How Economics

and Calculus are

Related
Hayley Bingham, Sam Dunn,
Jessica Nicholson

The Basics
O Economists use mathematical models to predict

everything from demand for a good to the

unemployment rate to whether or not an individual will
get married
O These models are typically designed as functions.
O Demand for a good is a function of the price of the
good, the price of substitute goods, and income.
O A function describes the position of a moving object
and its velocity and a function describes the position
of a point on a curve and the slope of the tangent line
at that point
O The biggest aspect that is a part of both calculus and
economics is derivatives

Derivatives in Economy
O In Econ we are given this basic formula:

Total Cost Function=Q^2+9Q

With this formula we set a simple number as Q
(i.e. 10) and solve from there.
10^2+9(10)= 190
From this formula we are able to find many
things other then total cost, we can find cost
per unit just by dividing total cost by the unit
(Q).

Cost per unit

formula.?
Total Cost Per Unit:
(Q^2+9Q)/Q
Or

Q+9
O Again if Q=10, When 10 units are produced the

cost per unit would be 19. But, this can be viewed

as deceptive. We can get rid of this deceptive
factor by looking at the derivative of the total
cost formula or the marginal cost formula

Derivatives in Econ
What is the derivative of Q^2+9Q?

Derivatives in Econ
What is the derivative of Q^2+9Q?

2Q+9=Marginal Cost
If Q=100, the Marginal Cost would be
209. Just like before if we want the
change in marginal cost we need to
find the derivative.

Derivatives in Econ
Derivative of 2Q+9
Change in Marginal Price= 2
Basically in economics you can begin with
one function and be able to fund multiple
pints of information by taking derivatives. You
can learn the relationship between variables,
like total values, changes in total values, as
well as changes in marginal values

Minimums and
Maximums
First and second
derivatives are used in Economics to

find things such as maximizing profit, minimizing cost,

maximizing utility, etc.
O Steps to find relative max and min of a function:
-Take the first derivative of function and find
the function for the slope
-Set derivative equal to 0, and solve for x to
get critical values
-Take the second derivative of the original
function
-Use the critical values found in the second
step and plug them into the second derivative that you
found and solve. Here you will be looking at the signs of
the outcomes

Min and Max Example

f(x) = -9x2+126x-45
Step one: Find the derivative

Min and Max Example

f(x) = -18x+126
Step 2: Set equal to zero and find CVs

Min and Max Example

= -18x+126 = 0
18x = 126
x = 7 (Critical Value)
Step 3: Take the second derivative of
the function

Min and Max Example

f(x) = -18
Step 4: Plug in CVs (pay attention to
the sign only)

Min and Max Example

When x = 7, f(x) = -18
Negative sign
Since the second derivative will always
be negative no matter the x-value we
learn that the function has a relative
maximum and that it has a single
turning point, so the relative max is
also an absolute max

Parallels with Econ and Calc

Eulers Method:
O In Economics, Eulers is estimating

the cost based on the marginal cost

function and the fixed cost.
O In Calculus, Eulers is estimating the
position based on the velocity
function and initial position.

Parallel with Econ and Calc

Mean Value Theorem:
O Both, At some point in time the instantons

velocity is the average velocity

O For Calculus, Mean Velocity. If s is continuous
on [a,b] and differentiable on (a,b) then there
is a time (t*) where v(t*) = [s(b) s(a)]/[b a]
O For Economics, Average Profit. If P is
continuous on [a,b] and differentiable on (a,b)
then there is a level of production x* where
MP(x*) = [P(b) P(a)]/[b a]

Parallel with Econ and

Calc
Average Value:
O In Calculus, The average value of the

velocity is the integral from a to b of

v(t) dt/[b a]
O In economics, The average value of
the marginal cost is the integral from
a to b of MC(x) dx/[b a]

Homework