EC 2104 Quantitative Methods for Economic Analysis

Problem Set 4
Students will solve selected problems from the following questions during tutorial sessions the week
of February 17, 2014.
1. Find all the rst-order partial derivatives of the following functions:
(a) f(x, y) = 5x
3
e
y
ln x
f

x
(x, y) = 5e
y
(x
3
1/x + 3x
2
ln x) = 5x
2
e
y
(1 + 3 ln x) (Product Rule)
f

y
(x, y) = 5x
3
e
y
ln x (Exponential Rule)
(b) f(x, y) = (ax + by)
2
, where a and b are constants.
f

x
(x, y) = 2a(ax + by) (Power Rule)
f

y
(x, y) = 2b(ax + by)
(c) f(x, y, z) = x
y
z
f

x
(x, y, z) = y
z
x
(y
z
1)
(Power Rule)
f

y
(x, y, z) = x
y
z
(ln x) z y
(z1)
(Exponential, Power and Chain Rules)
f

z
(x, y, z) = x
y
z
(ln x) y
z
ln y (Exponential and Chain Rules)
(d) F(K, L) = [aK
r
+ (1 a)L
r
]
1
r
F

K
(K, L) =
1
r
[aK
r
+ (1 a)L
r
]
1
r
1
a rK
(r1)
= aK
(r1)
[aK
r
+ (1 a)L
r
]
1
r
1
F

L
(K, L) =
1
r
[aK
r
+(1 a)L
r
]
1
r
1
(1 a) rL
(r1)
= (1a)L
(r1)
[aK
r
+(1 a)L
r
]
1
r
1
(e) u(x
1
, x
2
, . . . , x
n
) =
n

i=1
(x
i

i
)

i
= (x
1

1
)

1
(x
2

2
)

2
. . . (x
n

n
)
n
,
where
i
and
i
are constants for all i.
We perform the derivative on a generic x
i
, keeping all other x
j
constant, where j = i.
In this rst step, we extract the term of the function containing x
i
. The rest of the
function (the part after the multiplication symbol below) is unaected:
u

i
(x
1
, x
2
, . . . , x
n
) =
i
(x
i

i
)
(
i
1)

j=i
(x
j

j
)

j
1
This next step is not necessary, but can make the solution easier to read. We wish to
insert the term containing x
i
back into the part of the function in the multiplication
symbol. Since the new x
i
term has the power (
i
1) while the other terms have the
powers
j
, we multiply through by
x
i

i
x
i

i
= 1 to obtain:
u

i
(x
1
, x
2
, . . . , x
n
) =
i
(x
i

i
)

i
x
i

i

j=i
(x
j

j
)

j
=

i
x
i

i

j=1
(x
j

j
)

j
2. Draw some level curves for f(x, y) =
x
2
y
. Do these level curves cross?
To nd the level curves, we set f(x, y) = C, and vary C. When we do this, we can solve for
y to gure out what the graph of the function looks like. Doing this, we nd that y =
x
2
C
(assuming C = 0). We also have to remember that the function is not dened when y = 0.
If we let the C = 1, C = 2, and C = 3, we get the following:
0
1
-1 0 1
y
x
If we were to let C equal negative numbers, these level curves would be the same, but reected
about the x-axis. Notice that none of the level curves reach the point (x, y) = (0, 0), so none
of the level curves cross. Since level curves can never cross, this makes sense.
3. Question 11.3.9 on page 385 of the textbook (3rd edition). Reproduced here:
2
The gure on the next page shows some level curves for z = f(x, y), together with the line
2x + 3y = 12.
(a) What are the signs of f

x
and f

y
at the points P and Q?
f

x
is the slope of the function when facing the positive x direction. Point P is on
the level curve z = 2. In the positive x direction, the next level curve is z = 3. So, in
that direction, the function is increasing. Therefore, f

x
is positive at P. At point Q, the
function is decreasing in the positive x direction (from z = 4 to z = 3), so f

