Mathematical Economics

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Mathematical Economics

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- O’Regan-Existence Theory for Nonlinear Ordinary Differential Equations
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Anda di halaman 1dari 22

sup f (x) = limx0

(1,0)

1

= +.

x

2. It can be shown (e.g. by construction) that in R (in any completely ordered set)

sup and inf of any finite set coincide respectively with max and min.

If D Rn is finite also f (D) = {x R | x D s.t. f (x) = x} is.

The result is implied by the Weierstrass theorem because every finite set A is compact, i.e. every sequence in A have a constant (hence converging) subsequence.

3. a) Consider x

= max{D}, which exists because D is compact subset of R,

f (

x) is the desired maximum, because x D such that x x

,

= x D such that f (x) f (

x);

b) consider D {(x, y) R2+ | x + y = 1} R2 ,

D is the closed segment from (0, 1) to (1, 0), hence it is compact,

there are no two points in D which are ordered by the partial ordering,

hence every function D R is nondecreasing,

consider:

f (x, y) =

max f on D is limx0 f (x, y) = limx0

1

x

if x = 0

0 if x = 0

1

x

= +.

4. A finite set is compact, because every sequence have a constant (hence converging) subsequence.

Every function from a finite set is continuous, because we are dealing with the

discrete topology, and every subset is open (see exercise 11 of Appendix C for the

correct statement of Corollary C.23 (page 340)).

We can take a subset A of cardinality k in Rn and construct a one-to-one function

assigning to every element of A a different element in R.

A compact and convex subset A Rn cannot have a finite number k 2 of

elements (because otherwise aA ak is different from every a A but should be

in A).

Suppose A is convex and a, b A such that f (a) = f (b), then f[a,b] () =

f (a + (1 )b) is a restriction of f : A R but can be also considered as a

function f[a,b] : [0, 1] R.

By continuity every element of [f (a), f (b)] R must be in the codomain of f[a,b]

(the rigorous proof is long, see Th. 1.69, page 60), which is then not finite, so that

neither the codomain of f is.

5. Consider sup(f ), it cannot be less than 1, if it is 1, then max(f ) = f (0).

Suppose sup(f ) > 1, then, by continuity, we can construct a sequence {xn

x s.t. x >

R+ | f (xn ) = sup(f ) sup(fn )1 , moreover, since limx f (x) = 0,

x

, f (x) < 1.

{xn } is then limited in the compact set [0, x], hence it must converge to x

. f (

x) is

however sup(f ) and then f (

x) = max(f ).

f (x) = ex , restricted to R+ , satisfies the conditions but has no minimum.

6. Continuity (see exercise 11 of Appendix C for the correct statement of Corollary

C.23 (page 340)) is invariant under composition, i.e. the composition of continuous

functions is still continuous.

Suppose g : V1 V2 and f : V2 V3 are continuous, if A V3 is open then, by

continuity of f , also f 1 (A) V2 is, and, by continuity of g, also g1 (f 1 (A)) V1

is.

g1 f 1 : V3 V1 is the inverse function of f g : V1 V3 , which is then also

continuous.

We are in the conditions of the Weierstrass theorem.

7.

1 x 0

g(x) =

x

x (0, 1)

1

x1

f (x) = e|x|

attained.

8.

min p x subject to x D {y Rn+ | u(y) u

}

s.t. u : Rn+ R is continuous, p

there are two possibilities: (i) u is nondecreasing in x, (ii) u is not;

(i) D is not compact,

we can however consider a utility U and define WU {y Rn+ | u(y) U },

by continuity of u, WU is compact,

for U large enough D WU is not empty and the minimum can be found in it;

maximal utility may be at 0,

so D may be compact, if not we can proceed as in (i);

b) if u is not continuous we could have no maximum even if it is nondecreasing

(see exercise 3);

if pi < 0, and u is nondecreasing in xi , the problem minimizes for xi +.

9.

max p g(x) w x s.t. x Rn+

with p > 0, g continuous, w

a solution is not guaranteed because Rn+ is not compact.

10.

