Foundation of Mathematical Economics Solutions

Solutions Manual
Foundations of Mathematical Economics

Michael Carter
November 15, 2002
Solutions for Foundations of Mathematical Economics
c 2001 Michael Carter
All rights reserved
Chapter 1: Sets and Spaces
1.1
{ 1, 3, 5, 7 . . . } or { : is odd }
1.2 Every also belongs to . Every also belongs to . Hence , have
precisely the same elements.
1.3 Examples of nite sets are
the letters of the alphabet { A, B, C, . . . , Z}
the set of consumers in an economy
the set of goods in an economy
the set of players in a game.
Examples of innite sets are
the real numbers
the natural numbers
the set of all possible colors
the set of possible prices of copper on the world market
the set of possible temperatures of liquid water.
1.4 = { 1, 2, 3, 4, 5, 6 }, = { 2, 4, 6 }.
1.5 The player set is = { Jenny, Chris }. Their action spaces are
= { Rock, Scissors, Paper } = Jenny, Chris

1.6 The set of players is = {1, 2, . . . , }. The strategy space of each player is the set
of feasible outputs
= {

+
:
}
where
is the output of dam .

1.7 The player set is = {1, 2, 3}. There are 2
3
= 8 coalitions, namely
() = {, {1}, {2}, {3}, {1, 2}, {1, 3}, {2, 3}, {1, 2, 3}}
There are 2
10
coalitions in a ten player game.
1.8 Assume that ( )
. That is / . This implies / and / ,

or
and
. Consequently,
. Conversely, assume
.
This implies that
and
. Consequently / and / and therefore

/ . This implies that ( )
. The other identity is proved similarly.

1.9
=
1
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0 -1 1
1
-1
1
2
Figure 1.1: The relation { (, ) :
2
+
2
= 1 }
1.10 The sample space of a single coin toss is { , }. The set of possible outcomes in
three tosses is the product
{, } {, } {, } =
{
(, , ), (, , ), (, , ),
(, , ), (, , ), (, , ), (, , ), (, , )
}
A typical outcome is the sequence (, , ) of two heads followed by a tail.
1.11

+
= {0}
where 0 = (0, 0, . . . , 0) is the production plan using no inputs and producing no outputs.
To see this, rst note that 0 is a feasible production plan. Therefore, 0 . Also,
0
+
and therefore 0
+
.
To show that there is no other feasible production plan in
+
, we assume the contrary.
That is, we assume there is some feasible production plan y
+
{0}. This implies
the existence of a plan producing a positive output with no inputs. This technological
infeasible, so that / .
1.12 1. Let x (). This implies that (, x) . Let x
x. Then (, x
)
(, x) and free disposability implies that (, x
) . Therefore x
().
2. Again assume x (). This implies that (, x) . By free disposal,
(
, x) for every
, which implies that x (
). (
) ().
1.13 The domain of < is {1, 2} = and the range is {2, 3} .
1.14 Figure 1.1.
1.15 The relation is strictly higher than is transitive, antisymmetric and asymmetric.
It is not complete, reexive or symmetric.
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1.16 The following table lists their respective properties.
< =
reexive

transitive

symmetric

asymmetric

anti-symmetric

complete

Note that the properties of symmetry and anti-symmetry are not mutually exclusive.
1.17 Let be an equivalence relation of a set = . That is, the relation is reexive,
symmetric and transitive. We rst show that every belongs to some equivalence
class. Let be any element in and let () be the class of elements equivalent to
, that is
() { : }
Since is reexive, and so (). Every belongs to some equivalence
class and therefore
=
()
Next, we show that the equivalence classes are either disjoint or identical, that is
() = () if and only if f() () = .
First, assume () () = . Then () but / (). Therefore () = ().
Conversely, assume () () = and let () (). Then and by
symmetry . Also and so by transitivity . Let be any element
in () so that . Again by transitivity and therefore (). Hence
() (). Similar reasoning implies that () (). Therefore () = ().
We conclude that the equivalence classes partition .
1.18 The set of proper coalitions is not a partition of the set of players, since any player
can belong to more than one coalition. For example, player 1 belongs to the coalitions
{1}, {1, 2} and so on.
1.19
= and
= and
Transitivity of implies . We need to show that . Assume otherwise, that
is assume This implies and by transitivity . But this implies that
which contradicts the assumption that . Therefore we conclude that
and therefore . The other result is proved in similar fashion.
1.20 asymmetric Assume .
=
while
=
Therefore
=
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transitive Assume and .
= and
= and
Since is transitive, we conclude that .
It remains to show that . Assume otherwise, that is assume . We
know that and transitivity implies that , contrary to the assumption
that . We conclude that and
and =
This shows that is transitive.
1.21 reexive Since is reexive, which implies .
transitive Assume and . Now
and
and
Transitivity of implies
and =
and =
Combining
and =
symmetric
and
and

1.22 reexive Every integer is a multiple of itself, that is = 1.
transitive Assume = and = where , . Then = so that is a
multiple of .
not symmetric If = , , then =
1
and / . For example, 4 is a

multiple of 2 but 2 is not a multiple of 4.
1.23
[, ] = { , , , }
(, ) = { }
1.24
() = {, , }
() = {, }
() = {, , }
() = {, }
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1.25 Let be ordered by . is a minimal element there is no element which
strictly precedes it, that is there is no element such that . is the
rst element if it precedes every other element, that is for all .
1.26 The maximal elements of are and . The minimal element of is . These
are also best and worst elements respectively.
1.27 Assume that is a best element in ordered by . That is, for all .
This implies that there is no which strictly dominates . Therefore, is maximal
in . In Example 1.23, the numbers 5, 6, 7, 8, 9 are all maximal elements, but none of
them is a best element.
1.28 Assume that the elements are denoted
1
,
2
, . . . ,
. We can identify the maximal

element by constructing another list using the following recursive algorithm
1
=
1
=
{
if
1
otherwise
By construction, there is no
which strictly succedes
is a maximal element.
1.29
is maximal there does not exist
that is
(
) = { :
} =
is best
for every

for every
That is, every belongs to (
) or (
) = .
1.30 Let be a nonempty set of a set ordered by . is a lower bound for
if it precedes every element in , that is for all . It is a greatest lower
bound if it dominates every lower bound, that is for every lower bound of .
1.31 Any multiple of 60 is an upper bound for . Thus, the set of upper bounds of
is {60, 120, 240, . . . }. The least upper bound of is 60. The only lower bound is 1,
hence it is the greatest lower bound.
1.32 The least upper bounds of interval [, ] are and . The least upper bound of
(, ) is .
1.33
is an upper bound of for every
for every
()
Similarly
is a lower bound of for every
for every
()
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1.34 For every
2
,
if
1
>
1
or
1
=
1
and
2
>
2
Since all elements
2
are comparable, is complete; it is a total order.
1.35 Assume
is complete for every . Then for every , and for all =

1, 2, . . . , , either
or
or both. Either
for all Then dene .
for some Let be the rst individual with a strict preference, that is =
min
). (Completeness of
ensures that is dened). Then dene

if
otherwise
1.36 Let , and be subsets of a nite set . Set inclusion is
reexive since .
transitive since and implies .
anti-symmetric since and implies =
Therefore is a partial order.
1.37 Assume and are both least upper bounds of . That is for all
and for all . Further, if is a least upper bound, . If is a least
upper bound, . By anti-symmetry, = .
1.38
= and
which implies that = by antisymmetry. Each equivalence class
() = { : }
comprises just a single element .
1.39 max () = and min () = .
1.40 The subset {2, 4, 8} forms a chain. More generally, the set of integer powers of a
given number { ,
2
,
3
, . . . } forms a chain.
1.41 Assume and are maximal elements of the chain . Then for all
and in particular . Similarly, for all and in particular . Since
is anti-symmetric, = .
1.42 1. By assumption, for every , () is a nonempty nite chain. Hence,
it has a unique maximal element, ().
2. Let be any node. Either is an initial node or has a unique predecessor ().
Either () is an initial node, or it has a unique predecessor (()). Continuing
in this way, we trace out a unique path from back to an initial node. We can
be sure of eventually reaching an initial node since is nite.
1.43
(1, 2) (3, 1) = (3, 2) and (1, 2) (3, 2) = (1, 2)
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1.44 1. is an upper bound for { , }, that is xy and xy . Similarly,
is a lower bound for { , }.
2. Assume . Then is an upper bound for { , }, that is . If is
any upper bound for { , }, then . Therefore, is the least upper bound
for { , }. Similarly, is a lower bound for { , }, and is greater than any
other lower bound. Conversely, assume = . Then is an upper bound for
{ , }, that is .
3. Using the preceding equivalence
= ( ) =
= ( ) =
1.45 A chain is a complete partially ordered set. For every , with = ,
either or . Therefore, dene the meet and join by
=
{
if
if
=
{
if
if
is a lattice with these operations.
1.46 Assume
1
and
2
are lattices, and let =
1
2
. Consider any two elements
x = (
1
,
2
) and y = (
1
,
2
) in . Since
1
and
2
are lattices,
1
=
1

1

1
and
2
=
2

2

2
, so that b = (
1
,
2
) = (
1

1
,
2

2
) . Furthermore
b x and b y in the natural product order, so that b is an upper bound for the
{x, y}. Every upper bound

b = (
1
,
2
) of {x, y} must have
and
,
so that

b b. Therefore, b is the least upper bound of {x, y}, that is b = x y.
Similarly, x y = (
1

1
,
2

2
).
1.47 Let be a subset of and let
= { : for every }
be the set of upper bounds of . Then
= . By assumption,
has a greatest
lower bound . Since every is a lower bound of
, for every .
Therefore is an upper bound of . Furthermore, is the least upper bound of ,
since for every
. This establishes that every subset of also has a least

upper bound. In particular, every pair of elements has a least upper and a greatest
lower bound. Consequently is a complete lattice.
1.48 Without loss of generality, we will prove the closed interval case. Let [, ] be an
interval in a lattice . Recall that = inf[, ] and = sup[, ]. Choose any , in
[, ] . Since is a lattice, and
= sup{ , }
Therefore [, ]. Similarly, [, ]. [, ] is a lattice. Similarly, for any
subset [, ] , sup if is complete. Also, sup = sup[, ]. Therefore
sup [, ]. Similarly inf [, ] so that [, ] is complete.
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1.49 1. The strong set order
is
antisymmetric Let
1
,
2
with
1

2
and
2

1
. Choose
1

1
and
2

2
. Since
1

2
,
1

2

1
and
1

2

2
. On the other
hand, since
2

1
,
1
= (
1
(
1
2
)
2
and
2
=
2
(
1
2
)
1
(Exercise 1.44. Therefore
1
=
2
and
is antisymmetric.
transitive Let
1
,
2
,
3
with
1

2
and
2

3
. Choose
1

1
,
2

2
and
3

3
. Since
1

2
and
2

3
,
1

2
and
2

3
are in
2
. Therefore
2
=
1
(
2

3
)
2
which implies
1

3
=
1
(
(
2

3
)
3
)
=
(
1
(
2

3
)
)

3
=
2

3

3
since
2

3
. Similarly
2
= (
1

2
)
3

2
and
1

3
=
(
1
(
1

2
)
)

3
=
1
(
(
1

2
)
3
)
=
1

2

1
Therefore,
1

3
.
2.
if and only if, for every

1
,
2
,
1

2
and
1

2
, which
is the case if and only if is a sublattice.
3. Let () denote the set of all sublattices of . We have shown that
is
reexive, transitive and antisymmetric on (). Hence, it is a partial order on
().
1.50 Assume
1

2
. For any
1

1
and
2

2
,
1

2

1
and
1

2

2
.
Therefore
sup
1

1

2

2
for every
2

2
which implies that sup
1
sup
2
. Similarly
inf
2

1

2

1
for every
1

1
which implies that inf
2
inf
1
. Note that completeness ensures the existence of
sup and inf respectively.
1.51 An argument analogous to the preceding exercise establishes = . (Complete-
ness is not required, since for any interval = inf[, ] and = sup[, ]).
To establish the converse, assume that
1
= [
1
,
1
] and
2
= [
2
,
2
]. Consider any
1

1
and
2

2
. There are two cases.
Case 1.
1

2
Since is a chain,
1

2
=
1

1
.
1

2
=
2

2
.
Case 2.
1

2
Since is a chain,
1

2
=
2
. Now
1

1

2

2

2
.
Therefore,
2
=
1

2

1
. Similarly
2

1

1

2

2
. Therefore
1

2
=
1

2
.
We have shown that
1

2
in both cases.
1.52 Assume that is a complete relation on . This means that for every , ,
either or . In particular, letting = , for . is reexive.
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1.53 Anti-symmetry implies that each indierence class contains a single element. If the
consumers preference relation was anti-symmetric, there would be no baskets of goods
between which the consumer was indierent. Each indierence curve which consist a
single point.
1.54 We previously showed (Exercise 1.27) that every best element is maximal. To
prove the converse, assume that is maximal in the weakly ordered set . We have to
show that for all . Assume otherwise, that is assume there is some
for which . Since is complete, this implies that which contradicts the
assumption that is maximal. Hence we conclude that for and is a
best element.
1.55 False. A chain has at most one maximal element (Exercise 1.41). Here, uniqueness
is ensured by anti-symmetry. A weakly ordered set in which the order is not anti-
symmetric may have multiple maximal and best elements. For example, and are
both best elements in the weakly ordered set { }.
1.56 1. For every , either = () or = () since
is complete. Consequently, () () = If () (), then
and so that and
.
2. For every , either = () or = () since is
complete. Consequently, () () = and () () = .
3. For every , () and
partition () and therefore (),
and ()
partition .
1.57 Assume and (). Then by transitivity. Therefore ().
This shows that () ().
Similarly, assume and (). Then by transitivity. Therefore
(). This shows that () (). To show that () = (), observe that
() but that / ()
1.58 Every nite ordered set has a least one maximal element (Exercise 1.28).
1.59 Kreps (1990, p.323), Luenberger (1995, p.170) and Mas-Colell et al. (1995, p.313)
adopt the weak Pareto order, whereas Varian (1992, p.323) distinguishes the two or-
ders. Osborne and Rubinstein (1994, p.7) also distinguish the two orders, utilizing the
weak order in dening the core (Chapter 13) but the strong Pareto order in the Nash
bargaining solution (Chapter 15).
1.60 Assume that a group is decisive over , . Let , be two other states.
We have to show that is decisive over and . Without loss of generality, assume
for all individuals
and
. Then, the Pareto order implies that and

.
Assume that for every ,
. Since is decisive over and , the social

order ranks . By transitivity, . By IIA, this holds irrespective of individual
preferences on other alternatives. Hence, is decisive over and .
1.61 Assume that is decisive. Let , and be any three alternatives and assume
for every . Partition into two subgroups
1
and
2
so that

for every
1
and
for every
2
Since is decisive, . By completeness, either
in which case
1
is decisive over and . By the eld expansion lemma (Exercise
1.60),
1
is decisive.
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which implies . In this case,
2
is decisive over and , and therefore
(Exercise 1.60) decisive.
1.62 Assume is a social order which is Pareto and satises Independence of Irrelevant
Alternatives. By the Pareto principle, the whole group is decisive over any pair of
alternatives. By the previous exercise, some proper subgroup is decisive. Continuing
in this way, we eventually arrive at a decisive subgroup of one individual. By the
Field Expansion Lemma (Exercise 1.60), that individual is decisive over every pair of
alternatives. That is, the individual is a dictator.
1.63 Assume is decisive over and and is decisive over and . That is, assume

=
Also assume

for every

for every
This implies that and (Pareto principle). Combining these preferences,
transitivity implies that

which contradicts the assumption that . Therefore, the implied social ordering is
intransitive.
1.64 Assume core. In particular this implies that there does not exist any ()
such that . Therefore Pareto.
1.65 No state will accept a cost share which exceeds what it can achieve on its own, so
that if core then
1870
5330
860
Similarly, the combined share of the two states AP and TN should not exceed 6990,
which they could achieve by proceeding without KM, that is
6990
Similarly
1960
5020
Finally, the sum of the shares should equal the total cost
= 6530
The core is the set of all allocations of the total cost which satisfy the preceding
inequalities.
For example, the allocation (
= 1500,
= 5000,
= 30) does not belong

to the core, since TN and KM will object to their combined share of 5030; since they
can meet their needs jointly at a total cost of 5020. One the other hand, no group
can object to the allocation (
= 1510,
= 5000,
= 20), which therefore

belongs to the core.
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1.66 The usual way to model a cost allocation problem as a TP-coalitional game is
to regard the potential cost savings from cooperation as the sum to be allocated. In
this example, the total joint cost of 6530 represents a potential saving of 1530 over
the aggregate cost of 8060 if each region goes its own way. This potential saving of
1530 measures (). Similarly, undertaking a joint development, AP and TN could
satisfy their combined requirements at a total cost of 6890. This compares with the
standalone costs of 7100 (= 1870 (AP) + 5330 (TN)). Hence, the potential cost savings
from their collaboration are 210 (= 7100 - 6890), which measures (, ). By
similar calculations, we can compute the worth of each coalition, namely
() = 0 (, ) = 210
() = 0 (, ) = 770 () = 1530
() = 0 (, ) = 1170
An outcome in this game is an allocation of the total cost savings () = 1530 amongst
the three players. This can be translated into nal cost shares by subtracting each
players share of the cost savings from their standalone cost. For example, a specic
outcome in this game is (
= 370,
= 330,
= 830), which corresponds to

nal cost shares of 1500 for AP, 5000 for TN and 30 for KM.
1.67 Let
= { x :
() for every }
1. core Assume that x . Suppose x / core. This implies there exists some
coalition and outcome y () such that y
x for every .
y () implies
() while
y
x for every implies
>
for every . Summing, this

implies
>
()
This contradiction establishes that x core.
2. core Assume that x core. Suppose x / . This implies there exists some
coalition such that
< (). Let = ()
and consider the

allocation y obtained by reallocating from
to , that is
=
{
+/
/( ) /
where = is the number of players in and = is the number in .
Then
>
for every so that y
x for every . Further, y ()

since
+ = () and y since
+/) +
/
(
/( )) =
= ()
This contradicts our assumption that x / core, establishing that x .
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1.68 The 7 unanimity games for the player set = {1, 2, 3} are
{1}
() =
{
1 S = {1}, {1,2}, {1,3}, N
0 otherwise
{2}
() =
{
1 S = {2}, {1,2}, {2,3}, N
0 otherwise
{3}
() =
{
1 S = {3}, {1,3}, {2,3}, N
0 otherwise
{1,2}
() =
{
1 S = {1,2}, N
0 otherwise
{1,3}
() =
{
1 S = {1,3}, N
0 otherwise
{2,3}
() =
{
1 S = {2,3}, N
0 otherwise
() =
{
1 S = N
0 otherwise
1.69 Firstly, consider a simple game which is a unanimity game with essential coalition
and let be an outcome in which
0 for every
= 0 for every /
and
= 1
We claim that core.
Winning coalitions If is winning coalition, then () = 1. Furthermore, if it is a
winning coalition, it must contain , that is and
= 1 = ()
Losing coalitions If is a losing coalition, () = 0 and
0 = ()
Therefore core and so core = .
Conversely, consider a simple game which is not a unanimity game. Suppose there
exists an outcome core. Then
() = 1 (1.15)
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Since there are no veto players ( = ), ( {}) = 1 for every player and
( {}) = 1
which implies that
= 0 for every contradicting (1.15). Thus we conclude that

core = .
1.70 The excesses of the proper coalitions at x
1
and x
2
are
x
1
x
2
{AP} -180 -200
{KM} -955 -950
{TN} -395 -380
{AP, KM} -365 -380
{AP, TN} -365 -370
{KM, TN} -180 -160
Therefore
(x
1
) = (180, 180, 365, 365, 395, 955)
and
(x
2
) = (160, 200, 370, 380, 380, 950)
d(x
1
)
d(x
2
) which implies x
1
x
2
.
1.71 It is a weak order on , that is is reexive, transitive and complete. Reexivity
and transitivity ow from the corresponding properties of
on
2
. Similarly, for
any x, y , either d(x)
d(y) or d(y)
d(x) since
is complete on
2
.
Consequently either x y or y x (or both).
is not a partial order since it is not antisymmetric
d(x)
d(y) and d(y)
d(x) does not imply x = y

1.72
(, x) = ()
so that
(, x) 0
()
1.73 Assume to the contrary that x Nu but that x / core. Then, there exists a
coalition with a positive decit (, x) > 0. Since core = , there exists some y
such that (, y) 0 for every Nu. Consequently, d(y) d(x) and y x, so
that x / Nu. This contradiction establishes that Nu core.
1.74 For player 1,
1
= {, } and
(, )
1
(, )
(, )
1
(, )
Similarly for player 2
(, )
2
(, )
(, )
2
(, )
Therefore, (, ) satises the requirements of the denition of a Nash equilibrium
(Example 1.51).
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1.75 If a
is the best element in (
) for every player , then

(
, a
, a
) for every
and a
for every . Therefore, a
is a Nash equilibrium.
To show that it is unique, assume that a is another Nash equilibrium. Then for every
player
(
, a
, a
) for every
which implies that a is a maximal element of
. To see this, assume not. That is,

assume that there exists some
such that
which implies
(
, a
, a
) for every a
In particular
(
, a
, a
)
which contradicts the assumption that a
is a Nash equilibrium. Therefore, a is an-

other Nash equilibrium, then
is maximal in
and hence also a best element of
(Exercise 1.54), which contradicts the assumption that
is the unique best element.

Consequently, we conclude that a
is the unique Nash equilibrium of the game.

1.76 We show that (, ) = satises the requirements of a metric, namely
1. 0.
2. = 0 if and only if = .
3. = .
To establish the triangle inequality, we can consider various cases. For example, if

+ = =
If
+ = + = =
and so on.
1.77 We show that
, = max
=1
satises the requirements of a metric,

namely
1. max
=1
0
2. max
=1
= 0 if and only if
for all .
3. max
=1
= max
=1
4. For every ,
from previous exercise. Therefore

max
max (
)
max
+ max
1.78 For any , any neighborhood of 1/ contains points of (namely 1/) and points
not in (1/ +). Hence every point in is a boundary point. Also, 0 is a boundary
point. Therefore b() = {0}. Note that b(). Therefore, has no interior
points.
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1.79 1. Let int . Thus is a neighborhood of . Therefore, is a
neighborhood of , so that is an interior point of .
2. Clearly, if , then . Therefore, assume which implies
that is a boundary point of . Every neighborhood of contains other points
of . Hence .
1.80 Assume that is open. Every has a neighborhood which is disjoint from
. Hence no is a closure point of
contains all its closure points and is

therefore closed.
Conversely, assume that is closed. Let be a point its complement
. Since
is closed and / , is not a boundary point of . This implies that has a
neighborhood which is disjoint from , that is
. Hence, is an interior point

of
. This implies that
contains only interior points, and hence is open.

1.81 Clearly is a neighborhood of every point , since
() for every
> 0. Hence, every point is an interior point of . Similarly, every point
is an interior point (there are none). Since and are open, there complements and
are closed.
Alternatively, has no boundary points, and is therefore is open. Trivialy, on the other
hand, contains all its boundary points, and is therefore closed.
1.82 Let be a metric space. Assume is the union of two disjoint closed sets and
, that is
= =
Then =
is open as is =
. Therefore is not connected.

Conversely, assume that is not connected. Then there exist disjoint open sets and
such that = . But =
is also closed as is =
. Therefore is the
union of two disjoint closed sets.
1.83 Assume is both open and closed, . We show that we can represent
as the union of two disjoint open sets, and
. For any , =
and

= . is open by assumption. It complement
is open since is closed.

Therefore, is not connected.
Conversely, assume that is not connected. That is, there exists two disjoint open
sets and such that = . Now =
, which implies that is closed since

is open. Therefore is both open and closed.
1.84 Assume that is both open and closed. Then so is
and is the disjoint union

of two closed sets
=
so that
b() =
=
Conversely, assume that b() =
= . This implies that Consider any .

Since
= , /
. A fortiori, x /
which implies that and therefore

. is closed. Similarly we can show that
so that
is closed and
therefore is open. is both open and closed.
15
All rights reserved
1.85 1. Let {
} be a (possibly innite) collection of open sets. Let =
. Let
be a point in . Then there exists some particular
which contains . Since
is open,
is a neighborhood of . Since
, is an interior point of .
Since is an arbitrary point in , we have shown that every is an interior
point. Hence, is open.
What happens if every
is empty? In this case, = and is open (Exercise

1.81). The other possibility is that the collection {
} is empty. Again =
which is open.
Suppose {
1
,
2
, . . . ,
} is a nite collection of open sets. Let =
. If
= , then it is trivially open. Otherwise, let be a point in . Then
for all = 1, 2, . . . , . Since the sets
are open, for every , there exists an open

ball (,
about . Let be the smallest radius of these open balls, that

is = min{
1
,
2
, . . . ,
}. Then
() (,
), so that
()
for all i.
Hence
() . is an interior point of and is open.

To complete the proof, we need to deal with the trivial case in which the collection
is empty. In that case, =
= and hence is open.

2. The corresponding properties of closed sets are established analogously.
1.86 1. Let
0
be an interior point of . This implies there exists an open ball
about
0
. Every is an interior point of . Hence int .
0
is an
interior point of int which is therefore open.
Let be any open subset of and be a point in . is neighborhood of ,
which implies that is also neighborhood of . Therefore is an interior
point of . Therefore int contains every open subset , and hence is the
largest open set in .
2. Let denote the closure of the set . Clearly, . To show the converse, let
be a closure point of and let be a neighborhood of . Then contains
some other point
= which is a closure point of . is a neighborhood of
which intersects . Hence is a closure point of .

Consequently = which implies that is closed.
Assume is a closed subset of containing . Then
=
since is closed. Hence, is a subset of every closed set containing .
1.87 Every is either an interior point or a boundary point. Consequently, the
interior of is the set of all which are not boundary points
int = b()
1.88 Assume that is closed, that is
= b() =
This implies that b() . contains its boundary.
Assume that contains its boundary, that is b(). Then
= b() =
is closed.
16
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1.89 Assume is bounded, and let = (). Choose any . For all ,
(, ) < + 1. Therefore, (, + 1). is contained in the open ball
(, + 1).
Conversely, assume is contained in the open ball
(). Then for any ,

(, ) (, ) +(, ) < 2
by the triangle inequality. Therefore () < 2 and the set is bounded.
1.90 Let
(
0
). For every , (, ) < and therefore
(,
0
) (, ) +(,
0
) < + = 2
so that
2
(
0
).
1.91 Let y
0
. For any > 0, let y
= y be the production plan which is units

less in every commodity. Then, for any y
(y
(y, y
) < for every

and therefore y < y
0
. Thus
(y
) and so y
int = .
1.92 For any
1
= (,
2
) > 0
Similarly, for every
2
= (,
1
) > 0
Let
1
=
/2
()
2
=
/2
()
Then
1
and
2
are open sets containing
1
and
2
respectively.
To show that
1
and
2
are disjoint, suppose to the contrary that
1

2
. Then,
there exist points
1
and
2
such that
(, ) <
/2, (, ) <
/2
Without loss of generality, suppose that
and therefore
(, ) (, ) +(, ) <
/2 +
/2
which contradicts the denition of
and shows that

1

2
= .
1.93 By Exercise 1.92, there exist disjoint open sets
1
and
2
such that
1

1
and
2

2
. Since
2

2
,
2

2
= .
2
is a closed set which contains
1
, and
therefore
2

1
= . =
1
is the desired set.
1.94 See Figure 1.2.
17
All rights reserved
1 2
1
1/2
((2, 0))
Figure 1.2: Open ball about (2, 0) relative to
1.95 Assume is connected. Suppose is not an interval. This implies that there
exists numbers , , such that < < and , while / . Then
= ( (, )) ( (, ))
represents as the union of two disjoint open sets (relative to ), contradicting the
assumption that is connected.
Conversely, assume that is an interval. Suppose that is not connected. That is,
= where and are nonempty disjoint closed sets. Choose and .
Since and are disjoint, = . Without loss of generality, we may assume < .
Since is an interval, [, ] = . Let
= sup{ [, ] }
Clearly so that . Now belongs to either or . Since is closed in ,
[, ] is closed and = sup{ [, ] } . This implies the < . Consequently,
+ for every > 0 such that + . Since is closed, . This implies
that belongs to both and contradicting the assumption that = . We
conclude that must be connected.
1.96 Assume
and also
. We have to show that = . Suppose not,

that is suppose = (see Figure 1.3). Then (, ) = > 0. Let = /3 > 0. Since
, there exists some
such that
() for all
. Since
,
there exists some
such that
() for all
. But these statements are

contradictory since
() (, ) = . We conclude that the successive terms of a

convergent sequence cannot get arbitrarily close to two distinct points, so that the limit
a convergent sequence is unique.
1.97 Let (
) be a sequence which converges to . There exists some such that

(
) < 1
for all . Let
= max{ (
1
), (
2
), . . . , (
1
), 1 }
Then for all , (
) . That is every element
in the sequence (
) belongs to
(, +1), the open ball about of radius +1. Therefore the sequence is bounded.
18
All rights reserved
(, )

(, )

Figure 1.3: A convergent sequence cannot have two distinct limits
1.98 The share
of the th guest is
=
1
2
lim
= 0
However,
> 0 for all . There is no limit to the number of guests who will get a
share of the cake, although the shares will get vanishingly small for large parties.
1.99 Suppose
. That is, there exists some such that (
, ) < /2 for all

. Then, for all ,
(
) (
, ) +(,
)
< /2 +/2 =
1.100 Let (
) be a Cauchy sequence. There exists some such that

(
) < 1
for all . Let
= max{ (
1
), (
2
), . . . , (
1
), 1 }
Every
belongs to (
, + 1), the ball of radius + 1 centered on
.
1.101 Let (
) be a bounded increasing sequence in and let = {
} be the set of
elements of (
). Let be the least upper bound of . We show that
.
First observe that
for every (since is an upper bound). Since is the least

upper bound, for every > 0 there exists some element
such that
> . Since
(
) is increasing, we must have

<
for every
That is, for every > 0 there exists an such that
(
, ) < for every
.
1.102 If > 1, the sequence ,
2
,
3
, . . . is unbounded.
Otherwise, if 1,

1
and the sequence is decreasing and bounded by 1.
Therefore the sequence converges (Exercise 1.101). Let = lim
. Then
+1
=
and therefore
= lim
+1
= lim
=
which can be satised if and only if
19
All rights reserved
= 1, in which case = lim1
= 1
= 0 when 0 < 1
Therefore
0 < 1
1.103 1. For every
(
2)
2
0
Expanding
2
2
2 + 2 0
2
+ 2 2
2
Dividing by
+
2
2
for every > 0. Therefore
1
2
(
+
2
2
2. Let (
) be the sequence dened in Example 1.64. That is
=
1
2
(
1
+
2
1
)
Starting from
0
= 2, it is clear that
0 for all . Substituting in

1
2
(
+
2
=
1
2
(
1
+
2
1
)
2
That is
2 for every . Therefore for every
+1
=
1
2
(
+
2
)
=
1
2
(
1
2
(
2
)
=
2
0
This implies that
+1

. Consequently
2 for every . (
) is a
bounded monotone sequence. By Exercise 1.101,
. The limit satises

the equation
=
1
2
(
+
2
)
Solving, this implies
2
= 2 or =
2 as required.
20
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1.104 The following sequence approximates the square root of any positive number
1
=
+1
=
1
2
(
)
1.105 Let . If , then is the limit of the sequence (, , , . . . ). If / ,
then is a boundary point of . For every , the ball (, 1/) contains a point
. From the sequence of open balls (, 1/) for = 1, 2, 3, . . . , we can generate

of a sequence of points
which converges to .
Conversely, assume that is the limit of a sequence (
) of points in . Either
and therefore . Or / . Since
, every neighborhood of contains points
of the sequence. Hence, is a boundary point of and .

1.106 is closed if and only if = . The result follows from Exercise 1.105.
1.107 Let be a closed subset of a complete metric space . Let (
) be a Cauchy
sequence in . Since is complete,
. Since is closed, (Exercise

1.106).
1.108 Since (
) 0, cannot contain more than one point. Therefore, it suces

to show that is nonempty. Choose some
from each
. Since (
) 0, (
) is
a Cauchy sequence. Since is complete, there exists some such that
.
Choose some . Since the sets are nested, the subsequence {
: }
. Since
is closed,
(Exercise 1.106). Since
for every

=1
1.109 If player 1 picks closed balls whose radius decreases by at least half after each
pair of moves, then {
1
,
3
,
5
, . . . } is a nested sequence of closed sets which has a
nonempty intersection (Exercise 1.108).
1.110 Let (
) be a sequence in with closed and compact. Since is

compact, there exists a convergent subsequence
. Since is closed,
we must have (Exercise 1.106). Therefore (
) contains a subsequence which

converges in , so that is compact.
1.111 Let (
) be a Cauchy sequence in a metric space. For every > 0, there exists

such that
(
) < /2 for all ,

Trivially, if (
) converges, it has a convergent subsequence (the whole sequence).

Conversely, assume that (
) has a subsequence (
) which converges to . That is,

there exists some such that
(
, ) < /2 for all

Therefore, by the triangle inequality
(
, ) (
) +(
, ) < /2 +/2 =
for all max ,
21
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1.112 We proceed sequentially as follows. Choose any
1
in . If the open ball (
1
, )
contains , we are done. Otherwise, choose some
2
/ (
1
, ) and consider the set
2
=1
(
, ). If this set contains , we are done. Otherwise, choose some

3
/
2
=1
(
, ) and consider
3
=1
(
, )
The process must terminate with a nite number of open balls. Otherwise, if the process
could be continued indenitely, we could construct an innite sequence (
1
,
2
,
3
, . . . )
which had no convergent subsequence. The would contradict the compactness of .
1.113 Assume is compact. The previous exercise showed that is totally bounded.
Further, since every sequence has a convergent subsequence, every Cauchy sequence
converges (Exercise 1.111). Therefore is complete.
Conversely, assume that is complete and totally bounded and let
1
= {
1
1
,
2
1
,
3
1
, . . . }
be an innite sequence of points in . Since is totally bounded, it is covered by a
nite collection of open balls of radius 1/2.
1
has a subsequence
2
= {
1
2
,
2
2
,
3
2
, . . . }
all of whose points lie in one of the open balls. Similarly,
2
has a subsequence
3
= {
1
3
,
2
3
,
3
3
, . . . } all of whose points lie in an open ball of radius 1/3. Contin-
uing in this fashion, we construct a sequence of subsequences, each of which lies in a
ball of smaller and smaller radius. Consequently, successive terms of the diagonal
subsequence {
1
1
,
2
2
,
3
3
, . . . } get closer and closer together. That is, is a Cauchy
sequence. Since is complete, converges in and
1
has a convergent subsequence
. Hence, is compact.
1.114 1. Every big set has a least two distinct points. Hence () >
0 for every .
2. Otherwise, there exists such that () 1/ for every and therefore
= inf
() 1/ > 0.
3. Choose a point
in each
. Since is compact, the sequence (
) has a
convergent subsequence (
) which converges to some point

0
.
4. The point
0
belongs to at least one
0
in the open cover . Since
0
is open,
there exists some open ball
(
0
)
0
.
5. Consider the concentric ball
/2
(
0
). Since (
) is a convergent subsequence,

/2
() for every .
6. Choose some
0
min{ , 2/ }. Then 1/
0
< /2 and (
0
) < 1/
0
< /2.
0

0

/2
() and therefore (Exercise 1.90)
0

()
0
.
This contradicts the assumption that
is a big set. Therefore, we conclude that

> 0.
1.115 1. is totally bounded (Exercise 1.112). Therefore, for every > 0, there
exists a nite number of open balls
) such that
=
=1
)
2. (
)) = 2 < . By denition of the Lebesgue number, every
) is
contained in some
.
3. The collection of open balls {
)} covers . Therefore, fore every ,

there exists such that

22
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Therefore, the nite collection
1
,
2
, . . . ,
covers .
1.116 For any family of subsets
=
Suppose to the contrary that is a collection of closed sets with the nite intersection
property, but that
= . Then {
: } is a open cover of which does

not have a nite subcover. Consequently cannot be compact.
Conversely, assume every collection of closed sets with the nite intersection property
has a nonempty intersection. Let be an open cover of . Let
= { :
}
That is
= which implies
=
Consequently, does not have the nite intersection property. There exists a nite
subcollection {
1
,
2
, . . . ,
} such that
=1
=
which implies that
=1
=
{
1
,
2
, . . . ,
} is a nite subcover of . Thus, is compact.

