.
If F (t) = f (x(t), y(t)), use the chain rule to find the total derivative of F with
respect to t and check your answer by explicitly finding F (t) and differentiating it
with respect to t.
We now consider one of the many useful applications of the chain rule.
y(x) = x2 − 7,
186
5.3. Partial differentiation
as long as gy (x, y) 6= 0, That is, y 0 (x) can easily be found by using the partial
derivatives of g. (But, don’t forget the minus sign!)
∂g ∂g
= 2x and = −1,
∂x ∂y
which means that
dy ∂g/∂x 2x
=− =− = 2x,
dx ∂g/∂y −1
as before.
5
x2 y 3 − 6x3 y 2 + 2xy = 1.
Verify that the point (x, y) = (1/2, 2) satisfies this equation and find the value of the
derivative, y 0 (x), at this point.
The point (x, y) = (1/2, 2) satisfies the equation since, putting x = 1/2 and y = 2
into the left-hand side, we get
2 3
1 3 1 2 1
(2) − 6 (2) + 2 (2) = 2 − 3 + 2 = 1,
2 2 2
which is what we have on the right-hand side of the equation. We then see that the
equation defining y implicitly as a function of x is of the form g(x, y) = 1 where
g(x, y) = x2 y 3 − 6x3 y 2 + 2xy. So, according to the formula given above, we have
dy ∂g/∂x
=− ,
dx ∂g/∂y
187
5. Functions of several variables
x2 + 2xy = 6 − 3y 3 .
Verify that the point (x, y) = (1, 1) satisfies this equation and find the value of the
derivative, y 0 (x), at this point.
What we seen above can be extended. Suppose, for instance, that g is is a function of
two variables x and y, both of which are themselves functions of two variables k and l.
We can think of this as defining a composite function G(k, l) = g(x(k, l), y(k, l)) and an
extension of the chain rule then assures us that
5 ∂G
=
∂g ∂x ∂g ∂y
+ and
∂G
=
∂g ∂x ∂g ∂y
+ .
∂k ∂x ∂k ∂y ∂k ∂l ∂x ∂l ∂y ∂l
To see why the first of these formulae works, consider that if we change k by a small
amount, ∆k, whilst holding l constant, the corresponding change in G(k, l) is given by
∂G
∆G ' ∆k,
∂k
but here, there are two ways in which G(k, l) = g(x(k, l), y(k, l)) can change with k.
Firstly, G can change with k because g changes with x and x changes with k, let’s
denote this change in G by ∆x G. In this case, we have
∂g
∆x G ' ∆x,
∂x
as we are holding y constant to see how F changes with x and this means that
∂g ∂x
∆x G ' ∆k,
∂x ∂k
as the change in x, ∆x, is related to a change in k with l held constant by
∆x ' xk (k, l)∆k.
Secondly, G can change with k because g changes with y and y changes with k,
let’s denote this change in G by ∆y G. In this case, we have
∂g
∆y G ' ∆y,
∂y
as we are holding x constant to see how F changes with y and this means that
∂g ∂y
∆y G ' ∆k,
∂y ∂k
as the change in y, ∆y, is related to a change in k with l held constant by
∆y ' yk (k, l)∆k.
188
5.3. Partial differentiation
Activity 5.14 Use a similar argument to the one above to explain why the chain
rule formula for Gl (k, l) works.
Activity 5.15 Use a similar argument to the one above to explain why the formula
for zy (x, y) works.
189
5. Functions of several variables
Example 5.15 Show that the function f (x, y) = x1/2 y 1/2 is homogeneous of degree
one.
f (λx, λy) = (λx)1/2 (λy)1/2 = (λ1/2 x1/2 )(λ1/2 y 1/2 ) = λ1 x1/2 y 1/2 = λ1 f (x, y).
√ √
Example 5.16 Show that the function f (x, y) = x+ y is homogeneous. What
is its degree of homogeneity?
we see that r = 1/2 and so this function is homogeneous of degree one half.
190
5.3. Partial differentiation
we see that there is no way of writing λx + λ2 y 2 in the form λr (x + y 2 ) for any r and
so this function is not homogeneous.
If r > 1, we get increasing returns to scale as λ > 1 implies that λr > λ.5
If r = 1, we get constant returns to scale as we saw above.
If r < 1, we get decreasing returns to scale as λ > 1 implies that λr < λ.6
To see how this works, consider the following example.
