Econ 605 - Multivariate Calculus

Addis Ababa University
College of Business and

Economics
Econ 605: Mathematics for
Economists
2020/21 AY
Tewodros Negash Kahsay (PhD)
2. Multivariable Calculus
2.1 Convex sets
Geometric definition
A convex set is a collection of points having the following
property
– If 𝑥 and 𝑦 are any points in set 𝑆, the entire line
segment connecting 𝑥 and 𝑦 is also in 𝑆.
– This is the necessary and sufficient condition for
convexity of the set 𝑆
• Examples
(𝒄) (𝒅)
(𝒂) (𝒃)
Tewodros Negash (PhD), Addis Ababa
2
University, Department of Economics
• Figures (𝑎) and (𝑏) are a convex set.
– A line joining any two boundary or interior points in
these figures lies entirely within the figures.
– The figures pull all the points within them
• Figures (𝑐) and (𝑑) are nonconvex sets
• Solid figures (circles, triangles …) containing no holes
and with boundaries not indented anywhere qualify as a
convex set.
• A straight line satisfies this definition
• By convention, a set consisting of a single point and the
null set ( with no point at all) are considered as a convex
set
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Algebraic definition
• When point sets in a space of higher dimensions (4 –
space or higher) are considered, the geometric
interpretation becomes less obvious
• We need algebraic definition of convex sets
– A set 𝑺 is convex iff, for any two points 𝑥0 ∈ 𝑆 and
𝑥1 ∈ 𝑆 and for every scalar 𝜆 ∈ 0,1 ,
𝑥ҧ = 𝜆𝑥0 + (1 − 𝜆)𝑥1 ∈ 𝑆
– Linear combinations of 𝑥0 and 𝑥1 are also in 𝑆
Example
• Show the convexity of the set 𝑥, 𝑦 : 𝑥 2 + 𝑦 2 − 1 ≤ 0
→ 𝑥 2 +𝑦 2 ≤ 1
4
Solution: Plot the constraint as an equality
• The graph represents a circle of radius 1 centered at
0,0 . Points inside or on the circle are in 𝑆.
𝒚
𝒙
𝑿
𝑺
𝑥2 + 𝑦2 = 1
• For any two points inside the circle, the line segment
between them is also inside the circle
• Therefore, 𝑆 is a convex set
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2.2 Concave and convex functions
• Recall a function of one variable 𝑦 = 𝑓(𝑥) is concave on an
interval 𝐈 if 𝑓’’(𝑥) ≤ 0 and convex if 𝑓’’(𝑥) ≥ 0
• Replacing the weak inequalities with strict inequalities yields
strictly concave and strictly convex function
(𝒂) (𝒃) (𝒄) (𝒅)

𝒇’(𝒙) > 𝟎 𝒇’(𝒙) > 𝟎 𝒇’(𝒙) < 𝟎 𝒇’(𝒙) < 𝟎
𝒇’’(𝒙) > 𝟎 𝒇’’(𝒙) < 𝟎 𝒇’’(𝒙) > 𝟎 𝒇’’(𝒙 < 𝟎
→ 𝒊𝒏𝒄𝒓𝒆𝒂𝒔𝒊𝒏𝒈 → 𝒊𝒏𝒄𝒓𝒆𝒂𝒔𝒊𝒏𝒈 → 𝒅𝒆𝒄𝒓𝒆𝒂𝒔𝒊𝒏𝒈 → 𝒅𝒆𝒄𝒓𝒆𝒂𝒔𝒊𝒏𝒈
𝒄𝒐𝒏𝒗𝒆𝒙 𝒄𝒐𝒏𝒄𝒂𝒗𝒆 𝒄𝒐𝒏𝒗𝒆𝒙 𝒄𝒐𝒏𝒄𝒂𝒗𝒆
• A straight line is both concave and convex but not strictly so
because 𝑓’’(𝑥) = 0 for a straight line
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𝒇(𝒙)
𝒇(𝒙)
𝒙𝟎 𝑥ҧ 𝒙𝟏 𝒙
𝒙𝟎 𝑥ҧ 𝒙𝟏
(𝒂)
(𝒃)
• We need a definition that is valid for a function of 𝑛
variables that may not even be differentiable. Here is one.
– The function 𝑓 is called concave (convex) if it is defined
on a convex set and the line segment joining any two
points on the graph is never above (below) the graph.
• The definition is illustrated in the figures above
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• Algebraically, for any two points 𝑥 = 𝑥0 and
𝑥 = 𝑥1 𝑤ℎ𝑒𝑟𝑒 𝑥0 < 𝑥1, suppose 𝑥ҧ is an
intermediate point where
𝑥ҧ = 𝜆𝑥0 + (1 – 𝜆)𝑥1 ; 0 < 𝜆 < 1
a) 𝑓(𝑥) is strictly concave if 𝑓(𝑥ത ) > 𝜆𝑓(𝑥0) + (1 – 𝜆)𝑓(𝑥1)
– If 0 ≤ 𝜆 ≤ 1 and 𝑓(𝑥)ҧ ≥ 𝜆𝑓(𝑥0) + (1 – 𝜆)𝑓(𝑥1) ,
the function is simply concave.
That is, the function 𝑓(𝑥) always lies above the line joining
𝑓(𝑥0) and 𝑓(𝑥1)
b) 𝑓(𝑥) is strictly convex if 𝑓(𝑥ത ) < 𝜆𝑓(𝑥0) + (1 – 𝜆)𝑓(𝑥1)
– If 0 ≤ 𝜆 ≤ 1 and 𝑓(𝑥)ҧ ≤ 𝜆𝑓(𝑥0) + (1 – 𝜆)𝑓(𝑥1),
the function is simply concave.
That is, the function 𝑓(𝑥) always lies below the line joining
𝑓(𝑥0) and 𝑓(𝑥1)
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𝐶𝑜𝑛𝑐𝑎𝑣𝑒
• A function 𝒇 is iff, for any pair of
𝐶𝑜𝑛𝑣𝑒𝑥
• points 𝑥0 and 𝑥1 in the domain of 𝒇, and for 0 ≤ 𝜆 ≤ 1,
≤
𝜆𝑓(𝑥0) + (1 – 𝜆)𝑓(𝑥1) f 𝑥ҧ = 𝑓(𝜆 𝑥0 + (1 – 𝜆)𝑥1)
≥
height of line segment height of arc 𝒇(𝒙)