1.117 Every nite collection of nested (nonempty) sets has the nite intersection prop-
erty. By Exercise 1.116, the sequence has a non-empty intersection. (Note: every set
is a subset of the compact set

1
.)
1.118 (1) = (2) Exercises 1.114 and 1.115.
(2) = (3) Exercise 1.116
(3) = (1) Let be a metric space in which every collection of closed subsets with
the nite intersection property has a nite intersection. Let (
) be a sequence
in . For any , let
be the tail of the sequence minus the rst terms, that

is
= {
: = + 1, + 2, . . . }
The collection (
) has the nite intersection property since, for any nite set of
integers {
1
,
2
, . . . ,
=1
=
where = max{
1
,
2
, . . . ,
}. Therefore
=1
=
23
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Choose any
=1
. That is,
for each = 1, 2, . . . . Thus, for every

> 0 and = 1, 2, . . . , there exists some
()
We construct a subsequence as follows. For = 1, 2, . . . , let
be the rst
term in
which belongs to
1/
(). Then, (
) is a subsequence of (
) which
converges to . We conclude that every sequence has a convergent subsequence.
1.119 Assume (
) is a bounded sequence in . Without loss of generality, we can

assume that {
} [0, 1]. Divide

0
= [0, 1] into two sub-intervals [0, 1/2] and
[1/2, 1]. At least one of the sub-intervals must contain an innite number of terms of
the sequence. Call this interval
1
. Continuing this process of subdivision, we obtain
a nested sequence of intervals
0

1

2
. . .
each of which contains an innite number of terms of the sequence. Consequently,
we can construct a subsequence (
) with
. Furthermore, the intervals get

smaller and smaller with (
) 0, so that (
) is a Cauchy sequence. Since is

complete, the subsequence (
) converges to .
Note how we implicitly called on the Axiom of Choice (Remark 1.5) in choosing a
subsequence from the nested sequence of intervals.
1.120 Let (
) be a Cauchy sequence in . That is, for every > 0, there exists such
that
< for all , . (
) is bounded (Exercise 1.100) and hence by the

Bolzano-Weierstrass theorem, it has a convergent subsequence (
) with
.
Choose
from the convergent subsequence such that and
< /2. By
the triangle inequality
< /2 +/2 =
Hence the sequence (
) converges to .
1.121 Since
1
and
2
are linear spaces, x
1
+ y
1

1
and x
2
+ y
2

2
, so that
(x
1
+ y
1
, x
2
+ y
2
)
1

2
. Similarly (x
1
, x
2
)
1

2
for every (x
1
, x
2
)
2
. Hence, =
1
2
is closed under addition and scalar multiplication.
With addition and scalar multiplication dened component-wise, inherits the arith-
metic properties (like associativity) of its constituent spaces. Verifying this would
proceed identically as for
. It is straightforward though tedious. The zero element

in is 0 = (0
1
, 0
2
) where 0
1
is the zero element in
1
and 0
2
is the zero element in
2
. Similarly, the inverse of x = (x
1
, x
2
) is x = (x
1
, x
2
).
1.122 1.
x +y = x +z
x + (x +y) = x + (x +z)
(x +x) +y = (x +x) +z
0 +y = 0 +z
y = z
24
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2.
x = y
1
(x) =
1
(y)
(
1
)
x =
(
1
)
y
x = y
3. x = x implies
( )x = x x = 0
Provided x = 0, we must have
( )x = 0x
That is = 0 which implies = .
4.
( )x = ( + ())x
= x + ()x
= x x
5.
(x y) = (x + (1)y)
= x +(1)y
= x y
6.
0 = (x + (x))
= x +(x)
= x x
= 0
1.123 The linear hull of the vectors {(1, 0), (0, 2)} is
lin {(1, 0), (0, 2)} =
{
1
(
1
0
)
+
2
(
0
2
)}
=
{
(

1
2
)
}
=
2
The linear hull of the vectors {(1, 0), (0, 2)} is the whole plane
2
. Figure 1.4 illustrates
how any vector in
2
can be obtained as a linear combination of {(1, 0), (0, 2)}.
1.124 1. From the denition of ,
= ()
25
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(2, 3)
2
3
1
1 -1 -2 0
Figure 1.4: Illustrating the span of { (1, 0), (0, 2) }.
for every . Rearranging
() =
2.
() =
() +
()
=
1 +
0
=
1
= ()
1.125 1. Choose any x . By homogeneity 0x = .
2. For every x , x = (1)x by homogeneity.
1.126 Examples of subspaces in
include:
1. The set containing just the null vector {0} is subspace.
2. Let x be any element in
and let be the set of all scalar multiples of x

= { x : }
is a line through the origin in
and is a subspace.
3. Let be the set of all -tuples with zero rst coordinate, that is
= { (
1
,
2
, . . . ,
) :
1
= 0,
, = 1 }
For any x, y
x +y = (0,
2
,
3
, . . . ,
) + (0,
2
,
3
, . . . ,
)
= (0,
2
+
2
,
3
+
3
, . . . ,
)
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Similarly
x = (0,
2
,
3
, . . . ,
)
= (0,
2
,
3
, . . . ,
)
Therefore is a subspace of
. Generalizing, any set of vectors with one or

more coordinates identically zero is a subspace of
.
4. We will meet some more complicated subspaces in Chapter 2.
1.127 No, x /
+
if x
+
unless x = 0.
+
is an example of a cone (Section 1.4.5).
1.128 lin is a subspace Let x, y be two elements in lin . x is a linear combination
of elements of , that is
x =
1
1
+
2
2
+. . .
Similarly
y =
1
1
+
2
2
+. . .
and
x +y = (
1
+
1
)
1
+ (
2
+
2
)
2
+ + (
lin
and
x =
1
1
+
2
2
+ +
lin
This shows that lin is closed under addition and scalar multiplication and hence
is a subspace.
lin is the smallest subspace containing Let be any subspace containing .
Then contains all linear combinations of elements in , so that lin .
Hence lin is the smallest subspace containing S.
1.129 The previous exercise showed that lin is a subspace. Therefore, if = lin ,
is a subspace.
Conversely, assume that is a subspace. Then is the smallest subspace containing
, and therefore = lin (again by the previous exercise).
1.130 Let x, y =
1

2
. Hence x, y
1
and for any , , x + y
1
.
Similarly x +y
2
and therefore x +y . is a subspace.
1.131 Let =
1
+
2
. First note that 0 = 0 +0 . Suppose x, y belong to . Then
there exist s
1
, t
1

1
and s
2
, t
2

2
such that x = s
1
+ s
2
and y = t
1
+t
2
. For any
, ,
x +y = (s
1
+s
2
) +(t
1
+t
2
)
= (s
1
+t
1
) + (s
2
+t
2
)
since s
1
+t
1

1
and s
2
+t
2

2
.
1.132 Let
1
= { (1, 0) : }
2
= { (0, 1) : }
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1
and
2
are respectively the horizontal and vertical axes in
2
. Their union is not a
subspace, since for example
(
1
1
)
=
(
1
0
)
+
(
0
1
)
/
1

2
However, any vector in
2
can be written as the sum of an element of
1
and an element
of
2
. Therefore, their sum is the whole space
2
, that is
1
+
2
=
2
1.133 Assume that is linearly dependent, that is there exists x
1
, . . . , x
and
2
, . . . ,
such that
x
1
=
2
x
2
+
3
x
3
+. . . ,
Rearranging, this implies

1x
1
2
x
2
3
x
3
. . .
= 0
Conversely, assume there exist x
1
, x
2
, . . . , x
x and
1
,
2
, . . . ,
such that
1
x
1
+
2
x
2
. . . +
= 0
Assume without loss of generality that
1
= 0. Then
x
1
=
1
x
2
1
x
3
. . .

1
x
which shows that

x
1
lin {x
1
}
1.134 Assume {(1, 1, 1), (0, 1, 1), (0, 0, 1)} are linearly dependent. Then there exists
1
,
2
,
3
such that
1
1
1
+
2
0
1
1
+
3
0
0
1
0
0
0
or equivalently
1
= 0
1
+
2
= 0
1
+
2
+
3
= 0
which imply that
1
=
2
=
3
= 0
Therefore {(1, 1, 1), (0, 1, 1), (0, 0, 1)} are linearly independent.
1.135 Suppose on the contrary that is linearly dependent. That is, there exists a
set of games {
1
,
2
, . . . ,
} and nonzero coecients (

1
,
2
, . . . ,
) such that
(Exercise 1.133)
1
+
2
2
+. . . +
= 0 (1.16)
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Assume that the coalitions are ordered so that
1
has the smallest number of players
of any of the coalitions
1
,
2
, . . . ,
. This implies that no coalition

2
,
3
, . . . ,
is
a subset of
1
and
(
1
) = 0 for every = 2, 3, . . . , (1.17)
Using (1.39),
1
can be expressed as a linear combination of the other games,
1
= 1/
1
=2
(1.18)
Substituting (1.40) this implies that
1
(
1
) = 0
whereas
() = 1 for every
by denition. This contradiction establishes that the set is linearly independent.
1.136 If is a subspace, then 0 and
x
1
= 0
with = 0 and x
1
= 0 (Exercise 1.122). Therefore is linearly dependent (Exercise
1.133).
1.137 Suppose x has two representations, that is
x =
1
x
1
+
2
x
2
+. . . +
x =
1
x
1
+
2
x
2
+. . . +
Subtracting
0 = (
1
1
)x
1
+ (
2
2
)x
2
+. . . + (
)x
(1.19)
Since {x
1
, x
2
, . . . , , x
} is linearly independent, (1.19) implies that
= 0 for all
(Exercise 1.133)
1.138 Let be the set of all linearly independent subsets of a linear space . is
partially ordered by inclusion. Every chain = {
} has an upper bound, namely
. By Zorns lemma, has a maximal element . We show that is a basis

for .
is linearly independent since . Suppose that does not span so that
lin . Then there exists some x lin . The set {x} is a linearly
independent and contains , which contradicts the assumption that is the maximal
element of . Consequently, we conclude that spans and hence is a basis.
1.139 Exercise 1.134 established that the set = { (1, 1, 1), (0, 1, 1), (0, 0, 1)} is linearly
independent. Since dim
3
= 3, any other vectors must be linearly dependent on .
That is lin =
3
. is a basis.
By a similar argument to exercise 1.134, it is readily seen that {(1, 0, 0), (0, 1, 0), (0, 0, 1)}
is linearly independent and hence constitutes a basis.
29
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1.140 Let = {a
1
, a
2
, . . . , a
} and = {b
1
, b
2
, . . . , b
} be two bases for a linear

space . Let
1
= {
1
} = {b
1
, a
1
, a
2
, . . . , a
}
is linearly dependent (since
1
lin ) and spans . Therefore, there exists
1
,
2
, . . . ,
and
1
such that
1
b
1
+
1
a
1
+
2
a
2
+. . . +
= 0
At least one
= 0. Deleting the corresponding element a
, we obtain another set
1
of elements
1
= {b
1
, a
1
, a
2
, . . . , a
1
, a
+1
, . . . , a
}
which is also spans . Adding the second element from , we obtain the +1 element
set
2
= {b
1
, b
2
, a
1
, a
2
, . . . , a
1
, a
+1
, . . . , a
}
which again is linearly dependent and spans .
Continuing in this way, we can replace vectors in with the vectors from while
maintaining a spanning set. This process cannot eliminate all the vectors in , because
this would imply that was linearly dependent. (Otherwise, the remaining b
would be
linear combinations of preceding elements of .) We conclude that necessarily .
Reversing the process and replacing elements of with elements of establishes that
. Together these inequalities imply that = and and have the same
number of elements.
1.141 Suppose that the coalitions are ordered in some way, so that
() = {
0
,
1
,
2
, . . . ,
2
1
}
with
0
= . There are 2
coalitions. Each game
corresponds to a unique list

of length 2
of coalitional worths
v = (
0
,
1
,
2
, . . . ,
2
1
)
with
0
= 0. That is, each game denes a vector = (0,
1
, . . . ,
2
1
)
2
and
conversely each vector
2
(with
0
= 0) denes a game. Therefore, the space of
all games
is formally identical to the subspace of

2
in which the rst component

is identically zero, which in turn is equivalent to the space
2
1
. Thus,
is a
2
1-dimensional linear space.

1.142 For illustrative purposes, we present two proofs, depending upon whether the
linear space is assumed to be nite dimensional or not. In the nite dimensional case,
a constructive proof is possible, which forms the basis for practical algorithms for
constructing a basis.
Let be a linearly independent set in a linear space .
is nite dimensional Let = dim. Assume has elements and denote it
.
If lin
= , then
is a basis and we are done. Otherwise, there exists some

x
+1
lin
. Adding x
+1
to
gives a new set of + 1 elements
+1
=
{ x
+1
}
30
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which is also linearly independent ( since x
+1
/ lin
).
If lin
+1
= , then
+1
is a basis and we are done. Otherwise, there exists
some x
+2
lin
+1
. Adding x
+2
to
+1
gives a new set of + 2
elements
+2
=
+1
{ x
+2
}
which is also linearly independent ( since x
+2
/ lin
+2
).
Repeating this process, we can construct a sequence of linearly independent sets
,
+1
,
+2
. . . such that lin
lin
+1
lin
+2
. Eventu-
ally, we will reach a set which spans and hence is a basis.
is possibly innite dimensional For the general case, we can adapt the proof
of the existence of a basis (Exercise 1.138), restricting to be the class of all
linearly independent subsets of containing .
1.143 Otherwise (if a set of + 1 elements was linearly independent), it could be
extended to basis at least + 1 elements (exercise 1.142). This would contradict the
fundamental result that all bases have the same number of elements (Exercise 1.140).
1.144 Every basis is linearly independent. Conversely, let = {x
1
, x
2
, . . . , x
} be a
set of linearly independent elements in an -dimensional linear space . We have to
show that lin = .
Take any x . The set
{x} = {x
1
, x
2
, . . . , x
, x}
must be linearly dependent (Exercise 1.143). That is there exists numbers
1
,
2
, . . . ,
, ,
not all zero, such that
1
x
1
+
2
x
2
+ +
+x = 0 (1.20)
Furthermore, it must be the case that = 0 since otherwise
1
x
1
+
2
x
2
+ +
= 0
which contradicts the linear independence of . Solving (1.20) for x, we obtain
x =
1
1
x
1
+
2
x
2
+ +
Since x was an arbitrary element of , we conclude that spans and hence is a

basis.
1.145 A basis spans . To establish the converse, assume that = {x
1
, x
2
, . . . , x
}
is a set of elements which span . If is linearly dependent, then one element
is linearly dependent on the other elements. Without loss of generality, assume that
x
1
lin {x
1
}. Deleting x
1
the set
{x
1
} = {x
2
, x
3
, . . . , x
}
also spans . Continuing in this fashion by eliminating dependent elements, we nish
with a linearly independent set of < elements which spans . That is, we can
nd a basis of < elements, which contradicts the assumption that the dimension
of is (Exercise 1.140). Thus any set of vectors which spans must be linearly
independent and hence a basis.
31
All rights reserved
1.146 We have previously shown
that the set is linearly independent (Exercise 1.135).
the space
has dimension 2
1
(Exercise 1.141).
There are 2
1
distinct T-unanimity games
in . Hence spans the 2

1
space
. Alternatively, note that any game
can be written as a linear combination

of T-unanimity games (Exercise 1.75).
1.147 Let = {x
1
, x
2
, . . . , x
} be a basis for . Since is linearly independent,

(Exercise 1.143). There are two possibilities.
Case 1: = . is a set of linearly independent elements in an -dimensional
space . Hence is a basis for and = lin = .
Case 2: < . Since is linearly independent but cannot be a basis for the -
dimensional space , we must have = lin .
Therefore, we conclude that if is a proper subspace, it has a lower dimension
than .
1.148 Let
1
,
2
,
3
be the coordinates of (1, 1, 1) for the basis {(1, 1, 1), (0, 1, 1), (0, 0, 1)}.
That is
1
1
1
=
1
1
1
1
+
2
0
1
1
+
3
0
0
1
which implies that

1
= 1,
2
=
3
= 0. Therefore (1, 0, 0) are the required coordinates
of the (1, 1, 1) with respect to the basis {(1, 1, 1), (0, 1, 1), (0, 0, 1)}.
(1, 1, 1) are the coordinates of the vector (1, 1, 1) with respect to the standard basis.
1.149 A subset of a linear space is a subspace of if
x +y for every x, y and for every ,
Letting = 1 , this implies that
x + (1 )y for every x, y and
is an ane set.
Conversely, suppose that is an ane set containing 0, that is
x + (1 )y for every x, y and
Letting y = 0, this implies that
x for every x and
so that is homogeneous. Now letting =
1
2
, for every x and y in ,
1
2
x +
1
2
y
and homogeneity implies
x +y = 2
(
1
2
x +
1
2
y
)

is also additive. Hence is subspace.
32
All rights reserved
1.150 For any x , let
= x = { v : v +x }
is an ane set For any v
1
, v
2
, there exist corresponding s
1
, s
2
such that
v
1
= s
1
x and v
2
= s
2
x and therefore
v
1
+ (1 )v
2
= (s
1
x) + (1 )(s
1
x)
= s
1
+ (1 )s
2
x + (1 )x
= s x
where s =
1
+ (1 )
2
. There is an ane set.
is a subspace Since x , 0 = x x . Therefore is a subspace (Exercise
1.149).
is unique Suppose that there are two subspaces
1
and
2
such that =
1
+x
1
and =
2
+x
2
. Then
1
+x
1
=
2
+x
2
1
=
2
+ (x
2
x
1
)
=
2
+x
where x = x
2
x
1
. Therefore
1
is parallel to
2
.
Since
1
is a subspace, 0
1
which implies that x
2
. Since
2
is a subspace,
this implies that x
2
and
2
+x
2
. Therefore
1
=
2
+x
2
. Similarly,
2

1
and hence
1
=
2
. Therefore the subspace is unique.
1.151 Let denote the relation is parallel to , that is
= +x for some x
The relation is
reexive since = +0
transitive Assume = +x and = +y. Then = + (x +y)
symmetric = +x = = + (x)
Therefore is an equivalence relation.
1.152 See exercises 1.130 and 1.162.
1.153 1. Exercise 1.150
2. Assume x
0
. For every x
x = x
0
+v = w
which implies that . Conversely, assume = . Then x
0
= 0 since
is a subspace.
3. By denition, . Therefore = x .
4. Let x
1
/ . Suppose to the contrary
lin {x
1
, } =

33
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Then
= x
0
+
is an ane set (Exercise 1.150) which strictly contains . This contradicts the
denition of as a maximal proper ane set.
5. Let x
1
/ . By the previous part, x lin {x
1
, }. That is, there exists
such that
x = x
1
+v for some v
To see that is unique, suppose that there exists such that
x = x
1
+v
for some v

Subtracting
0 = ( )x
1
+ (v v
)
which implies that = since x
1
/ .
1.154 Assume x, y . That is, x, y
and
= ()
For any , x + (1 )y
and
+ (1 )
+ (1 )
= () + (1 )()
= ()
Hence is an ane subset of
.
1.155 See Exercise 1.129.
1.156 No. A straight line through any two points in
+
extends outside
+
. Put
dierently, the ane hull of
+
is the whole space
.
1.157 Let
= a x
1
= a {0, x
2
x
1
, x
3
x
1
, . . . , x
x
1
}
is a subspace (0 ) and
a = +x
1
and
dima = dim
Note that the choice of x
1
is arbitrary.
is anely dependent if and only if there exists some x
such that x

a ( {x
}). Since the choice of x

1
is arbitrary, we assume that x
= x
1
.
x
a ( {x
}) x
( +x
1
) {x
}
x
x
1
{x
x
1
}
x
x
1
lin {x
2
x
1
, x
3
x
1
, . . . , x
1
x
1
,
. . . , x
+1
x
1
, . . . , x
x
1
}
34
All rights reserved
Therefore, is anely dependent if and only if {x
2
x
1
, x
3
x
1
, . . . , x
x
1
} is
linearly independent.
1.158 By the previous exercise, the set = {x
1
, x
2
, . . . , x
} is anely dependent if
and only if the set {x
2
x
1
, x
3
x
1
, . . . , x
x
1
} is linearly dependent, so that there
exist numbers
2
,
3
, . . . ,
, not all zero, such that
2
(x
2
x
1
) +
3
(x
3
x
1
) + +
(x
x
1
) = 0
or
2
x
2
+
3
x
3
+ +
=2
x
1
= 0
Let
1
=
=2
. Then
1
x
1
+
2
x
2
+. . . +
= 0
and
1
+
2
+. . . +
= 0
as required.
1.159 Let
= a x
1
= a { 0, x
2
x
1
, x
3
x
1
, . . . , x
x
1
}
Then
a = x
1
+
If is anely independent, every x a has a unique representation as
x = x
1
+v, v
with
v =
2
(x
2
x
1
) +
3
(x
3
x
1
) + +
(x
x
1
)
so that
x = x
1
+
2
(x
2
x
1
) +
3
(x
3
x
1
) + +
(x
x
1
)
Dene
1
= 1
=2
. Then
x =
1
x
1
+
2
x
2
+ +
with
1
+
2
+ +
= 1
x is a unique ane combination of the elements of .
1.160 Assume that , (, ) . This means that < < and < < . For
every 0 1
+ (1 ) > + (1 )
35
All rights reserved
and
+ (1 ) < + (1 )
Therefore < +(1) < and +(1) (, ). (, ) is convex. Substituting
for < demonstrates that [, ] is convex.
Let be an arbitrary convex set in . Assume that is not an interval. This implies
that there exist numbers , , such that < < and , while / . Dene
=

so that
1 =

Note that 0 1 and that
+ (1 ) =

+

= /
which contradicts the assumption that is convex. We conclude that every convex set
in is an interval. Note that may be a hybrid interval such (, ] or [, ) as well as
an open (, ) or closed [, ] interval.
1.161 Let (, ) be a TP-coalitional game. If core(, ) = then it is trivially convex.
Otherwise, assume core(, ) is nonempty and let x
1
and x
2
belong to core(, ).
That is
() for every
= ()
and therefore for any 0 1
() for every
= ()
Similarly
(1 )
2
(1 )() for every
(1 )
2
= (1 )()
Summing these two systems
+ (1 )
2
() + (1 )() = () for every
+ (1 )
2
= () + (1 )() = ()
That is,
1
+ (1 )
2
belongs to core(, ).
36
All rights reserved
1.162 Let be a collection of convex sets and let x, y belong to
. for every
, x, y and therefore x + (1 )y for all 0 1 (since is convex).
Therefore x + (1 )y
.
1.163 Fix some output . Assume that x
1
, x
2
(). This implies that both (, x
1
)
and (, x
2
) belong to the production possibility set . If is convex
(, x
1
) + (1 )(, x
2
) = ( + (1 ), x
1
+ (1 )x
2
)
= (, x
1
+ (1 )x
2
)
for every [0, 1]. This implies that x
1
+ (1 )x
2
(). Since the choice of
was arbitrary, this implies that () is convex for every .
1.164 Assume
1
and
2
are convex sets. Let =
1
+
2
. Suppose x, y belong to .
Then there exist s
1
, t
1

1
and s
2
, t
2

2
such that x = s
1
+s
2
and y = t
1
+t
2
. For
any [0, 1]
x + (1 )y = s
1
+s
2
+ (1 )t
1
+t
2
= s
1
+ (1 )t
1
+s
2
+ (1 )t
2

since s
1
+(1 )t
1

1
and s
2
+(1 )t
2

2
. The argument readily extends to
any nite number of sets.
1.165 Without loss of generality, assume that = 2. Let =
1
2
=
1
2
.
Suppose x = (
1
,
2
) and y = (
1
,
2
) belong to . Then
x + (1 )y = (
1
,
2
) + (1 )(
1
,
2
)
= (
1
,
2
) + ((1 )
1
, (1 )
2
)
= (
1
+ (1 )
1
,
2
+ (1 )
2
)
1.166 Let x, y be points in so that x, y . Since is convex, x+(1)y
for every 0 1. Multiplying by
(x + (1 )y) = (x) + (1 )(y)
Therefore, is convex.
1.167 Combine Exercises 1.164 and 1.166.
1.168 The inclusion + (1 ) is true for any set (whether convex or not),
since for every x
x = x + (1 )x + (1 )
The reverse inclusion +(1) follows directly from the denition of convexity.
1.169 Given any two convex sets and in a linear space, the largest convex set
contained in both is ; the smallest convex set containing both is conv .
Therefore, the set of all convex sets is a lattice with
=
= conv
The lattice is complete since every collection {
} has a least upper bound conv
and a greatest lower bound
.
37
All rights reserved
1.170 If a set contains all convex combinations of its elements, it contains all convex
combinations of any two points, and hence is convex.
Conversely, assume that is convex. Let x be a convex combination of elements in ,
that is let
x =
1
x
1
+
2
x
2
+. . . +
where x
1
, x
2
, . . . , x
and
1
,
2
, . . . ,

+
with
1
+
2
+ . . . +
= 1. We
need to show that x .
We proceed by induction of the number of points . Clearly, x if = 1 or = 2.
To show that it is true for = 3, let
x =
1
x
1
+
2
x
2
+
3
x
3
where x
1
, x
2
, x
3
and
1
,
2
,
3

+
with
1
+
2
+
3
= 1. Assume that
> 0
for all (otherwise = 1 or = 2) so that
1
< 1. Rewriting
x =
1
x
1
+
2
x
2
+
3
x
3
=
1
x
1
+ (1
1
)
(

2
1
1
x
2
+

2
1
1
x
3
)
=
1
x
1
+ (1
1
)y
where
y =
(

2
1
1
x
2
+

2
1
1
x
3
)
y is a convex combination of two elements x
2
and x
3
since
2
1
1
+

2
1
1
=

2
+
3
1
1
= 1
and
2
+
3
= 1
1
. Hence y . Therefore x is a convex combination of two
elements x
1
and and is also in . Proceeding in this fashion, we can show that every
convex combination belongs to , that is conv .
1.171 This is precisely analogous to Exercise 1.128. We observe that
1. conv is a convex set.
2. if is any convex set containing , then conv .
Therefore, conv is the smallest convex set containing S.
1.172 Note rst that conv for any set . The converse for convex sets follows
from Exercise 1.170.
1.173 Assume x conv (
1
+
2
). Then, there exist numbers
1
,
2
, . . . ,
and vec-
tors x
1
, x
2
, . . . , x
in
1
+
2
such that
x =
1
x
1
+
2
x
2
+ +
For every x
, there exists x
1

1
and x
2

2
such that
x
= x
1
+x
2
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All rights reserved
and therefore
x =
=1
x
1
=1
x
2
= x
1
+x
2
where x
1
=
=1
x
1

1
and x
2
=
=1
x
2

2
. Therefore x conv
1
+
conv
2
.
Conversely, assume that x conv
1
+ conv
2
. Then x = x
1
+x
2
, where
x
1
=
=1
, x
1

1
x
2
=
=1
, x
2

2
and
x = x
1
+x
2
=
=1
=1
conv (
1
+
2
)
since x
1
, x
2

1
+
2
for every and .
1.174 The dimension of the input requirement set () is . Its ane hull is
.
1.175 1. Let
x =
1
x
1
+
2
x
2
+. . . +
(1.21)
If > dim+1, the elements x
1
, x
2
, . . . , x
are anely dependent (Exercise

1.157 and therefore there exist numbers
1
,
2
, . . . ,

(Exercise 1.158)
1
x
1
+
2
x
2
+. . . +
= 0 (1.22)
and
1
+
2
+. . . +
= 0
2. Combining (1.21) and (1.22)
x = x 0
=
=1
=1
=1
(
)x
(1.23)
for any .
3. Let = min
> 0
}
=

We note that
> 0 since
> 0 for every .

39
All rights reserved
If
> 0, then
and therefore
0
If
0 then
> 0 for every > 0.

Therefore
0 for every and

= 0 for = .
Therefore, (1.23) represents x as a convex combination of only 1 points.
4. This process can be repeated until x is represented as a convex combination of
at most dim + 1 elements.
1.176 Assume x is not an extreme point of . Then there exists distinct x
1
and x
2
in
S such that
x = x
1
+ (1 )x
2
Without loss of generality, assume 1/2 and let y = x
2
x. Then x +y = x
2
.
Furthermore
x y = x x
2
+x
= 2x x
2
= 2(x
1
+ (1 )x
2
) x
2
= 2x
1
+ (1 2)x
2

since 1/2.
1.177 1. For any x = (
1
,
2
)
2
, there exists some
1
[0, 1] such that
1
=
1
+ (1
1
)() = (2
1
1)
In fact,
1
is dened by
1
=

1
+
2
Therefore (see Figure 1.5)
(

1
)
=
1
(

)
+ (1
1
)
(

)
(

1
)
=
1
(

)
+ (1
1
)
(

)
Similarly
2
=
2
+ (1
2
)() where
2
=

2
+
2
Therefore, for any x
2
,
x =
(

1
2
)
=
2
(

1
)
+ (1
2
)
(

1
)
=
1
2
(

)
+ (1
1
)
2
(

)
+
1
(1
2
)
(

)
+ (1
1
)(1
2
)
(

)
=
1
(

)
+
2
(

)
+
3
(

)
+
4
(

)
40
All rights reserved
(
1
, c)
(
1
, -c)
1
x
Figure 1.5: A cube in
2
where 0
1 and
1
+
2
+
3
+
4
=
1
2
+ (1
1
)
2
+
1
(1
2
) + (1
1
)(1
2
)
=
1
2
+
2
2
+
1
2
+ 1
1
2
+
1
2
= 1
That is
conv
{(

)
,
(

)
,
(

)
,
(

)}
2. (a) For any point (
1
,
2
, . . . ,
1
, ) which lies on face of the cube
, (
1
,
2
, . . . ,
1
)
1
and therefore
(
1
,
2
, . . . ,
1
) conv { , , . . . , ) }
1
so that
x conv { (, , . . . , , ) }
Similarly, any point (

1
,
2
, . . . ,
1
, ) on the opposite face lies in the
convex hull of the points { (, , . . . , , ) }.
(b) For any other point x = (
1
,
2
, . . . ,
, let
+
2
so that
+ (1
)()
Then
x =
2
. . .
2
. . .
+ (1
2
. . .
41
All rights reserved
Hence
x conv { (, , . . . , ) }
In other words
conv { (, , . . . , ) }
3. Let denote the set of points of the form { (, , . . . , ) }
. Clearly,
every point in is an extreme point of
. Conversely, we have shown that
conv . Therefore, no point x
can be an extreme point of
.
is the set of extreme points of
.
4. Since
is convex, and
, conv
. Consequently,
= conv .
1.178 Let x, y belong to is convex. For any [0, 1]
x + (1 )y since convex
x + (1 )y / since is a face
Thus x + (1 )y which is convex.
1.179 1. Trivial.
2. Let {
} be a collection of faces of and let =
. Choose any x, y .
If the line segment between x and y intersects , then it intersects some face
which implies that x, y
. Therefore, x, y =
.
3. Let {
} be a collection of faces of and let =
. Choose any x, y . if
the line segment between x and y intersects , then it intersects every face
which implies that x, y
for every . Therefore, x, y =
.
4. Let be the collection of all faces of . This is partially ordered by inclusion.
By the previous result, every nonempty subcollection has a least upper bound
(
). Hence is a complete lattice (Exercise 1.47).

1.180 Let be a polytope. Then = conv { x
1
, x
2
, . . . , x
}. Note that every extreme

point belongs to { x
1
, x
2
, . . . , x
}. Now choose the smallest subset whose convex hull

is still , that is delete elements which can be written as convex combinations of other
elements. Suppose the minimal subset is { x
1
, x
2
, . . . , x
}. We claim that each of

these elements is an extreme point of , that is { x
1
, x
2
, . . . , x
} = .
Assume not, that is assume that x
is not an extreme point so that there exists x, y

with
x
= x + (1 )y with 0 < < 1 (1.24)

Since x, y conv {x
1
, x
2
, . . . , x
}
x =
=1
y =
=1
x
Substituting in (1.24), we can write x
as a convex combination of {x
1
, x
2
, . . . , x
}.
x
=1
(
+ (1 )
)
x
=1
where
+ (1 )
42
All rights reserved
Note that 0
1, so that either
< 1 or
= 1. We show that both cases lead

to a contradiction.

< 1. Then
x
=
1
1
=1
(
+ (1 )
)
x
which contradicts the minimality of the set {x

1
, x
2
, . . . , x
}.

= 1. Then
= 0 for every = . That is
+ (1 )
= 0 for every =
which implies that
for every = and therefore x = y.

Therefore, if {x
1
, x
2
, . . . , x
} is a minimal spanning set, every point must be an extreme

point.
1.181 Assume to the contrary that one of the vertices is not an extreme point of the
simplex. Without loss of generality, assume this is x
1
. Then, there exist distinct
y, z and 0 < < 1 such that
x
1
= y + (1 )z (1.25)
Now, since y , there exist
1
,
2
, . . . ,
such that
y =
=1
=1
= 1
Similarly, there exist
1
,
2
, . . . ,
such that
z =
=1
=1
= 1
Substituting in (1.25)
x
1
=
=1
+ (1 )
=1
=1
(
+ (1 )
)
x
Since
=1
(
+ (1 )
)
=
=1
+ (1 )
=1
= 1
x
1
=
=1
(
+ (1 )
)
x
Subtracting, this implies

0 =
=2
(
+ (1 )
)
(x
x
1
)
This establishes that the set {x
2
x
1
, x
3
x
1
, . . . , x
x
1
} is linearly dependent and
therefore = {x
1
, x
2
, . . . , x
} is anely dependent (Exercise 1.157). This contradicts

the assumption that is a simplex.
43
All rights reserved
1.182 Let be the dimension of a convex set in a linear space . Then = dima
and there exists a set { x
1
, x
2
, . . . , x
+1
} of anely independent points in . Dene
= conv { x
1
, x
2
, . . . , x
+1
}
Then
is an -dimensional simplex contained in .

1.183 Let w = (({1}), ({2}), . . . , ({})) denote the vector of individual worths and
let denote the surplus to be distributed, that is
= ()
({})
> 0 if the game is essential. For each player = 1, 2, . . . , , let
y
= w +e
be the outcome in which player receives the entire surplus. (e
is the th unit vector.)

Note that
=
{
({}) + =
({}) =
Each y
is an imputation since
({}) and
({}) + = ()
Therefore {y
1
, y
2
, . . . , y
} . Since is convex (why ?), = conv {y

1
, y
2
, . . . , y
}
. Further, for every , the vectors
y
= (e
)
are linearly independent. Therefore is an 1-dimensional simplex in
.
For any x dene
({})
so that
= ({}) +
Since x is an imputation

=
(
({})
)
/ = 1
We claim that x =
since for each = 1, 2, . . . ,
({}) +
= ({}) +
Therefore x conv {y
1
, y
2
, . . . , y
} = , that is . Since we previously showed

that , we have established that = , which is an 1 dimensional simplex in
.
44
All rights reserved
2
3. A convex cone 1. A non-convex cone 2. A convex set
Figure 1.6: A cone which is not convex, a convex set and a convex cone
1.185 Let x = (
1
,
2
, . . . ,
) belong to
+
, which means that
0 for every . For

every > 0
x = (x
1
, x
2
, . . . , x
)
and
0 for every . Therefore x
+
.
+
is a cone in
.
1.186 Assume
x +y for every x, y and ,
+
(1.26)
Letting = 0, this implies that
x for every x and
+
so that is a cone. To show that is convex, let x and y be any two elements in .
For any [0, 1], (1.26) implies that
x + (1 )y
Therefore is convex.
Conversely, assume that is a convex cone. For any ,
+
and x, y
+
x +

+
y
and therefore
x +y
1.187 Assume satises
1. for every 0
2. +
45
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By (1), is a cone. To show that it is convex, let x and y belong to . By (1), x and
(1 )y belong to , and therefore x + (1 )y belongs to by (2). is convex.
Conversely, assume that is a convex cone. Then
for every 0
Let x and y be any two elements in . Since is convex, =
1
2
x + (1 )
1
2
y
and since it is a cone, 2 = x +y . Therefore
+
1.188 We have to show that is convex cone. By assumption, is convex. To show
that is a cone, let y be any production plan in . By convexity
y = y + (1 )0 for every 0 1
Repeated use of additivity ensures that
y for every = 1, 2, . . .
Combining these two conclusions implies that
y for every 0
1.189 Let
denote the set of all superadditive games. Let

1
,
2
be two
superadditive games. Then, for all distinct coalitions , with =
1
( )
1
() +
1
()
2
( )
2
() +
2
()
Adding
(
1
+
2
)( ) =
1
( ) +
2
( )

1
() +
2
() +
1
() +
2
()
= (
1
+
2
)() + (
1
+
2
)()
so that
1
+
2
is superadditive. Similarly, we can show that
1
is superadditive for
all
+
. Hence is a convex cone in
.
1.190 Let x belong to
=1
. Then x
for every . Since each
is a cone,
x
for every 0 and therefore x
=1
.
Let =
1
+
2
+ +
and assume x belongs to . Then there exist x
,
= 1, 2, . . . , such that
x = x
1
+x
2
+ +x
For any 0
x = (x
1
+x
2
+ +x
)
= x
1
+x
2
+ +x

since x
for every .
46
All rights reserved
1.191 1. Suppose that y . Then, there exist
,
2
, . . . ,
8
0 such that
y =
8
=1
and for the rst commodity

y
1
=
8
=1
1
If y = 0, at least one of the
> 0 and hence y

1
< 0 since
1
< 0 for =
1, 2, . . . , 8.
2. Free disposal requires that y , y
y = y
. Consider the production

plan y
= (2, 2, 2, 2). Note that y
y
3
and y
y
6
. Suppose that
y
. Then there exist

1
,
2
, . . . ,
8
0 such that
y =
8
=1
For the third commodity (component), we have

4
1
+ 3
2
+ 3
3
+ 3
4
+ 12
5
2
6
+ 5
8
= 2 (1.27)
and for the fourth commodity
2
2
1
3
+ 1
4
+ 5
6
+ 10
7
2
8
= 2 (1.28)
Adding to (1.28) to (1.27) gives
4
1
+ 5
2
+ 2
3
+ 4
4
+ 12
5
+ 3
6
+ 10
7
+ 3
8
= 4
which is impossible given that
0. Therefore, we conclude that y
/ .
3.
y
2
= (7, 9, 3, 2) (8, 13, 3, 1) = y
4
3y
1
= (9, 18, 12, 0) (11, 19, 12, 0) = y
5
y
7
= (8, 5, 0, 10) (8, 6, 4, 10) = 2y
6
2y
3
= (2, 4, 6, 2) (2, 4, 5, 2) = y
8
4.
2y
3
+y
7
= (2, 4, 6, 2) + (8, 5, 0, 10)
= (10, 9, 6, 8)
(14, 18, 6, 4) = 2y
2
20y
3
+ 2y
7
= 20(1, 2, 3, 1) + 2(8, 5, 0, 10)
= (20, 40, 60, 20) + (16, 10, 0, 20)
= (36, 50, 60, 0)
(45, 90, 60, 0) = 15y
1
47
All rights reserved
5. E( ) = cone { y
3
, y
7
}.
1.192 This is precisely analogous to Exercise 1.128. We observe that
1. cone is a convex cone.
2. if is any convex cone containing , then conv .
Therefore, cone is the smallest convex cone containing S.
1.193 For any set , cone . If is a convex cone, Exercise 1.186 implies that
cone .
1.194 1. If > = dimcone = dimlin , the elements x
1
, x
2
, . . . , x
are
linearly dependent and therefore there exist numbers
1
,
2
, . . . ,
, not all zero,

such that (Exercise 1.134)
1
x
1
+
2
x
2
+. . . +
= 0 (1.29)
2. Combining (1.14) and (1.29)
x = x 0
=
=1
=1
=1
(
)x
(1.30)
for any .
3. Let = min
> 0
}
=

We note that
> 0 since
> 0 for every .