Quadrupling the amount of capital and labour invested means increasing the
investment bundle from (k, l) to (4k, 4l). So, if the production function is
homogeneous of degree r, the production level will go from q(k, l) to
q(4k, 4l) = 4r q(k, l), i.e. the production level will change by a factor of 4r . In
particular, this means that if the production function is homogeneous of degree
(a) 1/2, the change will be by a factor of 41/2 = 2 (i.e. quadrupling inputs doubles
production),
5
That is, a proportional increase in inputs leads to a larger proportional increase in output.
6
That is, a proportional increase in inputs leads to a smaller proportional increase in output.
191
5. Functions of several variables
(c) 3/2 the change will be by a factor of 43/2 = 8, (i.e. quadrupling inputs octuples
production),
yielding decreasing, constant and increasing returns to scale respectively.
Example 5.19 In Example 5.15, we saw that the function f (x, y) = x1/2 y 1/2 is
homogeneous of degree one. Verify that Euler’s theorem holds for this function.
and since the degree of homogeneity of this function is one, we have f (x, y) on the
right-hand-side of Euler’s theorem. Thus, as these two expressions are the same,
Euler’s theorem holds.
192
5.3. Partial differentiation
√ √
Example 5.20 In Example 5.16, we saw that the function f (x, y) = x + y is
homogeneous of degree 1/2. Verify that Euler’s theorem holds for this function.
In this case we can see that f (x, y) can be written as f (x, y) = x1/2 + y 1/2 and so,
∂f 1 ∂f 1
= x−1/2 and = y −1/2 .
∂x 2 ∂y 2
As such, we can see that the left-hand-side of Euler’s theorem gives us
∂f ∂f 1 −1/2 1 −1/2 1 1 1 1/2 1
x +y =x x +y y = x1/2 + y 1/2 = x + y 1/2 = f (x, y),
∂x ∂y 2 2 2 2 2 2
and since the degree of homogeneity of this function is a half, we have 21 f (x, y) on
the right-hand-side of Euler’s theorem. Thus, as these two expressions are the same,
Euler’s theorem holds. 5
We now turn to the economic significance of Euler’s theorem. Consider a firm that
invests an amount of capital, k, and labour, l, in its production process and this yields a
production level of q(k, l). Further, assume that this production function is
homogeneous of degree one, i.e. that we have constant returns to scale. Euler’s theorem
then asserts that
∂q ∂q
k +l = q.
∂k ∂l
Now, ql gives us the marginal product of labour, i.e. it measures the change in
production if we change the amount of labour. In particular, if we invest one more unit
of labour, say by employing one more worker, ql tells us the resulting change in
production.7 As such, it makes sense to say that this extra worker is responsible for this
change in production and so, if we assume that we reward workers by giving them
goods equal to the quantity they produce, it makes sense to reward this worker with a
quantity of goods given by ql . Thus, if all workers produce the same amount, i.e. ql , and
there are l (i.e. the amount of labour invested) workers, it makes sense that they should
all be rewarded with a quantity of goods equal to ql . As such, the quantity lql represents
the total quantity of goods that should be given as rewards to the workers (i.e. the
labour). A similar argument applies to the quantity kqk , i.e. this should be the total
quantity of goods that should be given as rewards to the providers of the capital.
Consequently, Euler’s theorem tells us that these rewards should add up to the total
quantity of goods produced, i.e. all the goods being produced should be distributed
amongst the suppliers of capital and the providers of labour. In summary, this says:
7
But, strictly, this is only approximate since if ∆q is the change in production and ∆l is the change
in labour, the relationship
∂q ∆q ∂q
' or ∆q ' ∆l,
∂l ∆l ∂l
is only an approximation. As such, taking on one more worker (i.e. changing the amount of labour by
one) gives ∆l = 1 and hence the change in production, ∆q, is given [approximately] by ∆q = ql . However,
the argument given in these notes can be made precise if we consider the change in production due to
an ‘arbitrarily small’ change in the amount of labour instead of, say, the intuitively more obvious change
of ‘one worker’.
