chapter  3
9 Pages

Exponential and logarithmic functions

Logarithmic functions are indispensable in economic analysis as they can transform multiplicative relationships between economic variables into additive ones. In addition, economists often choose (for the sake of convenience) to optimize the natural log of an objective function instead of the objective function itself. Exponential functions are very useful when modeling the growth of a certain economic variable. For example, we can use exponential functions to model the growth of the population of a country.