If
> 0, then
and therefore
0.
If
0 then
> 0 for every > 0.

Therefore
0 for every and

= 0 for = .
Therefore, (1.30) represents x as a nonnegative combination of only 1 points.
4. This process can be repeated until x is represented as a convex combination of
at most points.
1.195 1. The ane hull of

is parallel to the ane hull of . Therefore
dim = dima = dima

Since
(
0
0
)
/ a

,
dimcone

= dima

+ 1 = dim + 1
48
All rights reserved
2. For every x conv ,
(
x
1
)
conv

and there exist (Exercise 1.194) + 1
points
(
x
1
)

such that
(
x
1
)
conv {
(
x
1
1
)
,
(
x
2
1
)
, . . .
(
x
+1
1
)
}
This implies that
x conv { x
1
, x
2
, . . . , x
+1
}
with x
1
, x
2
, . . . , x
+1
.
1.196 A subsimplex with precisely one distinguished face is completely labeled. Suppose
a subsimplex has more than one distinguished face. This means that it has vertices
labeled 1, 2, . . . , . Since it has + 1 vertices, one of these labels must be repeated
(twice). The distinguished faces lie opposite the repeated vertices. There are precisely
two distinguished faces.
1.197 1. (x, y) = x y 0.
2. (x, y) = x y = 0 if and only if x y = 0, that is x = y.
3. Property (3) ensures that x = x and therefore x y = y x so that
(x, y) = x y = y x = (y, x)
4. For any z
(x, y) = x y
= x z +z y
x z +z y
= (x, z) +(z, y)
Therefore (x, y) = x y satises the properties required of a metric.
1.198 Clearly x
0 and x
= 0 if and only if x = 0. Thirdly

x =

max
=1
=

max
=1
= x
To prove the triangle inequality, we note that for any

max(
) max
+ max
Therefore
x =

max
=1
(
)

max
=1
+

max
=1
= x +y
1.199 Suppose that producing one unit of good 1 requires two units of good 2 and three
units of good 3. The production plan is (1, 2, 3) and the average net output, 2,
is negative. A norm is required to be nonnegative. Moreover, the quantities of inputs
and outputs may balance out yielding a zero average. That is, (
=1
)/ = 0 does
not imply that
= 0 for all .
49
All rights reserved
1.200
x y = x y +y y
x y +y y
= x y
1.201 Using the previous exercise
x
x x
x 0
1.202 First note that each term x
+ y
by linearity. Similarly, x + y . Fix

some > 0. There exists some
x
such that x
x < for all

x
. Similarly,
there exists some
y
such that y
y < for all

y
. For all max{
x
,
y
},
(x
+y
) (x +y) = (x
x) + (y
y)
x
x +y
y
<
Similarly, for every
x
x
x = x
x
/2
0 as 0
1.203 Let x
be a sequence in + converging to x. For every , there exists y

and z
such that x
= y
+z
. Since is compact, there exists a subsequence z
converging to z . Let y = lim
. Then y since is closed. By the previous

exercise, y
+z
y +z. By assumption, y
+z
x so that x = y +z +.
+ is closed.
1.204 Yes. Apply Exercise 1.202.
1.205 The th partial sum of the series is
s
= x +x +
2
x + +
1
x
Multiplying this equation by gives
s
= x +
2
x +
3
x + +
x
Subtracting this equation from the previous one and canceling common terms gives
(1 )s
= x
x = (1
)x
Provided that = 1
s
=
x
x
1
=
x
1

x
1
(1.31)
If < 1, then
0 (Exercise 1.102) and therefore
converges to x/(1 ).
1.206
1 +
1
2
+
1
4
+
1
8
+
1
16
+. . .
is a geometric series 1 + +
2
+
3
+. . . with = 1/2. The series converges (Exercise
1.205) to
1 +
1
2
+
1
4
+
1
8
+
1
16
+ =
1
1
=
1
1
1
2
= 2
50
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1.207 The present value of the payments is the th partial sum of the geometric
series + +
2
+
3
+. . . which (using (1.31)) is given by
Present value =
1
1.208 By Exercise 1.93, there exists an open set
1
such that
2
= . For every
x
1
, there exists an open ball (x) such that (x) and therefore (x)
2
= .
The collection { (x) } of open balls is an open cover for
1
. Since
1
is compact there
exists a nite subcover, that is there exists points x
1
, x
2
, . . . , x
in
1
such that
=1
(x
)
Furthermore, for every x
, there exists
such that
(x
) = x
where is the unit ball. Let = min
. = is the required neighborhood.

1.209 Clearly is a normed linear space. To show that it is complete, let (z
) be
a Cauchy sequence in where z
= (x
, y
). For every > 0, there exists some

such that
z
= max{ x
, y
} <
for every , . This implies that (x
) and (y
) are Cauchy sequences in and

respectively. Since and are complete, both sequences converge. That is, there
exists x and y such that x
x 0 and y
y 0. In other words,
given > 0 there exists such that x
x < and y
y < for every .

Let z = (x, y). Then, for every
z
z = max{ x
x , y
y } <
z
z.
1.210 1. By assumption, for every = 1, 2, . . . , there exists a point y
such that
y <
1
=1
)
where
y =
1
x
1
+
2
x
2
+ +
Let
=1
. By assumption
> y
0. Dene
x
=
1
Then
x
1
x
1
+
2
x
2
+ +
where
=1
= 1 and x
<
1
for every = 1, 2, . . . .
Consequently x
0.
51
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2. Since
=1
= 1,
1 for every . Consequently, for every coordinate

, the sequence (
) is bounded. By the Bolzano-Weierstrass theorem (Exercise

1.119), the sequence (
1
) has a convergent subsequence with
1

1
. Let x
,1
denote the corresponding subsequence of x
.
Similarly,
,1
2
has a subsequence converging to
2
. Let (x
,2
) denote the corre-
sponding subsequence of (x
). Proceeding coordinate by coordinate, we obtain

a subsequence (x
,
) where each term is
x
,
=
,
x
1
+
,
x
2
+ +
,
x
and each coecient converges

,
. Let
x =
1
x
1
+
2
x
2
+ +
2
x
Then x
,
x (Exercise 1.202).
3. Since
=1
= 1 for every ,
=1
= 1. Consequently, at least one

of the coecients
= 0. Since x
1
, x
2
, . . . , x
are linearly independent, x = 0

(Exercise 1.133) and therefore x = 0. But (x
,
) is a subsequence of (x
).
This contradicts the earlier conclusion (part 1) that x
0.
1.211 1. Let be a normed linear space of dimension and let { x
1
, x
2
, . . . , x
}
be a basis for . Let (x
) be a Cauchy sequence in . Each term x
has a
unique representation
x
1
x
1
+
2
x
2
+ +
We show that each of the sequences
is a Cauchy sequence in .
Since x
is a Cauchy sequence, for every > 0 there exists an such that

x
< for all , . Using Lemma 1.1, there exists > 0 such that
=1
=1
(
)x
= x
<
for all , . Dividing by > 0 we get for every
=1
<

Thus each sequence
is a Cauchy sequence in . Since is complete, each

sequence converges to some limit
.
2. Let
x =
1
x
1
+
2
x
2
+ +
Then x and
x
x =
=1
(
)x
=1
Since
for every , x
x 0 which implies that x
x.
3. Since (x
) was an arbitrary Cauchy sequence, we have shown that every Cauchy

sequence in converges. Hence is complete.
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1.212 Let be an open set according to the
and let x
0
be a point in . Since is
open, it contains an open ball in the
topology about x
0
, namely
(x
0
, ) = { x
: x x
0
< } Let
(x
0
, ) = { x : x x
0
< }
be the open ball about x
0
in the
topology. The condition (1.15) implies that
(x
0
, )
(x
0
, ) and therefore
x
0

(x
0
, )
is open in the
topology. Similarly, any open in the
topology is open in
the
topology.
1.213 Let be a normed linear space of dimension . and let { x
1
, x
2
, . . . , x
} be
a basis for . Let
and
be two norms on . Every x has a unique

representation
x =
1
x
1
+
2
x
2
+ +
Repeated application of the triangle inequality gives

x
=
1
x
1
+
2
x
2
+ +
=1
=1
=1
where = max
.
By Lemma 1.1, there is a positive constant such that
=1
/
Combining these two inequalities, we have
x
/
Setting = / > 0, we have shown
x
The other inequality in (1.15) is obtained by interchanging the roles of
and
.
1.214 Assume x
x = (
1
,
2
, . . . ,
). Then, for every > 0, there exists some

such that x
< . Therefore, for = 1, 2, . . . ,
max
= x
<
Therefore
.
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Conversely, assume that (x
) is a sequence in
with
for every coordinate .

Choose some > 0. For every , there exists some integer
such that
< for every
Let = max
{
1
,
2
, . . . ,
}. Then
< for every

and
x
= max
< for every

That is, x
x.
A similar proof can be given using the Euclidean norm
2
, but it is slightly more
complicated. This illustrates an instance where the sup norm is more tractable.
1.215 1. Let be closed and bounded and let x
be a sequence in . Every
term x
has a representation
x
=1
Since is bounded, so is x
. That is, there exists such that x
for all
. Applying Lemma 1.1, there is a positive constant such that
=1

Hence, for every , the sequence of scalars
is bounded.
2. By the Bolzano-Weierstrass theorem (Exercise 1.119), the sequence
1
has a
convergent subsequence with limit
1
. Let
(1)
be the corresponding subsequence
of x
.
3. Similarly,
(1)
has a subsequence for which the corresponding scalars
2
con-
verge to
2
. Repeating this process times (this is were niteness is impor-
tant), we deduce the existence of a subsequence
()
whose scalars converge to
(
1
,
2
, . . . ,
).
4. Let
x =
=1
Since
for every , x
x 0 which implies that x
x.
5. Since is closed, x .
6. We have shown that every sequence in has a subsequence which converges in
. is compact.
1.216 Let x and y belong to = { x : x < 1 }, the unit ball in the normed linear
space . Then x , y < 1. By the triangle inequality
x + (1 )y x + (1 ) y + (1 ) = 1
Hence x + (1 )y .
54
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1.217 If int is empty, it is trivially convex. Therefore, assume int = and let
x, y int . We must show that z = x + (1 )y int .
Since x, y int , there exists some > 0 such that the open balls (x, ) and (y, )
are both contained in int . Let w be any vector with w < . The point
z +w = (x +w) + (1 )(y +w)
since x + w (x, ) and y + w (y, ) and is convex. Hence z is an
interior point of .
Similarly, if is empty, it is trivially convex. Therefore, assume = and let x, y .
Choose some . We must show that = x + (1 )y .
There exist sequences (x
) and (y
) in which converge to x and y respectively

(Exercise 1.105). Since is convex, the sequence (x
+ (1 )y
) lies in and
moreover converges to x + (1 )y = z (Exercise 1.202). Therefore is the limit of
a sequence in and hence . Therefore, is convex.
1.218 Let x = x
1
+ (1 )x
2
for some (0, 1). Since x
1
,
x
1
+
x
1
( +)
The open ball about x of radius is
( x, ) = x +
= x
1
+ (1 )x
2
+
( +) + (1 )x
2
+
= + (1 )x
2
+ (1 +)
= + (1 )
(
x
2
+
1 +
1
)
Since x
2
int
x
2
+
1 +
1
=
(
x
2
,
1 +
1
)

for suciently small . For such
( x, ) + (1 )
=
by Exercise 1.168. Therefore x int .
1.219 It is easy to show that

To show the converse, choose any x and let x

0

for every . By Exercise

1.218, x + (1 )x
0

for all 0 < < 1. This implies that x + (1 )x

0

= for all 0 < < 1, and therefore that x

0
= lim
0
x + (1 )x
0
.
1.220 Assume that x int . Then, there exists some such that
(x, ) = x +
55
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Let y be any element in the unit ball . Then y and
x
1
= x +y
x
2
= x y
so that
x =
1
2
x
1
+
1
2
x
2
x is not an extreme point. We have shown that no interior point is an extreme point;
hence every extreme point must be a boundary point.
1.221 We showed in Exercise 1.220 that ext() b(). To show the converse, assume
that x is a boundary point which is not an extreme point. That is, there exist x
1
, x
2

such that
x = x
1
+ (1 )x
2
0 < < 1
This contradicts the assumption that is strictly convex.
1.222 If is open, int = . Since is convex
x + (1 )y = int for every 0 1
A fortiori for every x = y
x + (1 )y = int for every 0 < < 1
is strictly convex.
1.223 Let be open and x conv . That is
x =
=1
with x
[0, 1] and
= 1. The open ball about x

(x, ) = x +
=
(

=1
)
+
=
(

=1
)
+
(

=1
)
=
=1
(
+)
Since is open, there exists some such that x
+ for all . For this

(x, ) conv
Therefore conv is open.
1.224
conv = { (
1
,
2
)
2
:
2
> 0 }
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1.225 is closed and bounded (Proposition 1.1).
1. is bounded, that is there exists some such that x < for every x .
Let x conv . x is a convex combination of a nite number of points in , that
is
x =
=1
with
0 and
=1
= 1. By the triangle inequality

x
=1
<
Therefore conv is bounded.
2. Let x belong to conv . Then, there exists a sequence (x
) in conv which con-

verges to x. By Caratheodorys theorem, each term x
is a convex combination
of at most + 1 points, that is
x
=
+1
=1
where x
.
For each , the sequence (x
) lies in a compact set and hence contains a conver-

gent subsequence. Similarly, the sequence of coecients (
) [0, 1] is bounded
and contains a convergent subsequence (Bolzano-Weierstrass theorem, Exercise
1.119). Proceeding coordinate by coordinate as in Exercise 1.215, we can con-
struct convergent subsequences
and x
.
3. Let
x =
+1
=1
Since
+1
=1
(
+1
=1
=
+1
=1
=
+1
=1
+
+1
=1
0
as
, x
and x
are bounded. Therefore x
x.
4. Since
0 and
+1
=1

= 1 for every , we conclude that
= lim
0 and
+1
=1

= 1. Furthermore, since is closed, x
for every and therefore

x =
+1
=1

conv .
57
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5. We have shown that conv conv , that is conv is closed.
6. conv is a closed and bounded subset of a nite dimensional space, and hence
conv is compact (Proposition 1.4 and Exercise 1.215).
1.226 1. is bounded. Therefore, there exists some such that x
= max
<
for every x . That is
so that
x = { x = (
1
,
2
, . . . ,
for every }
Therefore .
2. Exercise 1.177.
3. is the convex hull of a nite set and hence is compact (Exercise 1.225)
4. is a closed subset of a compact set and hence is compact (Exercise 1.110).
1.227 A polytope is the convex hull of a nite set. Any nite set is compact.
1.228 The unit simplex
1
in
is the convex hull of the unit vectors e

1
, e
2
, . . . , e
,
that is
1
= conv { e
1
, e
2
, . . . , e
}
=
{
(
1
,
2
, . . . ,
0 and
= 1
}
This simplex has a nonempty relative interior, namely
ri =
{
(
1
,
2
, . . . ,
> 0 and
< 1
}
1.229 Let = dim. By Exercise 1.182, contains a simplex
of the same dimen-

sion. That is, there exist vertices v
1
, v
2
, . . . , v
such that
= conv { v
1
, v
2
, . . . , v
}
=
{
1
v
1
+
2
v
2
+ +
1
,
2
, . . . ,
0,
1
+
2
+. . . +
= 1
}
Analogous to the previous part, the relative interior of
is
ri
= conv { v
1
, v
2
, . . . , v
}
=
{
1
v
1
+
2
v
2
+ +
1
,
2
, . . . ,
> 0,
1
+
2
+. . . +
= 1
}
which is nonempty.
Note, the proposition is trivially true for a set containing a single point ( = 0), since
this point is the whole ane space.
1.230 If int = , then a = and ri = int . The converse follows from Exercise
1.229.
1.231 Since
> inf
x
=1
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there exists some x such that
=1

Therefore x (p, ) which is nonempty.
Let = min
be the lowest price of the goods. Then (p, ) (0, / ) and

so is bounded. (That is, no component of an aordable bundle can contain more than
/ units.)
To show that (p, ) is closed, let (x
) be a sequence of consumption bundles in

(p, ). Since (p, ) is bounded, x
x . Furthermore
1
+
2
2
+ +
for every
This implies that
1
+
2
2
+ +

so that x
x (p, ). Therefore (p, ) is closed.

We have shown that (p, ) is a closed and bounded subset of
. Hence it is compact
(Proposition 1.4).
1.232 Let x, y (p, ). That is
=1
=1

For any [0, 1], the cost of the weighted average bundle z = x + (1 )y (where
each component
+ (1 )
) is
=1
=1
+ (1 )
=1
+ (1 )
=1
+ (1 )
=
Therefore z (p, ). The budget set (p, ) is convex.
1.233 1. Assume that is strongly monotone. Let x, y with x y.
Either x y so that x y by strong monotonicity
or x = y so that x y by reexivity.
In either case, x y so that is weakly monotonic.
2. Again, assume that is strongly monotonic and let y . is open (relative
to itself). Therefore, there exists some such that
(y, ) = y +
Let x = y + e
1
be the consumption bundle containing more units of good 1.
Then e
1
, x (y, ) and therefore x y < . Furthermore, x y and
therefore x y.
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3. Assume is locally nonsatiated. Then, for every x , there exists some y
such that y x. Therefore, there is no best element.
1.234 Assume otherwise, that is assume that x
x for every x (p, ) but that
=1
< . Let =
=1
be the unspent income. Spending the residual

on good 1, the commodity bundle x = x
+

1
e
1
is aordable
=1
=1
+
1
1
=
Moreover, since x x
, x x
, which contradicts the assumption that x
is the best
element in (p, ).
1.235 Assume otherwise, that is assume that x
x for every x (p, ) but that
=1
< . This implies that x
int (p, ). Therefore, there exists a neigh-

borhood of x
with (p, ). Within this neighborhood, there exists some

x (p, ) with x x
, which contradicts the assumption that x
is the best
element in (p, ).
1.236 1. Assume is continuous. Choose some y . For any x
0
in (y), x
0
y
and (since is continuous) there exists some neighborhood (x
0
) such that x y
for every x (x
0
). That is, (x
0
) (y) and (y) is open.
Similarly, for any x
0
(y), x
0
y and there exists some neighborhood (x
0
)
such that x y for every x (x
0
). Thus (x
0
) (y) and (y) is open.
2. Conversely, assume that the sets (y) = { x : x y } and (y) = { x : x y}
are open in x. Assume x
0
y
0
.
(a) Suppose there exists some y such that x
0
y z
0
. Then x
0
(y), which
is open by assumption. That is, (y) is an open neighborhood of x
0
and
x y for every x (y). Similarly, (y) is an open neighborhood of z
0
for
which y z for every z (y). Therefore (x
0
) = (y) and (z
0
) = (y)
are the required neighborhoods of x
0
and z
0
respectively such that
x y z for every x (x
0
) and y (z
0
)
(b) Suppose there is no y such that x
0
y z
0
.
i. By assumption
(z
0
) is open
x
0
z
0
which implies x
0
(z
0
),
Therefore (z
0
) is an open neighborhood of x
0
.
ii. Since is complete, either y x
0
or y x
0
for every y (Exercise
1.56. Since there is no y such that x
0
y z
0
y z
0
= y x
0
= y x
0
Therefore (z
0
) = (x
0
).
iii. Since x x
0
z
0
for every x (x
0
) = (z
0
)
x z
0
for every x (z
0
)
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iv. Therefore (x
0
) = (z
0
) is an open neighborhood of x
0
such that
x z
0
for every x (x
0
)
Similarly, (z
0
) = (x
0
) is an open neighborhood of z
0
such that z x
0
for every z (z
0
). Consequently
x z for every x (x
0
) and z (z
0
)
3. (y) =
(
(y)
)
(Exercise 1.56). Therefore, (y) is closed if and only if (y) is

open (Exercise 1.80). Similarly, (y) is closed if and only if (y) is open.
1.237 1. Let = { (x, y) : x y}. Let ((x
, y
)) be a sequence in which
converges to (x, y). Since (x
, y
) , x
for every . By assumption,

x y. Therefore, (x, y) which establishes that is closed (Exercise 1.106)
Conversely, assume that is closed and let ((x
, y
)) be a sequence converging
to (x, y) with x
for every . Then ((x
, y
)) which implies that

(x, y) . Therefore x y.
2. Yes. Setting y
= y for every , their denition implies that for every sequence

(x
) in with x
y, x = limx
y. That is, the upper contour set

(y) = { x : x y } is closed. Similarly, the lower contour set (y) is closed.
Conversely, assume that the preference relation is continuous (in our denition).
We show that the set = { (x, y) : x y } is open. Let (x
0
, y
0
) . Then
x
0
y
0
. By continuity, there exists neighborhoods (x
0
) and (y
0
) of x
0
and
y
0
such that x y for every x (x
0
) and y (y
0
). Hence, for every
(x, y) = (x
0
) (y
0
), x y. Therefore which implies that is
open. Consequently
= { (x, y) : x y } is closed.
1.238 Assume the contrary. That is, assume there is no y with x y z. Since is
complete, either y x
0
or y x
0
for every y (Exercise 1.56). Since there is no
y such that x
0
y z
0
y z
0
= y x
0
= y x
0
Therefore (z
0
) = (x
0
). By continuity, (z
0
) is open and (x
0
) is closed. Hence
(z
0
) = (x
0
) is both open and closed (Exercise 1.83).
Alternatively, (x
0
) and (z
0
) are both open sets which partition . This contradicts
the assumption that is connected.
1.239 Let
denote the set of best elements. As demonstrated in the preceding proof
y
(y
)
Therefore
is closed (Exercise 1.85) and hence compact (Exercise 1.110).

1.240 Assume for simplicity that
1
=
2
= 1 and that = 1. Then, the budget set is
(1, 1) = { x
2
++
:
1
+
2
1 }
The consumer would like to spend as much as possible of her income on good 1.
However, the point (1, 0) is not feasible, since (1, 0) / .
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1.241 Essentially, consumer theory (in economics) is concerned with predicting the way
in which consumer purchases vary with changes in observable parameters such as prices
and incomes. Predictions are deduced by assuming that the consumer will consistently
choose the best aordable alternative in her budget set. The theory would be empty
if there was no such optimal choice.
1.242 1. Let
0
=
+
. Then
0
is compact and
1

0
. Dene the order
x
1
y if and only if
1
(x)
1
(y). Then
1
is continuous on and
1
= { x :
1
(x)
1
(y) for every y }
is the set of best elements in with respect to the order
1
. By Exercise 1.239,
1
is nonempty and compact.
2. Assume
1
is compact. Dene the order x
y if and only if
(x)
(y).
Then
is continuous on
1
and
= { x
1
:
(x)
(y) for every y

1
}
is the set of best elements in
1
with respect to the order
. By Exercise
1.239,
is nonempty and compact.

3. Assume x Nu. Then
x y for every y
d(x)
d(y) for every y

For every = 1, 2, . . . , 2
(x) d
(y) for every y

which implies x
. In particular x
2
. Therefore Nu
2
.
Suppose Nu
2
. Then there exists some x, y , x /

2
and y
2
such
that x
y. Let be the smallest integer such that x /
. Then
(x) >
(y).
But x
for every < and therefore
(x) =
(y) for = 1, 2, . . . , 1.
This means that d(y)
d(x) so that x
y. This contradiction establishes

that Nu =
2
.
1.243 Assume is convex. Choose any y and let x (y). Then x y. Since
is convex, this implies that
x + (1 )y y for every 0 1
and therefore
x + (1 )y (y) for every 0 1
Therefore (y) is convex.
To show the converse, assume that (y) is convex for every y . Choose x, y .
Interchanging x and y if necessary, we can assume that x y so that x (y). Of
course, y (y). Since (y) is convex
x + (1 )y (y) for every 0 1
which implies
x + (1 )y y for every 0 1
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1.244
may be empty, in which case it is trivially convex. Otherwise, let x
.
For every x
x x
which implies x (x
)
Therefore
(x
). Conversely, by transitivity
x x
y for every y
for every x (x
) which implies (x
. Therefore,
= (x
) which is
convex.
1.245 To show that
is strictly convex, assume that x, y are such d(x) = d(y)

with x = y. Suppose
d(x) =
(
(
1
, x), (
2
, x) . . . , (
2
, x)
)
In the order
1
,
2
, . . . ,
2
, let
be the rst coalition for which (
, x) = (
, y).
That is
(
, x) = (
, y) for every < (1.32)

Since (
, x) = (
, y) and d(x) is listed in descending order, we must have

(
, x) > (
, y) (1.33)
and
(
, x) (
, y) for every > (1.34)

Choose 0 < < 1 and let z = x + (1 )y. For any coalition
(, z) = ()
= ()
+ (1 )
)
= ()
(1 )
=
(
()
)
+ (1 )
(
()
)
= (, x) + (1 )(, y)
Using (1.55) to (1.57), this implies that
(
, z) = (
, x), <
(
, z) < (
, x)
(
, z) (
, x), >
for every 0 < < 1, Therefore d(z)
d(x). Thus z
x, which establishes that

is strictly convex.
The set of feasible outcomes is convex. Assume x, y Nu , x = y. Then
d(x) = d(y) and
z = x + (1 )y
x
for every 0 < < 1 which contradicts the assumption that x Nu. We conclude that
the nucleolus contains only one element.
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1.246 1. (a) Clearly (x
0
) (x
0
) and (y
0
) (y
0
). Consequently (x
0
)
(y
0
) (x
0
) (y
0
). We claim that these sets are in fact equal.
Let z (x
0
) (y
0
). Suppose that z (x
0
) but z / (x
0
). Then
z x
0
. By transitivity, z x
0
y
0
which implies that z (y
0
).
Similarly z (y
0
) (y
0
) implies z (x
0
). Therefore
(x
0
) (y
0
) = (x
0
) (y
0
)
(b) By continuity, (x
0
) (y
0
) is open and (x
0
) (y
0
) = (x
0
) (y
0
) is
closed. Further x
0
y
0
implies that x
0
(y
0
) so that (x
0
) (y
0
) = .
We have established that (x
0
) (y
0
) is a nonempty subset of which
is both open and closed. Since is connected, this implies (Exercise 1.83)
that
(x
0
) (y
0
) =
2. (a) By denition, x / (x). So (x) (y) = implies x (y), that is
x y contradicting the noncomparability of x and y. Therefore
(x) (y) =
(b) By assumption, there exists at least one pair x
0
, y
0
such that x
0
y
0
. By
the previous part
(x
0
) (y
0
) =
This implies either x x
0
or x y
0
. Without loss of generality, assume
x y
0
. Again using the previous part, we have
(x) (y
0
) =
Since x and y are not comparable, y / (x) which implies that y (y
0
).
Therefore x y
0
and y y
0
or alternatively
y
0
(x
0
) (y
0
) =
(c) Clearly (x) (x) and (y) (y). Consequently
(x) (y) (x) (y)
Let z (x) (y). That is, z x. If x z, then transitivity implies x
z y, which contradicts the noncomparability of x and y. Consequently
x z which implies z x and z (x). Similarly z (y) and therefore
(x) (y) = (x) (y)
3. If x and y are noncomparable, (x)(y) is a nonempty proper subset of . By
continuity (x) (y) = (x) (y) is both open and closed which contradicts
the assumption that is connected (Exercise 1.83). We conclude that must
be complete.
1.247 Assume x y. Then x (y). Since (y) is open, x int (y). Also
y (y). By Exercise 1.218, x + (1 )y int (y) for every 0 < < 1, which
implies
x + (1 )y y for every 0 < < 1
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1.248 For every x , there exists some z such that z x (Nonsatiation). For any ,
choose some (0, / x z) and let y = z + (1 )x. Then
x y = x z <
Moreover, since is strictly convex,
y = z + (1 )x x
Thus, is locally nonsatiated.
We have previously shown that local nonsatiation implies nonsatiation (Exercise 1.233).
Consequently, these two properties are equivalent for strictly convex preferences.
1.249 Assume that x is not strongly Pareto ecient. That is, there exist allocation y
such that y
x for all and some individual for which y
x. Take 1 percent
of s consumption and distribute it equally to the other participants. By continuity,
there exists some such that y
x. The other agents receive y
+
1
1
y
which, by
monotonicity, they strictly prefer to x
.
1.250 Assume that (p
, x
) is a competitive equilibrium of an exchange economy, but

that x
does not belong to the core of the corresponding market game. Then there
exists some coalition and allocation y () such that y
for every .
Since y (), we must have
.
Since x
is a competitive equilibrium and y
for every , y must be unaf-

fordable, that is
=1
>
=1
for every
and therefore
=1
>
=1
which contradicts the assumption that ().

1.251 Combining the previous exercise with Exercise 1.64
x
core Pareto
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Chapter 2: Functions
2.1 In general, the birthday mapping is not one-to-one since two individuals may have
the same birthday. It is not onto since some days may be no ones birthday.
2.2 The origin 0 is xed point for every . Furthermore, when = 0, is an identity
function and every point is a xed point.
2.3 For every , there exists some such that () = , whence
1
().
Therefore, every belongs to some contour. To show that distinct contours are disjoint,
assume
1
(
1
)
1
(
2
). Then () =
1
and also () =
2
. Since is a
function, this implies that
1
=
2
.
2.4 Assume is one-to-one and onto. Then, for every , there exists such
that () = . That is,
1
() = for every . If is one to one, () = = (
)
implies =
. Therefore,
1
() consists of a single element. Therefore, the inverse
function
1
exists.
Conversely, assume that : has an inverse
1
. As
1
is a function mapping
to , it must be dened for every . Therefore is onto. Assume there
exists ,
and such that () = = (
). Then
1
() = and
also
1
() =
. Since
1
is a function, this implies that =
. Therefore is
one-to-one.
2.5 Choose any and let = (). Since is one-to-one, =
1
() =
1
(()).
The second identity is proved similarly.
2.6 (2.2) implies for every
=
0
= 1
and therefore
=
1
(2.28)
For every 0
= 1 +

1
+

2
2
+

3
6
+ > 0
and therefore by (2.28)
> 0 for every . For every 1
= 1 +

1
+

2
2
+

3
6
+ 1 + as
and therefore
as . By (2.28)
0 as .
2.7
=

/2
/2
2
2
=
1
2
(
/2
/2
)
/2
as
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since the term in brackets is strictly greater than 1 for any > 0. Similarly
=
(
/(+1)
)
/(+1)
( + 1)
(

+1
)
=
1
( + 1)
(

/(+1)
/( + 1)
)
/(+1)
2.8 Assume that is compact. Then is bounded (Proposition 1.1), and there
exists such that for every . For all 2
()
() =
=+1
+1
( + 1)!
=0
(
+1
( + 1)!
=0
(

+1
(+ 1)!
(
1 +
1
2
+
1
4
+ +
(
1
2
)
)
2

+1
( + 1)!
2
(

+ 1
)
+1
(
1
2
)
by Exercise 1.206. Therefore
converges to for all .

2.9 This is a special case of Example 2.8. For any , (), dene
( +) = () +()
()() = ()
With these denitions + and also map to . Hence () is closed under
addition and scalar multiplication. It is straightforward but tedious to verify that ()
satises the other requirements of a linear space.
2.10 The zero element in () is the constant function () = 0 for every .
2.11 1. From the denition of it is clear that
0.
= 0 of and only is the zero functional.
= since sup
() = sup
()
It remains to verify the triangle inequality, namely
+ = sup
( +)()
= sup
() +()
sup
{
() +()
}
sup
(() + sup
()
= +
2. Consequently, for any (), () for every and therefore
(). Similarly, for any , (), ( + )() + for every
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and therefore + (). Hence, () is closed under addition and
scalar multiplication; it is a subspace of the linear space (). We conclude that
() is a normed linear space.
3. To show that () is complete, assume that (
) is a Cauchy sequence in ().

For every
()
()
0
Therefore, for ,
() is a Cauchy sequence of real numbers. Since is

complete, this sequence converges. Dene the function
() = lim
()
We need to show

0 and
()
(
) is a Cauchy sequence. For given > 0, choose such that
< /2
for very , . For any and ,
() ()
()
() +
() ()

() ()
By suitable choice of (which may depend upon ), each term on the right can
be made smaller than /2 and therefore
() () <
for every and .
= sup
() ()
Finally, this implies = lim
. Therefore ().
2.12 If the die is fair, the probability of the elementary outcomes is
({1}) = ({2}) = ({3}) = ({4}) = ({5}) = ({6}) = 1/6
By Condition 3
({2, 4, 6}) = ({2}) +({4}) +({6}) = 1/2
2.13 The prot maximization problem of a competitive single-output rm is to choose
the combination of inputs x
+
and scale of production to maximize net prot.
This is summarized in the constrained maximization problem
max
x,

=1
subject to x ()
where is total revenue and
=1
total cost. The prot function, which depends

upon both and w, is dened by
(, w) = max
,x ()

=1
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For analysis, it is convenient to represent the technology () by a production function
(Example 2.24). The rms optimization can then be expressed as
max
x
+
(x)
=1
and the prot function as

(, w) = max
x
+
(x)
=1
2.14 1. Assume that production is protable at p. That is, there exists some y
such that (y, p) > 0. Since the technology exhibits constant returns to scale,
is a cone (Example 1.101). Therefore y for every > 0 and
(y, p) =
) =
= (y, p)
Therefore { (y, p) : > 0 } is unbounded and
(p) = sup
y
(y, p) sup
>0
(y, p) = +
2. Assume to the contrary that there exists p
+
with (p) = / { 0, +, }.
There are two possible cases.
(a) 0 < < +. Since = sup
(y, p) > 0, there exists y such that

(y, p) > 0 The previous part implies (p) = +.
(b) < < 0. Then there exists y such that (y, p) < 0 By a similar
argument to the previous part, this implies (p) = .
2.15 Assume x
is a solution to (2.4).
(x
, ) (x, ) for every x ()

and therefore
(x
, ) sup
x()
(x, ) = ()
On the other hand x
() and therefore
() = sup
x()
(x, ) (x
, )
Therefore, x
satises (2.5). Conversely, assume x
() satises (2.5). Then

(x
, ) = () = sup
x()
(x, ) (x, ) for every x ()
x
solve (2.4).
2.16 The assumption that () = for every implies (
0
) = for every
0
. There always exist feasible plans from any starting point. Since is bounded,
there exists such that (
,
+1
) for every x (
0
). Consequently, for
every x (
0
), (x) and
(x) =
=0
,
+1
)
=0
,
+1
)
=0
=

1
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using the formula for a geometric series (Exercise 1.108). Therefore
(
0
) = sup
x(0)
(x)

1
and (). Next, we note that for every feasible plan x (
0
)
(x) =
=0
,
+1
)
= (
0
,
1
) +
=0
(
+1
,
+2
)
= (
0
,
1
) +(x
) (2.29)
where x
= (
1
,
2
, . . . ) is the continuation of the plan x starting at
1
. For any
0

and > 0, there exists a feasible plan x (
0
) such that
(x) (
0
)
Let x
= (
1
,
2
, . . . ) be the continuation of the plan x starting at
1
. Using (2.29)
and the fact that (x
) (
1
), we conclude that
(
0
) (x)
= (
0
,
1
) +(x
)
(
0
,
1
) +(
1
)
sup
()
{ (
0
, ) +() }
Since this is true for every > 0, we must have
(
0
) sup
()
{ (
0
, ) +() } (2.30)
On the other hand, choose any
1
(
0
) . Since
(
1
) = sup
x(1)
(x)
there exists a feasible plan x
= (
1
,
2
, . . . ) starting at
1
such that
(x
) (
1
)
Moreover, the plan x = (
0
,
1
,
2
, . . . ) is feasible from
0
and
(
0
) (x) = (
0
,
1
) +(x
) (
0
,
1
) +(
1
)
Since this is true for every > 0 and
1
(
0
), we conclude that
(
0
) sup
()
{ (
0
, ) +() }
Together with (2.30) this establishes the required result, namely
(
0
) = sup
()
{ (
0
, ) +() }
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2.17 Assume x is optimal, so that
(x
) (x) for every x (

0
)
This implies (using (2.39))
(
0
,
1
) +(x
) (
0
,
1
) +(x
)
where x
= (
1
,
2
, . . . ) is the continuation of the plan x starting at
1
and x
=
(
1
,
2
, . . . ) is the continuation of the plan x
. In particular, this is true for every plan

x (
0
) with
1
=
1
and therefore
(
0
,
1
) +(x
) (
0
,
1
) +(x
) for every x
1
)
which implies that
(x
) (x
) for every x
1
)
That is, x
is optimal starting at
1
and therefore (x
) = (
1
) (Exercise 2.15).
Consequently
(
0
) = (x
) = (
0
,
1
) +(x
) = (
0
,
1
) +(
1
)
This veries (2.13) for = 0. A similar argument veries (2.13) for any period .
To show the converse, assume that x
= (
0
,
1
,
2
, . . . ) (
0
) satises (2.13). Suc-
cessively using (2.13)
(
0
) = (
0
,
1
) +(
1
)
= (
0
,
1
) +(
1
,
2
) +
2
(
1
)
=
1
=0
+1
) +
2
(
2
)
=
2
=0
+1
) +
3
(
3
)
=
1
=0
, + 1) +
)
for any = 1, 2, . . . . Since is bounded (Exercise 2.16),
) 0 as and
therefore
(
0
) =
=0
,
+1
) = (x
)
Again using Exercise 2.15, x
is optimal.
2.18 We have to show that
for any (), is a functional on .
is bounded.
Since ( ), there exists
1
< such that (, )
1
for every (, )
. Similarly, for any (), there exists
2
< such that ()
2
for
every . Consequently for every (, ) and ()
(, ) +() (, ) + ()
1
+
2
< (2.31)
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For each , the set
=
{
(, ) +() : ()
}
is a nonempty bounded subset of , which has least upper bound. Therefore
()() = sup
= sup
()
(, ) +()
denes a functional on . Moreover by (2.31)
()()
1
+
2
<
Therefore ().
2.19 Let = {1, 2, 3}. Any individual is powerless so that
({}) = 0 = 1, 2, 3
Any two players can allocate the $1 to between themselves, leaving the other player
out. Therefore
({, }) = 1 , , =
The best that the three players can achieve is to allocate the $1 amongst themselves,
so that
() = 1
2.20 If the consumers preferences are continuous and strictly convex, she has a unique
optimal choice x
for every set of prices p and income in (Example 1.116). There-

fore, the demand correspondence is single valued.
2.21 Assume
(s
) for every . Then for every player

(
, s
, s
) for every
= (
1
,
2
, . . . ,
) is a Nash equilibrium. Conversely, assume s
= (
1
,
2
, . . . ,
) is
a Nash equilibrium. Then for every player
(
, s
, s
) for every
which implies that
(s
) for every
2.22 For any nonempty compact set , () is nonempty and compact provided
is continuous (Proposition 1.5) and () . Therefore
. . .
is a nested sequence of nonempty compact sets. By the nested intersection theorem
(Exercise 1.117),
=0
= .
2.23 If s
is a Nash equilibrium,
for every .
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2.24 For any , let x
(). Then
(x

Therefore
(x
, ) () = sup
x()
(x, )
Conversely
() = sup
x()
(x, ) sup
x()
(x, ) (x
, ) for every x
()
Consequently
() = (x
, ) for any x
()
2.25 The graph of is
graph( ) = { (, x)
+
+
: x () }
while the production possibility set is
= { (, x)
+
+
: () }
Assume that is convex and let (
, x
) graph( ), = 1, 2. This means that

(
1
, x
1
) and (
2
, x
2
)
Let
=
1
+ (1 )
2
and x = x
1
+ (1 )x
2
for some 0 1. Since is convex
( , x) = (
1
, x
1
) + (1 )(
2
, x
2
)
and therefore x ( ) so that ( , x) graph( ). That is graph( ) is convex.
Conversely, assuming graph( ) is convex, if (
, x
) , = 1, 2, then (
, x
)
graph( ) and therefore
( , x) graph( ) = x ( ) = ( , x)
so that is convex.
2.26 The graph of is
graph() = { (, x) : x () }
Assume that (
, x
) graph(), = 1, 2. This means that x
() and therefore
(x, )
for every and = 1, 2. Since
is convex
(x
1
+ (1 )x
2
,
1
+ (1 )
2
) (x
1
,
1
) + (1 )(x
2
,
2
)
Therefore x
1
+(1)x
2
(
1
+(1)
2
) and (
1
+(1)
2
, x
1
+(1)x
2
)
graph(). is convex.
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2.27 The identity function
: is dened by
() = for every .
Therefore

1
=
(
2
) =
2

1
=
(
1
)
2.28 Assume that and are increasing. Then, for every
1
,
2
with
2

1
(
2
)
(
1
) = ((
2
))
((
1
))
is also increasing. Similarly, if and are strictly increasing,

1
= (
2
)
(
1
) = ((
2
))
((
1
))
2.29 For every (), there exists a unique such that () = y. (For if
1
,
2
are such that (
1
) = (
2
), then
1
=
2
.) Therefore, is one-to-one and onto (),
and so has an inverse (Exercise 2.4). Further
2
>
2
(
2
) > (
1
)
Therefore
1
is strictly increasing.
2.30 Assume : is increasing. Then, for every
2

1
, (
2
) (
1
) which
implies that (
2
) (
1
). is decreasing.
2.31 For every
2

1
.
(
2
) (
1
)
(
2
) (
1
)
Adding
( +)(
2
) = (
2
) +(
2
) (
1
) +(
1
) = ( +)(
1
)
That is, + is increasing. Similarly for every 0
(
2
) (
1
)
and therefore is increasing. By Exercise 1.186, the set of all increasing functionals
is a convex cone in ().
If is strictly increasing, then for every
2

1
,
(
2
) > (
1
)
(
2
) (
1
)
Adding
( +)(
2
) = (
2
) +(
2
) > (
1
) +(
1
) = ( +)(
1
)
+ is strictly increasing. Similarly for every > 0
(
2
) > (
1
)
2.32 For every
2

1
.
(
2
) > (
1
) > 0
(
2
) > (
1
) > 0
and therefore
()(
2
) = (
2
)(
2
) > (
2
)(
1
) > (
1
)(
1
) = ()(
1
)
using Exercise 2.31.
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2.33 By Exercise 2.31 and Example 2.53, each
is strictly increasing on
+
. That is
1
<
2
=
(
1
) <
(
2
) for every (2.32)
and therefore
lim
(
1
) lim
(
2
)
This suces to show that () = lim
() is increasing (not strictly increasing).