193
5. Functions of several variables
respectively. In this course, we will find that the order of partial differentiation in the
mixed second-order partial derivatives is unimportant since we will always have
fxy = fyx . In particular, this fact can serve as a useful ‘check’ when we are working out
second-order partial derivatives.
f (x, y) = x2 y + 5xy 3 + y 2 ,
were given by
194
5.3. Partial differentiation
were given by
And, of course, when finding second-order partial derivatives we may need to use the
chain, product and quotient rules.
were given by
2 2
fx (x, y) = (x + 1) ex+y and fy (x, y) = 2xy ex+y .
To find the second-order derivatives that arise from fx (x, y), we first note that we
can write it as
∂f 2
= [(x + 1) ex ] ey .
∂x
2
So, to find fxx (x, y), we treat ey as a constant and we differentiate the function
(x + 1) ex using the product rule to get (x + 1) ex +1 ex . This gives us
∂ 2f 2 2
2
= ey [(x + 1) ex + ex ] = (x + 2) ex+y .
∂x
195
5. Functions of several variables
To find fxy (x, y), we treat (x + 1) ex as a constant and we differentiate the function
2 2
ey using the chain rule to get 2y ey . This gives us
∂ 2f 2 2
= (x + 1) ex (2y ey ) = 2(x + 1)y ex+y .
∂y∂x
To find the second-order derivatives that arise from fy (x, y), we first note that we
can write it as
∂f 2
= 2(x ex )(y ey ).
∂y
2
So, to find fyx (x, y), we treat 2y ey as a constant and we differentiate the function
x ex using the product rule to get x ex +1 ex . This gives us
∂ 2f 2 2
= 2y ey (x ex + ex ) = 2(x + 1)y ex+y .
∂x∂y
5
2
To find fyy (x, y), we treat 2x ex as a constant and we differentiate the function y ey
2 2
using the chain and product rules to get y(2y ey ) + ey . This gives us
∂ 2f 2 2 2
2
= 2x ex (2y 2 ey + ey ) = 2x(2y 2 + 1) ex+y .
∂y
Notice that fxy = fyx as we should expect in this course.
Learning outcomes
At the end of this chapter and having completed the relevant reading and activities, you
should be able to:
Solutions to activities
Solution to activity 5.1
196
5.3. Solutions to activities
To find the contours of the surface z = 4x + 2y − 2 when we have the given values of z,
we note that:
5
z
=
10
y
z
=
6
0
z
=
−
10
1
−2 O 1 3 x
2
−4
This is the equation of a circle, centred on the origin, with a radius of five.
To find the z = c contours in the three cases indicated we just need to find out what the
curve
−x2 − y 2 = c =⇒ x2 + y 2 = −c,
looks like in the three cases. So, we have:
If c > 0, there are no contours as we have −c < 0 and we know that x2 + y 2 ≥ 0 for
all values of x and y.
If c = 0, the contour is the point (0, 0) as this is the only solution to the equation
x2 + y 2 = 0.
197
5. Functions of several variables
√
If c < 0, the contour is a circle, centred on the origin, with a radius of −c as we
have −c > 0.
In particular, notice that z = 0 is the smallest value of z that arises from a point on this
surface.
For the (x, z)-section, we have y = 0 and so the curve of intersection is given by
z = 4x − 2 and this is a straight line in the (x, z)-plane.
For the (y, z)-section, we have x = 0 and so the curve of intersection is given by
z = 2y − 2 and this is a straight line in the (y, z)-plane.
5 These sections are illustrated in Figure 5.11.
z z
z = 4x − 2 z = 2y − 2
O 1 O
2
x 1 y
−2 −2
(a) (b)
Figure 5.11: A sketch of the (a) (x, z)-section and (b) the (y, z)-section of the surface
z = 4x + 2y − 2 for Activity 5.3.
For the (x, z)-section, we have y = 0 and so the curve of intersection is given by
z = −x2 and this is a parabola in the (x, z)-plane.
For the (y, z)-section, we have x = 0 and so the curve of intersection is given by
z = −y 2 and this is a parabola in the (y, z)-plane.
These sections are illustrated in Figure 5.12.
198
5.3. Solutions to activities
z z
O O
x y
z= −x2 z= −y 2
(a) (b)
Figure 5.12: A sketch of (a) the (x, z)-section and (b) the (y, z)-section of the surface
z = −x2 − y 2 for Activity 5.4.
z
8
6
4
x = 0
= 2
x =
4
x
O
4 6 8 y
199
5. Functions of several variables
z z
2
2
−
y=2
y=−
y=0
6
0
x
2
x
=
x
O −3 O 1 5
− 12 12 3
2
x −2 y
−2
−10
−6
(a) (b)
Figure 5.14: A sketch of (a) the y = −2, 0, 2 sections and (b) the x = −2, 0, 2 sections of
the surface z = 4x + 2y − 2 for Activity 5.6.