• The definition is adaptable to strict concavity and
convexity by changing the weak inequalities
≤ 𝑎𝑛𝑑 ≥ to the strict inequalities < 𝑎𝑛𝑑 >, respectively.
• The algebraic definition is applicable to a function of any
number of variables
– The points 𝑥0 𝑎𝑛𝑑 𝑥1 can be interpreted as 𝑛 – vectors
instead of 2 – vectors.
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Definition: Concave and convex functions
• A function 𝑓(𝒙) = 𝑓(𝑥1, 𝑥2, … , 𝑥𝑛) defined on a convex
set 𝑆 is concave on 𝑆 if
𝜆 𝑓(𝒙) + (1 – 𝜆)𝑓(𝒚) ≤ 𝑓(𝜆𝒙 + (1 – 𝜆)𝒚) (1)
For all 𝒙 and 𝒚 in 𝑆 and all 𝜆 in [0,1]
A function 𝑓(𝑥) is convex if (1) holds with ≤ replaced by ≥
• Note that (1) holds with equality for 𝜆 = 0 and 𝜆 = 1.
• If we have strict inequality in (1) whenever 𝑥 ≠ 𝑦 and
𝜆 𝜖 (0,1), the 𝑓(𝒙) is strictly concave.
• A function 𝒇 𝑖𝑠 𝒄𝒐𝒏𝒗𝒆𝒙 𝑜𝑛 𝑺 iff – 𝒇 𝑖𝑠 𝒄𝒐𝒏𝒄𝒂𝒗𝒆 and
𝒇 𝑖𝑠 𝒔𝒕𝒓𝒊𝒄𝒕𝒍𝒚 𝒄𝒐𝒏𝒗𝒆𝒙 iff – 𝒇 𝑖𝑠 𝒔𝒕𝒓𝒊𝒄𝒕𝒍𝒚 𝒄𝒐𝒏𝒄𝒂𝒗𝒆.
Example: consider the function 𝑓 𝑥 = 𝑥 2 and choose
𝑥0 = 2, 𝑥1 = 5 𝑎𝑛𝑑 𝜆 = 0.4. Then determine whether the
given function is concave or convex or strictly so using
definition (1) Tewodros Negash (PhD), Addis Ababa
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Derivative test for concavity and convexity
• The sign of the second order derivate is a quick way to
determine where a function of one variable is
concave/convex
• There is a corresponding test for functions of two
variables
• Given a function of two variables 𝒁 = 𝒇(𝒙𝟏, 𝒙𝟐)
(a) 𝑓 𝑖𝑠 𝑐𝑜𝑛𝑣𝑒𝑥 ⇔ 𝑓11 ≥ 0; 𝑓22 ≥ 0
𝑎𝑛𝑑 𝑓11𝑓22 – ( 𝑓12 )2 ≥ 0
(a) 𝑓 𝑖𝑠 𝑐𝑜𝑛𝑐𝑎𝑣𝑒 ⇔ 𝑓11 ≤ 0; 𝑓22 ≤ 0
𝑎𝑛𝑑 𝑓11𝑓22 – ( 𝑓12 )2 ≥ 0
(a) 𝑓11 > 0 𝑎𝑛𝑑 𝑓11𝑓22 – 𝑓12 2 > 0
⇒ 𝒇 𝑖𝑠 𝑠𝑡𝑟𝑖𝑐𝑡𝑙𝑦 𝑐𝑜𝑛𝑣𝑒𝑥
(a) 𝑓11 < 0 𝑎𝑛𝑑 𝑓11𝑓22 – 𝑓12 2 > 0
⇒ 𝒇 University,
𝑖𝑠 𝑠𝑡𝑟𝑖𝑐𝑡𝑙𝑦 𝑐𝑜𝑛𝑐𝑎𝑣𝑒
Department of Economics
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Example:
• Use derivative test to check the
concavity/convexity of
(𝑎) 𝑓(𝑥, 𝑦) = 2𝑥 – 𝑦 – 𝑥2 + 2𝑥𝑦 – 𝑦2 ;
(𝑐) 𝑓(𝑥, 𝑦) = 𝑥𝑎𝑦𝑏 defined on the set
𝑆 = (𝑥, 𝑦): 𝑥 > 0, 𝑦 > 0, 𝑎 + 𝑏 ≤ 1,
𝑎 ≥ 0 𝑎𝑛𝑑 𝑏 ≥ 0
• Find the domain on which
𝑓(𝑥, 𝑦) = 𝑥2 – 𝑦2 – 𝑥𝑦 – 𝑥3 is concave