However, 1 + is strictly increasing, and therefore by Exercise 2.31
= 1 + +()
is strictly increasing on
+
. While it is the case that = lim
is strictly increasing
on
+
, (2.32) does not suce to show this.
2.34 For every > 0, log is strictly increasing (Exercise 2.32) and therefore
log
is strictly increasing (Exercise 2.28). For every < 0, log is strictly increasing
and therefore (Exercise 2.30 log is strictly decreasing. Therefore
log
is strictly
decreasing (Exercise 2.28).
2.35 Apply Exercises 2.31 and 2.28 to Example 2.56.
2.36 is (strictly) increasing so that
2

1
= (
2
) (
1
)
To show the converse, assume that
1
,
2
with (
2
) (
1
). Since is complete,
either
2

1
or
1

2
. However, the second possibility cannot occur since is
strictly increasing and therefore
1

2
= (
1
) > (
2
)
contradicting the hypothesis that (
2
) (
1
). We conclude that
(
2
) (
1
) =
2

1
2.37 Assume represents the preference ordering on and let : be strictly
increasing. Then composition : is strictly increasing (Exercise 2.28).
Therefore is a utility function (Example 2.58). Since is strictly increasing
((
2
)) ((
1
)) (
2
) (
1
)
2

1
for every
1
,
2
Therefore, also represents .
2.38 1. (a) Let = max
=1
. Then z = 1 x and therefore z

+
x
. Similarly,
let = min
=1
. Then z = 1
x
. Therefore,
+
x
and
x
are both
nonempty. By continuity, the upper and lower contour sets (x) and (x)
are closed. is a closed cone. Since
+
x
= (x) and
x
= (x)
+
x
and
x
are closed.
(b) By completeness,
+
x

x
= . Since is connected,
+
x

x
= .
(Otherwise, is the union of two disjoint closed sets and hence the union
of two disjoint open sets.)
(c) Let z
x

+
x

x
. Then z x and also z x. That is, z x.
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(d) Suppose x z
1
x
and x z
2
x
with z
1
x
= z
2
x
. Then either z
1
x
> z
2
x
or
z
1
x
< z
2
x
. Without loss of generality, assume z
2
x
> z
1
x
. Then monotonicity
and transitivity imply
x z
2
x
z
1
x
x
which is a contradiction. Therefore z
x
is unique.
Let
x
denote the scale of z
x
, that is z
x
=
x
1. For every x
+
, there is a
unique z
x
x and the function :
+
given by (x) =
x
is well-dened.
Moreover
x
2
x
1
z
x2
z
x1

x2

x1
(x
2
) (x
1
)
represents the preference order .
2.39 1. For every
1
, (
1
, 2)
(
1
, 1) in the lexicographic order. If represents
, is strictly increasing and therefore (

1
, 2) > (
1
, 1). There exists a
rational number (
1
) such that (
1
, 2) > (
1
) > (
1
, 1).
2. The preceding construction associates a rational number with every real number
1
. Hence is a function from to the set of rational numbers . For any
1
1
,
2
1
with
2
1
>
1
1
(
2
1
) > (
2
1
, 1) > (
1
1
, 2) > (
1
1
)
Therefore
2
1
>
1
1
= (
2
1
) > (
1
1
)
3. By Exercise 2.29, has an inverse. This implies that is one-to-one and onto,
which is impossible since is countable and is uncountable (Example 2.16).
This contradiction establishes that
has no such representation .

2.40 Let a
1
, a
2
with a
1
2
a
2
. Since the game is strictly competitive, a
2
1
a
1
.
Since
1
represents
1
,
1
(a
2
)
1
(a
1
) which implies that
1
(a
2
)
1
(a
1
), that
is
2
(a
1
)
2
(a
2
) where
2
=
1
. Similarly
2
(a
1
)
2
(a
2
) =
1
(a
1
)
1
(a
2
) a
1
1
a
2
= a
1
2
a
2
Therefore
2
=
1
represents
2
and
1
(a) +
2
(a) = 0 for every a
2.41 Assume . By superadditivity
() () +( ) ()
2.42 Assume , () with () () for every . Then for any
(, ) + () (, ) +() for every
and therefore
()() = sup
()
{(, ) +()} sup
()
{(, ) +()} = ()()
T is increasing.
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2.43 For every
2

1
, if
1
(
1
) and
2
(
2
), then
1

2

1
and
therefore
1

2
(
1
). If
1

2
, then
1

2
=
1
(
1
) (
2
) and therefore
1

2
(
2
). On the other hand, if
1

2
, then
1

2
=
2
(
2
).
2.44 Assume is increasing, and let
1
,
2
with
2

1
. Let
1
(
1
). Choose
any
(
2
). Since is increasing, (
2
)
(
1
) and therefore
2
=
1

(
2
).
2

1
as required. Similarly, for every
2
(
2
), there exists some
(
2
)
such that
1
=

2
(
1
) with
2

1
.
2.45 Since () is a sublattice, sup() () for every . Therefore, the function
() = sup()
is a selection. Similarly
() = inf ()
is a selection. Both and are increasing (Exercise 1.50).
2.46 Let
1
,
2
belong to with
2

1
. Choose y
1
= (
1
1
,
1
2
, . . . ,
1
(
1
)
and y
2
= (
2
1
,
2
2
, . . . ,
2
(
2
). Then, for each = 1, 2, . . . , ,
1
(
1
) and
(
2
). Since each
is increasing,
1
(
1
) and
1
(
2
) for
each . Therefore y
1
y
2
(
1
) and y
1
y
2
(
2
). () =
() is
increasing.
2.47 Let
1
,
2
belong to with
2

1
. Choose
1
(
1
) and
2
(
2
).
Then
1

(
1
) and
2

(
2
) for each = 1, 2, . . . , . Since each
is increasing,
1

2

(
1
) and
1

2

(
2
) for each . Therefore
1

2
(
1
) and
1

2
(
2
). =
is increasing.
2.48 Let be a selection from an always increasing correspondence : . For
every
1
,
2
, (
1
) (
1
) and (
2
) (
2
). Since is always increasing

2
= (
1
)
(
2
)
is increasing. Conversely, assume every selection is increasing. Choose any
1
,
2
with
1

2
. For every
1
(
1
) and
2
(
2
), there exists a selection
with
= (
), = 1, 2. Since is increasing,

2
=
1

2
is increasing.
2.49 Let
1
,
2
. If is a chain, either
1

2
or
2

1
. Without loss of
generality , assume
2

1
. Then
1
2
=
2
and
1
2
=
1
and (2.17) is satised
as an identity.
2.50
( +)(
1

2
) + ( +)(
1

2
) = (
1

2
) +(
1

2
) + (
1

2
) +(
1

2
)
= (
1

2
) +(
1

2
) + (
1

2
) +(
1

2
)
(
1
) +(
2
) +(
1
) +(
2
)
= ( +)(
1
) + ( +)(
2
)
Similarly
(
1

2
) +(
1

2
) (
1
) +(
2
)
77
All rights reserved
implies
(
1

2
) +(
1

2
) (
1
) +(
2
)
for all 0. By Exercise 1.186, the set of all supermodular functions is a convex cone
in ().
2.51 Since is supermodular and is nonnegative denite,
(
1

2
)(
1

2
)
(
(
1
) +(
2
) (
1

2
)
)
(
1

2
)
= (
2
)(
1

2
) +
(
(
1
) (
1

2
)
)
(
1

2
)
for any
1
,
2
. Since and are increasing, this implies
(
1

2
)(
1

2
) (
2
)(
1

2
) +
(
(
1
) (
1

2
)
)
(
1
) (2.33)
Similarly, since is nonnegative denite, supermodular, and and increasing
(
2
)(
1

2
) (
2
)
(
(
1
) +(
2
) (
1

2
)
)
= (
2
)(
2
) +(
2
)
(
(
1
) (
1

2
)
)
(
2
)(
2
) +(
1

2
)
(
(
1
) (
1

2
)
)
Combining this inequality with (2.33) gives
(
1

2
)(
1

2
) (
2
)(
2
) +(
1

2
)
(
(
1
) (
1

2
)
)
+
(
(
1
) (
1

2
)
)
(
1
)
= (
2
)(
2
) +(
1

2
)(
1
) (
1

2
)(
1

2
)
+(
1
)(
1
) (
1

2
)(
1
)
= (
2
)(
2
) (
1

2
)(
1
2) +(
1
)(
1
)
or
(
1

2
) +(
1

2
) (
1
) +(
2
)
is supermodular. (I acknowledge the help of Don Topkis in formulating this proof.)
2.52 Exercises 2.49 and 2.50.
2.53 For simplicity, assume that the rm produces two products. For every production
plan y = (
1
,
2
),
y = (
1
, 0) (0,
2
)
0 = (
1
, 0) (0,
2
)
If is strictly submodular
(w, y) +(w, 0) < (w, (
1
, 0)) +(w, (0,
2
))
Since (w, 0) = 0
(w, y) < (w, (
1
, 0)) +(w, (0,
2
))
The technology displays economies of scope.
78
All rights reserved
2.54 Assume (, ) is convex, that is
( ) +( ) () +() for every ,
For all disjoint coalitions =
( ) () +()
is superadditive.
2.55 Rewriting (2.18), this implies
( ) () () ( ) for every , (2.34)
Let {} and let
= {}. Substituting in (2.34)

(
) () (
) (
)
Since
= ( {}) = {}
= ( {}) =
Substituting in the previous equation gives the required result, namely
( {}) () ( {}) ()
Conversely, assume that
( {}) () ( {}) () (2.35)
for every {}. Let and be arbitrary coalitions. Assume
and (otherwise (2.18) is trivially satised). This implies that = .
Assume these players are labelled 1, 2, . . . , , that is = {1, 2, . . . , }. By (2.35)
( {1}) () (( ) {1}) ( ) (2.36)
Successively adding the remaining players in
( {1, 2}) ( {1}) (( ) {1, 2}) (( ) {1})
.
.
.
( ( )) ( {1, 2, . . . , 1})
(
) ( )
)
(( ) {1, 2, . . . , 1})
Adding these inequalities to (2.36), we get
( ( )) ()
(
) ( )
)
( )
This simplies to
( ) () () ( )
which can be arranged to give (2.18).
79
All rights reserved
2.56 The cost allocation game is not convex. Let = {, }, = {, }.
Then = {, , } = and = {} and
( ) +( ) = 1530 < 1940 = 770 + 1170 = () +()
Alternatively, observe that TNs marginal contribution to coalition {, } is 1170,
which is greater than its marginal contribution to the grand coalition {, , }
(1530 770 = 760).
2.57 is supermodular if
(
1

2
) +(
1

2
) (
1
) +(
2
)
which can be rearranged to give
(
1

2
) (
2
) (
1
) (
1

2
)
If the right hand side of this inequality is nonnegative, then so a fortiori is the left
hand side, that is
(
1
) (
1

2
) = (
1

2
) (
2
)
If the right hand side is strictly positive, so must be the left hand side
(
1
) > (
1

2
) = (
1

2
) > (
2
)
2.58 Assume
2

1
and
2

2
. Assume that displays increasing
dierences in (, ), that is
(
2
,
2
) (
1
,
2
) (
2
,
1
) (
1
,
1
) (2.37)
Rearranging
(
2
,
2
) (
2
,
1
) (
1
,
2
) (
1
,
1
) (2.38)
Conversely, (2.38) implies (2.37) .
2.59 We showed in the text that supermodularity implies increasing dierences. To
show that reverse, assume that : displays increasing dierences in (, ).
Choose any (
1
,
1
), (
2
,
2
) . If (
1
,
1
), (
2
,
2
) are comparable, so that either
(
1
,
1
) (
2
,
2
) or (
1
,
1
) (
2
,
2
), then (2.17) holds has an equality. Therefore
assume that (
1
,
1
), (
2
,
2
) are incomparable. Without loss of generality, assume that
1

2
while
1

2
. (This is where we require that and be chains). This implies
(
1
,
1
) (
2
,
2
) = (
1
,
2
) and (
1
,
1
) (
2
,
2
) = (
2
,
1
) (2.39)
Increasing dierences implies that
(
2
,
1
) (
1
,
1
) (
2
,
2
) (
1
,
2
)
which can be rewritten as
(
2
,
1
) +(
1
,
2
) (
1
,
1
) + (
2
,
2
)
Substituting (2.39)
(
(
1
,
1
) (
2
,
2
)
)
+
(
(
1
,
1
) (
2
,
2
)
)
(
1
,
1
) +(
2
,
2
)
which establishes the supermodularity of on (2.17).
80
All rights reserved
2.60 In the standard Bertrand model of oligopoly
the strategy space of each rm is
+
, a lattice.

, p
) is supermodular in
(Exercise 2.51).
If the other rms increase their prices from p
1
to p
2
, the eect on the demand

for rm s product is
(
, p
2
) (
, p
1
) =
(
2
)
If the goods are gross substitutes, demand for rm increases and the amount
of the increase is independent of
. Consequently, the eect on prot will be in-

creasing in
. That is the payo function (net revenue) has increasing dierences

in (
, p
). Specically,
(
, p
2
) (
, p
1
) =
)(
2
)
For any price increase p
2
p
1
, the change in prot (
, p
2
) (
, p
1
) is
increasing in
.
Hence, the Bertrand oligopoly model is a supermodular game.
2.61 Suppose displays increasing dierences so that for all
2

1
and
2

1
(
2
,
2
) (
1
,
2
) (
2
,
1
) (
1
,
1
)
Then
(
2
,
1
) (
1
,
1
) 0 = (
2
,
2
) (
1
,
2
) 0
and
(
2
,
1
) (
1
,
1
) > 0 = (
2
,
2
) (
1
,
2
) > 0
2.62 For any
, let x
1
, x
2
(). Supermodularity implies
(x
1
x
2
, ) +(x
1
x
2
, ) (x
1
, ) +(x
2
, )
(x
1
x
2
, ) (x
2
, ) (x
1
, ) (x
1
x
2
, ) (2.40)
However x
1
and x
2
are both maximal in ().
(x
2
, ) (x
1
x
2
, ) = (x
1
x
2
, ) (x
2
, ) 0
(x
1
, ) (x
1
x
2
, ) = (x
1
, ) (x
1
x
2
, ) 0
Substituting in (2.40), we conclude
0 (x
1
x
2
, ) (x
2
, ) (x
1
, ) (x
1
x
2
, ) 0
This inequality must be satised as an equality with
(x
1
x
2
, ) = (x
2
, )
(x
1
x
2
, ) = (x
1
, )
That is x
1
x
2
() and x
1
x
2
(). By Exercise 2.45, has an increasing
selection.
81
All rights reserved
2.63 As in the proof of the theorem, let
1
,
2
belong to with
2

1
. Choose any
optimal solutions x
1
(
1
) and x
2
(
2
). We claim that x
2

x
1
. Assume
otherwise, that is assume x
2

x
1
. This implies (Exercise 1.44) that x
1
x
2
= x
1
.
Since x
1
x
1
x
2
, we must have x
1
x
1
x
2
. Strictly increasing dierences implies
(x
1
,
2
) (x
1
,
1
) > (x
1
x
2
,
2
) (x
1
x
2
,
1
)
(x
1
,
2
) (x
1
x
2
,
2
) > (x
1
,
1
) (x
1
x
2
,
1
) (2.41)
Supermodularity implies
(x
1
x
2
,
2
) +(x
1
x
2
,
2
) (x
1
,
2
) +(x
2
,
2
)
(x
1
x
2
,
2
) (x
2
,
2
) (x
1
,
2
) (x
1
x
2
,
2
)
Combining this inequality with (2.41) gives
(x
1
x
2
,
2
) (x
2
,
2
) > (x
1
,
1
) (x
1
x
2
,
1
) (2.42)
However x
1
and x
2
are optimal for their respective parameter values, that is
(x
2
,
2
) (x
1
x
2
,
2
) = (x
1
x
2
,
2
) (x
2
,
2
) 0
(x
1
,
1
) (x
1
x
2
,
1
) = (x
1
,
1
) (x
1
x
2
,
1
) 0
Substituting in (2.42), we conclude
0 (x
1
x
2
,
2
) (x
2
,
2
) > (x
1
,
1
) (x
1
x
2
,
1
) 0
This contradiction implies that our assumption that x
2

x
1
is false. x
2

x
1
as
required. is always increasing.
2.64 The budget correspondence is descending in p and therefore ascending in p.
Consequently, the indirect utility function
(p, ) = sup
x(p,)
(x)
is increasing in p, that is decreasing in p.
2.65 = Let
2

1
and
2

1
. Select x
1
(
1
,
1
) and x
2
(
2
,
2
).
Since
2

1
, x
1
x
2

1
. Since x
1
is optimal (x
1
(
1
,
1
)), (x
1
,
1
)
(x
1
x
2
,
1
). Quasisupermodularity implies (x
1
x
2
,
1
) (x
2
,
1
). By the single
crossing condition (x
1
x
2
,
2
) (x
2
,
2
). Therefore x
1
x
2
(
2
,
2
).
Similarly, since
2

1
, x
1
x
2
(
2
). But x
2
is optimal, which implies that
(x
2
,
2
) (x
1
x
2
,
2
) or (x
1
x
2
,
2
) (x
2
,
2
). The single crossing condition
implies that a similar inequality holds at
1
, that is (x
1
x
2
,
1
) (x
2
,
1
). Quasi-
supermodularity implies that (x
1
,
1
) (x
1
x
2
,
1
). Therefore x
1
x
2
(
1
,
1
).
Since x
1
x
2
(
2
,
2
) and x
1
x
2
(
1
,
1
), is increasing in (, ).
= To show that is quasisupermodular, suppose that is xed. Choose any
x
1
, x
2
. Let
1
= {x
1
, x
1
x
2
} and
2
= {x
2
, x
1
x
2
}. Then
2

1
. Assume
that (x
1
, ) (x
1
x
2
, ). Then x
1
(,
1
) which implies that x
1
x
2
(,
2
).
(If x
2
(,
2
), then also x
1
x
2
(,
2
) since is increasing in (, )). But
this implies that (x
1
x
2
, ) (x
2
, ). is quasisupermodular in .
82
All rights reserved
To show that satises the single crossing condition, choose any x
2
x
1
and let
= {x
1
, x
2
}. Assume that (x
2
,
1
) (x
1
,
1
). Then x
2
(
1
, ) which implies
that x
2
(
2
, ) for any
2

1
. (If x
1
(
2
, ), then also x
1
x
2
= x
2
(
2
, )
since is increasing in (, ).) But this implies that (x
2
,
2
) (x
1
,
2
). satises
the single crossing condition.
2.66 First, assume that is continuous. Let be an open subset in and =
1
().
If = , it is open. Otherwise, choose
0
and let
0
= (
0
) . Since is
open, there exists a neighborhood (
0
) . Since is continuous, there exists a
corresponding neighborhood (
0
) with ((
0
)) ((
0
)). Since ((
0
)) ,
(
0
) . This establishes that for every
0
there exist a neighborhood (
0
)
contained in . That is, is open in .
Conversely, assume that the inverse image of every open set in is open in . Choose
some
0
and let
0
= (
0
). Let be a neighborhood of
0
. contains an
open ball
(
0
) about
0
. By hypothesis, the inverse image =
1
(
(
0
)) is open
in . Therefore, there exists a neighborhood (
0
)
1
(
(
0
)). Since
(
0
) ,
((
0
)) . Since the choice of
0
was arbitrary, we conclude that is continuous.
2.67 Assume is continuous. Let be a closed set in and let =
1
(). Then,
is open. By the previous exercise,

1
(
) =
is open and therefore is closed.

Conversely, for every open set ,
is closed. By hypothesis,
=
1
(
) is
closed and therefore =
1
() is open. is continuous by the previous exercise.
2.68 Assume is continuous. Let
be a sequence converging to Let be a neigh-

borhood of (). Since is continuous, there exists a neighborhood such that
() . Since
converges to , there exists some such that
for all
. Consequently (
) for every . This establishes that (
) ().
Conversely, assume that for every sequence
, (
) (). We show that if

were not continuous, it would be possible to construct a sequence which violates this
hypothesis. Suppose then that is not continuous. Then there exists a neighborhood
of () such that for every neighborhood of , there is
with (
) / . In
particular, consider the sequence of open balls
1/
(). For every , choose a point

1/
() with (
) / . Then
but (
) does not converge to ().

This contradicts the assumption. We conclude that must be continuous.
2.69 Since is one-to-one and onto, it has an inverse =
1
which maps onto
. Let be an open set in . Since is open, =
1
() = () is open in .
Therefore =
1
is continuous.
2.70 Assume is continuous. Let (
) be a sequence of points in graph() con-

verging to (, ). Then
= (
) and
. Since is continuous, = () =
lim
) = lim
. Therefore (, ) graph() which is therefore closed.

2.71 By the previous exercise, continuous implies graph() closed. Conversely, sup-
pose graph() is closed and let
be a sequence converging to . Then (
, (
)))
is a sequence in graph(). Since is compact, (
) contains a subsequence which

converges . Since graph() is closed, (, ) graph() and therefore = () and
(
) ().
2.72 Let be an open set in . Since and are continuous,
1
() is open in
and
1
(
1
()) is open in . But
1
(
1
()) = ( )
1
(). Therefore is
continuous.
2.73 Exercises 1.201 and 2.68.
83
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2.74 Let be dened as in Exercise 2.38. Let (x
) be a sequence converging to x. Let
= (x
) and = (x). We need to show that
.
(
) has a convergent subsequence. Let = max
and = min
. Then
[, ]. Fix some > 0. Since x
x, there exists some such that x
<
for every . Consequently, for all , the terms of the sequence (
)
lie in the compact set [ , + ]. Hence, (
) has a convergent subsequence

(
).
Every convergent subsequence (
) converges to . Suppose not. That is, sup-

pose there exists a convergent subsequence which converges to
. Without loss
of generality, assume
> . Let =
1
2
( +
) and let z = 1, z
1, z = 1
be the corresponding commodity bundles (see Exercise 2.38). Since
> ,
> for every . This implies that

x
z for every
by monotonicity. Now x
x and continuity of preferences implies that x z.

However x z which implies that z z which contradicts monotonicity, since
z > z. Consequently, every convergent subsequence (
) converges to .
2.75 Assume is compact. Let
be a sequence in (). There exists a sequence
in with
= (
). Since is compact, it contains a convergent subsequence
. If is continuous, the subsequence
= (
) converges in () (Exercise
2.68). Therefore () is compact.
Assume is connected but () is not. This means there exists open subsets and
in such that ()
and (())
( ()) = . This implies that

=
1
()
1
() is a disconnection of , which contradicts the connectedness of
.
2.76 Let be any open set in . Its complement
is closed and therefore compact.

Consequently, (
) is compact (Exercise 2.3) and hence closed. Since is one-to-one

and onto, () is the complement of (
), and thus open in . Therefore, is an

open mapping. By Exercise 2.69,
1
is continuous and is a homeomorphism.
2.77 Assume continuous. The sets {() } and {() } are closed subsets of
the and hence () =
1
{() } and () =
1
{() } are closed subsets
of (Exercise 2.67).
Conversely, assume that all upper () and lower () contour sets are closed. This
implies that the sets () and () are open.
Let be an open set in . Then for every , there exists an open ball
()
=
()
For every ,
() = (
, +
) and
1
(
()) = (
) ( +
)
which is open. Consequently
1
() =
1
(
()) =
(
(
) ( +
)
)
is open. is continuous by Exercise 2.66.
84
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2.78 Choose any
0
and > 0. Since is continuous, there exists
1
such that
(,
0
) <
1
= () (
0
) < /2
Similarly, there exists
2
such that
(,
0
) <
2
= () (
0
) < /2
Let = min{
1
,
2
}. Then, provided (,
0
) <
( +)() ( +)(
0
) = () +() (
0
) (
0
)
() (
0
) +() (
0
)
<
This establishes + is continuous at
0
. Since
0
was arbitrary, + is continuous
for every
0
. The continuity of is shown similarly.
2.79 Choose any
0
. Given 0 < 1, there exists > 0 such that
() (
0
) < and () (
0
) <
whenever (,
0
) < . Consequently, while (,
0
) <
() () (
0
) +(
0
)
< +(
0
)
1 +(
0
)
and
()() ()(
0
) = ()() (
0
)(
0
)
= ()(() (
0
)) +(
0
)(() (
0
))
() () (
0
) +(
0
) () (
0
)
< (1 +(
0
) +(
0
))
Given > 0, let = min{1, /(1 +(
0
) +(
0
))}. Then, we have shown that there
exists > 0 such that
(,
0
) < = ()() ()(
0
) <
Therefore, is continuous at
0
.
2.80 Apply Exercises 2.78 and 2.72.
2.81 For any , the upper and lower contour sets of , namely
{ : max{(), ()} } = { : () } { : () }
{ : max{(), ()} } = { : () } { : () }
are closed. Therefore is continuous (Exercise 2.77). Similarly for .
2.82 The set = () is compact (Proposition 2.3). We want to show that has
both largest and smallest elements. Assume otherwise, that is assume that has
no largest element. Then, the set of intervals {(, ) : } forms an open
covering of . Since is compact, there exists a nite subcollection of intervals
{(,
1
), (,
2
), . . . , (,
)} which covers . Let
be the largest of these
.
Then
does not belong to any of the intervals {(,

1
), (,
2
), . . . , (,
)},
contrary to the fact that they cover . This contradiction shows that, contrary to our
assumption, there must exist a largest element
, that is
for all .
Let

1
(
). Then
= (
) () for all . The existence of a smallest

element is proved analogously.
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2.83 By Proposition 2.3, () is connected and hence an interval (Exercise 1.95).
2.84 The range () is a compact subset of (Proposition 2.3). Therefore is bounded
(Proposition 1.1).
2.85 Let

() denote the set of all continuous (not necessarily bounded) functionals
on . Then
() = ()

()
(),

() are a linear subspaces of the set of all functionals () (Exercises 2.11,
2.78 respectively). Therefore () = ()

() is a subspace of () (Exercise
1.130). Clearly () (). Therefore () is a linear subspace of ().
Let be a bounded function in the closure of (), that is (). We show that
is continuous. For any > 0, there exists
0
() such that
0
< /3.
Therefore ()
0
() < /3 for every . Choose some
0
. Since
0
is
continuous, there exists > 0 such that
(,
0
) < =
0
()
0
(
0
) < /3
Therefore, for every such that (,
0
) <
() (
0
) = ()
0
() +
0
()
0
(
0
) +
0
(
0
) (
0
)
()
0
() +
0
()
0
(
0
) +
0
(
0
) (
0
)
< /3 +/3 +/3 =
Therefore is continuous at
0
. Since
0
was arbitrary, we conclude that is continuous
everywhere, that is (). Therefore () = () and () is closed in ().
Since () is complete (Exercise 2.11), we conclude that () is complete (Exercise
1.107). Therefore () is a Banach space.
2.86 For every ,
{ : () } = { : () }
and therefore
{ : () } is closed { : () } is closed
2.87 Exercise 2.77.
2.88 1 implies 2 Suppose is upper semi-continuous. Let
be a sequence converg-
ing to
0
. Assume (
) . For every < , there exists some such that

(
) > for every . Hence
0
{ : () } = { : () }
since is upper semi-continuous. That is, (
0
) for every < . Hence
(
0
) = lim
).
2 implies 3 Let (
) be a sequence in hypo which converges to (, ). That is,
and
). Condition 2 implies that () . Hence,

(, ) hypo . Therefore hypo is closed.
3 implies 1 For xed , let
be a sequence in { : () }. Suppose

0
. Then, the sequence (
, ) converges to (
0
, ) hypo . Hence
(
0
) and
0
{ : () }, which is therefore closed (Exercise 1.106).
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2.89 Let = sup
(), so that
() for every (2.43)
There exists a sequence
in with (
) . Since is compact, there exists

a convergent subsequence
and (
) . However, since is upper

semi-continuous, (
) lim(
) = . Combined with (2.43), we conclude that

(
) = .
2.90 Choose some > 0. Since is uniformly continuous, there exists some > 0 such
that ((
), (
)) < for every
such that (
) < . Let (
)
be a Cauchy sequence in . There exists some such that (
) < for every

, . Uniform continuity implies that ((
), (
)) < for every , .

((
)) is a Cauchy sequence.
2.91 Suppose not. That is, suppose is continuous but not uniformly continuous. Then
there exists some > 0 such that for = 1, 2, . . . , there exist points
1
,
2
such that
(
1
,
2
) < 1/ but ((
1
), (
2
)) (2.44)
Since is compact, (
1
1
) converging to some . By
construction ((
1
,
2
) < 1/), the sequence (

2
) also converges to and by continuity

lim
(
1
) = lim
(
2
)
which contradicts (2.44).
2.92 Assume is Lipschitz with constant . For any > 0, let = /2. Then,
provided (,
0
)
((), (
0
)) (,
0
) = =

2
=

2
<
is uniformly continuous.
2.93 Let , ().F Since () is a normed linear space, for every
() () = ( )()
which implies that
() () +
Since is increasing and satises (2.21)
() ( + ) = () +
or
() ()
That is, for every
( )()
and consequently

is a contraction with modulus .
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2.94 We have previously shown that is increasing (Exercise 2.42). By direct calcula-
tion, for any constant ,
( +)() = sup
()
{
(, ) +
(
() +
)
}
= sup
()
{
(, ) +()
}
+
= ()() +
2.95 Assume that is a compact subset of (). Then is bounded (Proposition
1.1). To show that is equicontinuous, choose > 0. is totally bounded (Exercise
1.113), so that there exist nite set of functions {
1
,
2
, . . . ,
} in F such that
min
=1

/3
Each
is uniformly continuous (Exercise 2.91), so that there exists
> 0 such that

(,
0
) = (
(),
(
0
) < /3
Let = min{
1
,
2
, . . . ,
}. Given any , let be such that
< /3. Then

for any ,
0
, (,
0
) implies
((), (
0
) ((),
()) +(
(),
(
0
)) +(
(
0
), (
0
)) <

3
+

3
+

3
=
for every . Therefore, is equicontinuous.
Conversely, assume that () is closed, bounded and equicontinuous. Let (
)
be a bounded equicontinuous sequence of functions in . We show that (
) has a
convergent subsequence.
1. First, we show that for any > 0, there is exists a subsequence (
) such that
< for every
in the subsequence. Since the functions are

equicontinuous, there exists > 0 such that
(
()
(
0
) <

3
for every ,
0
in with (,
0
) . Since is compact, it is totally bounded
(Exercise 1.113). That is, there exist a nite number of open balls
),
= 1, 2 . . . , which cover . The sequence (
(
1
),
(
2
, . . . ,
)) is a
bounded sequence in
. By the Bolzano-Weierstrass theorem (Exercise 1.119),

this sequence has a convergent subsequence (
(
1
),
(
2
), . . . ,
)) such
that
) < /3 for and every
in the subsequence. Conse-

quently, for any , there exists such that
(
(),
() (
(),
)) +(
),
)) +(
),
())
<

3
+

3
+

3
=
That is,
< for every
in the subsequence.
2. Choose a ball
1
of radius 1 in () which contains innitely many elements of
(
). Applying step 1, there exists a ball

2
of radius 1/2 containing innitely
many elements of (
). Proceeding in this fashion, we obtain a nested sequence
1

2
. . . of balls in () such that (a) (
) 0 and (b) each
contains
innitely many terms of (
). Choosing
gives a convergent subsequence.

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2.96 Let . Then for every > 0 there exists > 0 and such that
< /3 and
(,
0
) = ((), (
0
) < /3
so that if (,
0
)
() (
0
) () () +() (
0
) +(
0
) (
0
) <

3
+

3
+

3
=
2.97 For every
) = { : ()
= }
+
() = { : () }
For every x either () or ()
= but not both. Therefore
+
()
) =
+
()
) =
That is
+
() =
(
)
)
2.98 Assume ()
1
. Then () = , () and
+
(). Now assume

+
() so that () . Consequently, () = () = and
().
2.99 The respective inverses are:
1
2

+
2

2
{
1
} {
1
}
{
2
} {
1
,
2
}
{
1
,
2
} {
1
} {
1
} {
1
,
2
}
{
2
,
3
} {
2
} {
2
} {
1
,
2
}
{
1
,
2
,
3
} {
1
,
2
} {
1
,
2
}
2.100 Let be an open interval meeting (1), that is (1) = . Since (1) = {1},
we must have 1 and therefore () = for every . Therefore is lhc at
= 1. On the other hand, the open interval = (1/2, 3/2) contains (1) but it does
not contain () for any > 1. Therefore, is not uhc at = 1.
2.101 Choose any open set and . Since () = = (
) for every
,

() if and only if (
) for every ,

() = if and only if (
) = for every ,
.
Consequently, is both uhc and lhc at all .
2.102 First assume that the is uhc. Let be any open subset in and =
+
().
If = , it is open. Otherwise, choose
0
so that (
0
) . Since is uhc,
there exists a neighborhood (
0
) such that () for every (
0
). That is,
(
0
)
+
() = . This establishes that for every
0
there exist a neighborhood
(
0
) contained in . That is, is open in .
Conversely, assume that the upper inverse of every open set in is open in . Choose
some
0
and let be an open set containing (
0
). Let =
+
(). is an open
set containing
0
. That is, is a neighborhood of
0
with () for every .
Since the choice of
0
was arbitrary, we conclude that is uhc.
The lhc case is analogous.
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2.103 Assume is uhc and be any closed set in . By Exercise 2.97
() =
[
+
(
)
]
is open. By the previous exercise,

+
(
) is open which implies that
() is
closed.
Conversely, assume
() is closed for every closed set . Let be an open subset of

so that
is closed. Again by Exercise 2.97,
+
() =
[
)
]
By assumption
) is closed and therefore

+
() is open. By the previous exercise,
is uhc.
The lhc case is analogous.
2.104 Assume that is uhc at
0
. We rst show that (
) is bounded and hence has

a convergent subsequence. Since (
0
) is compact, there exists a bounded open set
containing (
0
). Since is uhc, there exists a neighborhood of
0
such that ()
for . Since

0
, there exists some such that
for every .
Consequently, (
) for every and therefore
for every .
The sequence
is bounded and hence has a convergent subsequence
0
.
To complete the proof, we have to show that
0
(
0
). Assume not, assume that
0
/ (
0
). Then, there exists an open set containing (
0
) such that
0
/
(Exercise 1.93). Since is uhc, there exists such that (
) for every .
This implies that
for every . Since

0
, we conclude that
0
,
contradicting the specication of .
Conversely, suppose that for every sequence

0
,
), there is a subse-
quence of

0
(
0
). Suppose that is not uhc at
0
. That is, there exists
an open set (
0
) such that every neighborhood contains some with () .
From the sequence of neighborhoods
1/
(
0
), we can construct a sequence

and
) but
/ . Such a sequence cannot have a subsequence which con-

verges to
0
(
)
, contradicting the hypothesis. We conclude that must be uhc at
0
.
2.105 Assume that is lhc. Let
be a sequence converging to
0
and
0
(
0
).
Consider the sequence of open balls
1/
(
0
), = 1, 2, . . . . Note that every
1/
(
0
)
meets (
0
). Since is lhc, there exists a sequence (
) of neighborhoods of
0
such
that ()
1/
= for every
. Since
, for every , there exists some
such that
for every
. Without loss of generality, we can assume

that
1
<
2
<
3
. . . . We can now construct the desired sequence
. For each
= 1, 2, . . . , choose
in the set (
)
1
/
m
where

+1
since

= (
)
1/
=
Since

1
/
m
(
0
), the sequence (
) converges to
0
and .
Conversely, assume that is not lhc at
0
, that is there exists an open set with
(
0
) = such that every neighborhood
0
contains some with () = .
Therefore, there exists a sequence
with () = . Choose any

0
(
0
).
By assumption, there exists a sequence
with
). Since is open and
0
, there exists some such that
for all , for which (
) = .
This contradiction establishes that is lhc at
0
.
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2.106 1. Assume is closed. For any , let (
) be a sequence in (). Since

is closed,
(). Therefore () is closed.