F (p, w) = {(x, l) Rn+1

| p x w(H l), l H}

+

F (p, w) compact = p

0 (by absurd):

F would not be compact;

p

0 = F (p, w) compact:

l is limited in [0, H],

i {1, . . . n}, xi is surely limited in [0, w(Hl)

].

pi

11.

max U (y()) subject to { RN | p 0, y() 0}

S

where ys () = s + N

i=1 i zis , U : R+ R is continuous and strictly increasing

(y

y in RS+ if yi yi i {1, . . . , S} and at least one inequality is strict).

0.

(=) (by absurd: (A = B) (B = A) )

suppose RN such that p 0 and Z t

0, then any multiple k of

has the same property,

y(k ) increases linearly with k and then also U (y(k )) increases with k,

max U (y(k )) is not bounded above;

(=) RN such that p 0 there are two possibilities:

either N

i=1 i zis = 0 s {1, . . . S},

or s {1, . . . S} such that N

i=1 i zis < 0;

in the first case the function of k U (y(k )) : R R is constant,

then a maximum exists,

in the second case y() 0 impose a convex constraint on the feasible set,

by Weierstrass theorem a solution exists.

12.

max W u1 (x1 , h(x)), . . . un (xn , h(x))

n

n+1

, wx=

xi

i=1

the problem is moreover well defined only if x [0, w] such that h(x) 0;

the simplex w {(x, x) [0, w]n+1 | x + ni=1 xi = w} is closed and bounded,

if h(x) is continuous H = {(x, x) [0, w]n+1 | h(x) 0} is closed because the

inequality is not strict,

then the feasible set w H is closed and bounded because intersection of closed

and bounded sets.

13.

max (x) = max xp(x) c(x)

xR+

a) x > 0 such that p(x ) = 0, then, x > x , (x) (0) = 0,

the solution can then be found in the compact set [0, x ] R+ ;

b) now x > x , (x) = (0) = 0, as before;

c) consider c(x) = 2p x, now (x) =

not bounded above.

p

2

14. a)

max v(c(1), c(2)) subject to c(1)

0, c(2)

10

0, p(1) c(1) +

p(2)

c(2) W0

1+r

b) we can consider, in R2n , the arrays c = (c(1), c(2)) and p = (p(1), p(2)

1+r ), the

conditions

c(1)

0, c(2)

0, p(1) c(1) +

p(2)

c(2) W0

1+r

become

c

0, p c W0

p(1)

0 and p(2)

0.

0 if and only if

15.

0 x1 y 1

0 x2 f (y1 x1 )

subject to

0 x3 f (f (y1 x1 ) x2 )

lets call A the subset of R3+ that satisfies the conditions, A is compact if it is closed

and bounded (Th. 1.21, page 23).

It is bounded because

A [0, y1 ] [0, max f ([0, y1 ])] [0, max f ([0, max f ([0, y1 ])])] R3+

and maxima exist because of continuity.

Consider (

x1 , x

2 , x

3 ) Ac in R3+ , then (if we reasonably suppose that f (0) = 0),

becasue of continuity, at least one of the following holds:

x

1 > y1 , x

2 > f (y1 x

1 ) or x

3 > f (f (y1 x

1 ) x

2 ).

If we take r = max{

x1 y 1 , x

2 f (y1 x

1 ), x3 f (f (y1 x

1 ) + x

2 )}, r > 0 and

c

B((

x1 , x

2 , x

3 ), r) A .

Ac is open = A is closed.

11

1. Consider D = [0, 1] and f : D R, f (x) = x:

arg maxxD f (x) = 1, but Df (1) = 1 = 0.

2.

2

f (x) = 1 2x 3x = 0 for x =

1+3

=

3

1

1

3

f (1) = 4

f ( 13 )

= 4

f (x) = 2 6x ,

1 is a local minimum and 13 a local maximum, they are not global because

limx = + and limx+ = .