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• Generalization to functions of n variables
Derivative test for concavity/convexity for the 𝑛 – variable case
• Given 𝑧 = 𝑓(𝑥) = 𝑓(𝑥1, 𝑥2, … , 𝑥𝑛 ). The symmetric matrix
𝑓’’(𝑥) = (𝑓𝑖𝑗(𝑥)) is called the Hessian (matrix) of 𝒇.
𝑓11 𝑓12 ⋯ 𝑓1𝑛
𝑓21 𝑓22 ⋯ 𝑓2𝑛 𝐻 has 𝐻𝑟 leading principal
• 𝐻 =
⋮ ⋮ ⋱ ⋮ minors where 𝑟 = 1, 2, ⋯ , 𝑛
𝑓𝑛1 𝑓𝑛2 ⋯ 𝑓𝑛𝑛
𝑓11 𝑓12 𝑓13
𝑓11 𝑓12
• 𝐻1 = 𝑓11 , 𝐻2 = , 𝐻3 = 𝑓21 𝑓22 𝑓23 ⋯
𝑓21 𝑓22
𝑓31 𝑓32 𝑓33
𝑓11 𝑓12 ⋯ 𝑓1𝑛
𝑓21 𝑓22 ⋯ 𝑓2𝑛
𝐻3 =
⋮ ⋮ ⋱ ⋮
𝑓𝑛1 𝑓𝑛2 ⋯ 𝑓𝑛𝑛
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• Then,
(a) 𝐻𝑟(𝒙) > 0 for all 𝒙 in 𝑺 and all 𝑟 = 1,2, … , 𝑛
⇒ 𝑓 is strictly convex on 𝑆
𝑏 (−1)𝑟 𝐻𝑟(𝒙) > 0 for all 𝒙 in 𝑺 and all 𝑟 =
1,2, … , 𝑛
⇒ 𝑓 is strictly concave on 𝑆
Convexity/concavity: necessary/sufficient conditions
Suppose that 𝑓(𝑥) = 𝑓(𝑥1, 𝑥2, … , 𝑥𝑛) and let Δ𝑟(𝒙)
denote an arbitrary principal minor of order 𝒓 in the
Hessian matrix. Then
(a) 𝒇 is convex ⇔ Δ𝑟(𝒙) ≥ 0 for all 𝒙 and
all Δ𝑟(𝒙), 𝑟 = 1, … , 𝑛
(a)𝒇 is concave ⇔ (−1)𝑟Δ𝑟(𝒙) ≥ 0 for all 𝒙 and
14
all Δ𝑟(𝒙), 𝑟 = 1, University,
… , 𝑛Department of Economics
Thus,
• The Hessian matrix is positive definite ⇒ 𝑓(𝑥) is
strictly convex
• The Hessian matrix is negative definite ⇒ 𝑓(𝑥) is
strictly concave
• 𝑓(𝑥) is convex ⇔ the Hessian is positive semidefinite
• 𝑓(𝑥) is concave ⇔ the Hessian is negative semidefinite
• Exercise: Examine the concavity and convexity of the
following functions using the Hessian
(a)𝑓(𝑥1, 𝑥2, 𝑥3) = – 𝑥12 + 6𝑥1𝑥2 − 9𝑥22– 2𝑥32
(b)𝑓(𝑥1, 𝑥2, 𝑥3) =
100 – 2𝑥12 – 𝑥22 – 3𝑥3 – 𝑥1𝑥2 – 𝑒 𝑥1+𝑥2+𝑥3
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Solution: The Hessian matrices are
−2 6 0
𝑎 6 −18 0 ,
0 0 −4
• Check the leading principal minors first
−2 6
𝐷1 = −2, 𝐷2 = = 0 and 𝐷3 =
6 −18
−2 6 0
6 −18 0 = 0
0 0 −4
• The conditions for positive definite, positive
semidefinite and negative definite are not satisfied.
• To check the conditions for negative semidefinite, we
examine all the principal minors
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• The 3 × 3 matrix 𝐴 has three principal minors of order 1, whose
(1) (2) (3)
values ∆1 , ∆1 , and ∆1 are the diagonal elements.
(1) (2)
(−1)1 ∆1 = −1 −2 = 2, (−1)1 ∆1 = −1 −18 = 18, and
(3)
(−1)1 ∆1 = −1 −4 = 4
• There are also three second – order principal minors
(1) −2 6 (2)
(−1)2 ∆2 = = 1 0 = 0, (−1)2 ∆2 =
6 −18
−2 0 2 (3) −18 0
= 1 8 = 8 and (−1) ∆2 = =
0 −4 0 −4
1 72 = 72
−2 6 0
• Finally, (−1)3 ∆3 = 6 −18 0 = −1 0 = 0
0 0 −4
• Thus(−1)𝑘 ∆𝑘 ≥ 0 for all principal minors ∆𝑘 of order 𝑘(𝑘 =
1, 2, 3) in the matrix 𝑨
• Therefore, we conclude 𝑄 is negative semidefinite. That is 𝑓 is
concave Tewodros Negash (PhD), Addis Ababa
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𝑏 𝑙𝑒𝑡𝑡𝑖𝑛𝑔 𝑢 = 𝑥1 + 𝑥2 + 𝑥3
−4 − 𝑒 𝑢 −1 − 𝑒 𝑢 −𝑒 𝑢
−1 − 𝑒 𝑢 −2 − 𝑒 𝑢 −𝑒 𝑢
−𝑒 𝑢 −𝑒 𝑢 −𝑒 𝑢
′′
• 𝐷1 = 𝑓11 = −4 − 𝑒 𝑢
−4 − 𝑒 𝑢 −1 − 𝑒 𝑢 𝑢
• 𝐷2 = = 7 + 4𝑒
−1 − 𝑒 𝑢 −2 − 𝑒 𝑢
−4 − 𝑒 𝑢 −1 − 𝑒 𝑢 −𝑒 𝑢
• 𝐷3 = −1 − 𝑒 𝑢 −2 − 𝑒 𝑢 −𝑒 𝑢 = −7𝑒 𝑢
−𝑒 𝑢 −𝑒 𝑢 −𝑒 𝑢
• Thus 𝐷1 < 0, 𝐷2 > 0, and 𝐷3 < 0. Therefore, 𝑓 is
negative definite,Tewodros
i.e. Negash
strictly concave.
(PhD), Addis Ababa
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Quasiconcavity and quasiconvexity
Geometric characterization
• Let 𝑥1 and 𝑥2 be any two distinct points in the domain (a
convex set) of a function 𝒇 and let line segment 𝑥1𝑥2 yield
an arc 𝑀𝑁 on the graph of the function with point 𝑁 higher
than or equal in height to point 𝑀
• Then 𝒇 is said to be quasiconcave (quasiconvex) if all points
on arc 𝑀𝑁 other than 𝑀 and 𝑁 are higher than or equal to
point 𝑴 (lower than or equal in height to point 𝑵)
• The function 𝒇 is said to be strictly quasiconcave (strictly
quasiconvex) if all points on arc 𝑀𝑁 other than 𝑀 and 𝑁 are
strictly higher than point 𝑴 (strictly lower than point 𝑵)
• Any strictly quasiconcave (strictly quasiconvex) function is
quasiconcave (quasiconvex), but the converse is not true.
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y
Y Y
N
M N M N
x1 x2 x x1 x2 x x1 x2 x
(𝒂) (𝒃) (𝒄)
With 𝑁 higher than 𝑀
• In 𝑓𝑖𝑔 (𝑎), arc 𝑀𝑁 is strictly quasiconcave since all the
points between 𝑀 and 𝑁 on the arc are strictly higher than
𝑀
• In 𝑓𝑖𝑔 (𝑏), all the points on arc 𝑀𝑁 are strictly lower than N
(the higher of the two ends). The function is thus strictly
quasiconvex.
• In 𝑓𝑖𝑔 (𝑐), we have a horizontal line segment 𝑀𝑁, i.e. all the
points have the same height. The curve can only satisfy the
condition for quasiconcavity, but
Tewodros Negash (PhD), not
Addis Ababastrict quasiconcavity.
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Algebraic definition
• Algebraic definition is required for easier generalization
to higher – dimensional cases
• Let 𝒇 be a function of 𝑛 variables defined on a convex set
𝑺. Then 𝒇 is quasiconcave iff either of the following
conditions is satisfied for all 𝒙 and 𝒚 in 𝑺 and all
𝜆 𝑖𝑛 [0,1]:
𝑓 𝜆𝒙 + 1 – 𝜆 𝒚 ≥ min {𝑓(𝒙), 𝑓(𝒚)}
𝑓(𝒙) ≥ 𝑓(𝒚) ⇒ 𝑓(𝜆𝒙 + (1 – 𝜆)𝒚) ≥ 𝑓(𝒚)
• For strict quasiconcavity the weak inequality is replaced
with strict inequality.
• Changing the direction of the inequalities yields the
conditions for quasiconvexity and strict quasiconvexity.
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A determinant criterion for quasiconcavity
• Quasiconcavity can be checked by examining the sign of a
determinant called bordered Hessian
• The ordinary Hessian used to examine the
concavity/convexity of a function is bordered by an extra
row and column consisting of the first – order partial
derivatives of the function
Two – variable case
• Given a twice continuously differentiable function 𝑓(𝑥, 𝑦)
defined in a convex set 𝑆, the bordered Hessian
determinant is defined as:
0 𝑓1 (𝑥, 𝑦) 𝑓2 (𝑥, 𝑦)
• 𝐵 𝑥, 𝑦 = 𝑓1 (𝑥, 𝑦) 𝑓11 (𝑥, 𝑦) 𝑓12 (𝑥, 𝑦)
𝑓2 (𝑥, 𝑦)Tewodros𝑓21 (𝑥,
Negash 𝑦)
(PhD), 𝑓22 (𝑥, 𝑦)
Addis Ababa
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• The leading principal minors are
0 𝑓1 (𝑥, 𝑦)
𝐵1 = , 𝐵2 = 𝐵
𝑓1 (𝑥, 𝑦) 𝑓11 (𝑥, 𝑦)
Then: (𝒂) A necessary condition for 𝑓 to be quasiconcave is
that 𝐵2(𝑥, 𝑦) ≥ 0 for all (𝑥, 𝑦) in 𝑆.
(𝒃) A sufficient condition for f to be strictly quasiconcave in
𝑆 is that 𝑓1(𝑥, 𝑦) ≠ 0 and 𝐵2(𝑥, 𝑦) > 0 for all (𝑥, 𝑦) in 𝑆.
• The general case: a function of n – variables 𝑓(𝒙 =
𝑓(𝑥1, 𝑥2, … , 𝑥𝑛)
0 𝑓1 (𝒙) 𝑓2 (𝒙) ⋯ 𝑓𝑛 (𝒙)
𝑓1 (𝒙) 𝑓11 (𝒙) 𝑓12 (𝒙) ⋯ 𝑓1𝑛 (𝒙)
• 𝐵𝑥 = 𝑓2 (𝒙) 𝑓21 (𝒙) 𝑓22 (𝒙) ⋯ 𝑓2𝑛 (𝒙)
⋮ ⋮ ⋮ ⋱ ⋮
𝑓𝑛 (𝒙) 𝑓𝑛1 (𝒙) 𝑓𝑛2 (𝒙) ⋯ 𝑓𝑛𝑛 (𝒙)
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• The leading principal minors are
0 𝑓1 (𝑥)
• 𝐵1 =
𝑓1 (𝑥) 𝑓11 (𝑥)
0 𝑓1 (𝑥) 𝑓2 (𝑥)
• 𝐵2 = 𝑓1 (𝑥) 𝑓11 (𝑥) 𝑓12 (𝑥)
𝑓2 (𝑥) 𝑓21 (𝑥) 𝑓22 (𝑥)
0 𝑓1 (𝑥) 𝑓2 (𝑥) 𝑓3 (𝑥)