2. Assume is closed-valued and uhc. Choose any (, ) / graph(). Since () is
closed, there exist disjoint open sets
1
and
2
in such that
1
and ()
2
(Exercise 1.93). Since is uhc,
+
(
2
) is a neighborhood of . Therefore
+
(
2
)
1
is a neighborhood of (, ) disjoint from graph(). Therefore the
complement of graph() is open, which implies that graph() is closed.
3. Since is closed and compact, is compact-valued. Let (
) be a
sequence in and (
) a sequence in with
). Since is compact,
there exists a subsequence
. Since is closed, (). Therefore, by

Exercise 2.104, is uhc.
2.107 Assume is closed-valued and uhc. Then is closed (Exercise 2.106). Con-
versely, if is closed, then () is closed for every (Exercise 2.106). If is compact,
then is compact-valued (Exercise 1.110). By Exercise 2.104, is uhc.
2.108
1
is closed-valued (Exercise 2.106). Similarly,
2
is closed-valued (Proposition
1.1). Therefore, for every , () =
1
()
2
() is closed (Exercise 1.85) and
hence compact (Exercise 1.110). Hence is compact-valued.
Now, for any
0
, let be an open neighborhood of (
0
). We need to show that
there is a neighborhood of
0
such that () .
Case 1
2
(
0
): Since
2
is uhc, there exists a neighborhood such that
0
such that
2
() which implies that ()
2
()
Case 2
2
(
0
): Let =
2
(
0
) = . For every , there exist neighbor-
hoods
(
0
) and () such that
1
(
(
0
))() = (Exercise 1.93). The sets
() constitute an open covering of . Since is compact, there exists a nite
subcover, that is there exists a nite number of elements
1
,
2
, . . .
such that

=1
(
)
Let () denote
=1
(
). Note that () is an open set containing

2
(
0
).
Since
2
is uhc, there exists a neighborhood
(
0
) such that
2
(
(
0
))
(). Let
(
0
) =
=1
(
0
)
(
0
)
(
0
) is an open neighborhood of
0
for which
1
((
0
)) () = and
2
((
0
)) ()
from which we conclude that
((
0
)) =
1
((
0
))
2
((
0
))
2.109 1. Let x (p, ) . Then x (p, ) and
=1
. Since is
open, there exists < 1 such that x = x and
=1
=1
<
=1

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2. (a) Suppose that (p, ) is not lhc. Then for every neighborhood of (p, ),
there exists (p
) such that (p
) = . In particular, for
every open ball
(p, ), there exists a point (p
(p, ) such
that (p
) = . ((p
)) is the required sequence.

(b) By construction, p
p < 1/ 0 which implies that
for every
. Therefore (Exercise 1.202)
< and
and therefore there exists such that
<
which implies that

x (p
)
(c) Also by construction (p
) = which implies (p
and therefore
x (p
) = x /
The assumption that (p, ) is not lhc at (p, ) implies that x / , contra-
dicting the conclusion in part 1 that x .
3. This contradiction establishes that (p, ) is lhc at (p, ). Since the choice of
(p, ) was arbitrary, we conclude that the budget correspondence (p, ) is lhc
for all (p, ) (assuming =
+
).
4. In the previous example (Example 2.89), we have shown that (p, ) is uhc.
Hence, the budget correspondence is continuous for all (p, ) such that >
inf
x
=1
.
2.110 We give two alternative proofs.
Proof 1 Let = {} be an open cover of (). For every , () () is
compact and hence can be covered by a nite number of the sets . Let
denote the union of the nite cover of (). Since is uhc, every
+
(
)
is open in . Therefore {
+
(
) : } is an open covering of . If is
compact, it contains an nite covering {
+
(
1
),
+
(
2
), . . . ,
+
(
) }. The
sets
1
,
2
, . . . ,
are a nite subcovering of ().

Proof 2 Let (
) be a sequence in (). We have to show that (
) has a convergent
subsequence with a limit in (). For every
, there is an
with
). Since is compact, the sequence (
) has a convergent subsequence
. Since is uhc, the sequence (
) which
converges to () (). Hence the original sequence (
) has a convergent
subsequence.
2.111 The sets , (),
2
(), . . . form a sequence of nonempty compact sets. Since
() ,
2
() () and so on, the sequence of sets
is decreasing. Let
=
=1
()
By the nested intersection theorem (Exercise 1.117), = . Since
1
(),
()
() for every , which implies that () .

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To show that (), let . For every there exists an
() such
that (
). Since is compact, there exists a subsequence

0
. Since
() for every ,
0
. The sequence (
, ) (
0
, ). Since is closed
(Exercise 2.107), (
0
). Therefore () which implies that ().
2.112 () is compact for every by Tychonos theorem (Proposition 1.2).
Let
be a sequence in and let
= (
1
,
2
, . . . ,
) with
) be
a corresponding sequence of points in . For each
, = 1, 2, . . . , , there exists a
subsequence
with
() (Exercise 2.104). Therefore = (

1
,
2
, . . . ,
)
() which implies that is uhc.
2.113 Let (). For every x , the maximand (, ) + () is a continuous
function on a compact set (). Therefore the supremum is attained, and max can
replace sup in the denition of the operator (Theorem 2.2). is the value function
for the constrained optimization problem
max
()
{ (, ) +() }
satisfying the requirements of the continuous maximum theorem (Theorem 2.3), which
ensures that is continuous on . We have previously shown that is bounded
(Exercise 2.18). Therefore ().
2.114 1. has a least upper bound since is a complete lattice. Let
= sup .
Then
= (
) is a complete sublattice of (Exercise 1.48).

2. For every ,
and since is increasing and is a xed point

= () (
)
Therefore (
. ((
) is an upper bound of ). Again, since is increas-

ing, this implies that () (
) for every
. Therefore (
.
3. Let be the restriction of to the sublattice
. Since (
, is an
increasing function on a complete lattice. Applying Theorem 2.4, has a smallest
xed point .
4. is a xed point of , that is . Furthermore,
. Therefore is
an upper bound for in . Moreover, is the smallest xed point of in
.
Therefore, is the least upper bound of in .
5. By Exercise 1.47, this implies that is a complete lattice.
In Example 2.91, if = {(2, 1), (1, 2)},
= {(2, 2), (3, 2), (2, 3), (3, 3)} and = (3, 3).
2.115 1. For every , there exists some
() such that
. Moreover,
since is increasing and , there exists some
( ) such that
for every
2. Let = inf{
}
(a) Since
for every , = inf{
} inf{} = .
(b) Since ( ) is a complete sublattice of , = inf{
} ( ).
3. Therefore, .
4. Since and is increasing, there exists some ( ) such that
( )
Hence .
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5. This implies that . Therefore
= ( )
is a xed point of .
6. Since , = inf is the least xed point of .
2.116 1. Let and
= sup . For every , (). Since is

increasing, there exists some
) such that
.
2. Let
= sup
. Then
(a) Since
for every ,
= sup
sup =
(b)
) since (
) is a complete sublattice.
3. Dene
= { : for every }
is the set of all upper bounds of in . Then
is a complete lattice, since
= (
)
4. Let :
be the correspondence
() = () ()
where :
is the constant correspondence dened by () =
for every
. Then
(a) Since is increasing, for every
, there exists some
() such
that
. Therefore () = for every
.
(b) Both () and () are complete sublattices for every
. Therefore
() is a complete sublattice for every
.
(c) Since both and are increasing on
, is increasing on
(Exercise
2.47).
5. By the previous exercise, has a least xed point .
6.
is an upper bound of . Therefore is the least upper bound of in .

7. By the previous exercise, has a least element. Since we have shown every
subset has a least upper bound, this establishes that is complete lattice
(Exercise 1.47).
2.117 For any , let a
1
, a
2
with a
2
a
1
. Let
1
= (a
1
) and
2
= (a
2
).
We want to show that
2
. Since
1
(a
1
) and (a
) is increasing, there
exists some
(a
2
) such that
. (Exercise 2.44). Therefore

sup (a
) =
2
is increasing.
2.118 For any player , their best response correspondence
(a
) is
1. increasing by the monotone maximum theorem (Theorem 2.1).
2. a complete sublattice of
for every a
(Corollary 2.1.1).
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The joint best response correspondence
(a) =
1
(a
1
)
2
(a
2
)
(a
)
is also
1. increasing (Exercise 2.46)
2. a complete sublattice of for every a
Therefore, the best response correspondence (a) satises the conditions of Zhous
theorem, which implies that the set of xed points of is a nonempty complete
lattice. is precisely the set of Nash equilibria of the game.
2.119 In proving the theorem, we showed that
(
,
+
)

1
(
0
,
1
)
for every , 0. Letting ,
+
and therefore
(
, )

1
(
0
,
1
)
Similarly, for every , 0
(
,
+
) (
,
+1
) +(
+1
,
+2
) + +(
+1
,
+
)
( +
2
+ +
)(
1
,
(1
)
1
(
1
,
)
Letting ,
+
and
0 so that
(
, )

1
(
1
,
)
2.120 First observe that () 1 for every 1. Therefore : . For any
,
() ()

=
+
2
2( )
=
1
2

1
Since
1
1 for all ,
1
2

() ()

1
2
so that
() ()

=
() ()

1
2
or
() ()
1
2

is a contraction on with modulus
1
/
2
.
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is closed and hence complete (Exercise 1.107). Therefore, has a xed point. That
is, there exists
0
such that
0
= (
0
) =
1
2
(
0
+
2
0
)
Rearranging
2
2
0
=
2
0
+ 2 =
2
0
= 2
so that
0
=
2.
Letting
0
= 2
1
=
1
2
(2 + 1) =
3
2
Using the error bounds in Corollary 2.5.1,
(
2)

1
(
0
,
1
)
=
(1/2)
1/2
1/2
=
1
2
=
1
1024
< 0.001
when = 10. Therefore, we conclude that 10 iterations are ample to reduce the
error below 0.001. Actually, with experience, we can rene this a priori estimate. In
Example 1.64, we calculated the rst ve terms of the sequence to be
(2, 1.5, 1.416666666666667, 1.41421568627451, 1.41421356237469)
We observe that
(
3
,
4
) = 1.41421568627451 1.41421356237469) = 0.0000212389982
so that using the second inequality of Corollary 2.5.1
(
4
,
2)
1/2
1/2
0.0000212389982 < 0.001
4
= 1.41421356237469 is the desired approximation.
2.121 Choose any
0
. Dene the sequence
= (
) =
(
0
). Then (
) is a
Cauchy sequence in converging to . Since is closed, .
2.122 By the Banach xed point theorem,
has a unique xed point . Let be the

Lipschitz constant of
. We have to show
is a xed point of
((), ) = ((
(),
()) = (
((),
()) ((), )
Since < 1, this implies that ((), ) = 0 or () = .
is the only xed point of Suppose = () is another xed point of . Then
is a xed point of
and
(, ) = (
(),
()) (, )
which implies that = .
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2.123 By the Banach xed point theorem, for every , there exists
such
that
) =
. Choose any
0
.
(
,
0
) = (
),
0
(
0
))
(
),
(
0
)) +(
(
0
),
0
(
0
))
(
,
0
) +(
(
0
),
0
(
0
))
(1 )(
,
0
) (
(
0
),
0
(
0
))
(
,
0
)
(
(
0
),
0
(
0
))
(1 )
0
as
0
. Therefore

0
.
2.124 1. Let x be a xed point of . Then x satises
x = ( )x +c = x x +
which implies that x = .
2. For any x
1
, x
2

(x
1
) (x
2
)
( )(x
1
x
2
)
x
1
x
2
Since
= 1, the norm of is
= max
=
and
(x
1
) (x
2
)
x
1
x
2
By the assumption of strict diagonal dominance, < 1. Therefore is a contrac-

tion and has a unique xed point x.
2.125 1.
() = {
() : (,
) +(
) = () }
= {
() : (,
) +(
) = sup
()
{(, ) + ()}}
= {
() : (,
) +(
) (, ) +() for every ()}

= arg max
()
{(, ) +()}
2. () is the solution correspondence of a standard constrained maximization prob-
lem, with as parameter and the decision variable. By assumption the maxi-
mand (, ) = (, ) + () is continuous and the constraint correspondence
() is continuous and compact-valued. Applying the continuous maximum the-
orem (Theorem 2.3), is nonempty, compact-valued and uhc.
3. We have just shown that () is nonempty for every . Starting at
0
,
choose some
1
(
0
). Then choose
2
(
1
). Proceeding in this way,
we can construct a plan x
=
0
,
1
,
2
, . . . such that
+1
(
) for every
= 0, 1, 2, . . . .
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4. Since
+1
(
) for every , x satises Bellmans equation, that is

(
) = (
+1
) +(
+1
), = 0, 1, 2, . . .
Therefore x is optimal (Exercise 2.17).
2.126 1. In the previous exercise (Exercise 2.125) we showed that the set of solu-
tions to Bellmans equation (Exercise 2.17) is the solution correspondence of the
constrained maximization problem
() = arg max
()
{ (, ) +() }
This problem satises the requirements of the monotone maximum theorem (The-
orem 2.1), since the objective function (, ) + ()
supermodular in
displays strictly increasing dierences in (, ) since for every
2

1
(
2
, ) +() (
1
, ) +() = (
2
, ) (
1
, )
() is increasing.
By Corollary 2.1.2, () is always increasing.
2. Let x
= (
0
,
1
,
2
, . . . ) be an optimal plan. Then (Exercise 2.17)
+1
(
), = 0, 1, 2, . . .
Since is always increasing
1
=
+1

for every = 1, 2, . . . . Similarly
1
=
+1

= (
0
,
1
,
2
, . . . ) is a monotone sequence.
2.127 Let () = () . is continuous (Exercise 2.78) with
(0) 0 and (1) 0
By the intermediate value theorem (Exercise 2.83), there exists some point [0, 1]
with () = 0 which implies that () = .
2.128 1. To show that a label min{ :
= 0 } exists for every x , assume

to the contrary that, for some x ,
>
for every = 0, 1, . . . , . This

implies
=0
>
=0
= 1
contradicting the requirement that
=0
= 1 for every (x)

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2. The barycentric coordinates of vertex x
are
= 1 with
= 0 for every = .
Therefore the rule assigns vertex x
the label .
3. Similarly, if x belongs to a proper face of , it coordinates relative to the vertices
not in that face are 0, and it cannot be assigned a label corresponding to a vertex
not in the face. To be concrete, suppose that x conv {x
1
, x
2
, x
4
}. Then
x =
1
x
1
+
2
x
2
+
4
x
4
,
1
+
2
+
4
= 1
and
= 0 for / {1, 2, 4}. Therefore

x min{ :
= 0 } {1, 2, 4}
2.129 1. Since is compact, it is bounded (Proposition 1.1) and therefore it is
contained in a suciently large simplex .
2. By Exercise 3.74, there exists a continuous retraction : . The composition
: . Furthermore as the composition of continuous functions,
is continuous (Exercise 2.72). Therefore has a xed point x
, that is
(x
) = x
.
3. Since (x) for every x , we must have (x
) = x
. Therefore,
(x
) = x
which implies that (x
) = x
. That is, x
is a xed point of .
2.130 Convexity of is required to ensure that there is a continuous retraction of the
simplex onto .
2.131 1. () =
2
on = (0, 1) or () = + 1 on =
+
.
2. () = 1 on = [0, 1/3] [2/3, 1].
3. Let = [0, 1] and dene
() =
{
1 0 < 1/2
0 otherwise
2.132 Suppose such a function exists. Dene (x) = (x). Then : conti-
nously, and has no xed point since for
x , (x) = (x) = x = x
x , (x) / and therefore(x) = x
Therefore has no xed point contradicting Brouwers theorem.
2.133 Suppose to the contrary that has no xed point. For every x , let (z)
denote the point where the line segment from (x) through x intersects the boundary
of . Since is continuous and (x) = x, is a continuous function from to its
boundary, that is a retraction, contradicting Exercise 2.132. We conclude that must
have a xed point.
2.134 No-retraction = Brouwer Note rst that the no-retraction theorem (Ex-
ercise 2.132) generalizes immediately to a closed ball about 0 of arbitrary radius.
Assume that is a continuous operator on a compact, convex set in a -
nite dimensional normed linear space. There exists a closed ball containing
(Proposition 1.1). Dene : by
(y) = { x : x is closest to y }
As in Exercise 2.129, is well-dened, continuous and (x) = x for every x .
: and has a xed point x
= ((x
)) by Exercise 2.133. Since

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(x) for every x , we must have (x
) = x
. Therefore,
(x
) = x
) = x
. That is, x
is a xed point of .
Brouwer = no-retraction Exercise 2.132.
2.135 Let
, = 1, 2, . . . be a sequence of simplicial partitions of in which the

maximum diameter of the subsimplices tend to zero as . By Sperners lemma
(Proposition 1.3), every partition
has a completely labeled subsimplex with vertices

x
0
, x
1
, . . . , x
. By construction of an admissible labeling, each x
belongs to a face
containing x
, that is
x
conv {x
, . . . }
and therefore
x
, = 0, 1, . . . ,
Since is compact, each sequence x
has a convergent subsequence x
. Moreover,
since the diameters of the subsimplices converge to zero, these subsequences must
converge to the same point, say x
. That is,
lim
= x
, = 0, 1, . . . ,
Since the sets
are closed, x
for every and therefore

x
=0
=
2.136 = Let : be a continuous operator on an -dimensional simplex
with vertices x
0
, x
1
, . . . , x
. For = 0, 1, . . . , , let
= { x :
}
where
0
,
1
, . . . ,
and
0
,
1
, . . . ,
are the barycentric coordinates of x and

(x) respectively. Then
continuous =
closed for every = 0, 1, . . . , (Exercise 1.106)

Let x conv { x
: } for some { 0, 1, . . . , }. Then
= 1 =
=0
which implies that
for some , so that x
. Therefore
conv { x
: }
Therefore the collection

0
,
1
, . . . ,
satises the hypotheses of the K-K-M

theorem and their intersection is nonempty. That is, there exists
x
=0
= with
, = 0, 1, . . . ,
where
and
are the barycentric coordinates of x
and (x
) respectively.
Since
= 1, this implies that
= 0, 1, . . . ,
In other words, (x
) = x
.
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= Let
0
,
1
, . . . ,
be closed subsets of an dimensional simplex with vertices

x
0
, x
1
, . . . , x
such that
conv { x
: }
for every { 0, 1, . . . , }. For = 0, 1, . . . , , let
(x) = (x,
)
For any x with barycentric coordinates
0
,
1
, . . . ,
, dene
(x) =
0
x
0
+
1
x
1
+ +
where
(x)
1 +
=0
(x)
= 0, 1, . . . , (2.45)
By construction
0 and
=0
= 1. Therefore (x) . That is, : .

Furthermore is continuous. By Brouwers theorem, there exists a xed point
with (x
) = x
. That is
for = 0, 1, . . . , .
Now, since the collection
0
,
1
, . . . ,
covers , there exists some for which

(x
) = 0. Substituting
in (2.45) we have
1 +
=0
(x
)
which implies that
(x
) = 0 for every . Since the
are closed, x
for
every and therefore
x
=0
=
2.137 To simplify the notation, let
+
(p) = max
(
0, z
(p)
)
. Assume p
is a xed point
of . Then for every = 1, 2, . . . ,
+
+
(p
)
1 +
=1
(p
)
Cross-multiplying
=1
(p) =
+
+
(p
)
or
=1
(p) =
+
(p
) = 1, 2, . . .
Multiplying each equation by
(p) we get
(p
=1
(p) =
(p
)
+
(p
) = 1, 2, . . .
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Summing over
=1
(p
=1
(p) =
=1
(p
)
+
(p
)
Since
=1
(p
) = 0 this implies that
=1
(p
)
+
(p
) = 0
Each term of this sum is nonnegative, since it is either 0 or
(
(p
)
)
2
. Consequently,
every term must be zero which implies that
(p) 0 for every = 1, 2, . . . , . In

other words, z(p
) 0.
2.138 Every individual demand function x
(p, ) is continuous (Example 2.90) in p

and . For given endowment
=1
is continuous in p (Exercise 2.78). Therefore the excess demand function

z
(p) = x
(p, )
is continuous for every consumer and hence the aggregate excess demand function is
continuous.
Similarly, the consumers demand function x
(p, ) is homogeneous of degree 0 in p

and . For given endowment
, the consumers wealth is homogeneous of degree 1 in

p and therefore the consumers excess demand function z
(p) is homogeneous of degree

0. So therefore is the aggregate excess demand function z(p).
2.139
z(p) =
=1
z
(p)
=
=1
(
x
(p, )
)
and therefore
p
z(p) =
=1
p
(p, )
=1
p
Since preferences are nonsatiated and strictly convex, they are locally nonsatiated
(Exercise 1.248) which implies (Exercise 1.235) that every consumer must satisfy his
budget constraint
p
(p, ) = p
for every = 1, 2, . . . ,
Therefore in aggregate
p
z(p) =
=1
p
(p, )
=1
p
= 0
for every p.
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2.140 Assume there exists p
such that z(p
) 0. That is
z(p
) =
=1
z
(p) =
=1
(
x
(p, )
)
=
=1
x
(p, )
=1
0
or
Aggregate demand is less or equal to available supply.

Let
=1
denote the wealth of consumer when the price system is p
and let x
= x(p
) be his chosen consumption bundle. Then

x
for every x
(p
)
Let x
= (x
1
, x
2
, . . . , x
) be the allocation comprising these optimal bundles. The

pair (p
, x
) is a competitive equilibrium.
2.141 For each x
, let
denote the subsimplex of
which contains x
and let
x
0
, x
1
, . . . , x
denote the vertices of
. Let
0
,
1
, . . . ,
denote the barycentric

coordinates (Exercise 1.159) of x with respect to the vertices of
and let y
(x
),
= 0, 1, . . . , , denote the images of the vertices. Since is compact, there exists
subsequences x
, y
and
such that
x
and
= 0, 1, . . . ,
Furthermore,
0 and
0
+
1
+ +
= 1. Since the diameters of the subsimplices

converge to zero, their vertices must converge to the same point. That is, we must have
x
0
= x
1
= = x
= x
By denition of
(x
) =
0
(x
0
) +
1
(x
1
) + +
(x
)
Substituting y
(x
), = 0, 1, . . . , and recognizing that x
is a xed point of
, we have
(x
) =
0
y
0
+
1
y
1
+ +
Taking limits
x
0
y
0
+
1
y
1
+ +
(2.46)
For each coordinate , (x
, y
) graph() for every = 0, 1, . . . . Since is closed,

(x
, y
) graph(). That is, y
(x
) = (x
) for every = 0, 1, . . . , . Therefore,

(2.46) implies
x
conv (x
)
Since is convex valued,
x
(x
)
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2.142 Analogous to Exercise 2.129, there exists a simplex containing and a retrac-
tion of onto , that is a continuous function : with (x) = x for every x .
Then : is closed-valued (Exercise 2.106) and uhc (Exercise 2.103).
By the argument in the proof, there exists a point x
such that x
(x
).
However, since (x
) , we must have x
and therefore (x
) = x
. This
implies x
(x
). That is, x
is a xed point of .
2.143 =
1
2
. . .
is the Cartesian product of uhc, compact- and convex-

valued correspondences. Therefore is also compact-valued and uhc (Exercise 2.112
and also convex-valued (Exercise 1.165). By Exercise 2.106, is closed.
2.144 Strict quasiconcavity ensures that the best response correspondence is in fact a
function : . Since the hypotheses of Example 2.96 apply, there exists at least
one equilibrium. Suppose that there are two Nash equilibria s and s
. Since is a
contraction,
((s), (s
) (s, s
)
for some < 1. However
(s) = s and (s
) = s
and (2.46) implies that

(s, s
) (s, s
)
which is possible if and only if s = s
. This implies that the equilibrium must be unique.

2.145 Since is compact, it is totally bounded (Exercise 1.112). There exists a nite
set of points x
1
, x
2
, . . . , x
such that

=1
(x
)
Let = conv {x
1
, x
2
, . . . , x
}. For = 1, 2, . . . , and x , dene
(x) = max{0, x x
}
Then for every x ,
0
(x) , = 1, 2, . . . ,
and
(x) > 0 x
(x
)
Note that
(x) > 0 for some . Dene

(x) =
(x)x
(x)
Then (x) and therefore : . Furthermore, is continuous and
(x) x =
(x)x
(x)
x
(x)(x
x)
(x)
(x) x
(x)
(x)
(x)
=
since
(x) > 0 x
x .
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2.146 1. For every x
, (x) and therefore
(x) =
(
(x)
)

.
2. For any x
, let y = (x) () and therefore
(y) y
<
1
which implies
(x) (x)
for every x
2.147 By the Triangle inequality
(x)
(x
) (x
(x
) (x)
As shown in the previous exercise
(x
) (x
0
as . Also since is continuous
(x
) (x)
0
Therefore
(x)
0 = x = (x)
x is a xed point of .
2.148 () is bounded and equicontinuous and so therefore is () (Exercise 2.96). By
Ascolis theorem (Exercise 2.95), () is compact. Therefore is a compact operator.
Applying Corollary 2.8.1, has a xed point.
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Chapter 3: Linear Functions
3.1 Let x
1
, x
2
and
1
,
2
. Homogeneity implies that
(
1
x
1
) =
1
(
1
)
(
2
x
2
) =
2
(
2
)
and additivity implies
(
1
x
1
+
2
x
2
) =
1
(x
1
) +
2
(x
2
)
Conversely, assume
(
1
x
1
+
2
x
2
) =
1
(x
1
) +
2
(x
2
)
for all x
1
, x
2
and
1
,
2
. Letting
1
=
2
= 1 implies
(x
1
+x
2
) = (x
1
) +(x
2
)
while setting x
2
= 0 implies
(
1
x
1
) =
1
(x
1
)
3.2 Assume
1
,
2
(, ). Dene the mapping
1
+
2
: by
(
1
+
2
)(x) =
1
(x) +
2
(x)
We have to conrm that
1
+
2
is linear, that is
(
1
+
2
)(x
1
+x
2
) =
1
(x
1
+x
2
) +
2
(x
1
+x
2
)
=
1
(x
1
) +
1
(x
2
) +
2
(x
1
) +
2
(x
2
)
=
1
(x
1
) +
2
(x
1
) +
1
(x
1
) +
2
(x
2
)
= (
1
+
2
)(x
1
) + (
1
+
2
)(x
2
)
and
(
1
+
2
)(x) =
1
(x) +
2
(x)
= (
1
(x) +
2
(x))
= (
1
+
2
)(x)
Similarly let (, ) and dene : by
()(x) = (x)
is also linear, since
()(x) = (x)
= (x)
= (x)
= ()(x)
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3.3 Let x, x
1
, x
2

2
. Then
(x
1
+x
2
) = (
1
1
+
2
1
,
1
2
+
2
2
)
=
(
(
1
1
+
2
1
) cos (
1
2
+
2
2
) sin , (
1
1
+
2
1
) sin (
1
2
+
2
2
) cos
)
=
(
(
1
1
cos
1
2
sin ) + (
2
1
cos
2
2
sin), (
1
1
sin +
1
2
cos ) + (
2
1
sin
2
2
cos )
)
=
(
(
1
1
cos
1
2
sin ,
1
1
sin +
1
2
cos ) + (
2
1
cos
2
2
sin ,
2
1
sin
2
2
cos
)
= (
1
1
,
1
2
) + (
2
1
,
2
2
)
= (x
1
) +(x
2
)
and
(x) = (
1
,
2
)
= (
1
cos
2
sin,
1
sin +
2
cos )
= (
1
cos
1
sin ,
1
sin +
2
cos )
= (
1
,
2
)
= (x)
3.4 Let x, x
1
, x
2

3
.
(x
1
+x
2
) = (
1
1
+
2
,
1
2
+
2
2
,
1
3
+
2
3
)
= (
1
1
+
2
1
,
1
2
+
2
2
, 0)
= (
1
1
,
1
2
, 0) + (
2
1
,
2
2
, 0)
= (
1
1
,
1
2
,
1
3
) +(
2
1
,
2
2
,
2
3
)
= (x
1
) +(x
2
)
and
(x) = (
1
,
2
,
3
)
= (
1
,
2
, 0)
= (
1
,
2
, 0)
= (
1
,
2
,
3
)
= (x)
This mapping is the projection of 3-dimensional space onto the (2-dimensional) plane.
3.5 Applying the denition
(
1
,
2
) =
(
0 1
1 0
)(

1
2
)
= (
2
,
1
)
This function interchanges the two coordinates of any point in the plane
2
. Its action
corresponds to reection about the line
1
=
2
( 45 degree diagonal).
3.6 Assume (, ) and (,
) are two games in
. For any coalition

( +
)() ( +
)( {}) = () +(
) ( {})
( {})
= (() ( {})) + (
()
( {}))
=
() +
)
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3.7 The characteristic function of cost allocation game is
() = 0 (, ) = 210
() = 0 (, ) = 770 () = 1530
() = 0 (, ) = 1170
The following table details the computation of the Shapley value for player .

() ( {})
(() ( {}))
1
/
3
0 0 0
,
1
/
6
210 0 35
,
1
/
6
770 0 128
1
/
3
, ,
1
/
3
1530 1170 120
() 283
1
/
3
Thus
= 283
1
/
3
. Similarly, we can calculate that
= 483
1
/
3
and
=
763
1
/
3
.
3.8
(() ( {}))
)
=
(() ( {}))
)
=
()
( {})
=
()
( {})
)
=
()
()
=
()
= ()
3.9 If ,
( {}) = ( {, } {}) = ( {, } {}) = ( {})
() =
(() ( {}))
=
(() ( {})) +
(() ( {}))
=
(() ( {})) +
(( {}) ())
=
(() ( {})) +
((
{}) (
))
=
(() ( {})) +
(() ( {}))
=
()
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3.10 For any null player
() ( {}) = 0
for every . Consequently
() =
(() ( {})) = 0
3.11 Every / is a null player, so that
) = 0 for every /
Feasibility requires that
) =
) = 1
Further, any two players in are substitutes, so that symmetry requires that
) =
) for every ,
Together, these conditions require that
) =
1
for every
The Shapley value of the a T-unanimity game is
) =
{
1

0 /
where = .
3.12 Any coalitional game can be represented as a linear combination of unanimity
games
(Example 1.75)
=
By linearity, the Shapley value is

=
and therefore for player
/
1
= (, ) ( {}, )
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Using Exercise 3.8
() =
(
(, ) ( {}, )
)
= (, )
( {}, )
which implies that
(, ) =
1
(
()
( {}, )
)
3.13 Choose any x = 0 .
0
= x x
and by additivity
(0
) = (x x)
= (x) (x)
= 0
3.14 Let x
1
, x
2
belong to . Then
(x
1
+x
2
) = (x
1
+x
2
)
=
(
(x
1
) +(x
2
)
)
=
(
(x
1
)
)
+
(
(x
2
)
)
= (x
1
) + (x
2
)
and
(x) = ((x))
= ((x))
= ((x))
= (x)
Therefore is linear.
3.15 Let be a subspace of and let y
1
, y
2
belong to (). Choose any x
1

1
(y
1
)
and x
2

1
(y
2
). Then for
1
,
2

1
x
1
+
2
x
2

Since is linear (Exercise 3.1)
1
y
1
+
2
y
2
=
1
(x
1
) +
2
(x
2
) = (
1
x
1
+
2
x
2
) ()
() is a subspace.
Let be a subspace of and let x
1
, x
2
belong to
1
(). Let y
1
= (x
1
) and
y
2
= (x
2
). Then y
1
, y
2
. For every
1
,
2

1
y
1
+
2
y
2
=
1
(x
1
) +
2
(x
2
)
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Since is linear, this implies that
(
1
x
1
+
2
x
2
) =
1
(x
1
) +
2
(x
2
)
Therefore
1
x
1
+
2
x
2

1
()
We conclude that
1
() is a subspace.
3.16 () is a subspace of . rank () = rank implies that () = . is onto.
3.17 This is a special case of the previous exercise, since {0
} is a subspace of .
3.18 Assume not. That is, assume that there exist two distinct elements x
1
and x
2
with (x
1
) = (x
2
). Then x
1
x
2
= 0
but
(x
1
x
2
) = (x
1
) (x
2
) = 0
so that x
1
x
2
kernel which contradicts the assumption that kernel = {0}.
3.19 If has an inverse, then it is one-to-one and onto (Exercise 2.4), that is
1
(0) = 0
and () = . Conversely, if kernel = {0} then is one-to-one by the previous
exercise. If furthermore () = , then is one-to-one and onto, and therefore has
an inverse (Exercise 2.4).
3.20 Let be a nonsingular linear function from to with inverse
1
. Choose
y
1
, y
2
and let
x
1
=
1
(y
1
)
x
2
=
1
(y
2
)
so that
y
1
= (x
1
)
y
2
= (x
2
)
Since is linear
(x
1
+x
2
) = (x
1
) +(x
2
) = y
1
+y
2
which implies that
1
(y
1
+y
2
) = x
1
+x
2
=
1
(y
1
) +
1
(y
2
)
The homogeneity of
1
can be demonstrated similarly.
3.21 Assume that : and : are nonsingular. Then (Exercise 3.19)
() = and ( ) =
kernel = {0
} and kernel = {0
}
We have previously shown (Exercise 3.14) that = : is linear. To show
that is nonsingular, we note that
() = () = ( ) =
111
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If x kernel () then
(x) = ((x)) = 0
and (x) kernel = {0
}. Therefore (x) = 0
which implies that x = 0
.
Thus kernel = {0
}.
We conclude that is nonsingular.
Finally, let z be any point in and let
x
1
=
1
(z) = ( )
1
(z)
y =
1
(z)
x
2
=
1
(y)
Then
z = (x
1
) = (x
1
)
z = (y) = (x
2
)
1
= x
2
.
3.22 Suppose were one-to-one. Then kernel = {0} kernel and =
1
is a
well-dened linear function mapping () to with
=
(

1
)
=
We need to show that this still holds if is not one-to-one. In this case, for arbitrary
y (),
1
(y) may contain more than one element. Suppose x
1
and x
2
are distinct
elements in
1
(y). Then
(x
1
x
2
) = (x
1
) (x
2
) = y y = 0
so that x
1
x
2
kernel kernel (by assumption). Therefore
(x
1
) (x
2
) = (x
1
x
2
) = 0
1
) = (x
2
) for all x
1
, x
2

1
(y). Thus =
1
: ()
is well dened even if is many-to-one.
To show that is linear, choose y
1
, y
2
in () and let
x
1

1
(y
1
)
x
2

1
(y
2
)
Since (x
1
+x
2
) = (x
1
) +(x
2
) = y
1
+y
2
x
1
+x
2

1
(y
1
+y
2
)
and
(y
1
+y
2
) = (x
1
+x
2
)
Therefore
(y
1
) +(y
2
) = (x
1
) +(x
2
)
= (x
1
+x
2
)
= (y
1
+y
2
)
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Similarly x
1

1
(y
1
) and
(y
1
) = (x
1
)
= (x
1
)
= (y
1
)
We conclude that =
1
is a linear function mapping () to with = .
3.23 Let y be an arbitrary element of () with x
1
(y). Since B is a basis for
, x can be represented as a linear combination of elements of , that is there exists
x
1
, x
2
, .., x
and
1
, ...,
such that
x =
=1
y = (x)
=
(
)
=
(x
)
Since (x
) (), we have shown that y can be written as a linear combination of

elements of (), that is
y lin
Since the choice of y was arbitrary, () spans (), that is
lin = ()
3.24 Let = dim and = dimkernel . Let x
1
, . . . , x
be a basis for the kernel of

. This can be extended (Exercise 1.142) to a basis for . Exercise 3.23 showed
lin = ()
Since x
1
, x
2
, . . . , x
kernel , (x
) = 0 for = 1, 2, . . . , . This implies that

{(x
+1
), . . . , (x
)} spans (), that is

lin {(x
+1
), ..., (x
)} = ()
To show that dim() = , we have to show that {(
+1
), (
+2
), . . . , (
)} is
linearly independent. Assume not. That is, assume there exist
+1
,
+2
, ...,

such that
=+1
(x
) = 0
This implies that
=+1
)
= 0
or
x =
=+1
kernel
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This implies that x can also be expressed as a linear combination of elements in
{x
1
,
2
, ..., x
}, that is there exist scalars

1
,
2
, . . . ,
such that
x =
=1
or
x =
=1
=+1
which contradicts the assumption that is a basis for . Therefore {(x

+1
), . . . , (x
)}
is a basis for () and therefore dim() = . We conclude that
dimkernel + dim() = = dim
3.25 Equation (3.2) implies that nullity = 0, and therefore is one-to-one (Exercise
3.18).
3.26 Choose some x = (
1
,
2
, . . . ,
) . x has a unique representation in terms of

the standard basis (Example 1.79)
x =
=1
Let y = (x). Since is linear

y = (x) =
=1
=1
x
(e
)
Each (e
) has a unique representation of the form

(e
) =
=1
so that
y = (x)
=
=1
=1
)
=
=1
=1
=1
=1
.
.
.
=1
= x
where
=
11

12
. . .
1
21

22
. . .
2
. . . . . . . . . . . . . . . . . . . . .
1

2
. . .
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3.27
(
1 0 0
0 1 0
)
3.28 We must specify bases for each space. The most convenient basis for
is the
T-unanimity games. We adopt the standard basis for
. With respect to these bases,

the Shapley value is represented by the 2
1
matrix where each row is the Shapley
value of the corresponding T-unanimity game.
For three player games ( = 3), the matrix is
1 0 0
0 1 0
0 0 1
1
2
1
2
0
1
2
0
1
2
0
1
2
1
2
1
3
1
3
1
3
3.29 Clearly, if is continuous, is continuous at 0.