200
5.3. Solutions to activities
z y=2
4
y=1
1 y=0
O
x
Figure 5.15: The y = 0, y = 1 and y = 2 sections of the surface z = x2 +y 2 for Activity 5.7.
Similarly, to find the x = 0, 1, 2 sections of the surface z = −x2 − y 2 we need to find the
curves of intersection, which in this case, are given by:
201
5. Functions of several variables
z z
O O
x y
5 −1 y=0 −1 x=0
y=1 x=1
−4 −4
y=2 x=2
(a) (b)
Figure 5.16: A sketch of (a) the y = 0, 1, 2 sections and (b) the x = 0, 1, 2 sections of the
surface z = −x2 − y 2 for Activity 5.8.
202
5.3. Solutions to activities
These are the sought after partial derivatives fx (x, y) and fy (x, y) respectively.
and we hold x constant and differentiate with respect to y using the chain rule to get
5
∂f 1 y
= (x2 + y 2 )−1/2 (2y) = p .
∂y 2 x2 + y 2
These are the sought after partial derivatives fx (x, y) and fy (x, y) respectively.
dF ∂f dx ∂f dy
= + .
dt ∂x dt ∂y dt
As such, using this, we can see that
dF
= (2xy)(3) + (x2 )(2t) = 2x(3y + xt),
dt
and so, substituting our expressions for x(t) and y(t), we get
dF
= 2(2 + 3t)[3(t2 + 1) + (2 + 3t)t] = 2(2 + 3t)(6t2 + 2t + 3).
dt
To check this, we note that
203
5. Functions of several variables
x2 + 2xy + 3y 3 = 6,
and so this point does indeed satisfy the equation. To find its derivative at this point we
note that we have g(x, y) = c where
∂G
∆G ' ∆l,
∂l
but here, there are two ways in which G(k, l) = g(x(k, l), y(k, l)) can change with l.
Firstly, G can change with l because g changes with x and x changes with l, let’s
denote this change in G by ∆x G. In this case, we have
∂g
∆x G ' ∆x,
∂x
as we are holding y constant to see how F changes with x and this means that
∂g ∂x
∆x G ' ∆l,
∂x ∂l
as the change in x, ∆x, is related to a change in l with k held constant by
∆x ' xl (k, l)∆l.
204
5.3. Solutions to activities
Secondly, G can change with l because g changes with y and y changes with l, let’s
denote this change in G by ∆y G. In this case, we have
∂g
∆y G ' ∆y,
∂y
as we are holding x constant to see how F changes with y and this means that
∂g ∂y
∆y G ' ∆l,
∂y ∂l
as the change in y, ∆y, is related to a change in l with k held constant by
∆y ' yl (k, l)∆l.
Thus, as the total change in F due to these two changes is given by
∂g ∂x ∂g ∂y
∆G = ∆x G + ∆y G ' ∆l + ∆l,
∂x ∂l ∂y ∂l 5
we can now equate our two expressions for ∆G and divide through by ∆l to get the
chain rule for Gl (k, l) which we wanted.
q 3 k + k 3 l + qk 2 l = 3,
and we want to find its partial derivatives with respect to k and l. To do this, we
rewrite the equation as g(q, k, l) = c so that we have, say,
g(q, k, l) = q 3 k + k 3 l + qk 2 l and c = 3,
205
5. Functions of several variables
Now, to evaluate these partial derivatives at the point where (k, l) = (1, 1), we need to
find the corresponding value of q. This can be done by noting that, when we have k = 1
and l = 1, the equation becomes
q 3 + q − 2 = 0,
5 and, using the hint, we see that this equation can be written as
(q − 1)(q 2 + q + 2) = 0.
Indeed, since 2
2 1 7
q +q+2= q+ + > 0,
2 4
for all q ∈ R, we see that q = 1 is the only solution to this equation. Thus, the point we
are interested in has coordinates (k, l, q) = (1, 1, 1) and, at this point, we have
∂q 1+3+2 6 3 ∂q 1+1 2 1
=− =− =− and =− =− =− ,
∂k 3+1 4 2 ∂l 3+1 4 2
as the values of the partial derivatives at this point.