3. The proof is analogous to the proof at page 107, reverting the inequalities.

4. a)

fx = 6x2 + y 2 + 10x

fy = 2xy + 2y

D2 f (x, y) =

= y = 0 x = 0

12x + 10

2y

2y

2x + 2

(0, 0) is a minimum;

b)

fx = e2x + 2e2x (x + y 2 + 2y) = e2x (1 + 2(x + y 2 + 2y))

fy = e2x (2y + 2)

= y = 1

1

1

1

= f ( , 1) = e

2

2

2

since limx f (x, 1) = 0 and limx+ f (x, 1) = +, the only critical point

( 21 , 1) is a global minimum;

1 + 2(x + 1 2) = 0 = x =

fx = ay 2xy y 2

fy = ax 2xy x2

1

1

2

2

= (0, 0) (0, a) (a, 0) ( a, a) ( a, a)

5

5

5

5

D2 f (x, y) =

2y

a 2x 2y

a 2x 2y

2x

12

d) when sin y = 0, limits for x are ,

fx = sin y

fy = x cos y

= (0, ky) k Z = {. . . , 2, 1, 0, 1, . . .}

adding ( , ) to them, f is negative,

critical points are saddles;

e) limits for x or y to are +, a R,

fx = 4x3 + 2xy 2

fy = 2x2 y 1

= y =

1

1

= 4x3 = = impossible

2

2x

x

f) limits for x or y to are +,

fx = 4x3 3x2

fy = 4y 3

3

= (0, 0) ( , 0)

4

g) limits for x or y to are 0,

fx =

fy =

since f (1, 0) =

minimum;

1

2

1x2 +y 2

(1+x2 +y 2 )2

2xy

(1+x2 +y 2 )2

= (1, 0) (1, 0)

limits for y to depends on the sign of (x2 1),

3

fx = x8 + 2xy 2 1

fy = 2y(x2 1)

D 2 f (x, y) =

3 2

8x

y = 0 = x = 2

x = 1 = y = 47

x = 1 = impossible

+ 2y 2

4xy

4xy

2y(x2 1)

13

D2 f (2, 0)

D2 f (1,

3

2

0

0 0

7

4 )

D2 f (1,

= saddle,

5

7

= saddle.

0

7

7

4 )

4

7

7

0

= saddle,

f (x) = 2 + 2x + 2(9 x) x2 (9 x)2 = 2x2 + 18x 61

which is a parabola with a global maximum in x =

9

2

= y = 92 .

considering then that:

lim inf

f (x ) f (y) =

yx

lim inf

yB(x , )x

f (x ) f (y) 0

1 lim inf = lim sup

we have the result;

b) a limit may not exist, while lim inf and lim sup always exist if the function

is defined on all R;

c) if x is a strict local maximum the inequality for lim inf yx is strict, so also

the two inequalities to prove are.

7. Consider f : R R:

f (x) =

1 xQ

0 otherwise

not constant in x = 0.

8. f is not constant null, otherwise also f would be constant null,

since limy f (y) = 0, f has a global maximum x

, with f (

x) > 0 and f (

x)

x is the only point for which f (x) = 0 = x = x

.

9. a) > 0:

d f

df

= (f )

,

dxi

dxi

df

d f

= 0 =

=0

dxi

dxi

Df (x ) = 0 = D f (x ) = 0

14

b)

df

df df

d

d2 f

d2 f

(f )

= (f )

=

+ (f )

dxi dxj

dxj

dxi

dxi dxj

dxi dxj

df

d2 f

d2 f

= 0 =

= (f )

dxi

dxi dxj

dxi dxj

Df (x ) = 0 = D 2 f (x ) = (f (x )) D 2 f (x )

a negative definite matrix is still so if multiplied by a constant.

10. Let us check conditions on principal minors (see e.g. Hal R. Varian, 1992,

Microeconomic analysis, Norton, pp.500-501).

f x1 x1 . . . fx1 xn

..

..

D2 f (x) = ...

.

.

f x1 xn . . . fxn xn

1) fx1 x1 > 0,

2) fx1 x1 fx2 x2 fx21 x2 > 0,

...

n) |D 2 f (x)| > 0;

fx1 x1 . . . fx1 xn

gx1 x1 . . . gx1 xn

..