To show the converse, assume that : is continuous at 0. Let (x
) be a sequence
which converges to x . Then the sequence (x
x) converges to 0
and therefore
(x
x) 0
by continuity (Exercise 2.68). By linearity, (x
)(x) = (x
x)
0
and therefore (x
) converges to (x). We conclude that is continuous at x.

3.30 Assume that is bounded, that is
(x) x for every x
Then is Lipschitz at 0 (with Lipschitz constant ) and hence continuous (by the
previous exercise).
Conversely, assume is continuous but not bounded. Then, for every positive integer
, there exists some x
such that (x
) > x
which implies that
(
x
> 1
Dene
y
=
x
Then y
0 but (y
) 0. This implies that is not continuous at the origin,

contradicting our hypothesis.
3.31 Let {x
1
, x
2
, . . . , x
} be a basis for . For every x , there exists numbers
1
,
2
, . . . ,
such that
x =
=1
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All rights reserved
and
(x) =
=1
(x
)
(x) =
=1
(x
=1
(x
(

max
=1
(x
)
)

=1
By Lemma 1.1, there exists a constant such that
=1
=1
=
1
x
Combining these two inequalities
(x) x
where = max
=1
(x
) /.
3.32 For any x , let = x and dene y = x/. Linearity implies that
= sup
x=0
(x)
= sup
x=0
(x/) = sup
y=1
(y)
3.33 is a norm Let (, ). Clearly
= sup
x=1
(x) 0
Further, for every ,
= sup
x=1
(x) =
Finally, for every (, ),
+ = sup
x=1
(x) +(x) sup
x=1
(x) + sup
x=1
(x) +
verifying the triangle inequality. There is a norm.
(, ) is a linear space Let , (, ). Since (, ) (, ), +
is linear, that is + (, ) (Exercise 3.2). Similarly, (, ) for every
. Further, by the triangle inequality + + and therefore for
every x
( +)(x) + x ( +) x
Therefore + (, ). Similarly
()(x) ( ) x
so that (, ).
116
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(, ) is complete with this norm Let (
) be a Cauchy sequence in (, ).
For every x
(x)
(x)
x
Therefore (
(x)) is a Cauchy sequence in , which converges since is complete.

Dene the function : by (x) = lim
(x).
is linear since
(x
1
+x
2
) = lim
(x
1
+x
2
) = lim
(x
1
) + lim
(x
2
) = (x
1
) +(x
2
)
and
(x) = lim
(x) = lim
(x) = (x)
To show that is bounded, we observe that
(x) =
lim
(x)
= lim
(x) sup
(x) sup
x
Since (
) is a Cauchy sequence, (
) is bounded (Exercise 1.100), that is there

exists such that
. This implies
(x) sup
x x
Thus, is bounded.
To complete the proof, we must show
, that is
0. Since (
)
is a Cauchy sequence, for every > 0, there exists such that

for every , and consequently
(x)
(x) = (
)(x) x
Letting go to innity,
(x) (x) = (
)(x) x
for every x and and therefore
= sup
x=1
{
)(x)}
for every .
3.34 1. Since is nite-dimensional, is compact (Proposition 1.4). Since is
continuous, () is a compact set in (Exercise 2.3). Since 0
/ , 0
=
(0
) / ().
2. Consequently,
(
()
)
is an open set containing 0
. It contains an open ball

(
()
)
around 0
.
3. Let y and choose any x
1
(y) and consider y/ x. Since is linear,
y
x
=
(x)
x
=
(
x
x
)
()
and therefore y/ x / since () = .
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Suppose that y / (). Then x 1 and therefore
y =
y
x

since is convex. This contradiction establishes that y () and therefore
(). We conclude that () contains an open ball around 0
.
4. Let be any open set in . We need to show that () is open in . Choose
any y () and x
1
(y). Then x and, since is open, there exists
some > 0 such that
(x) . Now
(x) = x + and
(
(x)) = y +() ()
by linearity. As we have just shown, there exists an open ball T about 0
such
that (). Let (x) = y + . (x) is an open ball about y. Since
(), (x) = y + (
(x)) (). This implies that () is open.

Since was an arbitrary open set, is an open map.
5. Exercise 2.69.
3.35 is linear
( +) =
=1
(
)x
=1
=1
= () +()
Similarly for every
() =
=1
= ()
is one-to-one Exercise 1.137.
is onto By denition of a basis lin {x
1
, x
2
, . . . , x
} =
is continuous Exercise 3.31
is an open map Proposition 3.2
3.36 is bounded and therefore there exists such that (x) x. Similarly,
1
is bounded and therefore there exists such that for every x
1
(y)
1
y
where y = (x). This implies
x (x)
and therefore for every x .
x (x) x
By the linearity of ,
x
1
x
2
(x
1
x
2
) = (x
1
) (x
2
) x
1
x
2
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3.37 For any function, continuity implies closed graph (Exercise 2.70). To show the con-
verse, assume that = graph() is closed. with norm(x, y) = max{x , y}
is a Banach space (Exercise 1.209). Since is closed, is complete. Also, is a sub-
space of . Consequently, is a Banach space in its own right.
Consider the projection : dened by (x, (x)) = x. Clearly is linear,
one-to-one and onto with
1
(x) = (x, (x))
It is also bounded since
(x, (x)) = x (x, (x)
By the open mapping theorem,
1
is bounded. For every x
(x) (x, (x)) =
1
(x)
x
We conclude that is bounded and hence continuous.
3.38 (1) = 5, (2) = 7 but
(1 + 2) = (3) = 9 = (1) +(2)
Similarly
(3 2) = (6) = 15 = 3 (2)
3.39 Assume is ane. Let y = (0) and dene
(x) = (x) y
is homogeneous since for every
(x) = (x + (1 )0)
= (x + (1 )0) y
= (x) + (1 )(0) y
= (x) + (1 )y y
= (x) y
= (() y)
= (x)
Similarly for any x
1
, x
2

(x
1
+ (1 )x
2
) = (x
1
+ (1 )x
2
)
= (x
1
) + (1 )(x
2
)
Therefore, for = 1/2
(
1
2
x
1
+
1
2
x
2
) =
1
2
(x
1
) +
1
2
(x
2
)
=
1
2
((x
1
) ) +
1
2
((x
2
) )
=
1
2
(x
1
) +
1
2
(x
2
)
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Since is homogeneous
(x
1
+x
2
) = (x
1
) +(x
2
)
which shows that is additive and hence linear.
Conversely if
(x) = (x) +y
with linear
(x
1
+ (1 )x
2
) = (x
1
) + (1 )(x
2
) +
= (x
1
) + + (1 )(x
2
) +
= (x
1
) + (1 )(x
2
)
3.40 Let be an ane subset of and let y
1
, y
2
belong to (). Choose any x
1

1
(y
1
) and x
2

1
(y
2
). Then for any
x
1
+ (1 )x
2

Since is ane
y
1
+ (1 )y
2
= (x
1
) + (1 )(x
2
) = (x
1
+ (1 )x
2
) ()
() is an ane set.
Let be an ane subset of and let x
1
, x
2
belong to
1
(). Let y
1
= (x
1
) and
y
2
= (x
2
). Then y
1
, y
2
. For every
y
1
+ (1 )y
2
= (x
1
) + (1 )(x
2
)
Since is ane, this implies that
(x
1
+ (1 )x
2
) = (x
1
) + (1 )(x
2
)
Therefore
x
1
+ (1 )x
2

1
()
We conclude that
1
() is an ane set.
3.41 For any y
1
, y
2
(), choose x
1
, x
2
such that y
= (x
). Since is convex,
x
1
+ (1 )x
2
and therefore
(x
1
+ (1 )x
2
) = (x
1
) + (1 )(x
2
)
= y
1
+ (1 )y
2
()
Therefore () is convex.
3.42 Suppose otherwise that y is not ecient. Then there exists another production
plan y
such that y
y. Since p > 0, this implies that py
> py, contradicting

the assumption that y maximizes prot.
3.43 The random variable can be represented as the sum
=
()
{}
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where
{}
is the indicator function of the set {}. Since is linear
() =
()(
{}
)
=
()
since (
{}
= ({}) =
0. For the randomvariable = 1, () = 1 for every

and
(1) =
= 1
3.44 Let
1
,
2
[0, 1]. Recall that addition in C[0,1] is dened by
(
1
+
2
)() =
1
() +
2
()
Therefore
(
1
+
2
) = (
1
+
2
)(1/2) =
1
(1/2) +
2
(1/2) = (
1
) +(
2
)
Similarly
(
1
) = (
1
)(1/2) =
1
(1/2) = (
1
)
3.45 Assume that x
= x
1
+x
2
+ +x
maximizes over . Suppose to the contrary

that there exists y
such that (y
) > (x
). Then y = x
1
+x
2
+ +y
+ +
x
and
(y) =
=
(x
) +(y
) >
(x
) = (x
)
contradicting the assumption at is maximized at x
.
Conversely, assume
(x
) (x
) for every x
for every = 1, 2, . . . , . Summing

(x
) = (
) =
(x
) = (
) = (x) for every x

x
= x
1
+x
2
+ +x
maximizes over .
3.46 1. Assume (
) is a sequence in
1
with =
=1
< . Let (
) denote
the sequence of partial sums
=1
Then (
) is a bounded monotone sequence in
which converges to . Con-

sequently, (
) is a Cauchy sequence. For every > 0 there exists an such

that
+
<
121
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for every and 0. Letting = 0
< for every

We conclude that
0 so that (
)
0
. This establishes
1

0
.
To see that the inclusion is strict, that is
1

0
, we observe that the sequence
(1/) = (1, 1/2, 1/3, . . . ) converges to zero but that since
=1
= 1 +
1
2
+
1
3
+ =
(1/) /
1
.
Every convergent sequence is bounded (Exercise 1.97). Therefore
0

.
2. Clearly, every sequence (
)
1
denes a linear functional
0
given by
(x) =
=1
for every x = (
)
0
. To show that is bounded we observe that every
(
)
0
is bounded and consequently
(x)
=1
=1
= (
)
1
(
Therefore
0
.
To show the converse, let e
denote the unit sequences

e
1
= (1, 0, 0, . . . )
e
2
= (0, 1, 0, . . . )
e
3
= (0, 0, 1, . . . )
{e
1
, e
2
, e
3
, . . . , } form a basis for
0
. Then every sequence (
)
0
has a unique
representation
(
) =
=1
Let
0
be a continuous linear functional on
0
. By continuity and linearity
(x) =
=1
(e
)
Let
= (e
)
so that
(x) =
=1
Every linear function is determined by its action on a basis (Exercise 3.23).

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We need to show that the sequence (
)
1
. For any , consider the sequence
x
= (
1
,
2
, . . . ,
, 0, 0, . . . ) where
= 0 or
otherwise
Then (x
)
0
, x
= 1 and
(x
) =
=1
=1
Since
0
, is bounded and therefore
(x
) x
= <
and therefore
=1
< for every = 1, 2, . . .

Consequently
=1
= sup
=1
<
We conclude that (
)
1
and therefore
0
=
1
3. Similarly, every sequence (
denes a linear functional on

1
given by
(x) =
=1
for every x = (
)
1
. Moreover is bounded since
(x)
=1
=1
<
for every x = (
)
1
Again, given any linear functional
1
, let
= (e
)
where e
is the unit sequence. Then has the representation

(x) =
=1
To showthat (
, for = 1, 2, . . . , consider the sequence x
= (0, 0, . . . ,
, 0, 0, . . . )
where
= and
= 0
0 otherwise
Then x

1
, x
1
= 1 and
(x
) =
Since
1
, is bounded and therefore
= (x
) x
=
for every . Consequently (
. We conclude that
1
=
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3.47 By linearity
(, ) = (, 0) +(0, )
= (, 0) +(0, 1)
Considered as a function of , (, 0) is a linear functional on . Dene
() = (, 0)
= (0, 1)
Then
(, ) = () +
3.48 Suppose
=1
kernel
kernel
Dene the function :
by
(x) = (
1
(x),
2
(x), . . . ,
(x))
Then
kernel = { x :
(x) = 0, = 1, 2, . . . }
=
=1
kernel
kernel
: and :
. By Exercise 3.22, there exists a linear function :
such that = . That is, for every

(x) = (x) = (
1
(x),
2
(x), . . . ,
(x))
Let
= (e
) where e
is the -th unit vector in
. Since every linear mapping is

determined by its action on a basis, we must have
(x) =
1
1
(x) +
2
2
(x) + +
(x) for every

That is
lin
1
,
2
, . . . ,
Conversely, suppose
lin
1
,
2
, . . . ,
That is
(x) =
1
1
(x) +
2
2
(x) + +
(x) for every

For every x

=1
kernel
(x) = 0, = 1, 2, . . . , and therefore (x) = 0.

Therefore kernel . That is
=1
kernel
kernel
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3.49 Let be a hyperplane in . Then there exists a unique subspace such that
= x
0
+ for some x
0
(Exercise 1.153). There are two cases to consider.
Case 1: x
0
/ . For every x , there exists unique
x
such
x =
x
x
0
+ for some
Dene (x) =
x
. Then : . It is straightforward to show that is linear.
Since = x
0
+ ,
x
= 1 if and only if x . Therefore
= { x : (x) = 1 }
Case 2: x
0
. In this case, choose some x
1
/ . Again, for every x , there
exists a unique
x
such
x =
x
x
1
+ for some
and (x) =
x
is a linear functional on . Furthermore x
0
implies =
(Exercise 1.153) and therefore (x) = 0 if and only if x . Therefore
= { x : (x) = 0 }
Conversely, let be a nonzero linear functional in
. Let = kernel and choose

x
0

1
(1). (This is why we require = 0). For any x
(x (x)x
0
) = (x) (x) 1 = 0
so that x (x)x
0
. That is, x = (x)x
0
+ for some . Therefore,
= lin (x
0
, ) so that is a maximal proper subspace.
For any , let x
1

1
(). Then, for every x
1
(), (x x
1
) = 0 and
{ x : (x) = } = {x : (x x
1
) = 0 } = x
1
+
which is a hyperplane.
3.50 By the previous exercise, there exists a linear functional such that
= { : () = }
for some . Since 0 / , = 0. Without loss of generality, we can assume that
= 1. (Otherwise, take the linear functional
1
).
To show that is unique, assume that is another linear functional with
= { x : () = 1} = {x : () = 1 }
Then
{ x : () () = 0 }
Since is a maximal subset, is the smallest subspace containing . Therefore
() = () for every .
125
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3.51 By Exercise 3.49, there exists a linear functional such that
= { : () = 0 }
Since x
0
/ , (x
0
) = 0. Without loss of generality, we can normalize so that (x
0
) =
1. (If (x
0
) = = 1, then the linear functional
=
1
/
c
has
(x
0
) = 1 and kernel
=
.)
To show that is unique, suppose that is another linear functional with kernel =
and (x
0
) = 1. For any x , there exists such that
x = x
0
+v
with (Exercise 1.153). Since (v) = (v) = 0 and (x
0
) = (x
0
) = 1
(x) = (x
0
+v) = (
0
) = (x
0
) = (x
0
+v) = (x)
3.52 Assume = , = 0. Then
() = 0 () = 0
Conversely, let =
1
(0) =
1
(0). If = , then = = 0. Otherwise,
is a hyperplane containing 0. Choose some x
0
/ . Every x has a unique
representation x = x
0
+v with v (Exercise 1.153) and
(x) = (x
0
)
(x) = (x
0
)
Let = (x
0
)/(x
0
) so that (x
0
) = (x
0
). Substituting
(x) = (x
0
) = (x
0
) = (x)
3.53 continuous implies that the set { : () = } =
1
() is closed for every
(Exercise 2.67). Conversely, let = 0 and assume that = { : () = 0 }
is closed. There exists x
0
= 0 such that = lin {
0
, } (Exercise 1.153). Let x
x
be a convergent sequence in . Then there exist
, and v
, such that
x
x
0
+v
, x = x
0
+v and
x
x =
x
0
+v
x
0
+v
=
x
0
x
0
+v
x
0
+v
v
0
which implies that
. By linearity
(x
) =
(x
0
) +(v
) =
(x
0
)
since v
and therefore
(x
) =
(x
0
) (x
0
) = (x)
is continuous.
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3.54
(x +x
, y) =
=1
=1
=1
=1
=1
=1
= (x, y) +(x
, y)
Similarly, we can show that
(x, y +y
) = (x, y) +(x, y
)
and
(x, y) = (x, y) = (x, y) for every
3.55 Let x
1
, x
2
, . . . , x
be a basis for and y

1
, y
2
, . . . , y
be a basis for . Let the

numbers
represent the action of on these bases, that is
= (x
, y
) = 1, 2, . . . , , = 1, 2, . . . ,
and let be the matrix of numbers
.
Choose any x and y and let their representations in terms of the bases be
x =
=1
and y =
=1
respectively. By the bilinearity of

(x, y) = (
)
=
(x
)
=
(x
, y
)
=
y
= x
y
3.56 Every y
is a linear functional on . Hence

y(x +x
) = y(x) +y(x
)
y(x) = y(x)
and therefore
(x +x
, y) = y(x +x
) = y(x) +y(x
) = (x, y) +(x
, y)
(x, y) = y(x) = y(x) = (x, y)
127
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In the dual space
(y +y
)(x) y(x) +y
(x)
(y)(x) y(x)
and therefore
(x, y +y
) = (y +y
)(x) = y(x) +y
(x) = (x, y) +(x, y
)
(x, y) = (y)(x) = y(x) = (x, y)
3.57 Assume
1
,
2
( , ). Dene the mapping
1
+
2
: by
(
1
+
2
)(x, y) =
1
(x, y) +
2
(x, y)
We have to conrm that
1
+
2
is bilinear, that is
(
1
+
2
)(x
1
+x
2
, y) =
1
(x
1
+x
2
, y) +
2
(x
1
+x
2
, y)
=
1
(x
1
, y) +
1
(x
2
, y) +
2
(x
1
, y) +
2
(x
2
, y)
=
1
(x
1
, y) +
2
(x
1
, y) +
1
(x
1
, y) +
2
(x
2
, y)
= (
1
+
2
)(x
1
, y) + (
1
+
2
)(x
2
, y)
Similarly, we can show that
(
1
+
2
)(x, y
1
+y
2
) = (
1
+
2
)(x, y
1
) + (
1
+
2
)(x, y
2
)
and
(
1
+
2
)(x, y) = (
1
+
2
)(x, y) = (
1
+
2
)(x, y)
For every ( , ) dene the function : by
()(x, y) = (x, y)
is also bilinear, since
()(x
1
+x
2
, y) = (x
1
+x
2
, y)
= (x
1
, y) +(x
2
, y)
= ()(x
1
, y) + ((x
2
, y)
Similarly
()(x, y
1
+y
2
) = ()(x, y
1
) + ()(x, y
2
)
()(x, y) = ()(x, y) = ()(x, y)
Analogous to (Exercise 2.78),
1
+
2
and are also continuous
3.58 1. (, ) is a linear space and therefore so is (, (, )) (Exercise
3.33).
128
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2.
x
is linear and therefore
(x, y
1
+y
2
) = (x)(y
1
+y
2
) = (x)(y
1
) +(x)(y
2
) = (x, y
1
) +(x, y
2
)
and
(x, y) = (x)(y) = (x)(y) = (x, y)
Similarly, is linear and therefore
(x
1
+x
2
, y) =
x1+x2
(y) =
x1
(y) +
x2
(y) = (x
1
, y) +(x
2
, y)
and
(x, y) =
x
(y) =
x
(y) = (x, y)
is bilinear
3. Let ( , ). For every x , the partial function
x
: is
linear. Therefore
x
(, ) and (, (, )).
3.59 Bilinearity and symmetry imply
(x y, x y) = (x, x y) (y, x y)
= (x, x) (x, y) (y, x) +
2
(y, y)
= (x, x) 2(x, y) +
2
(y, y)
Nonnegativity implies
(x y, x y) = (x, x) 2(x, y) +
2
(y, y) 0 (3.38)
for every x, y and
Case 1 (x, x) = (y, y) = 0 Then (3.38) becomes
2(x, y) 0
Setting = (x, y) generates
2
(
(x, y)
)
2
0
which implies that
(x, y) = 0
Case 2 Either (x, x) > 0 or (y, y) > 0. Without loss of generality, assume (y, y) >
0 and set = (x, y)/(y, y) in (3.38). That is
(x, x) 2
(
(x, y)
(y, y)
)
(x, y) +
(
(x, y)
(y, y)
)
2
(y, y) 0
or
(x, x)
(x, y)
2
(y, y)
0
which implies
(
(x, y)
)
2
(x, x)(y, y) for every x, y
129
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3.60 A Euclidean space is a nite-dimensional normed space, which is complete (Propo-
sition 1.4).
3.61 (x, y) = x
y satises the requirements of Exercise 3.59 and therefore

(x
y)
2
(x
x)(y
y)
Taking square roots
x y
3.62 By denition, the inner product is a bilinear functional. To show that it is contin-
uous, let be an inner product space with inner product denote by x
y. Let x
x
and y
y be sequences in .
(x
(x
(x
y + (x
y x
(x
(x
(x
y x
(x
(y
y)
(x
x)
Applying the Cauchy-Schwartz inequality
(x
y +x
x y
Since the sequence x
converges, it is bounded, that is there exists such that x

for every . Therefore
(x
y +x
x y y
y +x
x y 0
3.63 Applying the properties of the inner product
x =
x 0
x =
x = 0 if and only if x = 0
x =
(x)
(x) =
2
x
x = x
To prove the triangle inequality, observe that bilinearity and symmetry imply
x +y
2
= (x +y)
(x +y)
= x
x +x
y +y
x +z
z
= x
x + 2x
y +y
y
= x
2
+ 2x
y +y
2
x
2
+ 2
+y
2
Applying the Cauchy-Schwartz inequality
x +y
2
x
2
+ 2 x y +y
2
= (x +y)
2
3.64 For every y , the partial function
y
(x) = x
y is a linear functional on
(since x
y is bilinear). Continuity follows from the Cauchy-Schwartz inequality, since

for every x
y
(x) =
y x
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which shows that
y
y. In fact,
y
= y since
y
= sup
x=1
y
(x)
y
(
y
y
)
(
y
y
)
=
1
y
y
y = y
3.65 By the Weierstrass Theorem (Theorem 2.2), the continuous function (x) = x
attains a maximum on the compact set at some point x
0
.
We claim that x
0
is an extreme point. Suppose not. Then, there exist x
1
, x
2
such
that
x
0
= x
1
+ (1 )x
2
= x
2
+(x
1
x
2
)
Since x
0
maximizes x on
x
2
2
x
0
2
=
(
x
2
+(x
1
x
2
)
)
(
x
2
+(x
1
x
2
)
)
= x
2
2
+ 2x
2
(x
1
x
2
) +
2
x
1
x
2
2
or
2x
2
(x
1
x
2
) +x
1
x
2
2
0 (3.39)
Similarly, interchanging the role of x
1
and x
2
2x
1
(x
2
x
1
) +x
2
x
1
2
0
or
2x
1
(x
1
x
2
) +x
1
x
2
2
0 (3.40)
Adding the inequalities (3.39) and (3.40) yields
2(x
2
x
1
)
(x
1
x
2
) + 2x
1
x
2
2
0
or
2(x
2
x
1
)
(x
2
x
1
) = 2(x
2
x
1
)
(x
1
x
2
) 2x
1
x
2
2
and therefore
x
2
x
1
x
2
x
1
Since 0 < < 1, this implies that x

1
x
2
= 0 or x
1
= x
2
which contradicts our
premise that x
0
is not an extreme point.
3.66 Using bilinearity and symmetry of the inner product
x +y
2
+x y
2
= (x +y)
(x +y) + (x y)
(x y)
= x
x +x
y +y
x +y
y +
x
x x
y y
x +y
y
= 2x
x + 2y
y
= 2 x
2
+ 2 y
2
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3.67 Note that = = 1 and
+ = sup
01
(
() +()
)
= sup
01
(1 +) = 2
= sup
01
(
() ()
)
= sup
01
(1 ) = 1
so that
+
2
+
2
= 5 = 2
2
+ 2
2
Since and do not satisfy the parallelogram law (Exercise 3.66), () cannot be an
inner product space.
3.68 Let {x
1
, x
2
, . . . , x
} be a set of pairwise orthogonal vectors. Assume

0 = x
1
+
2
x
2
+ +
Using bilinearity, this implies

0 = 0
=1
for every = 1, 2, . . . , . Since x
= 0, this implies
= 0 for every = 1, 2, . . . , .
We conclude that the set {x
1
, x
2
, . . . , x
} is linearly independent (Exercise 1.133).

3.69 Let x
1
, x
2
, . . . , x
be a orthonormal basis for . Since represents

(x
) =
=1
for = 1, 2, . . . , . Taking the inner product with x
,
x
(x
) = x
=1
)
=
=1
Since {x
1
, x
2
, . . . , x
} is orthonormal
x
=
{
1 if =
0 otherwise
so that the last sum simplies to
x
(x
) =
for every ,
3.70 1. By the Cauchy-Schwartz inequality
x x
for every x and y, so that
cos =
y
x y
1
which implies
1 cos 1
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2. Since cos 90 = 0, = 90 implies that x
y = 0 or x y. Conversely, if x y,
x
y = 0 and cos = 0 which implies = 90 degrees.

3.71 By bilinearity
x +y
2
= (x +y)
(x +y) = x
2
+x
y +y
x +y
2
If x y, x
y = y
x = 0 and
x +y
2
= x
2
+y
2
3.72 1. Choose some x and let

be the set of all x which are closer to y
than x, that is
= { x : x y x y }
is compact (Proposition 1.4).

By the Weierstrass theorem (Theorem 2.2), the continuous function (x) = xy
attains a minimum on

at some point x
0

. That is
x
0
y x y for every x

A fortiori
x
0
y x y for every x
2. Suppose there exists some x
1
such that
x
1
y = x
0
y =
By the parallelogram law (Exercise 3.66)
x
0
x
1
2
= x
0
y +y x
1
2
= 2 x
0
y
2
+ 2 x
1
y
2
(x
0
y) (y x
1
)
2
= 2 x
0
y
2
+ 2 x
1
y
2
2
2
1
2
(x
0
+x
1
) y
2
= 2
2
+ 2
2
2
2
1
2
(x
0
+x
1
) y
2
since
1
2
(x
0
+x
1
) and therefore
1
2
(x
0
+x
1
) y
so that
x
0
x
1
2
2
2
+ 2
2
4
2
= 0
1
= x
0
.
3. Let x . Since is convex, the line segment x+(1)x
0
= x
0
+(xx
0
)
and therefore (since x
0
is the closest point)
x
0
y
2
(
x
0
+(x x
0
)
)
y
2
= (x
0
y) +(x x
0
)
2
=
(
(x
0
y) +(x x
0
)
)
(
(x
0
y) +(x x
0
)
)
= x
0
y
2
+ 2(x
0
y)
(x x
0
) +
2
x x
0
2
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which implies that
2(x
0
y)
(x x
0
) +
2
x x
0
2
0
Dividing through by
2(x
0
y)
(x x
0
) +x x
0
2
0
which inequality must hold for every 0 < < 1. Letting 0, we must have
(x
0
y)
(x x
0
) 0
as required.
3.73 1. Using the parallelogram law (Exercise 3.66),
x
2
= (x
y) + (y x
)
2
= 2 x
y
2
+ 2 y x
2
2 x
+x
2
for every , . Since is convex, (x
+x
)/2 and therefore x
+x
2.
Therefore
x
2
= 2 x
y
2
+ 2 y x
2
4
2
Since x
y and x
y as , , we conclude that
x
2
0. That is, (x
) is a Cauchy sequence.
2. Since is a closed subspace of complete space, there exists x
0
such that
x
x
0
. By continuity of the norm
x
0
y = lim
y =
Therefore
x
0
y x y for every x
Uniqueness follows in the same manner as the nite-dimensional case.
3.74 Dene : by
(y) = { x : x is closest to y}
The function is well-dened since for every y there exists a unique point x
which is closest to y (Exercise 3.72). Clearly, for every x , x is the closest point to
x. Therefore (x) = x for every x .
To show that is continuous, choose any y
1
and y
2
in
x
1
= (y
1
) and x
2
= (y
2
)
134
All rights reserved
be the corresponding closest points in . Then
(y
1
y
2
) (x
1
x
2
)
2
=
(
(y
1
y
2
) (x
1
x
2
)
)
(
(y
1
y
1
) (x
1
x
2
)
)
= (y
1
y
2
)
(y
1
y
2
) + (x
1
x
2
)
(x
1
x
2
)
2(y
1
y
2
)
(x
1
x
2
)
= y
1
y
2
2
+x
1
x
2
2
2(y
1
y
2
)
(x
1
x
2
)
= y
1
y
2
2
+x
1
x
2
2
2(y
1
y
2
)
(x
1
x
2
)
2 x
1
x
2
2
+ 2(x
1
x
2
)
(x
1
x
2
)
= y
1
y
2
2
x
1
x
2
2
+ 2
(
(x
1
x
2
) (y
1
y
2
)
)
(x
1
x
2
)
= y
1
y
2
2
x
1
x
2
2
+ 2(x
1
y
1
)
(x
1
x
2
) 2(x
2
y
2
)
(x
1
x
2
)
= y
1
y
2
2
x
1
x
2
2
2(x
1
y
1
)
(x
2
x
1
) 2(x
2
y
2
)
(x
1
x
2
)
so that
y
1
y
2
2
x
1
x
2
2
= (y
1
y
2
) (x
1
x
2
)
2
+ 2(x
1
y
1
)
(x
2
x
1
) + 2(x
2
y
2
)
(x
1
2
)
Using Exercise 3.72
(x
1
y
1
)
(x
2
x
1
) 0 and (x
2
y
2
)
(x
1
x
2
) 0
which implies that the left-hand side
y
1
y
2
2
x
1
x
2
2
0
or
x
1
x
2
= (y
1
) (y
2
) y
1
y
2
is Lipschitz continuous.
3.75 Let = kernel . Then is a closed subspace of . If = , then is the zero
functional and y = 0 is the required element. Otherwise chose any y / and let x
0
be the closest point in (Exercise 3.72). Dene z = x
0
y. Then z = 0 and
z
x 0 for every x
Since is subspace, this implies that
z
x = 0 for every x
that is z is orthogonal to .
Let

be the subset of dened by
= { (x)z (z)x : x }
For every x

(x) =
(
(x)z (z)x
)
= (x)(z) (z)(x) = 0
135
All rights reserved
Therefore

. For every x
(
(x)z (z)x
)
z = (x)z
z (z)x
z = 0
since z
. Therefore
(x) =
(z)
z
2
x
z = x
(
z(z)
z
2
)
= x
y
where
y =
z(z)
z
2
3.76
is always complete (Proposition 3.3). To show that it is a Hilbert space, we

have to that it has an inner product. For this purpose, it will be clearer if we use an
alternative notation < x, y > to denote the inner product of x and y. Assume is a
Hilbert space. By the Riesz representation theorem (Exercise 3.75), for every
there exists y
such that
(x) =< x, y
> for every x

Furthermore, if y
represents and y
represents
, then y
+ y
represents
+ and y
represents since
( +)(x) = (x) +(x) =< x, y
> + < x, y
>=< x, y
+y
>
()(x) = (x) = < x, y
>=< x, y
>
Dene an inner product on
by
< , >=< y
, y
>
We show that it satises the properties of an inner product, namely
symmetry < , >=< y
, y
>=< y
, y
>=< , >
additivity <
1
+
2
, >=< y
, y
1+2
>=< y
, y
1
+y
2
>=<
1
, > + <
2
, >
homogeneity < , >=< y
, y
>= < y
, y
>= < , >

positive deniteness < , >=< y
, y
> 0 and < , >=< y
, y
>= 0 if and
only if = .
Therefore,
is a complete inner product space, that is a Hilbert space.

3.77 Let be a Hilbert space. Applying the previous exercise a second time,
is also
a Hilbert space. Let be an arbitrary functional in
. By the Riesz representation

theorem, there exists
such that
() =< , > for every
Again by the Riesz representation theorem, there exists x
(representing ) and x
(representing ) in such that

() =< , >=< x
, x
>
and
(x) =< x, x
>
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In particular,
(x
) =< x
, x
>= ()
That is, for every
, there exists an element x
such that
() = (x
)
is reexive.
3.78 1. Adapt Exercise 3.64.
2. By Exercise 3.75, there exists unique x
such that
y
(x) = x
3. Substituting
(x)
y =
y
(x) = x
(y)
4. For every y
1
, y
2

x
(y
1
+y
2
)
)
= (x)
(
y
1
+y
2
)
= (x)
y
1
+(x)
y
1
= x
(y
1
) +x
(y
1
)
and for every y
x
(y) = (x)
y = (x)
y = x
(y) = x
(y)
3.79 The zero element 0
is a xed point of every linear operator (Exercise 3.13).

3.80
1
= so that
det() det(
1
) = det() = 1
3.81 Expanding along the th row using (3.8)
det() =
=1
(1)
+
(
) det(
)
=
=1
(1)
+
det(
) +
=1
(1)
+
det(
)
But the matrices dier only in the th row and therefore
, = 1, 2, . . .
so that
det() =
=1
(1)
+
det(
) +
=1
(1)
+
det(
)
= det() + det()
3.82 Suppose that x
1
and x
2
are eigenvectors corresponding to the eigenvalue . By
linearity
(x
1
+x
2
) = (x
1
) +(x
2
) = x
1
+x
2
= (x
1
+x
2
)
and
(x
1
) = (x
1
) = x
Therefore x
1
+x
2
and x
1
are also eigenvectors.
137
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3.83 Suppose is singular. Then there exists x = 0 such that (x) = 0. Therefore x
is an eigenvector with eigenvalue 0. Conversely, if 0 is an eigenvalue
(x) = 0x = 0
for any x = 0. Therefore is singular.
3.84 Since (x) = x
(x)
x = x
x = x
x
3.85 By Exercise 3.69
= x
(x
= x
(x
) = (x
and therefore
(x
) = (x
3.86 By bilinearity
x
1
(x
2
) = x
1

2
x
2
=
2
x
1
x
2
(x
1
)
x
2
=
1
x
1
x
2
=
1
x
1
x
2
Since is symmetric, this implies
(
1
2
)x
1
x
2
= 0
and
1
=
2
implies x
1
x
2
= 0.
3.87 1. Since compact and is continuous (Exercises 3.31, 3.62), the maximum is
attained at some x
0
(Theorem 2.2), that is
= (x
0
)
x
0
(x)
x for every x
Hence
(x, y) =
(
x (x)
)
y
is well-dened.
2. For any x
(x, x) =
(
x (x)
)
x
= x
x (x)
x
= x
2
(x)
x
= x
2
x
2
(
x
x
2
)
(
x
x
2
)
= x
2
(
(z)
z
)
0
since z = x/ x .
138
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3. Since is symmetric
(y, x) =
(
y (y)
)
x
= y
x (y)
x
= x
y (x)
=
(
x (x)
)
y = (x, y)
4. satises the conditions of Exercise 3.59 and therefore
((x, y))
2
(x, x)(y, y) for every x, y (3.41)
By denition (x
0
, x
0
) = 0 and (3.41) implies that
(x
0
, y) = 0 for every y
That is
(x
0
, y) =
(
x
0
(x
0
)
)
y = 0 for every
and therefore
x
0
(x
0
) = 0
or
(x
0
) = x
0
In other words, x
0
is an eigenvector. By construction, x
0
= 1.
3.88 1. Suppose x
2
, x
3
. Then
(
x
2
+x
3
)
x
1
= x
2
x
1
+x
3
x
1
= 0
so that x
2
+x
3
. is a subspace.
Let {x
1
, x
2
, . . . , x
} be a basis for (Exercise 1.142). For x , there exists

(Exercise 1.137) unique
1
,
2
, . . . ,
such that
x =
1
x
1
+
2
x
2
+ +
If x
x
x
1
=
1
x
1
x
1
= 0
which implies that
1
= 0. Therefore, x
2
, x
3
, . . . , x
span and therefore

dim = 1.
2. For every x ,
(x)
x
0
= x
(x
0
) = x
x
0
= x
x
0
= 0
since is symmetric. Therefore (x) {x
0
}
= .
3.89 Let be a symmetric operator. By the spectral theorem (Proposition 3.6), there
exists a diagonal matrix which represents . The elements of are the eigenvalues of
. By Proposition 3.5, the determinant of is the product of these diagonal elements.
139
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3.90 By linearity
(x) =
(x
)
denes a quadratic form since
(x) = x
(x) =
(
(x
(x
) =
by Exercise 3.69.
3.91 Let be the symmetric linear operator dening
(x) = x
(x)
By the spectral theorem (Proposition 3.6), there exists an orthonormal basis x
1
, x
2
, . . . , x
comprising the eigenvectors of . Let

1
,
2
, . . . ,
be the corresponding eigenvalues,

that is
(x
) =
= 1, 2 . . . ,
Then for x =
1
x
1
+
2
x
2
+ +
(x) = x
(x)
= (
1
x
1
+
2
x
2
+ +
(
1
x
1
+
2
x
2
+ +
)
= (
1
x
1
+
2
x
2
+ +
(
1
(x
1
) +
2
(x
2
) + +
(x
))
= (
1
x
1
+
2
x
2
+ +
(
1
1
x
1
+
2
2
x
2
+ +
)
=
1
1
+
2
2
+ +
=
1
2
1
+
2
2
2
+ +
3.92 1. Assuming that

11
= 0, the quadratic form can be rewritten as follows
(
1
,
2
) =
11
2
1
+ 2
12
2
+
22
2
2
=
11
2
1
+ 2
12
2
+

2
12
11
2
2

2
12
11
2
2
+
22
2
2
=
11
(
2
1
+ 2
12
11
2
+
(
12
11
2
)
2
)
+
(
22

2
12
11
)
2
2
=
11
(
1
+

12
11
2
)
2
+
(
11
22
2
12
11
)
2
2
2. We observe that must be positive for every
1
and
2
provided
11
> 0 and
11
22
2
12
> 0. Similarly must be negative for every
1
and
2
if
11
> 0 and
11
22

2
12
> 0. Otherwise, we can choose values for
1
and
2
which make
both positive and negative.
Note that the condition
11
22
>
2
12
> 0 implies that
11
and
12
must have the
same sign.
3. If
11
=
22
= 0, then is indenite. Otherwise, if
11
= 0 but
22
= 0, then the
can we can complete the square using
22
and deduce
is
{
nonnegative
nonpositive
}
denite if and only if
{
11
,
22
0
11
,
22
0
}
and
11
22

2
12
140
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3.93 Let : be a quadratic form on . Then there exists a linear operator
such that
(x) = x
(x)
and (Exercise 3.13)
(0) = 0
(0) = 0
3.94 Suppose to the contrary that the positive (negative) denite matrix is singular.
Then there exists x = 0 such that x = 0 and therefore x
x = 0 contradicting the
deniteness of .
3.95 Let e
1
, e
2
, . . . , e
be the standard basis for
(Example 1.79). Then for every

e
> 0
3.96 Let be the quadratic form dened by . By Exercise 3.91, there exists an
orthonormal basis such that
(x) =
1
x
2
1
+
2
x
2
2
+ +
x
2
where
1
,
2
, . . . ,
are the eigenvalues of . This implies
(x) > 0
(x) 0
(x) < 0
(x) 0
> 0
< 0
= 1, 2, . . . ,
3.97 Let
1
,
2
, . . . ,
be the eigenvalues of . By Exercise 3.89

det() =
1
2
. . .
By Exercise 3.96,
0 for every and therefore det() 0. We conclude that

det() > 0
> 0 for every is positive denite

by Exercise 3.96.
3.98 1. 0 = 0. Therefore, 0 is always a solution.
2. Assume x
1
and x
2
are solutions, that is
x
1
= 0 and x
2
= 0
Then
(x
1
+x
2
) = x
1
+x
2
= 0
x
1
+x
2
is also a solution.
3. Let be the linear function dened by
(x) = x
The system of equations x = 0 has a nontrivial solution if and only if
kernel = {0} nullity > 0
By the rank theorem (Exercise 3.24)
rank + nullity = dim
so that
nullity > 0 rank < dim =
141
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3.99 1. Assume x
1
and x
2
are solutions of (3.16). That is
x
1
= c and x
2
= c
Subtracting
x
1
x
2
= (x
1
x
2
) = 0
2. Assume x
solves (3.16) while x is any solution to (3.17). That is

x
= c and x = 0
Adding
x
+x = (x
+x) = c
We conclude that x
+x solves (3.16) for every x .