𝑓1 (𝑥) 𝑓11 (𝑥) 𝑓12 (𝑥) 𝑓13 (𝑥)
• 𝐵3 =
𝑓2 (𝑥) 𝑓21 (𝑥) 𝑓22 (𝑥) 𝑓23 (𝑥)
𝑓3 (𝑥) 𝑓31 (𝑥) 𝑓32 (𝑥) 𝑓33 (𝑥)
⋮
• 𝐵𝑟 = 𝐵
24
Then:
• (𝑎) A necessary condition for 𝑓 to be quasiconcave is
that −1 𝒓𝐵𝒓(𝒙) ≥ 0 for all 𝒙 in 𝑆 and 𝑟 = 1,2, … . .
• (𝑏) A sufficient condition for 𝑓 to be strictly
quasiconcave is that −1 𝒓𝐵𝒓(𝒙) > 0 for all 𝒙 in 𝑆 and
𝑟 = 1,2, … . .
• (𝑐) A necessary condition for f to be quasiconvex is that
𝐵𝒓(𝒙) ≤ 0 for all 𝒙 in 𝑆 and 𝑟 = 1,2, … . .
• (𝑑) A sufficient condition for f to be strictly quasiconvex
is that 𝐵𝒓(𝒙) < 0 for all 𝒙 in 𝑆 and 𝑟 = 1,2, … . .
Example
• Determine if the following function is quasicancave/
quasiconvex or strictly so. Use bordered Hessian.
(𝑎) 𝑧 = 𝑓(𝑥, 𝑦) = 𝑥2𝑦3
25
Exercise
• Determine if the following functions are
quasicancave/quasiconvex or strictly so. Use
bordered Hessian.
• 𝑎 𝑓 𝑥1 , 𝑥2 = 𝑥1 𝑥22 , 𝑥1 , 𝑥2 > 0
2 2
• 𝑏 𝑓 𝑥1 , 𝑥2 = 𝑥1 + 𝑥2 , 𝑥1 , 𝑥2 > 0

26
2.3 Taylor’s formula
• When studying the behaviour of a complicated function 𝑓
near a particular point of its domain, it is often useful to
approximate it by a much simpler function
Linear approximation
• Consider approximating a certain function 𝑓(𝑥) by a linear
function of the form 𝑃(𝑥) = 𝐴 + 𝐵(𝑥 – 𝑎) near 𝑥 = 𝑎
• To determine the two coefficients (𝐴 and 𝐵) we impose two
conditions
– 𝑓(𝑥) 𝑎𝑛𝑑 𝑃(𝑥) are assumed to have the same value and
the same first derivative at 𝑥 = 𝑎.
That is, 𝑓(𝑎) = 𝑃(𝑎) and 𝑓’(𝑎) = 𝑃’(𝑎)
– This yields the linear approximation
– 𝑓(𝑥) ≈ 𝑃(𝑎) = 𝑓(𝑎) + 𝑓’(𝑎) (𝑥 – 𝑎) - this is the
graph of the tangent to 𝑓(𝑥) at 𝑥 = 𝑎.
• Thus, for 𝑥 close to 𝑎, the linear approximation of 𝑓(𝑥) is
given by 𝑓(𝑥) ≈ 𝑓(𝑎) + 𝑓’(𝑎) (𝑥 – 𝑎) ; (𝑥 𝑐𝑙𝑜𝑠𝑒 𝑡𝑜 𝑎)
27
Quadratic approximation
• To improve accuracy, we may consider quadratic approximation
• A twice differentiable function 𝑦 = 𝑓(𝑥) can be approximated
near 𝑥 = 𝑎 by a quadratic polynomial
– 𝑓(𝑥) ≈ 𝑃(𝑥) = 𝐴 + 𝐵(𝑥 – 𝑎) + 𝐶 (𝑥 – 𝑎)2
To determine the three coefficients (𝐴, 𝐵, 𝐶) we impose three
conditions: at 𝑥 = 𝑎
– 𝑓(𝑎) = 𝑃(𝑎); 𝑓’(𝑎) = 𝑃’(𝑎) and 𝑓’’(𝑎) = 𝑃’’(𝑎)
• Given 𝑃 𝑥 = 𝐴 + 𝐵 𝑥 – 𝑎 + 𝐶 𝑥 – 𝑎 2
𝑃’(𝑥) = 𝐵 + 2𝐶(𝑥 – 𝑎);
𝑃’’(𝑥) = 2𝐶
• At 𝑥 = 𝑎:
– 𝑃(𝑎) = 𝐴 = 𝑓(𝑎);
– 𝑃’(𝑎) = 𝐵 = 𝑓’(𝑎) and
– 𝑃’’(𝑎) = 2𝐶 = 𝑓’’(𝑎) → 𝐶 = ½𝑓’’(𝑎)