..

.. = D 2 f (x) =

..

..

D2 g(x) = ...

.

.

.

.

.

fx1 xn . . . fxn xn

gx1 xn . . . gxn xn

1) fx1x1 < 0,

2) (fx1 x1 ) (fx2 x2 ) (fx1 x2 )2 > 0,

...

n) |D 2 f (x)| < 0 if n is odd, |D 2 f (x)| > 0 if n is even;

the ith principal minor is a polinimial where all the elements have order i,

it is easy to check that odd principal minors mantain the sign of its arguments,

while even ones are always positive,

hence D 2 f (x) positive definite = D 2 f (x) negative definite.

15

1. a)

L(x, y, ) = x2 y 2 + (x2 + y 2 1)

=0

Lx = 2x + 2x = = 1 x = 0

=0

Ly = 2y + 2y = = 1 y = 0

=0

L = x2 + y 2 1 =

x = 0 y = 1 = 1

y = 0 x = 1 = 1

b)

f (x) = x2 (1 x2 ) = 2x2 1 =

min for x = 0

max for x =

admissible only for x [1, 1].

1 x2 ,

2. a) Substituting y 1 x:

f (x) = x3 (1 x)3 = 3x2 3x + 1 = max for x =

b)

L(x, y, ) = x3 + y 3 + (x + y 1)

=0

Lx = 3x2 + = = 3x2

=0

Ly = 3y 2 + = = 3y 2

= x = y

x=y

L = x + y 1 = x = y =

x=y=

1

2

1

2

3. a)

L(x, y, ) = xy + (x2 + y 2 2a2 )

=0

Lx = y + 2x = (y = 0 = 0) y = 2x

=0

Ly = x + 2y = (x = 0 = 0) x = 2y

x = 0 y = 2a

=0

L = x2 + y 2 2a2 =

y = 0 x = 2a

y = 2x x = 2y

16

(0, 2a) and ( 2a, 0) are saddle points, because f (x, y) can be positive or negative for any ball around them;

y = 2x x = 2y imply:

= 12 , x = y, and x = a,

the sign of x does not matter, when x = y we have a maximum, when x = y a

minimum.

b) substitute x

x1 , y

1

y

and a

1

a

L(

x, y, ) = x

+ y + (

x2 + y2 a

2 )

1

=0

Lx = 1 + 2

x = x

=

2

1

=0

Ly = 1 + 2

y = y = = x

2

2

=0

a

L = x

2 + y2 a

2 = x

= y =

2

for x

and y negative we have a minimum, otherwise a maximum.

c)

L(x, y, x, ) = x + y + z + (x1 + y 1 + z 1 1)

=0

Lx = 1 x2 = x =

=0

. . . = y =

=0

. . . = z =

when all positive (x = y = z = 3).

d) substitute xy = 8 (x + y)z = 8 (5 z)z:

f (z) = z(8 (5 z)z) = z 3 5z 2 + 8z

2

=0

fz = 3z 10z + 8 = z =

25 24

=

3

as z , f (z) ,

fzz = 6z 10 is negative for z = 34 (local maximum)

and positive for z = 2 (local minimum),

17

2

4

3

when z = 34 , x + y = 5 z = 11

3 and xy = 8 (x + y)z =

= one is also 43 and the other 73 ,

28

9

= one is also 2 and the other is 1;

e) substituting y

16

x:

=0

= fx = 1 x162 = x = 4

f (x) = x + 16

x

when x = 4 and y = 41 we have a minimum, maxima are unbounded for limx0

and limx ;

f) substituting z 6 x and y 2x:

f (x) = x2 + 4x (6 x)2 = 16x 36 ,

f (x) is a linear function with no maxima nor minima.

only the point (0, 0).

in the point where the tangent of the explicit function y = f (x) is 1;

for x and y positive the explicit function becomes:

(x2 + y 2 )2 = x2 y 2

x4 + 2x2 y 2 + y 4 x2 + y 2 = 0

y 4 + (2x2 + 1)y 2 + x4 x2 = 0

y

y = f (x) =

2x2 1 +

2

2x2 + 1 + 8x2 + 1

2

(x , y ) will be the arg min.