3. If 0 is the only solution of (3.17), = {0}. Assume x
1
and x
2
are solutions of
(3.16). Then x
1
x
2
= {0} which implies x
1
= x
2
.
3.100 Let = { x : x = }. For every x, y and
x + (1 )y = x + (1 )y = c + (1 )c =
Therefore, z = x + (1 )y . is ane.
3.101 Let = be an ane set
. Then there exists a unique subspace such that

= x
0
+
for some x
0
(Exercise 1.150). The orthogonal complement of is
= { a : ax = 0 for every x }
Let (a
1
, a
2
, . . . , a
) be a basis for
. Then
= (
= {x : a
x = 0, = 1, 2, . . . }
Let be the matrix whose rows are a
1
, a
2
, . . . , a
. Then is the set of solutions

to the homogeneous linear system x = 0, that is
= { : x = 0}
Therefore
= x
0
+
= x
0
+{ x : x = 0}
= { x : (x x
0
) = 0}
= { x : x = c }
where c = x
0
.
3.102 Consider corresponding homogeneous system
1
+ 3
2
= 0
2
= 0
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Multiplying the second equation by 3
1
+ 6
2
= 0
3
1
3
2
= 0
and adding yields
4
1
= 0
for which the only solution is
1
= 0. Substituting in the rst equation implies
2
= 0.
The kernel of = x is {0}. Therefore dim(
2
) = 2, and the system x = has a
unique solution for every
1
,
2
.
3.103 We can write the system x = c in the form
11
.
.
.
+ +
1
.
.
.
+ +
1
.
.
.
1
.
.
.
Subtracting c from the th column gives
11
.
.
.
+ +
1

1
.
.
.
+ +
1
.
.
.
= 0
so that the columns of the matrix
=
11
. . . (
1

1
) . . .
1
.
.
.
.
.
.
.
.
.
1
. . . (
) . . .
are linearly dependent (Exercise 1.133). Therefore det() = 0. Let
denote the
matrix obtained from by replacing the th column with c. Then ,
and dier
only in the th column, with the th column of being a linear combination of the
th columns of and
1
.
.
.
1
.
.
.
1
.
.
.
By Exercise 3.81
det() = x
det() det(
) = 0
and therefore
=
det(
)
det()
as required.
3.104 Let
(

)
1
=
(

)
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The inverse satises the equation
(

)(

)
=
(
1 0
0 1
)
In particular, this means that and satisfy the equation
(

)(
)
=
(
1
0
)
By Cramers rule (Exercise 3.103)
=
1
0
where = . Similarly
=
1
0
and are determined analogously.

3.105 A portfolio is duplicable if and only if there is a dierent portfolio y = x such
that
x = y
or
(x y) = 0
There exists a duplicable portfolio if and only if this homogeneous system has a non-
trivial solution, that is if rank < .
3.106 State is insurable if there is a solution to the linear system
x = e

(3.42)
where e

is the -th unit vector (the Arrow-Debreu security). (3.42) has a solution
for every state if and only if (
) =
, that is rank = .
3.107 Figure 3.1.
3.108 Let be an ane subset of
. Then there exists (Exercise 3.101) a system of

linear equations x = c such that
= { x : x = c }
Let a
denote the -th row of . Then

= { : a
x =
, = 1, 2, . . . , } =
=1
{ x : a
x =
}
where each { x : a
x =
} is a hyperplane in
(Example 3.21).
144
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Figure 3.1: The solutions of three equations in two unknowns
3.109 Let = { x : x c }. For every x, y and 0 1
x c
y c
and therefore
x + (1 )y = x + (1 )y c + (1 )c =
Therefore, z = x + (1 )y . is a convex set.
3.110 We have already seen that = { x : x 0} is convex. To show that it is a
cone, let x . Then
x 0
x 0
so that x . is a convex cone.
3.111 1. Each column
is a vector in
. If the set {
1
,
2
, . . . ,
} is linearly
independent, it has at most elements, that is and x is a basic feasible
solution.
2. (a) Assume {
1
,
2
, . . . ,
} are linearly dependent. Then (Exercise 1.133)

there exist numbers
1
,
2
, . . . ,
1
+
2
2
+ +
= 0
y = (
1
,
2
, . . . ,
) is a nontrivial solution to the homogeneous system.

(b) For every , y kernel = x and x
= x y is a solution of
the corresponding nonhomogeneous system x = c. To see this directly,
subtract
y = 0
145
All rights reserved
from
x = c
to give
x
= (x y) = c
(c) Note that x > 0 and therefore

> 0 which implies that
> 0 for every
0. For every
> 0,

, which implies that
, so that

0
Therefore, x is a feasible solution.
(d) There exists some coordinate such that

=
so that

= 0
so that
c =
=
=1

is a feasible solution with one less positive component.

3. Starting with any nonbasic feasible solution, this elimination technique can be
repeated until the remaining vectors are linearly independent and a basic feasible
solution is obtained.
3.112 1. Exercise 1.173.
2. For each , there exists
elements x
and coecients
> 0 such that

x
=1
and
=1
= 1. Hence
x =
=1
x
=1
=1
3. Direct computation.
4. Regarding the
as variables and the points
as coecents,
z =
=1
=1
is a linear equation system in which variables are restricted to be nonnegative.

By the fundamental theorem of linear programming (Exercise 3.111), there exists
146
All rights reserved
a basic feasible solution. That is, there exists coecients
0 and
> 0 for
at most ( +) components such that
z =
=1
=1
(3.43)
Decomposing, (3.43) implies
x =
=1
=1
and
=1
= 1 for every
5. (3.43) implies that at least one
> 0 for every . This accounts for at least

of the positive
. Since there are at most ( +) coecients
which are
strictly positive, there are at most indices which have more than one positive
coecient
. For the remaining indices, x
= x
for some ; that is

x
.
3.113 1. Since is productive, there exists x 0 such that x > 0. Consider any
z for which z 0. For every > 0
(x +z) = x +z > 0 (3.44)
Suppose to the contrary that z 0. That is, there exists some component
< 0.
Let
= max{
}
Without loss of generality,
1
attains this maximum, that is assume =
1
/
1
.
Then
1
+
1
= 0
and
0
for every .
Now consider the matrix = . By the assumptions of the Leontief model
(Example 3.35), the matrix has 1 along the diagonal and negative o-diagonal
elements. That is
= 1 = 1, 2, . . . ,
0 , = 1, 2, . . . , , =
Therefore
= 0
147
All rights reserved
That is, every element of is nonnegative. Consequently since x + z 0
(x +z) 0 (3.45)
On the other hand, substituting = in (3.45)
( )(x +z) > 0
x +z > (x +z)
which implies that the rst component of (x + z) is negative, contradicting (3.45).
This contradiction establishes that z 0.
Suppose x = 0. A fortiori x 0. By the previous part this implies x 0. On the
other hand, it also implies that x = (x) = 0 so that x 0. We conclude that
x = 0 is the only solution to x = 0. is nonsingular.
Since is nonsingular, the system x = y has a unique solution x for any y 0. By
the rst part, x 0.
3.114 Suppose is productive. By the previous exercise, is nonsingular with inverse
1
. Let e
be the th unit vector. Since e
0, there exists x
0 such that
x
= e
Multiplying by
1
x
=
1
x
=
1
e
=
1
where
1
is the column of
1
. Since x
0 for every , we conclude that

1
0.
1
0. Let 1 = (1, 1, . . . , 1) denote a net output of 1 for
each commodity. Then
x =
1
1 0
and
x = 1 > 0
is productive.
3.115 Takayama 1985, p.383, Theorem 4.C.4.
3.116 Let a
0
= (
01
,
02
, . . . ,
0
) be the vector of labour requirements and the wage
rate. The unit prot of industry is

0
Recall that
0 for = . The vector of unit prots for all industries is

= p
0
Prots will be zero in all industries if there exists a price system p such that
= p
0
= 0
or
p =
0
(3.46)
By the previous results, (3.46) has a unique nonnegative solution p =
1
0
if the
technology is productive. Furthermore,
1
is nonnegative. Since
0
> 0, so is
p > 0.
148
All rights reserved
3.117 Let
denote the steady state unemployment rate for blacks. Then
satises
the equation
= 0.0038(1
) + 0.8975
which implies that
= 0.036. That is, the data implies an unemployment rate of 3.6

percent for blacks. Similarly, the unemployment rate for white males
satises the
equation
= 0.0022(1
) + 0.8614
which implies that
= 0.016 or 1.6 percent.

3.118 The transition matrix is
=
(
.6 .25
.4 .75
)
If the current state vector is x
0
= (.4, .6), the state vector after a single mailing will be
x
1
= x
0
=
(
.6 .25
.4 .75
)(
.4
.6
)
=
(
0.39
.61
)
Following a single mailing, the number of subscribers will drop to 30 percent of the
mailing list, comprising 24 percent from renewals and 15 percent new subscriptions.
3.119 Let () =
2
. For every
1
,
2
and 0 1
(
1
+ (1 )
2
) = (
1
+ (1 )
2
)
2
= (
1
+ (1 )
2
)(
1
+ (1 )
2
)
=
2
2
1
+ 2(1 )
1
2
+ (1 )
2
2
2
=
2
1
+ (1 )
2
2

2
1
(1 )
2
2
+
2
2
1
+ 2(1 )
1
2
+ (1 )
2
2
2
=
2
1
+ (1 )
2
2

(
(1 )
2
1
2(1 )
1
2
+(1 )
2
2
)
=
2
1
+ (1 )
2
2
(1 )(
1

2
)
2

2
1
+ (1 )
2
2
= (
1
) + (1 )(
2
)
3.120 () = is linear and therefore convex. In the previous exercise we showed that
2
is convex. Therefore () =
is convex for = 1, 2. Assume that is convex for

149
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1. Then
(
1
+ (1 )
2
) = (
1
+ (1 )
2
)
= (
1
+ (1 )
2
)(
1
+ (1 )
2
)
1
(
1
+ (1 )
2
)(
1
1
+ (1 )
1
2
) (since
1
is convex)
=
2
1
+(1 )
1
1

2
+(1 )
1
1
2
+ (1 )
2
2
=
1
+ (1 )
1
(1 )
2
+
2
1
+(1 )
1
1

2
+(1 )
1
1
2
+ (1 )
2
2
=
1
+ (1 )
2
(1 )
(
1

1
1
2

1
1

2
+
2
)
=
1
+ (1 )
2
(1 )
(
1
1
(
1

2
)
1
2
(
1
2
)
)
=
1
+ (1 )
2
(1 )
(
(
1
2
)(
1
1

1
2
)
)
Since
is monotonic (Example 2.53)
1
1

1
2
0
1
2
0
and therefore
(
1
2
)(
1
1

1
2
) 0
We conclude that
(
1
+ (1 )
2
)
1
+ (1 )
2
= (
1
) + (1 )(
2
)
is convex for all = 1, 2, . . . .
3.121 For given x
1
, x
2
, dene : [0, 1] by
() = (1 )x
1
+x
2
Then (0) = x
1
, (1) = x
2
and = .
Assume is convex. For any
1
,
2
[0, 1], let
(
1
) = x
1
and (
2
) = x
2
For any [0, 1]
1
+ (1 )
2
)
= x
1
+ (1 ) x
2
1
+ (1 )
2
)
=
(
x
1
+ (1 ) x
2
)
( x
1
) + (1 )( x
2
)
(
1
) + (1 )
2
)
is convex.
Conversely, assume is convex for any x
1
, x
2
. For any [0, 1]
() = x
1
+ (1 )x
2
and
(
x
1
+ (1 )x
2
)
= ()
(0) + (1 )(1)
= (x
1
) + (1 )(x
2
)
Since this is true for any x
1
, x
2
, we conclude that is convex.
150
All rights reserved
3.122 Assume is convex which implies epi is convex. The points (x
, (x
)) epi .
Since epi is convex
1
(x
1
, (x
1
)) +
2
(x
1
, (x
1
)) + + (x
, (x
)) epi
that is
(
1
x
1
+
2
x
2
+ +
)
1
(x
1
) +
2
(x
1
) + +
(x
))
Conversely, letting = 2 and =
1
, (3.25) implies that
(x
1
+ (1 )x
2
) (x
1
) + (1 )(x
2
)
Jensens inequality can also be proved by induction from the denition of a convex
function (see for example Sydsaeter + Hammond 1995; p.624).
3.123 For each , let
= log
so that
Since
is convex (Example 3.41)
1
1

2
2
. . .
> 0 =
exp(
) = exp
(
by Jensens inequality. Setting
= 1/, we have
(
1
2
. . .
)
1/
=1
as required.
3.124 Assume is concave. That is for every x
1
, x
2
and 0 1
(x
1
+ (1 )x
2
) (x
1
) + (1 )(x
2
)
Multiplying through by 1 reverses the inequality so that
(x
1
+ (1 )x
2
) (x
1
) + (1 )(x
2
) = (x
1
) + (1 ) (x
2
)
which shows that is concave. The converse follows analogously.
3.125 Assume that is concave. Then is convex and by Theorem 3.7
epi = { (, ) : (), }
is convex. But
epi = { (, ) : (), } = { (, ) : (), } = hypo
Therefore hypo is convex.
Conversely, if hypo is convex, epi is convex which implies that is convex and
hence is concave.
151
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3.126 Suppose that x
1
minimizes the cost of producing at input prices w
1
while x
2
minimizes cost at w
2
. For some [0, 1], let w be the weighted average price, that is
w = w
1
+ (1 )w
2
and suppose that x minimizes cost at w. Then
( w, ) = w x
= (w
1
+ (1 )w
2
) x
= w
1
x + (1 )w
2
x
But since x
1
and x
2
minimize cost at w
1
and w
2
respectively
w
1
x w
1
x
1
= (w
1
, )
(1 )w
2
x (1 )w
2
x
2
= (1 )(w
2
, )
so that
( w, ) = (w
1
+ (1 )w
2
, ) = w
1
x + (1 )w
2
x (w
1
, ) + (1 )w
2
, )
This establishes that the cost function is concave in w.
3.127 Since is concave, Jensens inequality implies
=1
1
=1
1
) =
1
=1
(
)
for any consumption stream
1
,
2
, . . . ,
so that
=
=1
(
)
(

=1
1
)
= ( )
It is impossible to do better than consume a constant fraction = / of wealth in
each period.
3.128 If
1
=
3
, the inequality is trivially satised. Now assume
1
=
3
. Since
2
[
1
,
3
], there exists [0, 1] such that
2
=
1
+ (1 )
2
Let =
1
2
+
3
. Then [
1
,
3
] and there exists [0, 1] such that
=
1
+ (1 )
2
Adding
+
2
= ( +)
1
+
(
(1 ) + (1 )
)
3
or
3
= ( +)(
3

1
)
which implies that + = 1 and therefore = 1 . Since is convex
(
2
) (
1
) + (1 )(
2
( ) (
1
) + (1 )(
2
)
= (1 )(
1
) +(
3
)
Adding
( ) +(
2
) (
1
) +(
3
)
152
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3.129 Let
1
,
2
,
1
,
2
with
1
<
2
and
1
<
2
. Note that
1

2

2

2

1
and therefore (Exercise 3.128)
2
) (
2

2
) + (
2

1
)
)
> (
1
2
) (
2
2
) +(
2
1
)
That is
(
1
1
) > (
1
2
) (
2
2
) +(
2
1
)
Rearranging
(
2
2
) (
1
2
) > (
2
1
) (
1
1
)
as required.
3.130 A functional is ane if and only if inequalities (3.24) and (3.26) are satised as
equalities.
3.131 Since and are convex on
(x
1
+ (1 )x
2
) (x
1
) + (1 )(x
2
) (3.47)
(x
1
+ (1 )x
2
) (x
1
) + (1 )(x
2
) (3.48)
for every x
1
, x
2
and [0, 1]. Adding
( +)(x
1
+ (1 )x
2
) ( +)(x
1
) + (1 )(x
2
)
+ is convex. Multiplying (3.47) by 0
(x
1
+ (1 )x
2
) ((x
1
) + (1 )(x
2
))
= ((x
1
) + (1 )(x
2
))
is convex.
Moreover, if is strictly convex,
(x
1
+ (1 )x
2
) < (x
1
) + (1 )(x
2
) (3.49)
for every x
1
, x
2
, x
1
= x
2
and (0, 1). Adding this to (3.48)
( +)(x
1
+ (1 )x
2
) < ( +)(x
1
) + (1 )(x
2
)
so that + is strictly convex. Multiplying (3.49) by > 0
(x
1
+ (1 )x
2
) < ((x
1
) + (1 )(x
2
))
= ((x
1
) + (1 )(x
2
))
is strictly convex.
3.132
x epi ( ) x epi and x epi
That is
epi ( ) = epi epi
Therefore epi is convex (Exercise 1.162) and therefore is convex (Proposition
3.7).
153
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3.133 If is convex
(x
1
+ (1 )x
2
) (x
1
) + (1 )(x
2
)
Since is increasing
(
(x
1
+ (1 )x
2
)
)

(
(x
1
) + (1 )(x
2
)
)

(
(x
1
)
)
+ (1 )
(
(x
2
)
)
since is also convex. The concave case is proved similarly.
3.134 Let = log . If is convex, (x) =
(x)
is an increasing convex function of a
convex function and is therefore convex (Exercise 3.133).
3.135 If is positive and concave, then log is concave (Exercise 3.51). Therefore
log
1
= log 1 log = log

is convex. By the previous exercise (Exercise 3.134), this implies that 1/ is convex.
If is negative and convex, then is positive and concave, 1/ is convex, and
therefore 1/ is concave.
3.136 Consider the identity
(
(
1

2
)
)
+
(
(
1

2
)
)
(
(
1
)
)
(
(
2
)
)
=
(
(
1

2
)
)
+
(
(
1

2
)
)
(
(
1
)
)
(
(
1

2
)
)
+(
1

2
)
)
(
1
)
)
+
(
(
1

2
) +(
1

2
) (
1
)
)
(
(
2
)
)
(3.50)
Dene
(
1
,
2
) =
(
(
1

2
)
)
+
(
(
1

2
)
)
(
(
1
)
)
(
(
2
)
)
Then is supermodular if is nonnegative denite and submodular if is nonpos-
itive denite. Using the identity (3.50), can be decomposed into two components
(
1
,
2
) =
1
(
1
,
2
) +
2
(
1
,
2
)
1
(
1
,
2
) =
(
(
1

2
)
)
+
(
(
1

2
)
)
(
(
1
)
)
(
(
1

2
) +(
1

2
) (
1
)
)
(3.51)
2
(
1
,
2
) =
(
(
1

2
) +(
1

2
) (
1
)
)
(
(
2
)
)
will denite if both components are denite.
For any
1
,
2

1
, let = (
1

2
), = (
1
) and = (
1

2
). Provided is
monotone, lies between and . Substituting in (3.51)
1
(
1
,
2
) = () +() () ( + )
and Exercise 3.128 implies
1
(
1
,
2
) = () +() () ( + )
{

0
}
if is
{
convex
concave
}
(3.52)
Now consider
2
.
(
1

2
) + (
1

2
) (
1
) is
{
}
(
2
) if is
{
supermodular
submodular
}
154
All rights reserved
and therefore since is increasing
2
(
1
,
2
) =
{
0 if is supermodular
0 if is submodular
(3.53)
Together (3.52) and (3.53) gives the desired result.
3.137 1. Assume that is bounded above in a neighborhood of x
0
. Then there
exists a ball (
0
) and constant such that
(x) for every x (
0
)
Since is convex
(x + (1 )x
0
) (x) + (1 )(x
0
) + (1 )(x
0
) (3.54)
2. Given x (
0
) and [0, 1] let
z = x + (1 )x
0
(3.55)
Subtracting (x
0
) from (3.54) gives
(z) (x
0
) ( (x
0
)) (3.56)
Rewriting (3.55)
(1 )x
0
= z x
(1 +)x
0
= z +(2x
0
x)
x
0
=
1
1 +
z +

1 +
(2x
0
x)
3. Note that
(2x
0
x) = x
0
(x x
0
) (x
0
)
so that
(2x
0
x)
and therefore
(x
0
)
1
1 +
(z) +

1 +
(2x
0
x)
1
1 +
(z) +

1 +
which implies
(1 +)(x
0
) (z) +
((x
0
) ) (z) (x
0
)
4. Combined with (3.56) we have
((x
0
) ) (z) (x
0
) ( (x
0
))
or
(z) (x
0
) ( (x
0
))
and therefore (z) (x
0
) as z x
0
. is continuous.
155
All rights reserved
3.138 1. Since is open, there exists a ball
(x
1
) . Let = 1 +

2
. Then
x
0
+(x
1
x
0
)
(
1
) .
2. Let =
1
. The open ball
(x
1
) of radius centered on x
1
is contained in .
Therefore is a neighborhood of x
1
.
3. Since is convex, for every y
(y) (1 )(x) +(z) (1 ) +(z) + (z)
Therefore is bounded on .
3.139 The previous exercise showed that is locally bounded from above for every
x . To show that it is also locally bounded from below, choose some x
0
. There
exists some (x
0
and such that
(x) for every x (x
0
)
Choose some
1
(x
0
) and let x
2
= 2x
0
x
1
. Then
x
2
= 2x
0
x
1
= x
0
(x
1
x
0
) (x
0
)
and (x
2
) . Since is convex
(x)
1
2
(x
1
) +
1
2
(x
2
)
and therefore
(x
1
) 2(x) (x
2
)
Since (x
2
) , (x
2
) and therefore
(x
1
) 2(x)
so that is bounded from below.
3.140 Let be a convex function dened on an open convex set in a normed linear
space, which is bounded from above in a neighborhood of a single point x
0
. By
Exercise 3.138, is bounded above at every x . This implies (Exercise 3.137) that
is continuous at every x .
3.141 Without loss of generality, assume 0 . Assume has dimension and let
x
1
, x
2
, . . . , x
be a basis for the subspace containing . Choose some > 0 small

enough so that
= conv {0, x
1
, x
2
, . . . ,
}
Any x is a convex combination of the points 0, x
1
, x
2
, . . . , x
and so there exists
0
,
1
,
2
, . . . ,
0,
= 1 such that x =
0
0 +
1
x
1
+ +
. By Jensens
inequality
(x) = (
0
0 +
1
x
1
+ +
)
0
(0) +
1
(x
1
) + +
(x
)
max{ (0), (x
1
), . . . , (x
) }
Therefore, is bounded above on a neighbourhood of some x
0
int (which is
nonempty by Exercise 1.229). By Proposition 3.8, is continuous on .
156
All rights reserved
3.142 Clearly, if is convex, it is locally convex at every x , where is the required
neighborhood. To prove the converse, assume to the contrary that is locally convex
at every x but it is not globally convex. That is, there exists x
1
, x
2
such that
(x
1
+ (1 )x
2
) > (x
1
) + (1 )(x
2
)
Let
() =
(
x
1
+ (1 )x
2
)
Local convexity implies that is continuous at every x (Corollary 3.8.1), and
therefore continuous on . Therefore, is continuous on [0, 1]. By the continuous
maximum theorem (Theorem 2.3),
= arg max
x[x1,x2]
()
is nonempty and compact. Let
0
= max . For every > 0,
(
0
) (
0
) and (
0
+) < (
0
)
Let
x
0
=
0
x
1
+ (1
0
)x
2
and x
= (
0
+)x
1
+ (1
0
)x
2
Every neighborhood of x
0
contains x
, x
[x
1
, x
2
] with
1
2
(x
) +
1
2
(x
) =
1
2
(
0
) +
1
2
(
0
+) < (
0
) = (x
0
) =
(
1
2
x
+
1
2
x
)
contradicting the local convexity of at x
0
.
3.143 Assume is quasiconcave. That is for every x
1
, x
2
and 0 1
(x
1
+ (1 )x
2
) min{(x
1
), (x
2
)}
Multiplying through by 1 reverses the inequality so that
(x
1
+ (1 )x
2
) min{(x
1
), (x
2
)} = max{(x
1
), (x
2
)}
which shows that is quasiconvex. The converse follows analogously.
3.144 Assume is concave, that is
(x
1
+ (1 )x
2
) (x
1
) + (1 )(x
2
) for every x
1
, x
2
and 0 1
Without loss of generality assume that (x
1
) (x
2
). Then
(x
1
+ (1 )x
2
) (x
1
) + (1 )(x
2
) (x
1
) + (1 )(x
1
) = (x
1
) = min{(x
1
), (x
2
)}
is quasiconcave.
3.145 Let : . Choose any
1
,
2
in with
1
<
2
. If is increasing, then
(
1
) (
1
+ (1 )
2
) (
2
)
for every 0 1. The rst inequality implies that
(
1
) = min{(
1
), (
2
)} (
1
+ (1 )
2
)
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so that is quasiconcave. The second inequality implies that
(
1
+ (1 )
2
) max{(
1
), (
2
)} = (
2
)
so that is also quasiconvex.
Conversely, if is decreasing
(
1
) (
1
+ (1 )
2
) (
2
)
for every 0 1. The rst inequality implies that
(
1
) = max{(
1
), (
2
)} (
1
+ (1 )
2
)
so that is quasiconvex. The second inequality implies that
(
1
+ (1 )
2
) max{(
1
), (
2
)} = (
2
)
so that is also quasiconcave.
3.146
() = { x : (x) } = {x : (x) } =
()
3.147 For given and , choose any p
1
and p
2
in
(). For any 0 1, let

p = p
1
+ (1 )p
2
. The key step is to show that any commodity bundle x which is
aordable at p is also aordable at either p
1
or p
2
. Assume that x is aordable at p,
that is x is in the budget set
x ( p, ) = { x : px }
To show that x is aordable at either p
1
or p
2
, that is
x (p
1
, ) or x (p
2
, )
assume to the contrary that
x / (p
1
, ) and x / (p
2
, )
This implies that
p
1
x > and p
2
x >
so that
p
1
x > and (1 )p
2
> (1 )
Summing these two inequalities
px = (p
1
+ (1 )p
2
)x >
contradicting the assumption that x ( p, ). We conclude that
( p, ) (p
1
, ) (p
2
, )
Now
( , ) = sup{ (x) : x ( p, ) }
sup{ (x) : x (p
1
, ) (p
2
, ) }

Therefore p
() for every 0 1. Thus,
() is convex and so is quasiconvex

(Exercise 3.146).
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All rights reserved
3.148 Since is quasiconcave
(x
1
+ (1 )x
2
) min{(x
1
), (x
2
)} for every x
1
, x
2
and 0 1
Since is increasing
(
(x
1
+ (1 )x
2
)
)
(
(
min{(x
1
), (x
2
)})
)
min{
(
(x
1
)
)
,
(
(x
2
)
)
}
is quasiconcave.
3.149 When 1, the function
(x) =
1
1
+
2
2
+. . .
is convex (Example 3.58) as is

1/
. Therefore
(x) = ((x))
1/
is an increasing convex function of a convex function and is therefore convex (Exercise
3.133).
3.150 is a monotonic transformation of the concave function (x) = x.
3.151 By Exercise 3.39, there exist linear functionals

and and scalars and such
that
(x) =

(x) + and (x) = (x) +
The upper contour set
() = { : (x) }
= { :
() +
() +
}
= {
+
:

(x) + (x) + }
= {
+
:

(x) (x) }
which is a halfspace in and therefore convex. Similarly, the lower contour set
() = { : (x) }
is also a halfspace and hence convex. Therefore is both quasiconcave and quasiconvex.
3.152 For 0
() = { : (x) 0 } =
which is convex. For > 0
() = { : (x) }
= { :
(x)
(x)
}
= { : (x) (x) }
= { : (x) (x) 0 }
is convex since = +() is concave (Exercises 3.124 and 3.131). Since
()
is convex for every , is quasiconcave.
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All rights reserved
3.153
(x) =
(x)
(x)
where = 1/ is positive and convex by Exercise 3.135. By the previous exercise, is
quasiconcave.
3.154 Let = log . If is concave, (x) =
(x)
is an increasing function of
(quasi)concave function, and hence is quasiconcave (Exercise 3.148).
3.155 Let
(x) = log (x) =
=1
log
(x)
As the sum of concave functions, is concave (Exercise 3.131). By the previous
exercise, is quasiconcave.
3.156 Assume x
1
, x
2
and x are optimal solutions for
1
,
2
and

=
1
+ (1 )
2
respectively. That is
(x
1
,
1
) = (
1
)
(x
2
,
2
) = (
2
)
( x,
) = (
)
Since is convex in
(
) = ( x,
)
= ( x,
1
+ (1 )
2
)
( x,
1
) + (1 )(x
,
2
)
(x
1
,
1
) + (1 )(x
2
,
2
)
= (
1
) + (1 )(
2
)
is convex.
3.157 Assume to the contrary that x
1
and x
2
are distinct optimal solutions, that is
x
1
, x
2
(), x
1
= x
2
, for some
, so that
(x
1
, ) = (x
2
, ) = () (x, ) for every x ()
Let x = x
1
+ (1 )x
2
for (0, 1). Since () is convex, x is feasible. Since is
strictly quasiconcave
( x, ) > min{ (x
1
, ), (x
2
, ) } = ()
contradicting the optimality of x
1
and x
2
. We conclude that () is single-valued for
every
. In other words, is a function.

3.158 1. The value function is
(
0
) = sup
x(0)
(x)
where
(x) =
=0
,
+1
)
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All rights reserved
and
(
0
) = {x
:
+1
(
), = 0, 1, 2, . . . }
Since an optimal policy exists (Exercise 2.125), the maximum is attained and
(
0
) = max
x(0)
(x) (3.57)
It is straightforward to show that
(x) is strictly concave and
(
0
) is convex
Applying the Concave Maximum Theorem (Theorem 3.1) to (3.57), we conclude
that the value function is strictly concave.
2. Assume to the contrary that x
and x
are distinct optimal plans, so that

(
0
) = (x
) = (x
)
Let x = x
+ (1 )x
. Since (
0
) is convex, x is feasible and
( x) > (x
) + (1 )(x
) = (x
)
which contradicts the optimality of x
. We conclude that the optimal plan is

unique.
3.159 We observe that
(() ) is supermodular in (Exercise 2.51)
(() ) displays strictly increasing dierences in (, ) (Exercise 3.129)
() = [0, ()] is increasing.
Applying Exercise 2.126, we can conclude that the optimal policy (
0
,
1
,
2
, . . . ) is a
monotone sequence. Since is compact, k
is a bounded monotone sequence, which

converges monotonically to some steady state
(Exercise 1.101).
3.160 Suppose there exists (x
, y
) such that
(x, y
) (x
, y
) (x
, y) for every x and y

Let = (x
, y
). Since
(x, y
) for every x
max
x
(, y
)
and therefore
min
y
max
x
(x, y) max
x
(x, y
)
Similarly
max
x
min
y
(x, y)
Combining the last two inequalities, we have
max
x
min
y
(x, y) min
y
max
x
(, y)
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Together with (3.28), this implies equality
max
x
min
y
(x, y) = min
y
max
x
(x, y)
Conversely, suppose that
max
x
min
y
(x, y) = = min
y
max
x
(x, y)
The function
(x) = min
y
(x, y)
is a continuous function (Theorem 2.3) on a compact set . By the Weierstrass theorem
(Theorem 2.2), there exists x
which maximizes on , that is

(x
) = min
y
(x
, y) = max
x
(x) = max
x
min
y
(x, y) =
which implies that
(x
, y) for every y
Similarly, there exists y such that
(x, y
) for every x
Combining these inequalities, we have
(x, y
) (x
, y) for every x and y

In particular, we have
(x
, y
) (x
, y
)
so that = (x
, y
) as required.
3.161 For any and , let
() = min
(, ) and () = max
(, )
Then
() = min
(, ) max
(, ) = ()
and therefore
max
() max
()
That is
max
min
(, )
max
(, )
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3.162 Clearly () =
his homogeneous of degree . Conversely assume is homo-

geneous of degree , that is
() =
()
Letting = 1
() =
(1)
Setting (1) = and interchanging and yields the result.
3.163
(x) = (
1
(
1
)
+
2
(
2
)
+ . . .
)
1/
= (
1
1
+
2
2
+. . .
)
1/
= (x)
3.164 For
++
() = (x
0
) =
(x
0
) =
()
3.165 Suppose that x
minimizes the cost of producing output at prices w. That is

w
x for every x ()
It follows that
w
x for every x ()
for every > 0, verifying that x
minimizes the cost of producing at prices w.

Therefore
(w, ) = (w)x
= (w
) = (w, )
(w, ) homogeneous of degree one in input prices w.
3.166 For given prices w, let x
minimize the cost of producing one unit of output, so

that (w, 1) = w
. Clearly (x
) = 1 where is the production function.

Now consider any output . Since is homogeneous
(x
) = (x
) =
Therefore x
is sucient to produce , so that

(w, ) w
(x
) = w
= (w, 1)
Suppose that
(w, ) < w
(x
) = (w, 1)
Then there exists x
such that (x
) = and
w
< w
(x
)
which implies that
w
(
x
)
< w
= (w, 1)
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(
x
)
=
1
(x
) = 1
Therefore, x
is a lower cost method of producing one unit of output, contradicting the

denition of x
. We conclude that
(w, ) = (w, 1)
(w, ) is homogeneous of degree one in .
3.167 If the consumers demand is invariant to proportionate changes in all prices and
income, so also will the derived utility. More formally, suppose that x
maximizes
utility at prices p and income , that is
x
x for every x (p, )

Then
(p, ) = (x
)
Since (p, ) = (p, )
x
x for every x (p, )

and
(p, ) = (x
) = (p, )
3.168 Assume is homogeneous of degree one, so that
(x) = (x) for every > 0
Let (x, ) epi , so that
(x)
For any > 0
(x) = (x)
which implies that (x, ) epi . Therefore epi is a cone.
Conversely assume epi is a cone. Let x and dene = (x). Then (x, ) epi
and therefore (x, ) epi so
(x)
Now suppose to the contrary that
(x) = < = (x) (3.58)
Then (x, ) epi . Since epi is a cone, we must have (x, /) epi so that
(x)

and
(x) = (x)
contradicting (3.58). We conclude that
(x) = (x) for every > 0
164
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3.169 Take any x
1
and x
2
in and let
1
= (x
1
) > 0 and
2
= (x
2
) > 0
Since is homogeneous of degree one,
(
x
1
1
)
=
(
x
2
2
)
= 1
Since is quasiconcave
x
1
1
+ (1 )
x
2
2
)
1
for every 0 1. Choose =
1
/(
1
+
2
) so that (1 ) =
2
/(
1
+
2
). Then
(
x
1
1
+
2
+
x
2
1
+
2
)
1
Again using the homogeneity of , this implies
(x
1
+x
2
)
1
+
2
= (x
1
) +(x
2
)
3.170 Let () be a strictly positive denite, quasiconcave functional which is
homogeneous of degree one. For any x
1
, x
2
in and 0 1 x
1
, (1 )x
2
in
and therefore
(x
1
+ (1 )x
2
) (x
1
) +((1 )x
2
)
since is superadditive (Exercise 3.169). But
(x
1
) = (x
1
)
((1 )x
2
) = (1 )(x
2
)
by homogeneity. Substituting in (3.58), we conclude that
(x
1
+ (1 )x
2
) (x
1
) + (1 )((1 )x
2
)
is concave.
3.171 Assume that is strictly positive denite, quasiconcave and homogeneous of
degree , 0 < < 1. Dene
(x) = ((x))
1/
Then is quasiconcave (Exercise 3.148. Further, for every > 0
(x) = ((x))
1/
=
(
(x)
)
1/
= ((x))
1/
= (x)
so that is homogeneous of degree 1. By Exercise 3.170, is concave.
(x) = ((x))
That is = where
() =
is monotone and concave provided 1. By Exercise 3.133, = is concave.