28
• Thus, the quadratic approximation to 𝑓(𝑥) about 𝑥 = 𝑎 is
– 𝑓(𝑥) ≈ 𝐴 + 𝐵(𝑥 – 𝑎) + 𝐶(𝑥 – 𝑎)2
– 𝑓(𝑥) ≈ 𝑓(𝑎) + 𝑓’(𝑎) (𝑥 – 𝑎) + ½ 𝑓’’(𝑎(𝑥 – 𝑎)2
• Higher – order approximations
– Approximation of 𝑓(𝑥) near 𝑥 = 𝑎 by a third degree polynomial
– 𝑓(𝑥) ≈ 𝑓(𝑎) + 𝑓’(𝑎) (𝑥 – 𝑎) +
½ 𝑓’’(𝑎)(𝑥 – 𝑎)2 + 1Τ6 𝑓’’’(𝑎)(𝑥 – 𝑎)3
The general case: suppose we want to approximate a function
𝑓(𝑥) 𝑎𝑡 𝑥 = 𝑎 with an 𝑛𝑡ℎ degree polynomial of the form
• 𝑓(𝑥) ≈ 𝐴0 + 𝐴1(𝑥 – 𝑎) + 𝐴2(𝑥 – 𝑎)2 + 𝐴3(𝑥 – 𝑎)3 + … +
𝐴𝑛 (𝑥 – 𝑎)𝑛
• 𝑃(𝑥) has 𝑛 + 1 coefficients. Therefore, we require 𝑓(𝑥) and 𝑃(𝑥) to
have the same value and the same 𝑛 derivatives at 𝑥 = 𝑎.

29
• Then 𝑓(𝑥) ≈ 𝑃(𝑥) for 𝑥 close to 𝑎. 𝑃(𝑥) is the right –
hand side of the following approximation
𝑓’ 𝑎 𝑓’’ 𝑎 2
• 𝑓 𝑥 ≈ 𝑓 𝑎 + 𝑥– 𝑎 + 𝑥– 𝑎 +
1! 2!
𝑓’’’ 𝑎 3 𝑓 𝑛 (𝑎) 𝑛
𝑥– 𝑎 + ⋯+ 𝑥– 𝑎
3! 𝑛!
• The polynomial on the right hand side is called the
𝑛𝑡ℎ – 𝑜𝑟𝑑𝑒𝑟 Taylor polynomial or Taylor approximation for
𝑓(𝑥) about 𝑥 = 𝑎.
• Except at 𝑥 = 𝑎, 𝑓(𝑎) and 𝑃(𝑎) are usually different.
• The difference is given by 𝑅𝑛+1 (𝑥), which is called the
remainder after 𝑛 terms
• Hence
𝑓’ 𝑎 𝑓’’ 𝑎
𝑓 𝑥 ≈ 𝑓 𝑎 + 𝑥– 𝑎 + 𝑥– 𝑎 2 +
1! 2!
𝑓’’’ 𝑎 𝑓 𝑛 𝑎
3 𝑛
𝑥– 𝑎 + ⋯+ 𝑥– 𝑎 + 𝑅𝑛+1 (𝑥)
3! 𝑛!
30
Taylor’s Formula
• If 𝑓 is 𝒏 + 𝟏 times differentiable in an interval that contains
𝒂 and 𝒙, then
𝑓′ 𝑎 𝑓′′ 𝑎 2
𝑓 𝑥 = 𝑓 𝑎 + 𝑥– 𝑎 + 𝑥– 𝑎 + ⋯+
1! 𝑛+1 2!
𝑓𝑛 𝑎 𝑛+𝑓 𝑐 𝑛+1
𝑥– 𝑎 𝑥−𝑎 (∗)
𝑛! 𝑛+1 !
𝑓 𝑛+1 𝑐
Where 𝑅𝑛+1 𝑥 = 𝑥 − 𝑎 𝑛+1
𝑛+1 !
for some number 𝒄 between 𝒂 and 𝒙.
• The number 𝑐 is not fixed; it depends on 𝑥 and 𝑛.
• Putting 𝑛 = 1, 𝑎 = 0 in formula (∗) results in linear
approximation of 𝑓(𝑥)
1
• 𝑓 𝑥 = 𝑓 0 + 𝑓′ 0 𝑥 + 𝑓′′(𝑐)𝑥 2
2
for some 𝒄 between 𝟎 and 𝒙
• This shows that ½ 𝑓′′(𝑐)𝑥2 is the error that results if we
replace 𝑓(𝑥) with its linear approximation at 𝑥 = 0.
31
Example
(𝑎) Find second – order Taylor polynomial for
𝑓(𝑥) = 1 + 𝑥 5 about 𝑥 = 0
(𝑏) Find the third – order Taylor formula
1Τ
(approximation) of 𝑓(𝑥) = 1 + 𝑥 2 about
𝑥 = 0
(𝑐) Write Taylor’s formula with 𝑛 = 2 for 𝑓(𝑥) =
𝑙𝑛 (1 + 𝑥) about 𝑥 = 0
(𝑑) Find the Taylor series expansion for 𝑓(𝑥) =
𝑒 𝑥 around the point 𝑥 = 0. Estimate the error
term for 𝑛 = 3 and 𝑥 = 0.1. Let 𝑐, which is in the
interval 0, 0.1 , 0.05.
32
2.4 Implicit function theorem
• Implicit vs. explicit function
– A function given in the form of 𝑦 = 𝑓(𝑥), say
𝑦 = 𝑓(𝑥) = 3𝑥4 (1)
is called an explicit function since 𝑦 is explicitly
expressed as a function of 𝑥.
– If the same function is written in the equivalent form
𝑓(𝑦, 𝑥) = 𝑦 − 3𝑥4 (2)
it becomes an implicit function.
(1) is implicitly defined by (2)
• An equation in the form of (2) can generally be written
as F(𝑦, 𝑥) = 0 (3)
• 𝐹 can have more than one arguments: 𝐹(𝑦; 𝑥1, 𝑥2, … , 𝑥𝑛 )
that implicitly defines the function 𝑦 = 𝑓(𝑥1, 𝑥2, … , 𝑥𝑛 )
33
• An explicit function can always be transformed to an
implicit function while the reverse transformation is not
always possible.
• Example:
𝐹(𝑦, 𝑥) = 𝑥2𝑦3 + 3𝑥𝑦2 + 𝑦 – 22 = 0 is difficult to
solve for 𝑦.
• Due to this uncertainty, it becomes important to ask
whether there are conditions that assure an equation of
the form 𝐹(𝑦; 𝑥1, 𝑥2, … , 𝑥𝑛 ) does implicitly define a
function 𝑦 = 𝑓(𝑥1, 𝑥2, … , 𝑥𝑛 ) locally, i.e. around some
specific points in the domain.
• The answer lies in the implicit – function theorem
34
Implicit function theorem (two variables case)
Let 𝐹(𝑦, 𝑥) = 0 be an implicit function with continuous
first derivatives which is satisfied at some point
(𝑦0, 𝑥0) and is defined in some neighborhood of this
point. If 𝐹𝑦 ≠ 0 at this point, then there is a function
𝑦 = 𝑓(𝑥) defined in some neighborhood of
𝑥 = 𝑥0 corresponding to the relationship defined by
𝐹(𝑦, 𝑥) = 0 such that
(i) 𝑦0 = 𝑓(𝑥0) and
(ii) 𝑓′(𝑥0) = −𝐹𝑥/𝐹𝑦
This theorem gives the conditions under which
(a) the implicit function 𝐹(𝑦, 𝑥) = 0 implies an explicit
function relationship 𝑦 = 𝑓(𝑥);
(b) how to compute itsTewodros
derivative 𝑓′(𝑥)
Negash (PhD), Addis Ababa
35
Example:
use the implicit function theorem to show that
𝑥2𝑦3 + 3𝑥𝑦2 + 𝑦 = 22 defines an explicitly
defined function 𝑦 = 𝑓(𝑥) at the point
(2,1) and find the value of the derivative
𝑓’(𝑥) = 𝑑𝑦/𝑑𝑥 at this point

