Application of IFT in economics

ASSESSMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Application of IFT in economics.....................................................................................................1
A Merits of using IFT in economics............................................................................................1
Conclusion.......................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Implicit Functional Theorem refers to a tool which allows relations to be transformed into
functions of multiple real variables (Magnus and Neudecker, 2019). This is done by representing
relations as graph of functions. It is done by representing the relations as graph of functions.
There is not single function the graph of which could be represented by the entire relations there
could be such functions on restriction of domain of relations (Agler, 2016). It gives sufficient
conditions for ensuring that there exists such functions. The present report is going to explore the
use of IFT theorem in economics, with a number of illustrations to determine major benefits of
same as well.
Application of IFT in economics
A Merits of using IFT in economics
The functional theorem allows economists in finding the relationship between the
variables of productions in a slope form (Baldi and Haus, 2017). Usage of Implicit Functional
Theorem in economics, a company can analyse conditions to maximise its profit with less capital
and labour requirements.
To examine the merits of applying IFT in economical problems, take an example of two
variables related with productions in a firm (Magnus and Neudecker, 2019). It includes labour
and capital, which are considered as main aspects for producing a commodity. Hereby, capital is
defined as cash which is used for producing goods while, labour refers to amount of work for the
same.
Case I
Problem Statement of Case I
Consider a firm uses capital K and labour L as two main functions, then relationship
between two variables that are labour and capital in production, can be defined by a function in
following way –
Q = F (L, K)
where, L represents labour and K denotes capital
the level curve of this function at equal production, can be defined as Isoquant function –
Q0 = F (L, K)
Differentiating this function partially with respect to L, result will be –
ӘQ + ӘQ . ӘK = 0
ӘL ӘK ӘL
or,
1