Differentiation

Abstract

Economists are interested in the effects of change. Therefore, the concept of the derivative of a function, which provides information about how a function changes in response to changes in the independent variable, is an important one in economic analysis. For example, the derivative of a production function provides information about the manner in which the output of a production process changes as the number of workers employed by the company changes. Differentiation is the mathematical tool that allows us to quantify such rates of change. As we will see in Chapter 7, differentiation is also an important tool in the determination of the maximum or minimum values of economic functions such as profit and cost.