18

5. a) (x 1)3 = y 2 implies x 1,

f (x) = x3 2x2 + 3x 1 = fx = 3x2 4x + 3 which is always positive for

x 1,

since f (x) is increasing, min f (x) = f (1) = 1 (y = 0);

b) the derivative of the constraint D((x 1)3 y 2 ) is (3x2 6x + 3, 2y) ,

which is (0, 0) in (1, 0) and in any other point satisfying the constraint,

hence the rank condition in the Theorem of Lagrange is violated.

6. a)

1

L(x, ) = c x + x Dx + (Ax b)

2

n

n

n

1

xj Dji xi +

ci xi +

=

2

i=1

i=1

Lxi = ci + Dii xi +

1

2

j=1

n

xj Dji +

j=1,j=i

m

i

i=1

n

j=1

Aij xj bi

m

j Aji

xj Dij +

j=1

j=1,j=i

j Aji

xj Dij +

= ci +

1

2

j=1

j=1

n

Li

=

j=1

Aij xj bi

b). . .

7. The constraint is the normalixation |x| = 1, the system is:

f (x) = x Ax

n

i=1

n

j=1

xj Aji xi

=

f xi = 2

xj Aji

j=1

n

j=1,j=i xj Aji

xi =

Aii

x =

A21

A11

..

.

0

..

.

...

...

..

.

A1n

Ann

A2n

Ann

...

0

A12

A22

such that |x | = 1

19

An1

A11

An2

A22

..

.

0

x B x

for any eigenvectors of the square matrix B, its two normalization (one opposite

of the other) are critical points of the problem;

A11 . . . An1

.. , x is constant,

..

since D2 f (x) = 2 ...

.

.

A1n . . . Ann

all critical points are maxima, minima or saddles, according wether A is positivedefinite, negative-definite or neither.

8. a)

dt

The function s(t) quantifying the stock is periodic of period T = x dI

,

RT

s(t)

x

in this period the average stock is 0 T = xT

2T = 2 ,

in the long run this will be the total average;

b)

L(x, n, )

Lx = C2h + n

Ln = C0 + x

x

+ C0 n + (nx A)

2

C0

Ch

=0

x=

= n =

2

Ch

=0

Ch C0

= A = =

22

L = nx A =

Ch C0

2A

this happens for 1 1;

if otherwise one of them , say is less than 1,

the problem is unbounded at limx1 0 x1 + x2 = +.

10.

20

a)

if w1 < w2 it is clear from the graph that (1, 0) is the cheapest point in X,

similarly, if w2 < w1 , the cheapest point is 0, 1,

if w1 = w2 they both cost w1 = w2 ;

b) if nonnegativity constraints are ignored:

min w1 x1 + w2 x2 =

x21 +x22 1

lim

w1 x1 + w2 x2 =

1

max x 2 + y 2 s.t. px + y = 1

L(x, y, )

Lx =

Ln =

1 12

2x

1 12

2y

+ p

+

x 2 + y 2 + (px + y 1)

=0

= x = (2p)2 y = (2)2

=0

L = px + y 1 = p(2p)2 + (2)2 = 1

p

1

p2 + p

+

=

= 1 = =

42 p2 42

42 p2

p2 + p

2p

the unique critical point, with both positive components,

1

x 2 + y 2 = 1+p

=

2

p +p

1+p

p

21

p2

,

p2 +p

1. Since the function is increasing in both variables, we can search maxima on the

boundary,

f (x) = ln x+ln

1 1 2x

1 2x2

1

=

1 x2 = ln x+ ln(1x2 ) = fx =

2

x 2 1 x2

(1 x2 )x

2

2

= x =

= y =

2

2

which is the argument of the maximum.