x
is negative
at Q.
Similarly, f

y
is the slope of the function when facing the positive y direction. At point
P, the next level curve in the positive y direction is z = 1, so f

y
is negative at P. At Q,
the next level curve in the positive y direction is z = 5, so f

y
is positive there.
(b) Find possible solutions of the equations:
i. f(1, y) = 2
We want to nd the values of y at which the vertical line x = 1 crosses the level
curve z = 2. However, this does not ever seem to occur. There are no possible
solutions of this equation.
ii. f(x, 2) = 2
We want to nd the values of x at which the horizontal line y = 2 crosses the
level curve z = 2. According to the graph of the level curves, this seems to occur
when x = 2 and when x = 6.
(c) What is the largest value of f(x, y) among those (x, y) that satisfy 2x + 3y = 12?
To nd the answer to this question, we should look at which level curves the line dened
by 2x + 3y = 12 crosses. Around x = 1.2, the line crosses the z = 1 level curve. As
x increases, the line crosses larger level curves. This indicates that starting at around
x = 1.2, if we increase x, we increase the f(x, y) values that the points on the line
achieve. The line also seems to be tangent to the z = 3 level curve. So, for (x, y) to
the left of the tangent point, f(x, y) < 3. Also, for (x, y) to the right of the tangent
point, f(x, y) < 3 as well. This means that on the line 2x + 3y = 12, f(x, y) achieves
a maximum value of 3. The fact that this occurs when the line is tangent to a level
curve is not a coincidence. Later on, this is how we will maximize functions of multiple
variables given a constraint (in this case 2x + 3y = 12).
3
4. Find the Hessian of f(x, y, z) = xy
2
+ yz
2
First, we must nd the rst-order partial derivatives:
f

x
(x, y, z) = y
2
f

y
(x, y, z) = 2xy + z
2
f

z
(x, y, z) = 2yz
Now, we can nd all the second-order partial derivatives. I will only nd 6 out of the 9 second
derivatives, since Youngs theorem tells us the other cross-partials will be identical. You can
check this yourself.
f

xx
(x, y, z) = 0
f

xy
(x, y, z) = 2y
f

xz
(x, y, z) = 0
f

yy
(x, y, z) = 2x
f

yz
(x, y, z) = 2z
f

zz
(x, y, z) = 2y
4
The Hessian is:
f

(x, y, z) =

xx
(x, y, z) f

xy
(x, y, z) f

xz
(x, y, z)
f

yx
(x, y, z) f

yy
(x, y, z) f

yz
(x, y, z)
f

zx
(x, y, z) f

zy
(x, y, z) f

zz
(x, y, z)

0 2y 0
2y 2x 2z
0 2z 2y

5. Question 11.8.3 on page 400 of the textbook (3rd edition). Reproduced here:
Let z = x
p
1
x
p
n
exp(a
1
x
1
+ + a
n
x
n
), where a
1
, . . . , a
n
, and p are constants. Find the
partial elasticities of z with respect to x
1
, . . . , x
n
.
First, recall that:
El
i
z =
z
x
i
x
i
z
To nd
z
x
i
, we keep all other x
j
, j = i, constant. Lets rewrite z separating x
i
from all
other x
j
:
z = [x
p
1
x
p
i1
x
p
i+1
x
p
n
exp(a
1
x
1
+ + a
i1
x
x1
+ a
i+1
x
x+1
+ + a
n
x
n
)] x
p
i
exp(a
i
x
i
)
For simplicity, lets call the term inside the brackets Q. Now lets take the partial derivative
with respect to x
i
and nd the elasticity:
z
x
i
= Q[a
i
x
p
i
exp(a
i
x
i
) + px
p1
i
exp(a
i
x
i
)]
= Qx
p
i
exp(a
i
x
i
)

a
i
+
p
x
i

= z

a
i
+
p
x
i

z
x
i
x
i
z
= z

a
i
+
p
x
i

x
i
z
= a
i
x
i
+ p
So, for any i 1 . . . n, El
i
z = a
i
x
i
+ p.
5