36
Implicit function theorem (𝒏 - variables case)
Let 𝐹(𝑦; 𝑥1, 𝑥2, … , 𝑥𝑛 ) = 0 be an implicit function with
continuous first partial derivatives which is satisfied at
some point (𝑦0, 𝑥10, 𝑥20, … , 𝑥𝑛0 ) and is defined in some
neighborhood of this point. If 𝐹𝑦 ≠ 0 at this point, then
there is a function 𝑦 = 𝑓(𝑥1, 𝑥2, … , 𝑥𝑛 ) defined in
some neighborhood of 𝒙 = 𝒙𝟎 = (𝑥10, 𝑥20, … , 𝑥𝑛0 )
such that
(i) 𝑦0 = 𝑓(𝒙𝟎) and
(ii) 𝑓𝑖 (𝒙𝟎) = −𝐹𝑥𝑖/𝐹𝑦
Example: Use implicit differentiation to find the partial
derivatives 𝜕𝑦/𝜕𝑥1 and 𝜕𝑦/𝜕𝑥2 implied by the
relationship
𝐹(𝑦; 𝑥1, 𝑥2) = 3𝑥 𝑥
Tewodros +
Negash 𝑥
(PhD), 𝑦
Addis
2Ababa
+ 𝑥 2𝑥 𝑦 – 10 = 0
1 2 2 1 2
37
Derivatives of implicit functions
→Two – variable case: 𝐹(𝑦, 𝑥) = 0
• Take the total deferential of 𝐹 and make appropriate
rearrangements
𝑑𝐹 = 𝑑0 → 𝐹𝑦𝑑𝑦 + 𝐹𝑥𝑑𝑥 = 0 → 𝑑𝑦/𝑑𝑥 = − 𝐹𝑥/𝐹𝑦
→ 𝒏 – variable case: 𝐹(𝑦, 𝑥1, 𝑥2, … , 𝑥𝑛 ) = 0
𝑑𝐹 = 𝐹𝑦𝑑𝑦 + 𝐹𝑥1𝑑𝑥1 + 𝐹𝑥2𝑑𝑥2 + … + 𝐹𝑥𝑛 𝑑𝑥𝑛 = 0
• To find 𝜕𝑦/𝜕𝑥1 , we set 𝑑𝑥2 = 𝑑𝑥3 = … = 𝑑𝑥𝑛 = 0
Because 𝑥2, … , 𝑥𝑛 are held constant when finding the
partial derivative with respect to 𝑥1
– 𝐹𝑦𝑑𝑦 + 𝐹𝑥1𝑑𝑥1 = 0 → 𝜕𝑦/𝜕𝑥1 = −𝐹𝑥1/ 𝐹𝑦
– In general, 𝜕𝑦/𝜕𝑥𝑖 = −Negash
Tewodros 𝐹𝑥(PhD),
𝑖 / 𝐹𝑦
Addis Ababa
38
Example:
• Find 𝜕𝑦/𝜕𝑥 and 𝜕𝑦/𝜕𝑤 for the implicit function
𝐹(𝑦; 𝑥, 𝑤) = 𝑦3𝑥2 + 𝑤3 + 𝑦𝑥𝑤 – 3 = 0 at the point
(1,1,1)
Exercise:
• For each of the following equations 𝐹(𝑦, 𝑥), is a function
𝑦 = 𝑓(𝑥) defined around the point (3,1)? If so, find
𝑑𝑦/𝑑𝑥.
(𝑎) 𝑥3 – 2𝑥2𝑦 + 3𝑥𝑦2 – 22 = 0
(𝑏) 2𝑥2 + 4𝑥𝑦 – 𝑦4 + 67 = 0
• Given 𝑥2 + 3𝑥𝑦 + 2𝑦𝑧 + 𝑦2 + 𝑧2 – 11 = 0 is a
function 𝑧 = 𝑓(𝑥, 𝑦) defined around the point (0,1,2)? If
so, find 𝜕𝑧/𝜕𝑥 and 𝜕𝑧/𝜕𝑦 by the implicit – function rule
and evaluate them at the point

39
Extension to simultaneous – equation case
• The implicit function theorem provides the conditions
under which a set of simultaneous implicit equations
𝐹1 𝑦1, 𝑦2, … , 𝑦𝑛 ; 𝑥1, 𝑥2, … , 𝑥𝑚 = 0
𝐹2 𝑦1, 𝑦2, … , 𝑦𝑛 ; 𝑥1, 𝑥2, … , 𝑥𝑚 = 0 1
……………..………………………
𝐹𝑛(𝑦1, 𝑦2, … , 𝑦𝑛 ; 𝑥1, 𝑥2, … , 𝑥𝑚) = 0
will define a set of functions
𝑦1 = 𝑓1 𝑥1, 𝑥2, … , 𝑥𝑚
𝑦2 = 𝑓2 𝑥1, 𝑥2, … , 𝑥𝑚 2
…………………………
𝑦𝑛 = 𝑓 𝑛 (𝑥1, 𝑥2, … , 𝑥𝑚)
• The conditions assure that the 𝑛 equations in (1) can in
principle be solved for the 𝑛 variables (𝑦1, 𝑦2, … , 𝑦𝑛 ) even if
we may not be able to obtain the solution (2) in an explicit
form. Tewodros Negash (PhD), Addis Ababa
40
• The generalized version of the theorem states that:
Given the equation system (1), if
(𝑎) the functions 𝐹1, … , 𝐹 𝑛 have continues partial
derivatives with respect to all the 𝑦 and 𝑥 variables, and
(𝑏) at a point (𝑦10, … , 𝑦𝑛0 ; 𝑥10, … , 𝑥𝑚
0
) satisfying (2), the
following determinant is nonzero.
𝜕𝐹1 𝜕𝐹1 𝜕𝐹1
⋯
𝜕𝑦1 𝜕𝑦2 𝜕𝑦𝑛
2 2 2
1
𝜕 𝐹 ,⋯,𝐹 𝑛 𝜕𝐹 𝜕𝐹 𝜕𝐹
𝐽 = = 𝜕𝑦 ⋯ ≠0
𝜕 𝑦1 , ⋯ , 𝑦𝑛 1 𝜕𝑦 2 𝜕𝑦 𝑛
⋯ ⋯ ⋯ ⋯
𝜕𝐹 𝑛 𝜕𝐹 𝑛 𝜕𝐹 𝑛
⋯
𝜕𝑦1 𝜕𝑦2 𝜕𝑦𝑛
The determinant is a Jacobian determinant
41
• Then there exists an 𝑚 – dimensional
0
neighborhood of (𝑥10, … , 𝑥𝑚 ) in which the
variables 𝑦1, 𝑦2, … , 𝑦𝑛 are functions of the
variables 𝑥1, 𝑥2, … , 𝑥𝑚 in the form of (2). And
the functions satisfy
𝑦10 = 𝑓1(𝑥10 , … , 𝑥𝑚
0
)
……………………...
0
𝑦𝑛0 = 𝑓 (𝑥 , … , 𝑥 0
𝑛
1 𝑚)

