Useful Math Results for ECON309
1. Fractions
i. A fraction a / b multiplied by another fraction c / d gives
a c ab
b d cd
ii. A fraction a / b divided by another fraction c / d gives
a / b a d ad
.
c / d b c bc
iii. A fraction a / b divided by a constant c gives
a/b a 1 a
.
c b c bc
iv. A constant a divided by a fraction c / d gives
a a d ad
.
c/d 1 c c
v. A fraction a / b added/subtracted to another fraction c / d gives
a c ad cb
b d bd
2. Numbers and exponents
i. If x, y, and n are real numbers, where y x n we say y is equal to x to the power of n. The
term n is known as the exponent.
ii. If n is a positive integer, then y is the product of n terms
y x x x ... x
iii. If n is a negative integer, then y is the inverse of the product of n terms
1
y
x x x ... x
iv. The product of two numbers x and x has an exponent equal to as
x x x
v. The division of two numbers x and x has an exponent equal to as
x / x x
vi. If x is taken to a power k, the exponent becomes
x
k
x k
3. Inequalities
i. If we have an inequality involving positive values such as x b , then multiplying by -1
reverses the direction of the inequality to give
x b
ii. Inverting both sides of the inequality x b also reverses the direction of the inequality to
give
1 1
x b
4. Sigma notation
i. The Greek letter (sigma) is shorthand for ‘the sum of’. The expression
n
x
i 1
i x1 x2 x3 ... xn
ii. Four rules (assuming k is a constant and y is another variable):
n n
1) kxi k xi
i 1 i 1
n
2) k nk
i 1
n n
3) x k x nk
i 1
i
i 1
i
n n n
4) xi yi xi yi
i 1 i 1 i 1
5. Linear models
i. The general representation of a linear model is y = a + bx
ii. The y variable on the left hand side is the ‘dependent’ variable and the x variable on the
right hand side is the ‘independent’ variable.
iii. The first parameter ‘a’ is the intercept term and is value of y when x = 0.
iv. The second parameter ‘b’ is the slope term and is the change in y associated with a one
change in x, such that
y
b
x
6. Quadratic models
i. The general form of the quadratic function is y a bx cx 2
ii. Using the quadratic formula, we can solve for the x intercepts (i.e. roots) of the function
(provided they exist). The quadratic formula is
b b 2 4ac
x
2a
iii. To determine how many solutions (x intercepts) exist, we use the value of the part of the
solution called the discriminant, or b 2 4ac . The rules we apply are
b 2 4ac 0 : two real solutions
b 2 4ac 0 : one real solution
b 2 4ac 0 : no real solutions
7. Logarithmic functions
i. The ‘natural logarithm’ (written ln) of any number is obtained by expressing that number in
terms of Euler’s ‘e’ or 2.71828. For example, the number 32 can be written as 32 e3.4657 and
ln(32) 3.4657 .
ii. If a and b are positive real numbers and c is any real number, then the following rules hold
1) ln( ab) ln( a ) ln(b)
2) ln( a / b) ln( a ) ln(b)
3) ln(a c ) c ln(a )
8. Geometric series
i. In a geometric series, each value is equal to the previous value multiplied by a common
ratio. Let the first term be a and the common term be r. For an n term series this is
a, ar , ar 2 , ar 3 , ar 4 ,..., ar n 1
ii. The sum to n terms is
a ar n a (1 r n )
Sn
1 r 1 r
iii. When the common factor r is less than one, then as k the sum becomes
a
S
1 r
9. Differential calculus
i. The formal definition of the derivative is
dy y
lim
dx x0 x
ii. To find the derivative in practice, assume a power law of the form y x n , then the derivate
for any real value of n is found as follows
dy
nx n 1
dx
iii. For the function of the form y kx n , the derivative is
dy
k (nx n1 )
dx
iv. Rules for differentiation
1) For any function of the form y ( x ) f ( x ) g ( x )
dy df dg
dx dx dx
2) If y is the product of different functions of x of the form y g ( x) f ( x) , then it the
derivative is given by the ‘product rule’ as follows
dy df dg
g ( x) f ( x)
dx dx dx
3) For any function y that is equal to the quotient of two functions such as
f ( x)
y
g ( x)
the derivative is given by the quotient rule
df dg
dy dx ( x ) − dx f (x)
g
dx [ g ( x )]2
4) When y can be written as a function of another function of x, with y f [u ( x )] the
derivative is given by the ‘function of a function’ or ‘chain rule’ as follows
dy dy du
dx du dx
v. If a function contains more than one variable (i.e. multivariate as opposed to univariate),
then the derivatives are known as partial derivatives. For example, the partial derivatives for
a function of the form z f ( x, y ) are the following
z z
,
x y
vi. If a function contains more than one variable (i.e. multivariate as opposed to univariate),
then it may be necessary to ‘totally differentiate’ the function. Total differentiation of a
function of the form z f ( x, y ) leads to the following
z z
dz dx dy
x y
10. The derivative and important economic concepts
i. For a linear cost function C = F +cq, where F is fixed cost and c is per unit cost, marginal
dC
cost can be written as MC c.
dq
ii. For a linear demand curve of the form P = A – BQ, revenue can be written
R P Q ( A BQ)Q AQ BQ 2
dR
It follows marginal revenue can be written as MR A 2 BQ .
dQ
iii. The price elasticity of demand can be written
Q
Q Q P
P P Q
P
dQ P
For small changes in price, we define this as the point elasticity of demand .
dP Q
11. Optimisation
i. The derivative can be used to determine the point (or points) at which a maximum,
minimum or inflection occurs. This is done by solving the ‘first order condition’ such that
dy
0
dx
ii. To determine whether the solution of the first order condition is a ‘maximum’, ‘minimum’,
or point of ‘inflection’ we can check the second order conditions. Specifically
d2 y
If 0 the function has a maximum.
dx 2
d2 y
If 0 the function has a minimum.
dx 2
d2 y
If 0 the function has an inflection point.
dx 2
iii. One well know example of solving a first order condition is to find the level of output q
that maximises a firm’s profit, which we define as
(q) R (q) C (q ) .
d
Solving the first order condition requires 0 . This can also be written as
dq
d dR dC
MR MC 0 MR MC .
dq dq d q
iv. If the function is of multivariate form such as z f ( x, y) , then solving for a maximum or
minimum (or inflection or saddle point), requires solving two first order conditions given by
dz dy
0, 0
dx dx
Evaluation of whether this solution represents a maximum or minimum also requires
evaluating second order derivatives, but these methods will not be discussed in this unit.