=0

f () =

=0

py

sin

=

cos

pz

y

py

=

z

pz

sin =

p2y

py

+ p2z

cos =

p2y

pz

+ p2z

y= x

p2y

py

+ p2z

z= x

p2y

pz

+ p2z

py pz

py

pz

x p2 +p2 ) is a maximum and ( x p2 +p

( x p2 +p

x p2 +p2 ) is a minimum.

2,

2,

y

max x1 x2 x3 s.t. x1 [0, 1], x2 [2, 4], x3 = 4 x1 x2

max f (x1 , x2 ) = 4x1 x2 x21 x2 x1 x22 s.t. x1 [0, 1], x2 [2, 4]

consider only x1 ,

4x2 x22

= 2 21 x2 ,

f (x1 ) = 4x1 x2 x21 x2 x1 x22 has a maximum for x1 = 2x

2

by simmetry a maximum is for x1 = x2 = 34 , which is however not feasible,

nevertheless, for x1 [0, 1] the maximum value for x2 [2, 4] is 2,

we get then x1 = 1 and x3 = 1;

b)

22

6 x1 2x2

3

1

2

max f (x1 , x2 ) = 2x1 x2 x21 x2 x1 x22 s.t. x1 [0, 1], x2 [2, 4]

3

3

2x2 32 x22

2

x

3 2

f (x2 ) when x2 =

2x1 31 x22

4

x

3 2

3

2

= 3 x2 ,

14 x1 ,

nevertheless, for x1 [0, 1] the maximum value for x2 [2, 4] is again 2,

hence x1 is again 1 and x3 = 1.

4. The argument of square-root must be positive, the function is increasing in all

variables, so we can use Lagrangean method:

T

L(x, ) =

t=1

t=1

Lx i =

2t xt +

1

2i1 xi 2

xt 1

otherwise, for i < j, i, j {1, . . . T }:

12

2i1 xi

21

= 2j1 xj

1

2

xi

xj

xi

2j+1

= 22(ji)

= 2ji =

2i+1

xj

since they must sum to 1:

x1 = 1/

T 1

i=0

1

4i , x2 = /

4

T 1

1

x ,

22(T 1) 1

4i , . . . xT =

i=0

1

1 14

4

3.

/

4(T 1)

T 1

i=0

5. a)

min w1 x1 + w2 x2 s.t. x1 x2 = y2 , x1 1, x2 > 0

the feasible set is closed but unbounded as x1 +

b) substituting x2 =

y2

x1

we get:

23

4i

f (x1 ) = w1 x1 + w2 xy1

2

=0

f (x1 ) = w1 w2 xy2

= x1 = +

1

if

w2

w1 y

w2

y

w1

since x1 > 1

since x1 > 1

w1

w2 y,

in both cases satisfying Kuhn-Tucker conditions:

L(x1 , x2 , 1 , 2 )

for

w2

y,

w1

w1 x1 + w2 x2 + 1 (

y 2 x1 x2 ) + 2 (x1 1)

w1

y

w2

w2

y

=0

Lx2 = w2 1 x1 = 1 =

w1

w2

=0

Lx1 = w1 1 x2 + 2 = 2 = 0

for (1, y 2 )

=0

Lx2 = w2 1 x1 = 1 = w2

=0

Lx1 = w1 1 x2 + 2 = 2 = w2 y 2 w1 .

6.

1

max

f (x1 , x2 ) =

max

max f (x, y) = max x(p1 + p2 y) w1 x2 w2 y 3

(x,y)R2+

(x,y)R2+

=0

fx = p1 + p2 y 2w1 x = x =

p2

p22 y

p2 p1

=0

fy = xp2 3w2 y =

+

3w2 y 2 = y =

2w1

2w1

2

p1 + p2 y

2w1

for p1 = p2 = 1 and w1 = w2 = 2 we have:

24

2w21

p22

2w1

3w2

+ 6 w2wp12 p1

y=

41 +

1

16

+6

97 1

97

= x =

24

96

4

1

1 12y

every y 0,

it is a global one for positive values because it is the only critical point.