42
Taking the total differential of the implicit functions with
respect to the 𝑦𝑖’𝑠 and 𝑥𝑖’𝑠 directly from the equations in (1)
𝜕𝐹1 𝜕𝐹1 𝜕𝐹1 𝜕𝐹1 𝜕𝐹1 𝜕𝐹1
d𝑦 + d𝑦 + ⋯ + d𝑦 = − d𝑥 + d𝑥 + ⋯ + d𝑥
𝜕𝑦1 1 𝜕𝑦2 2 𝜕𝑦𝑛 𝑛 𝜕𝑥1 1 𝜕𝑥2 2 𝜕𝑥𝑚 𝑚
𝜕𝐹 2 𝜕𝐹 2 𝜕𝐹 2 𝜕𝐹 2 𝜕𝐹 2 𝜕𝐹 2
d𝑦1 + d𝑦2 + ⋯ + d𝑦𝑛 = − d𝑥1 + d𝑥2 + ⋯ + d𝑥𝑚
𝜕𝑦1 𝜕𝑦2 𝜕𝑦𝑛 𝜕𝑥1 𝜕𝑥2 𝜕𝑥𝑚
⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ (3)
𝜕𝐹 𝑛 𝜕𝐹 𝑛 𝜕𝐹 𝑛 𝜕𝐹 𝑛 𝜕𝐹 𝑛 𝜕𝐹 𝑛
d𝑦1 + d𝑦2 + ⋯ + d𝑦𝑛 = − d𝑥1 + d𝑥2 + ⋯ + d𝑥𝑚
𝜕𝑦1 𝜕𝑦2 𝜕𝑦𝑛 𝜕𝑥1 𝜕𝑥2 𝜕𝑥𝑚
We cab also take the differentials of the y variable from (2)
𝜕𝑦1 𝜕𝑦1 𝜕𝑦1
𝑑𝑦1 = d𝑥1 + d𝑥2 + ⋯+ d𝑥𝑚
𝜕𝑥1 𝜕𝑥2 𝜕𝑥𝑚
𝜕𝑦 𝜕𝑦 𝜕𝑦
𝑑𝑦2 = 2 d𝑥1 + 2 d𝑥2 + ⋯ + 2 d𝑥𝑚
𝜕𝑥1 𝜕𝑥2 𝜕𝑥𝑚
⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ (4)
𝜕𝑦𝑛 𝜕𝑦𝑛 𝜕𝑦𝑛
𝑑𝑦𝑛 = d𝑥1 + d𝑥2 + ⋯+ d𝑥𝑚
𝜕𝑥1 𝜕𝑥2 Tewodros𝜕𝑥 𝑚 (PhD), Addis Ababa
Negash
43
• To simplify matters consider only 𝑥1 changes while the
other variables 𝑥2, … , 𝑥𝑚 𝑟𝑒𝑚𝑎𝑖𝑛 constant.
• Letting 𝑑𝑥1 ≠ 0 and setting 𝑑𝑥2 = … = 𝑑𝑥𝑚 = 0 in
(3) and (4) and then substituting (4) into (3) and
dividing through by 𝑑𝑥1 ≠ 0 we obtain the following
equation system
𝜕𝐹 1 𝜕𝑦1 𝜕𝐹 1 𝜕𝑦2 𝜕𝐹 1 𝜕𝑦𝑛 𝜕𝐹 1
+ + ⋯+ = −
𝜕𝑦1 𝜕𝑥1 𝜕𝑦2 𝜕𝑥1 𝜕𝑦𝑛 𝜕𝑥1 𝜕𝑥1
𝜕𝐹 2 𝜕𝑦1 𝜕𝐹 2 𝜕𝑦2 𝜕𝐹 2 𝜕𝑦𝑛 𝜕𝐹 2
+ + ⋯+ = −
𝜕𝑦1 𝜕𝑥1 𝜕𝑦2 𝜕𝑥1 𝜕𝑦𝑛 𝜕𝑥1 𝜕𝑥1
⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ ⋯ 5
𝜕𝐹 𝑛 𝜕𝑦1 𝜕𝐹 𝑛 𝜕𝑦2 𝜕𝐹 𝑛 𝜕𝑦𝑛 𝜕𝐹 𝑛
+ + ⋯+ = −
𝜕𝑦1 𝜕𝑥1 𝜕𝑦2 𝜕𝑥1 𝜕𝑦𝑛 𝜕𝑥1 𝜕𝑥1

44
• In matrix notation
𝜕𝐹1 𝜕𝐹1 𝜕𝐹1 𝜕𝑦1 𝜕𝐹1
⋯ 𝜕𝑥1 −
𝜕𝑦1 𝜕𝑦2 𝜕𝑦𝑛 𝜕𝑥1
𝜕𝐹 2 𝜕𝐹 2 𝜕𝐹 2 𝜕𝑦2 𝜕𝐹 2
⋯ −
𝜕𝑦1 𝜕𝑦2 𝜕𝑦𝑛 𝜕𝑥1 = 𝜕𝑥1 (6)
⋮ ⋮ ⋱ ⋮ ⋮ ⋮
𝜕𝐹 𝑛 𝜕𝐹 𝑛 𝜕𝐹 𝑛 𝜕𝑦𝑛 𝜕𝐹 𝑛
⋯ −
𝜕𝑦1 𝜕𝑦2 𝜕𝑦𝑛 𝜕𝑥1 𝜕𝑥1
• The determinant of the coefficient matrix in (6) is the
Jacobian determinant 𝐽
• By Cramer's rule,
𝜕𝑦𝑗 𝐽𝑗
• = 𝑗 = 1, 2, ⋯ , 𝑛
𝜕𝑥1 𝐽

45
Example:
(𝑎) The following three equations
𝐹1(𝑥, 𝑦, 𝑤; 𝑧) = 0 𝑥𝑦 – 𝑤 = 0
𝐹2(𝑥, 𝑦, 𝑤; 𝑧) = 0 𝑦 – 𝑤3 – 3𝑧 = 0
𝐹3(𝑥, 𝑦, 𝑤; 𝑧) = 0 𝑤3 + 𝑧3 – 2𝑧𝑤 = 0
are satisfied at point (𝑥, 𝑦, 𝑤; 𝑧) = (1/4,4,1,1) and
have continuous derivatives. Use the implicit function
theorem to find the comparative – static derivatives
𝜕𝑥/𝜕𝑧 , 𝜕𝑦/𝜕𝑧, 𝜕𝑤/𝜕𝑧