206
5.3. Solutions to activities
and partially differentiating fx (x, y) with respect to y using the chain rule we get
1 2 2 −3/2 xy
fxy (x, y) = x − (x + y ) (2y) = − 2 .
2 (x + y 2 )3/2
Similarly, partially differentiating fy (x, y) with respect to x using the chain rule we get
1 2 2 −3/2 xy
fyx (x, y) = y − (x + y ) (2x) = − 2 .
2 (x + y 2 )3/2
and partially differentiating fy (x, y) with respect to y using the product and chain rules
we get
2 2 −1/2 1 2 2 −3/2 (x2 + y 2 ) − y 2 x2
fyy (x, y) = (1)(x + y ) + (y) − (x + y ) (2y) = = .
2 (x2 + y 2 )3/2 (x2 + y 2 )3/2
Notice that fxy = fyx as we should expect in this course.
207
5. Functions of several variables
Exercises
Exercise 5.1
Find the first and second-order partial derivatives of the function
where a is a constant.
∂ 2f 2
2∂ f
x2 − 2y − 18f (x, y) + 36xy = 0,
∂x2 ∂y 2
x2α + y β
f (x, y) = .
x2 + y γ
If f is homogeneous of degree four, find the values of α, β and γ. Having found these
values, verify that the function satisfies Euler’s theorem.
Exercise 5.3
Suppose that R(p, q) = eq+p and that p is a positive function of q defined implicitly by
the equation
q 2 p + p2 q + qp = 3.
Given that r(q) = R(q, p(q)), use the chain rule to find its derivative, r0 (q), when q = 1.
Solutions to exercises
Solution to exercise 5.1
Given that f (x, y) = 2xy + x2a y a where a is a constant, its first and second-order partial
derivatives are given by
∂f ∂ 2f ∂ 2f
= 2y +2ax2a−1 y a =⇒ = 2a(2a−1)x2a−2 y a and = 2+2a2 x2a−1 y a−1 ,
∂x ∂x2 ∂y∂x
and
∂f ∂ 2f ∂ 2f
= 2x + ax2a y a−1 =⇒ 2
= a(a − 1)x2a y a−2 and = 2 + 2a2 x2a−1 y a−1 .
∂y ∂y ∂x∂y
Observe, in particular, that fxy (x, y) = fyx (x, y) as we should expect in this course.
208
5.3. Solutions to exercises
2(a2 − 9)x2a y a = 0.
5
Consequently, as x, y ∈ R, we must have a2 = 9 which means that a = ±3 are the
possible values of a if f has to satisfy the given equation.
209
5. Functions of several variables
To verify that Euler’s theorem holds for this function, we need to show that
∂f ∂f
x +y = 4f (x, y).
∂x ∂y
To do this, we use the quotient rule to see that
as required.
dr ∂R dq ∂R dp ∂R ∂R dp
= + = + ,
dq ∂q dq ∂p dq ∂q ∂p dq
Now we need to calculate p0 (q) given that p = p(q) is defined through the equation
q 2 p + p2 q + qp = 3.
G(q, p) = q 2 p + p2 q + qp,
so that the given equation is now G(q, p) = 3. With this, we then have
dp ∂G ∂G
=− ,
dq ∂q ∂p
where
∂G ∂G
= 2qp + p2 + p and = q 2 + 2pq + q,
∂q ∂p
210
5.3. Solutions to exercises
which gives us
dp 2qp + p2 + p
=− 2 ,
dq q + 2pq + q
provided that q 2 + 2pq + q 6= 0.
and we need to evaluate this at the point where q = 1. In particular, we now need to
find the value of p that corresponds to q = 1 if p = p(q) is the positive function of q
defined implicitly by the equation
q 2 p + p2 q + qp = 3.
5
That is, if we set q = 1 in this equation we get
p + p2 + p = 3 =⇒ p2 + 2p − 3 = 0 =⇒ (p + 3)(p − 1) = 0,
i.e. the possible values of p are −3 and 1. But, we are told that p is a positive function
of q and so we reject p = −3 and take the point where q = 1 and p = 1 to be the one we
are interested in. Then, at this point, we find that
dp 2+1+1 dr
=− = −1 =⇒ = e1+1 (1 + [−1]) = 0,
dq 1+2+1 dq
211
5. Functions of several variables
212