variables, the problem is:

max f (x, y) = x + x2 y such that 4x2 + 5y = 100

(x,y)R2+

4

max f (x) = x + 20x2 x4

5

xR+

16 3

x

5

with numerical methods it is possible to calculate that the only positive x for which

fx = 0 is x 3.5480,

where f (x) 128.5418,

48

2

since fxx = 40 48

5 x < 40 5 5 < 0, it is a maximum,

we obtain x1 12.5883 and x2 9.9294;

fx = 1 + 40x

max fa (x, y) = x + x2 y such that 3x2 + 5y = 100 a

(x,y)R2+

which becomes:

max fa (x) = x +

xR+

100 a 2 3 4

x x

5

5

12 3

x

5

the value of a that makes the choice indifferent is when fa (x)

without coupon) and fa = 0,

for lower values of a the coupon is clearly desirable.

fa = 1 + (200 2a)x

8. a)

max u(f, e, l) s.t. l [0, H], uf > 0, ue > 0, ul > 0

25

128.5418 (as

max u

wl (1 )wl

,

,l

p

q

wl

p

and e =

(1)wl

:

q

b)

L(l, , ) = u

Ll =

L =

wl (1 )wl

,

, l + 1 l + 2 (H l) + 3 + 4 (1 )

p

q

du

+ 1 2

dl

du

+ 3 4

d

c) the problem is

max

l[0,16], [0,1]

1

= () 3 (1 ) 3 (3l) 3 l2

we can decompose the two variables function:

2

1

1

f (l, ) = g()(3l) 3 l2 , where g() () 3 (1 ) 3

2

since (3l) 3 is always positive, for l [0, 16],

and g() is always positive, for [0, 1],

g() maximizes alone for = 12 , where f ( 21 ) = 64;

now we have:

1

1

=0

= l = 64 3 3 l 3

4

= l 3

34

64 0.6934 = l

17.1938

always negative

however, since the function is concave, f (l) is increasing in [0, 16],

the agent maximizes working 16 hours (the model does not include the time for

leisure in the utility) and splitting the resources on the two commodities.

9.

1

26

in principle Weierstrass theorem applies but not Kuhn-Tucker because min is continuous but not differentiable.

The cheapest way to maximize min{x2 , x3 } is however when x2 = x3 , the problem

becomes:

1

now also Kuhn-Tucker applies.

10. a)

max p f (L + l) w1 L w2 l s.t. l 0, f C 1 is concave = fl < 0

b)

L(l, ) = p f (L + l) w1 L w2 l + l

Ll = p fl (L + l) w2 +

L = l

l = 0 and = w2 p fl (L + l);

c) pf (L +l)w1 L w2 l maximizes once (by concavity) for pfl (L +l) = w2 ,

when this happens for l 0, the maximum is (by chance) the Lagrangean point,

when instead this happens for l > 0, the maximum is not on the boundary.

11. a)

1

1

1

3 1

Lx 1 =

py x1 4 x24 p1 x1 + 1 x1

4

1

1

3

py x14 x2 4 p2 x2 + 2 x2

Lx 2 =

4

L1 = K1 + x1

L2

= K2 + x2

1

27

43

1

x

x

4 1 2

3

4

1

4

f x2 =

1

4

= x1 = x2 =

1 = 0 = x2 = 41 x1

the firm sells most of x1 and buys only

1

16

units of x2 to produce

1

4

1

4

1

16

units of y;

12. a)

max py (x1 (x2 + x3 )) w x

L(x, ) = py (x1 (x2 + x3 )) w x + x

Lx i

Lx1 = py (x2 + x3 ) w1 + 1

i={2,3}

= py x1 wi + i

Li = xi

x1 =

w3 3

w2 2

=

py

py

x2 + x3

= 3 2 = w3 w2

=

w1 1

py

c) the problem can be solved considering the cheapest between x2 and x3 ,

suppose it is x2 , the problem becomes:

max py x1 x2 w1 x1 w2 x2

which has critical point ( wpy2 , wpy1 ) but its Hessian

0 py

py 0

inite.

The problem maximizes at (+, +) for any choice of py R+ and w R3+ .

28

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