1-16-09 - st derivative). EXAMPLE: Two different payment...

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Microeconomics – Class Notes – 1/16/09 CALCULUS Review We will be working on a lot of Calculus first. We use calculus to validate our hypotheses and/or theories – we can see the implications of the theory and if they are true or not. Utility (from money) – Variable “ x ” is the amount of money The function U is utility. U(x) The utility from money. As x increases, U increases. Curve 1 is what we expect: As X increases, U increases at a decreasing rate. The first dollar that we get is worth more to us than the billionth dollar. This is called the diminishing marginal utility for money.
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(The change in utility) / (change in X) = the marginal utility. How much extra utility do I receive from consuming an extra $ The second derivate = derivative of the first derivative (1
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Unformatted text preview: st derivative). EXAMPLE: Two different payment schemes: Payment Scheme Pay Payment A $100 Payment B 50% of $200 50% of $0 We prefer payment scheme A instead of payment scheme B because B is riskier . The Expected value of A = $100 The Expected value of B = 0.5*(200) + (0.5)*(0) = 100 Those who choose A also have a diminishing marginal utility. People who prefer A experience less utility with each additional dollar they earn. Addition Rule : If f(x) = g(x) + h(x) SUMMARY He just wants us to know how to take derivatives and then use those tools to analyze profits and functions. This is the extent of the calculus we will be doing in this class. HOMEWORK: Read the Calculus Appendix (CA) Complete the rest of the worksheet...
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1-16-09 - st derivative). EXAMPLE: Two different payment...

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