46
(𝑏) A national – income model is given in the form
𝑌 – 𝐶 – 𝐼0 – 𝐺0 = 0
𝐶 – 𝛼 – 𝛽 (𝑌 − 𝑇) = 0 (𝛼 > 0; 0 < 𝛽 < 1)
𝑇 – 𝛾 – 𝛿𝑌 = 0 (𝛾 > 0: 0 < 𝛿 < 1)
• Identify the endogenous variables, the exogenous
variables and parameters and write the system in the
form of general implicit functions.
• The equations have continuous partial derivatives. Use
the implicit function theorem to find the comparative –
𝜕𝑌 ∗ 𝜕𝐶 ∗ 𝜕𝑇∗
static derivatives , , holding all other
𝜕𝐺0 𝜕𝐺0 𝜕𝐺0
exogenous variables and parameters constant
47
Inverse function theorem
• Definition of inverse function
• Let 𝑓 be a function with domain 𝐴 and range 𝐵. If and
only if 𝑓 is one – to – one, it has an inverse function 𝑔
with domain 𝐵 and range 𝐴. The function 𝑔 is given by
the following rule: For each 𝑦 ∈ 𝐵, the value 𝑔(𝑦) is the
unique number 𝑥 in 𝐴 such that 𝑓(𝑥) = 𝑦. Then
𝑔 𝑦 =𝑥⇔𝑦=𝑓 𝑥 𝑥 ∈ 𝐴, 𝑦 ∈ 𝐵 (1)
• A direct implication of (1) is that
𝑔 𝑓(𝑥) = 𝑥 for all 𝑥 ∈ 𝐴 and 𝑓 𝑔(𝑦) = 𝑦 𝑦 ∈ 𝐵 2
• If 𝑔 is the inverse of a function 𝑓, then 𝑓 is also the
inverse of 𝑔.
• If 𝑔 is the inverse ofTewodros
𝑓, we can use the notation 𝑓 −1 for 𝑔
Negash (PhD), Addis Ababa
48
Example
Solve the following equations for 𝑥 and find the
corresponding inverse functions:
5
𝑎 𝑦 = 4𝑥 − 3 𝑏 𝑦= 𝑥+1
Solutions
1 3
𝑎 𝑦 = 4𝑥 − 3 ⇔ 𝑥 = 𝑦 +
4 4
1 3
𝑦 = 4𝑥 − 3 𝑎𝑛𝑑 𝑥 = 𝑦 + are inverse of each other
4 4
5
𝑏 𝑦= 𝑥 + 1 ⇔ 𝑥 = 𝑦5 − 1
5
𝑦= 𝑥 + 1 ⇔ 𝑥 = 𝑦 5 − 1 are inverse of each other.

49
Differentiating the inverse
• In general, if 𝑓and 𝑔 are inverses of each other, then
𝑔 𝑓 𝑥 = 𝑥 for all 𝑥 in 𝐼 (3)
• If both 𝑓and 𝑔 are differentiable, differentiating (3)
𝑤. 𝑟. 𝑡 𝑥 gives
• 𝑔′ 𝑓 𝑥 𝑓 ′ 𝑥 = 1 so that if 𝑓′ 𝑥 ≠ 0, then
′
1
𝑔 𝑓 𝑥 = (4)
𝑓′(𝑥)
• It follows from (4) that 𝑓 ′ and 𝑔′ have the same sign. If
𝑓 is strictly increasing (decreasing), then 𝑔 is strictly
increasing (decreasing), and vice versa
50
Inverse function theorem
If 𝑓 is differentiable and strictly increasing (strictly
decreasing) in the interval 𝐼. if 𝑥0 is an interior point of 𝐼
and 𝑓′ 𝑥0 ≠ 0, then 𝑔 is differentiable at 𝑦0 = 𝑓(𝑥0 )
and
′ 1
𝑔 𝑦0 = 𝑦0 = 𝑓 𝑥0 (5)
𝑓′(𝑥0 )
Example 1: suppose the function 𝑓 is defined for all 𝑥 by

the following formula
𝑓 𝑥 = 𝑥 5 + 3𝑥 3 + 6𝑥 − 3
• Show that 𝑓 has an inverse function 𝑔. Use formula
(5) to find 𝑔′(7).
• Note that 𝑓(1) = 7.
51
Solution
• Differentiating 𝑓(𝑥) yields 𝑓 ′ 𝑥 = 5𝑥 4 + 9𝑥 2 + 6
• Clearly, 𝑓 ′ 𝑥 > 0 for all 𝑥, so 𝑓 is strictly increasing
and consequently it is one – to – one
• Therefore, 𝑓 has an inverse function 𝑔.
• To find 𝑔′ 7 , use formula (5) with 𝑥0 = 1 and 𝑦0 = 7
1
• Since 𝑓′ 1 = 20, we obtain 𝑔′ 7 = = 1Τ20
𝑓′(1)
• Thus, we have found 𝑔′ 7 exactly even though it is

impossible to find any algebraic formula for the
function 𝑔.

52
Example 2
• Suppose that 𝑓 and 𝑔 are twice differentiable functions
which are inverses of each other. By differentiating (4)
w.r.t 𝑥, find an expression for 𝑔′′(𝑓 𝑥 ) where
𝑓′(𝑥) ≠ 0. Do 𝑓′′(𝑥) and 𝑔′′(𝑓 𝑥 ) have the same, or
opposite signs?
Solution
• Differentiating (4) w.r.t 𝑥 yields
−𝑓′′(𝑥)
𝑔′′ 𝑓 𝑥 𝑓′ 𝑥 =
𝑓′(𝑥) 2
𝑓′′(𝑥)
𝑔′′ 𝑓 𝑥 =−
𝑓′(𝑥) 3
• 𝑓′′(𝑥) and 𝑔′′(𝑓 𝑥 have opposite sign if 𝑓′(𝑥) > 0
but they have the same sign if 𝑓′(𝑥) < 0.
53

Econ 605 - Multivariate Calculus

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Addis Ababa University

College of Business and

(𝒂) (𝒃) (𝒄) (𝒅)

height of line segment height of arc 𝒇(𝒙)

Tewodros Negash (PhD), Addis Ababa

0 𝑓1 (𝑥) 𝑓2 (𝑥) 𝑓3 (𝑥)

Tewodros Negash (PhD), Addis Ababa

Tewodros Negash (PhD), Addis Ababa

Tewodros Negash (PhD), Addis Ababa

Tewodros Negash (PhD), Addis Ababa

Tewodros Negash (PhD), Addis Ababa

Tewodros Negash (PhD), Addis Ababa

Tewodros Negash (PhD), Addis Ababa

Tewodros Negash (PhD), Addis Ababa

Tewodros Negash (PhD), Addis Ababa

Tewodros Negash (PhD), Addis Ababa

Example 1: suppose the function 𝑓 is defined for all 𝑥 by

• Thus, we have found 𝑔′ 7 exactly even though it is

Tewodros Negash (PhD), Addis Ababa

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