165
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3.172 Continuity is a necessary and sucient condition for the existence of a utility
function representing (Remark 2.9).
Suppose represents the homothetic preference relation . For any x
1
, x
2

(x
1
) = (x
2
) = x
1
x
2
= x
1
x
2
= (x
1
) = (x
2
) for every > 0
Conversely, if is a homothetic functional,
x
1
x
2
= (x
1
) = (x
2
) = (x
1
) = (x
2
) = x
1
x
2
for every > 0
3.173 Suppose that = where is strictly increasing and is homogeneous of
degree . Then
(x) =
(
(x)
)
1/
is homogeneous of degree one and =
where
() =
(
)
)
is increasing.
3.174 Assume x
1
, x
2
with
(x
1
) = ((x
1
)) = (x
2
)) = (x
2
)
Since is strictly increasing, this implies that
(x
1
) = (x
2
)
(x
1
) =
(x
1
) =
(x
2
) = (x
2
)
for some . Therefore
(x
1
) = ((x
1
)) = ((x
2
)) = (x
2
)
3.175 Let x
0
= 0 be any point in , and dene : by
() = (x
0
)
Since is strictly increasing, so is and therefore has a strictly increasing inverse
1
. Let =
1
so that = .
We need to show that is homogeneous. For any x , there exists such that
() = (x
0
) = (x)
that is = (x) =
1
((x)). Since is homothetic
() = (x
0
)(x) for every > 0
and therefore
(x) =
1
((x)) =
1
((x
0
)) =
1
() = = (x)
is homogeneous of degree one.
166
All rights reserved
3.176 Let be the production function. If is homothetic, there exists (Exercise 3.175)
a linearly homogeneous function and strictly increasing function such that = .
(w, ) = min
x
{ w
x : (x) }
= min
x
{ w
x : ((x)) }
= min
x
{ w
x : (x)
1
() }
=
1
()(w, 1)
by Exercise 3.166.
3.177 Let : be positive, strictly increasing, homothetic and quasiconcave. By
Exercise 3.175, there exists a linearly homogeneous function : and strictly
increasing function () such that = . =
1
is positive, quasiconcave
(Exercise 3.148) and homogeneous of degree one. By Proposition 3.12, is concave
and therefore = is concaviable.
3.178 Since
() is a supporting hyperplane to at x
0
, then
(x
0
) =
and either
(x) = (x
0
) for every x
or
(x) = (x
0
) for every x
3.179 Suppose to the contrary that y = (, ) int . Then y y
. By strict
convexity
y
= y + (1 )y
for every (0, 1)

Since y int , y
for suciently small. That is, there exists some such that
y
is feasible and y
, contradicting the optimality of y
.
3.180 For notational simplicity, let be the linear functional which separates and
in Example 3.77. (y) measure the cost of the plan y = (, ), that is (y) = +.
Assume to the contrary there exists a preferred lifestyle in , that is there exists some
y = (, ) such that y y
= (
). Since y , (y) (y
) by (3.29). On
the other hand, y which implies that (y) (y
). Consequently, (y) = (y
).
By continuity, there exists some < 1 such that y y
which implies that y .

By linearity
(y) = (y) < (y) = (y
) =
contrary to (3.29). This contradiction establishes that y
is the best choice in budget

set .
3.181 By Proposition 3.7, epi is a convex set in with (x
0
, (x
0
)) a point on
its boundary. By Corollary 3.2.2 of the Separating Hyperplane Theorem, there exists
linear a functional ( )
such that
(x, ) (x
0
, (x
0
)) for every (x, ) epi (3.59)
167
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can be decomposed into two components (Exercise 3.47)
(x, ) = (x) +
The assumption that x
0
int ensures that > 0 and we can normalize so that
= 1. Substituting in (3.59)
(x) +(x) (x
0
) +(x
0
)
(x) (x
0
) +(x x
0
)
for every x .
3.182 By Exercise 3.72, there exists a unique point x
0
such that
(x
0
y)
(x x
0
) 0 for every x
Dene the linear functional (Exercise 3.64)
(x) = (x
0
y)
x
and let = (x
0
). For all x
(x) (x
0
) = (x x
0
) = (x
0
y)
(x x
0
) 0
and therefore
(x) (x
0
) = for every x
Furthermore
(x
0
) (y) = (x
0
y) = (x
0
y)
(x
0
y) = x
0
y
2
> 0
since y = x
0
. Therefore (x
0
) > (y) and
(y) < (x) for every x
3.183 If y b(), y
and there exists a sequence of points {y
converging
to y (Exercise 1.105). That is, there exists a sequence of nonboundary points {y
} /
converging to y. For every point y
, there is a linear functional
and
such
that
(y
) <
(x) for every x

Dene
. By construction, the sequence of linear functionals
belong
to the unit ball in
(since = 1). Since
is nite dimensional, the unit ball is

compact as so
has a convergent subsequence with limit such that

(y) (x) for every
A fortiori
(y) (x) for every
3.184 There are two possible cases.
y / By Exercise 3.182, there exists a hyperplane which separates y and which a
fortiori separates y and , that is
(y) (x) for every x
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y Since y / , y must be a boundary point of . By the previous exercise,
there exists a supporting hyperplane at y, that is there exists a continuous linear
functional
such that
(y) (x) for every x
3.185 1. () .
2. () is convex and hence an interval (Exercise 1.160.
3. () is open in (Proposition 3.2).
3.186 is nonempty and convex and 0 / . (Otherwise, there exists x and y
such that 0 = y + (x) which implies that x = y contradicting the assumption that
= .) Thus there exists a continuous linear functional
such that
(y x) (0) = 0 for every x , y
so that
(x) (y) for every x , y
Let = sup
x
(x). Then
By Exercise 3.185, (int ) is an open interval in (, ], hence (int ) (, ),
so that (x) < for every x int . Similarly, (int ) > and
(x) < < (y) for every x int , y int
3.187 Since int = , int and can be separated. That is, there exists a
continuous linear functional
and a number such that

(x) (y) for every x , y int
which implies that
since
inf
yint
(y) = inf
y
(y)
Conversely, suppose that and can be separated. That is, there exists
such
that
Then (int ) is an open interval in [, ), which is disjoint from the interval ()
(, ]. This implies that int = .
3.188 Since x
0
b(), {x
0
} int = and int = . By Corollary 3.2.1, {x
0
} and
can be separated, that is there exist
such that
(x
0
) (x) for every x
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3.189 Let x . Since is a cone, x for every 0 and therefore
(x)
or
(x) / for every 0
Taking the limit as implies that
(x) 0 for every x
3.190 First note that 0 and therefore (0) = 0 so that 0. Suppose that
there exists some z for which (z) = = 0. By linearity, this implies
(
2
z) =
2
(z) = 2 >
which contradicts the requirement
(z) for every z
3.191 By Corollary 3.2.1, there exists
such that
(z) (x) for every x , z
By Exercise 3.190
(z) = 0 for every z
and therefore
(x) 0 for every x
Therefore is contained in the hyperplane
(0) which separates from .

3.192 Combining Theorem 3.2 and Corollary 3.2.1, there exists a hyperplane
()
such that
and such that
(x) < (y) for every x int , y
Since int = , there exists some x int with (x) < . Hence
1
() =
().
3.193 Follows directly from the basic separation theorem, since = int and =
int .
3.194 Let = . Then
1. is a nonempty, closed, convex set (Exercise 1.203).
2. 0 / .
There exists a continuous linear functional
such that
(x) > (0) = 0
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Figure 3.2: and cannot be strongly separated.

for every z (Exercise 3.182). For every x , y , z = y x and
(z) = (y) (x) > 0
or
(x) + (y)
which implies that
sup
x
(x) + inf
y
(y)
and
sup
x
(x) < inf
y
(y)
3.195 No. See Figure 3.2.
3.196 1. Assume that there exists a convex neighborhood 0 such that
( +) =
Then ( + ) is convex and int ( +) = and int ( +) = . By
Corollary 3.2.1, there exists continuous linear functional such that
(x +u) (y) for every x , u , y
Since () is an open interval containing 0, there exists some u
0
with (u
0
) =
> 0.
(x) + (y) for every x , y
which implies that
sup
x
(x) < inf
y
(y)
Conversely, assume that and can be strongly separated. That is, there exists
a continuous linear functional
and number > 0 such that

(x) < + (y) for every x , y
Let = { : () < }. is a convex neighborhood of 0 such that
( +) = .
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2. Let and be nonempty, disjoint, convex subsets in a normed linear space
with compact and closed. By Exercise 1.208, there exists a convex neigh-
borhood 0 such that ( + ) = . By the previous part, and can
be strongly separated.
3.197 Assume (, ) = inf{ x y : x , y } = 2 > 0. Let =
(0) be
the open ball around 0 of radius . For every x , u , y
x + (u) y = x y u x y u
so that
(+, ) = inf
x,u,y
x + (u) y inf
x,u,y
(x y u)
inf
x,y
x y sup
u
u)
= 2
= > 0
Therefore ( +) = and so and can be strongly separated.
Conversely, assume that and can be strongly separated, so that there exists a
convex neighborhood of 0 such that ( +) = . Therefore, there exists > 0
such that
(0) and
+
=
This implies that
(, ) = inf{ x y : x , y } > > 0
3.198 Take = {y} and = in Proposition 3.14. There exists
such that
(y) < (x) for every x
By Corollary 3.2.3, = 0.
3.199 1. Consider the set
= { (),
1
(),
2
(), . . . ,
() : }
is the image of a linear mapping from to =
+1
and hence is a subspace
of
+1
.
2. By hypothesis, the point e
0
= (1, 0, 0, . . . , 0)
+1
does not belong to .
Otherwise, we have an such that
() = 0 for every but () = 1.

3. By the previous exercise, there exists a linear functional
such that
(e
0
) > 0
(z) = 0 for every z
4. In other words, there exists a vector = (
0
,
1
, . . . ,
) =
(+1)
such
that
e
0
> 0 (3.60)
z = 0 for every z (3.61)
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Equation (3.61) states that
z =
0
z
0
+
1
z
1
+ +
= 0 for every z
That is, for every ,
0
(x)
1
1
(x)
2
2
(x) . . .
(x) = 0
5. Inequality (3.60) establishes that
0
> 0. Without loss of generality we can
normalize so that
0
= 1.
6. Therefore
() =
=1
()
3.200 For every x ,
(x) = 0, = 1, 2 . . . and therefore

(x) =
=1
(x) = 0
3.201 The set
= {
1
(),
2
(), . . . ,
() : }
is a closed subspace in
. If the system is inconsistent, c = (

1
,
2
, . . . ,
) / . By
Exercise 3.198, there exists a linear functional on
such
(z) = 0 for every z
(c) > 0
That is, there exist numbers
1
,
2
, . . . ,
such that
=1
(x) = 0
and
=1
> 0
which contradicts the hypothesis
=1
= 0 =
=1
= 0
Conversely, if for some x
(x) =
= 1, 2, . . . ,
then
=1
(x) =
=1
and
=1
= 0 =
=1
= 0
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3.202 The set

= { x : x
1
= 1 } is
compact (the unit ball is compact if and only if is nite-dimensional)
convex (which is why we need the 1 norm)
By Proposition 3.14, there exists a linear functional
such that
( x) > 0 for every x

(x) = 0 for every x

For any x , x = 0, dene x = x/ x
1

. Then
(x) = (x
1
x) = x
1
( x) > 0
3.203 1. Let
= { (x, ) : (x), x }
= { (x, ) : =
0
(x), x }
is the epigraph of a convex functional and hence convex. is a subspace of
= and also convex.
2. Since is convex, int = . Furthermore
0
(x) (x) = int =
3. By Exercise 3.2.3, there exists linear functional
such that
(x, ) 0 for every (x, )
(x, ) = 0 for every (x, )
There exists such that > (0) and therefore (0, ) int and (0, ) > 0.
Therefore
(0, 1) =
1
(0, 1) > 0
4. Let
be dened by
(x) =
1
(x, 0)
where = (0, 1). Since
(x, 0) = (x, ) (0, )
= (x, )
(x) =
1
((x, ) ) =
1
(x, ) +
for every
5. For every x
(x) =
1
(x,
0
(x)) +
0
(x)
=
0
(x)
since (x,
0
(x)) = 0 for every x . Thus is an extension of
0
.
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6. For any x , let = (x). Then (x, ) and (x, ) 0. Therefore
(x) =
1
(x, ) +
=
1
(x, ) +(x)
(x)
Therefore is bounded by as required.
3.204 Let
be dened by
(x) =
0
x
Then
0
(x) (x) for all x . By the Hahn-Banach theorem (Exercise 3.15), there
exists an extension
such that
(x) (x) =
0
x
Therefore
= sup
x=1
(x) =
0
3.205 If x
0
= 0, any bounded linear functional will do. Therefore, assume x
0
= 0. On
the subspace lin {x
0
} = {x
0
: }, dene the function
0
(x
0
) = x
0
0
is a bounded linear functional on lin {x
0
} with norm 1. By the previous part,
0
can be extended to a bounded linear functional
with the same norm, that is

= 1 and (x
0
) = x
0
.
3.206 Since x
1
= x
2
, x
1
x
2
= 0. There exists a bounded linear functional such that
(x
1
x
2
) = x
1
x
2
= 0
so that
(x
1
) = (x
2
)
3.207 1. is a complete lattice (Exercise 1.179).
The intersection of any chain is
nonempty (since is compact)
a face (Exercise 1.179)
Hence every chain has a minimal element.
By Zorns lemma (Remark 1.5), has a minimal element
0
.
2. Assume to the contrary that
0
contains two distinct elements x
1
, x
2
. Then
(Exercise 3.206) there exists a continuous linear functional
such that
(x
1
) = (x
2
)
Let be in the minimum value of (x) on
0
and let
1
be the set on which it
attains this minimum. (Since
0
is compact, is well-dened and
1
is nonempty.
That is
= min{ () : x
0
}
1
= { x : (x) = }
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Now
1

0
since (x
1
) = (x
2
).
To show that
1
is a face of
0
, assume that x+(1)y
1
for some x, y
0
.
Then = (x + (1 )y) = (x) + (1 )(y) = . Since x, y
0
, this
implies that (x) = (y) = so that x, y
1
. Therefore
1
is a face.
We have shown that, if
0
contains two distinct elements, there exists a smaller
face
1

0
, contradicting the minimality of
0
. We conclude that
0
comprises
a single element x
0
.
3.
0
= {x
0
} which is an extreme point of .
3.208 Let =
() be a supporting hyperplane to . Without loss of generality

assume
(x) for every x (3.62)
and there exists some x
such that
(x
) =
That is is maximized at x
.
Version 1 By the previous exercise, achieves its maximum at an extreme point.
That is, there exists an extreme point x
0
such that
(x
0
) (x) for every x
In particular, (x
0
) (x
) = . But (3.62) implies (x

0
) . Therefore, we
conclude that (x
0
) = and therefore x
0
.
Version 2 The set is a nonempty, compact, convex subset of a linear space.
Hence, by Exercise 3.207, contains an extreme point, say x
0
. We show
that x
0
is an extreme point of .
Assume not, that is assume that there exists x
1
, x
2
such that x
0
= x
1
+
(1 )x
2
for some (0, 1). Since x
0
is an extreme point of , at least
one of the points x
1
, x
2
must lie outside . Assume x
1
/ which implies that
(x
1
) < . Since (x
2
)
(x
0
) = (x
1
) + (1 )(x
2
) < (3.63)
However, since x
0
, we must have
(x
0
) =
which contradicts (3.63).
Therefore x
0
is an extreme point of . In fact, we have shown that every extreme
point of must be an extreme point of .
3.209 Let

denote the closed, convex hull of the extreme points of . (The closed,
convex hull of a set is simply the closure of the convex hull.) Clearly

and it
remains to show that

contains all of .
Assume not. That is, assume

and let x
0

. By the Strong Separation
Theorem, there exists a linear functional
such that
(x
0
) > (x) for every x

(3.64)
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On the other hand, by Exercise 3.16, attains its maximum at an extreme point of .
That is, there exists x
1

such that
(x
1
) (x) for every x
In particular
(x
1
) (x
0
)
since x
0

. This contradicts (3.64) since x
1

.
Thus our assumption that

yields a contradiction. We conclude that
=

3.210 1. (a) is compact and convex, since it is the product of compact, convex
sets (Proposition 1.2, Exercise 1.165).
(b) Since x
=1
conv
, there exist x
conv
such that x =
=1
x
.
(x
1
, x
2
, . . . , x
) (x) so that (x) = .

(c) By the Krein-Millman theorem (or Exercise 3.207), (x) has an extreme
point z = (z
1
, z
2
, . . . , z
) such that
z
conv
for every
=1
z
= x.
since z (x).
2. (a) Exercise 1.176
(b) Since > = dim, the vectors y
1
, y
2
, . . . , y
are linearly dependent

(Exercise 1.143). Consequently, there exists numbers
1
,
2
, . . . ,
, not all
zero, such that
1
y
1
+
2
y
2
+ +
= 0
(Exercise 1.133). Let
max
Then
1 for every and
1
y
1
+
2
y
2
+ +
= 0
(c) Since
1, z
conv
for every = 1, 2, . . . , . Furthermore
=1
z
+
=1
z
=1
=1
z
= x
Therefore, z
+
(x). Similarly, z
(x).
(d) By direct computation
z =
1
2
z
+
+
1
2
z
which implies that z is not an extreme point of (x), contrary to our as-
sumption. This establishes that at least z
are extreme points of the

corresponding conv
.
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0 1 2 3 4
1
2
3
4
conv
2
P(x)
conv
1
(0, 2.5)
(.5, 2)
Figure 3.3: Illustrating the proof of the Shapley Folkman theorem.
3. Every extreme point of conv
is an element of
.
3.212 Let {
1
,
2
, . . . ,
} be a collection of nonempty subsets of an -dimensional

linear space and let x conv
=1
=1
conv
. That is, there exists x

conv
such that x =
=1
x
. By Caratheodorys theorem, there exists for every x
a nite number of points x

1
, x
2
, . . . , x
such that x
conv {x
1
, x
2
, . . . , x
}.
For every = 1, 2, . . . , , let
= { x
: = 1, 2, . . . ,
}
Then
x =
=1
x
, x
conv

That is, x

conv

= conv
. Moreover, the sets
are compact (in fact

nite). By the previous exercise, there exists points z
such that
x =
=1
z
, z
conv

and moreover z
for at least indices .

3.213 Let be a closed convex set in a normed linear space. Clearly, is contained in
the intersection of all the closed halfspaces which contain .
For any y / , there exists a hyperplane which strongly separates {y} and . One
of its closed halfspaces contains but not y. Consequently, y does not belong to the
intersection of all the closed halfspaces containing .
3.214 1. Since
() is the intersection of closed, convex sets, it is closed and convex.

Assume x is feasible, that is x (). Then w
x (w, ) and x
().
That is, ()
().
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2. Assume () is convex. For any x
0
/ () there exists w such that
w
x
0
< inf
x ()
w
x = (w, )
by the Strong Separation Theorem. Monotonicity ensures that w 0 and hence
x
0
/
().
3.215 Assume x () =
(). That is
w
x (w) for every x

Therefore, for any
+
w
x (w) for every x

() = ().
3.216 A polyhedron
= { :
()
, = 1, 2, . . . , }
=
=1
{ x :
(x)
}
is the intersection of a nite number of closed convex sets.
3.217 Each row a
= (
1
,
2
, . . .
) of denes a linear functional
(x) =
1
1
+
2
+ +
on
. The set of solutions to x c is

= { :
(x)
, = 1, 2, . . . , }
is a polyhedron.
3.218 For simplicity, we assume that the game is superadditive, so that () 0 for
every . Consequently, in every core allocation x, 0
() and
core [0, ()] [0, ()] [0, ()]
Thus, the core is bounded. Since it is the intersection of closed halfspaces, the core is
also closed. By Proposition 1.1, the core is compact.
3.219 polytope = polyhedron Assume that is a polytope generated by the
points { x
1
, x
2
, . . . , x
} and let
1
,
2
, . . . ,
denote the proper faces of . For

each = 1, 2, . . . , , let
denote the hyperplane containing
so that
. For every such hyperplane, there exists a nonzero linear functional
and constant
such that
(x) =
for every x
. Furthermore, every such

hyperplane is a bounding hyperplane of . Without loss of generality, we can
assume that
(x) for every x . Let

= { x :
(x)
, = 1, 2, . . . , }
Clearly . To show that , assume not. That is, assume that there
exists y and let x ri . (ri is nonempty by exercise 1.229). Since is
closed (Exercise 1.227), there exists a some such that x = x+(1)y belongs
to the relative boundary of , and there exists some such that x
.
Let
+
= { x :
(x)
} denote the closed half-space bounded by
and
containing .
is a face of
+
containing x = x+(1)y, which implies that

x, y
. This in turn implies that x
, which contradicts the assumption

that x ri . We conclude that = .
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polyhedron = polytope Conversely, assume is a nonempty compact polyhedral
set in a normed linear space. Then, there exist linear functionals
1
,
2
, . . . ,
in
and numbers
1
,
2
, . . . ,
such that = { x :
(x)
, =
1, 2, . . . , }. We show that has a nite number of extreme points. Let denote
the dimension of . If = 1, is either a single point or closed line segment
(since is compact), and therefore has a nite number of extreme points (that
is, 1 or 2).
Now assume that every compact polyhedral set of dimension 1 has a nite
number of extreme points. Let
, = = 1, 2, . . . , denote the hyperplanes

associated with the linear functionals
dening (Exercise 3.49). Let x be

an extreme point of . Then is a boundary point of (Exercise 1.220) and
therefore belongs to some
. We claim that x is also an extreme point of the set

. To see this, assume otherwise. That is, assume that x is not an extreme
point of
. Then, there exists x

1
, x
2

such that x = x
1
+(1)x
2
.
But then x
1
, x
2
and x is not an extreme point of . Therefore, every extreme
point of is an extreme point of some
, which is a compact polyhedral set

of dimension 1. By hypothesis, each
has a nite number of extreme

points. Since there are only such hyperplanes
, has a nite number of

extreme points.
By the Krein-Milman theorem (Exercise 3.209), is the closed convex hull of its
extreme points. Since there are only nite extreme points, is a polytope.
3.220 1. Let ,
so that (x) 0 and (x) 0 for every x . For every

, 0
(x) +(x) 0
for every . This shows that +
is a convex cone.
To show that
is closed, let be the limit of a sequence (
) of functionals in
. Then, for every x ,
(x) 0
so that
(x) = lim
(x) 0
2. Let x, y
. Then, for every
(x) 0 and (y) 0

and therefore
(x +y) = (x) +(y) 0
for every , 0. There x +y
is a convex cone.
To show that
is closed, let x
be a sequence of points in
converging to
. For every = 1, 2, . . .
(x
) 0 for every
By continuity
(x) = lim(x
) 0 for every
Consequently x
which is therefore closed.

180
All rights reserved
3. Let x . Then (x) 0 for every
so that x
.
4. Exercise 1.79.
3.221 Let
2
. Then (x) 0 for every x
2
. A fortiori, since
1

2
,
(x) 0 for every x
1
. Therefore
1
.
3.222 Exercise 3.220 showed that
. To show the converse, let y / . By

Proposition 3.14, there exists some
and such that

(y) >
(x) < for every x
Since is a cone, 0 and (0) = 0 < . Since = for every > 0 then
(x) < 0 for every x
so that
. (y) > 0, y /
. That is
y / = y /
from which we conclude that
.
3.223 Let
= cone {
1
,
2
, . . . ,
}
= {
: =
=1
0 }
be the set of all nonnegative linear combinations of the linear functionals
. is a
closed convex cone.
Suppose that / cone {
1
,
2
, . . . ,
}, that is assume that / . Then {} is a

compact convex set disjoint from . By Proposition 3.14, there exists a continuous
linear functional and number such that
sup
() < < ()
Since 0 , 0 and so () > 0. Further, for every
() = (
=1
)
=
=1
) < for every
0
Since
can be made arbitrarily large, this last inequality implies that

(
) 0 = 1, 2, . . . ,
By the Riesz representation theorem (Exercise 3.75), there exists x
(
) =
(x) and () = (x)

Since
(
) =
(x) 0
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x . By hypothesis
(x) = () 0
contradicting the conclusion that () > 0. This contradiction establishes that ,
that is
() =
=1
(),
0
3.224 Let a
1
, a
2
, . . . , a
denote the rows of and dene the linear functional ,

1
,
2
, . . . ,
by
(x) = cx
(x) = a
x = 1, 2, . . . ,
Assume cx 0 for every x satisfying x 0, that is (x) 0 for every x where
= { x :
(x) 0, = 1, 2, . . . , }
By Proposition 3.18, there exists y
+
such that
(x) =
=1
(x)
or
c =
=1
y
c =
y =
=1
Then
x 0 = a
x 0 for every = cx 0
3.225 Let =
+
denote the positive orthant of
. is a convex set (indeed cone)

with a nonempty interior. By Corollary 3.2.1, there exists a hyperplane
p
() such
that
p
x py for every x , y
Since 0
p0 = 0
which implies that 0 and
p
x 0 for every
To show that p is nonnegative, let e
1
, e
2
, . . . , e
denote the standard basis for
.
Each e
belongs to so that
pe
0 for every
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3.226 Assume y
is an ecient production plan in and let =
. is convex.
We claim that
++
= . Otherwise, if there exists some z
++
, let y
= y
+z
z implies y
while
z
++
implies y
> y
contradicting the eciency of y
. Therefore, is a convex set which contains no

interior points of the nonnegative orthant
+
. By Exercise 3.225, there exists a price
system p such that
p
x 0 for every x
Since =
, this implies
p(y y
) 0 for every y
or
py
py for every y
maximizes the producers prot at prices p.

3.227 Consider the set
= { x
: x }.
int
= =
int
+
=
From the previous exercise, there exists a hyperplane with nonnegative normal p 0
such that
p
x 0 for every x
Since p 0, this implies

p
x 0 for every x
3.228 1. Suppose x (x
). Then, there exists an allocation (x

1
, x
2
, . . . , x
) such
that
x =
=1
x
where x
(x
) for every = 1, 2, . . . , . Conversely, if (x

1
, x
2
, . . . , x
) is an
allocation with x
(x
) for every = 1, 2, . . . , , then x =
=1
x
(x
).
2. For every agent , x
(x
), which implies that

x
=1
x
(x
)
and therefore
0 = (x
) x
=
Since individual preferences are convex, (x
) is convex for each and therefore

= (x
) x
(x
) x
is convex (Exercise 1.164).

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Assume to the contrary that int
= . That is, there exists some z

with z < 0. This implies that there exists some allocation (x
1
, x
2
, . . . , x
) such
that
z =
< 0
and x
for every . Distribute z equally to all the consumers. That is,

consider the allocation
y
= x
+z/
By strict monotonicity, y
for every . Since
+z = x
(y
1
, y
2
, . . . , y
) is a reallocation of the original allocation x
which is strictly
preferred by all consumers. This contradicts the assumed Pareto eciency of x
.
We conclude that
int
=
3. Applying Exercise 3.227, there exists a hyperplane with nonnegative normal p

0 such that
p
z 0 for every z
That is
p
(x x
) 0 or p
x p
for every x (x
) (3.65)
4. Consider any allocation which is strictly preferred to x
by consumer , that is
x
(x
). Construct another allocation y by taking > 0 of each commodity

away from agent and distributing amongst the other agents to give
y
= (1 )x
= x
+

1
x
, =
By continuity, there exists some > 0 such that y
= (1 )x
. By
monotonicity, y
for every = . We have constructed an allocation y

which is strictly preferred to x
by all the agents, so that y =
(x
).
(3.65) implies that
py px
That is
p
(1 )x
=
(
x
+

1
x
= p
=
x
=
x
which implies that

px
px
for every x
(x
) (3.66)
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5. Trivially, x
is a feasible allocation with endowments w
= x
and
= p
=
p
. To show that (p
, x
) is a competitive equilibrium, we have to show that

x
is the best allocation in the budget set
(p,
) for each consumer . Suppose

to the contrary there exists some consumer and allocation y
such that y
and py
= px
. By continuity, there exists some (0, 1) such that

y
and
p(y
) = py
< py
px
contradicting (3.66). We conclude that

x
for every x (p
)
for every consumer . (p
, x
) is a competitive equilibrium.
3.229 By the previous exercise, there exists a price system p
such that x
is optimal
for each consumer in the budget set (p
, p
), that is
x
for every x
(p
, p
) (3.67)
For each consumer, let
be the dierence between her endowed wealth p
and her
required wealth p
. That is, dene
= p
= p
(x
)
Then
p
= p
+w
(3.68)
By assumption x
is feasible, so that
(x
) = 0
so that
= p
(x
) = 0
Furthermore, for
, (3.68) implies
(p
) = { x
: p
} = { x
: p
} = (p
, p
)
for each consumer . Using (3.67) we conclude that
x
for every x
(p
)
for every agent . (p
, x
) is a competitive equilibrium where each consumers after-tax

wealth is
= pw
3.230 Apply Exercise 3.202 with =
+
.
3.231
= { p : p
x 0 for every x }
No such hyperplane exists if and only if
++
= . Assume this is the case. By
Exercise 3.225, there exists x 0 such that
xp = p
x 0 for every p
In other words, x
. By the duality theorem
= which implies that x

as well as
+
, contrary to the hypothesis that
+
= {0}. This contradiction
establishes that
++
= .
185
All rights reserved
3.232 Given a set of nancial assets with prices p and payo matrix , let
= { (px, ) : x
}
is the set of all possible (cost, payo) pairs. It is a subspace of
+1
. Let be the
nonnegative orthant in
+1
. The no arbitrage condition
x 0 = p
x 0
implies that = {0}. By Exercise 3.230, there exists a hyperplane with positive
normal =
0
,
1
, . . . ,
such that
z = 0 for every z
z > 0 for every z
+1
+
{0}
That is
0
px +x = 0 for every x
or
p
x = /
0
x for every x
/
0
is required state price vector.
Conversely, if a state price vector exists
=1
then clearly
x 0 = p
x 0
No arbitrage portfolios exist.
3.233 Apply the Farkas lemma to the system
x 0
c
x > 0
3.234 The inequality system
y c has a nonnegative solution if and only if the

corresponding system of equations
y z = c
has a nonnegative solution y
+
, z
+
. This is equivalent to the system
(
y
z
)
= c (3.69)
where
= (
) and
is the identity matrix. By the Farkas lemma,

system (3.69) has no solution if and only if the system
x 0 and c
x > 0
has a solution x
. Since =
(

)
, x 0 implies
x 0 and x 0
and the latter inequality implies x
+
. Thus we have established that the system
y c has no nonnegative solution if and only if

x 0 and c
x > 0 for some x
+
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All rights reserved
3.235 Assume system I has a solution, that is there exists x
+
such that
x = 0, c x > 0, x 0
Then x = x/c x satises the system
x = 0, cx = 1, x 0 (3.70)
which is equivalent to
x
= 0, xc = 1, x 0 (3.71)
Suppose y
satises
y c
Multiplying by x 0 gives
x
y xc
Substituting (3.71), this implies the contradiction
0 1
We conclude that system II cannot have a solution if I has a solution.
Now, assume system I has no solution. System I is equivalent to (3.70) which in turn
is equivalent to the system
(

c
)
x =
(
0
1
)
or
x = b (3.72)
where =
(

c
)
is (+1) and b =
(
0
1
)

+1
. If (3.72) has no solution,
there exists (by the Farkas alternative) some z
+1
such that
z 0 and bz > 0
Decompose z into z = (y, ) with y
and . The second inequality implies

that
(0, 1)
(y, ) = 0y + = > 0
Without loss of generality, we can normalize so that = 1 and z = (y, 1).
Now
= (
, c) and so the rst inequality implies that

(
, c)
(
y
1
)
=
y +c 0
or
y c
We conclude that II has a solution.
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All rights reserved
3.236 For every linear functional
, there exists a vector a
such that
(x) = a
x
(Proposition 3.11). Let
be the matrix whose rows are a
, that is
=
a
1
a
2
. . .
a
Then, the system of inequalities (3.31) is
x c
where c = (
1
,
2
, . . . ,
). By the preceding exercise, this system is consistent if and

only there is no solution to the system
= 0 c > 0 0
Now
= 0
=1
= 0 = 1, 2, . . . ,
Therefore, the inequalities (3.31) is consistent if an only if
=1
= 0 =
=1
0
for every set of nonnegative numbers
1
,
2
, . . . ,
.
3.237 Let be the 2 matrix comprising and as follows
=
(

)
Then the Fredholm alternative I
x = 0 c
x = 1
is equivalent to the system
x 0 cx > 0 (3.73)
By the Farkas alternative theorem, either (3.73) has a solution or there exists
2
+
such that
= c (3.74)
Decompose into two -vectors
= (, ), ,
+
so that (3.74) can be rewritten as
( ) = c
Dene y =
We have established that either (3.73) has a solution or there

exists a vector y
such that
y = c
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All rights reserved
3.238 Let a
, = 1, 2, . . . , denote the rows of . Each a
denes linear functional
() = a
on
, and c denes another linear functional () = c
x. Assume that
() = c
x = 0 for every x where

= { x :
(x) = a
x = 0, = 1, 2, . . . , }
Then the system
= 0
has no solution satisfying the constraint c
x > 0. By Exercise 3.20, there exists scalars
1
,
2
, . . . ,
such that
(x)
=
=1
(x)
or
c =
=1
y
That is y = (
1
,
2
, . . . ,
) solves the related nonhomogeneous system
y = c
y = c for some
. Then
c
x = = 0
for all such that = 0 and therefore there is no solution satisfying the constraint
c
x = 1.
3.239 Let
= { z : z = x, x }
the image of . is a subspace. Assume that system I has no solution, that is

++
=
By Exercise 3.225, there exists y
+
{0} such that
yz = 0 for every z
That is
yx = 0 for every x
Letting x =
y, we have y
y = 0 which implies that
y = 0
System II has a solution y.
Conversely, assume that x is a solution to I. Suppose to the contrary there also exists
a solution y to II. Then, since x > 0 and y 0, we must have y x = x
y > 0.
On the other hand,
y = 0 which implies x
y = 0, a contradiction. Hence, we
conclude that II cannot have a solution if I has a solution.
189
All rights reserved
3.240 We have already shown (Exercise 3.239) that the alternatives I and II are mutu-
ally incompatible. If Gordans system II
y = 0
has a semipositive solution y 0, then we can normalize y such that 1y = 1 and the
system
y = 0
1y = 1
has a nonnegative solution.
Conversely, if Gordans system II has no solution, the system
y = c
where
=
(

1
)
and c = (0, 1) = (0, 0, . . . , 0, 1), 0
, is the ( + 1)st unit

vector has no solution y 0. By the Farkas lemma, there exists z
+1
such that
z 0
cz < 0
Decompose z into z = (x, ) with x
. The second inequality implies that < 0

since
cz = (0, 1)
(x, ) = < 0
Since = (, 1), the rst inequality implies that
z = (, 1)(x, ) = x +1 0
or
x 1 > 0
x solves Gordans system I.
3.241 Let a
1
, a
2
, . . . , a
be a basis for . Let

= (a
1
, a
2
, . . . , a
)
be the matrix whose columns are a
. To say that contains no positive vector means

that the system
x > 0
has no solution. By Gordans theorem, there exists some y 0 such that
y = 0
that is
a
y = ya
= 0, = 1, 2, . . . ,
so that y
.
190
All rights reserved
3.242 Let be the subspace = { z : x : x
}. System I has no solution x 0

if and only if has no nonnegative vector z 0. By the previous exercise,
contains
a positive vector y > 0 such that
yz = 0 for every z
Letting x =
y, we have y
y = 0
3.243 Let
= { z : z = x, x }
the image of . is a subspace. Assume that system I has no solution, that is

+
= {0}
By Exercise 3.230, there exists y
++
such that
yz = 0 for every z
That is
yx = 0 for every x
Letting x =
y, we have y
y = 0
Conversely, assume that x is a solution to I. Suppose to the contrary there also exists
a solution y to II. Then, since x 0 and y > 0, we must have y x = x
y > 0.
On the other hand,
y = 0 which implies x
y = 0, a contradiction. Hence, we
conclude that II cannot have a solution if I has a solution.
3.244 The inequality system
y 0 has a nonnegative solution if and only if the

corresponding system of equations
y +z = 0
has a nonnegative solution y
+
, z
+
. This is equivalent to the system
(
y
z
)
= 0 (3.75)
where
= (
) and
is the identity matrix. By Gordans theorem, system

(3.75) has no solution if and only if the system
x > 0
has a solution x
. Since =
(

)
, x > 0 implies
x > 0 and x > 0
and the latter inequality implies x
++
. Thus we have established that the system
y 0 has no nonnegative solution if and only if

x > 0 for some x
++
191
All rights reserved
3.245 Assume system II has no solution, that is there is no y
such that
y 0, y 0
This implies that the system
y 0
1y 1
has no solution y
+
. Dening
=
(

1
)
, the latter can be written as
y e
+1
(3.76)
where e
+1
= (0, 1), 0
.
By the Gale alternative (Exercise 3.234), if system (3.76) has no solution, the alterna-
tive system
z 0, e
+1
z > 0
has a nonnegative solution z
+1
+
. Decompose z into z = (x, ) where x
+
and

+
. The second inequality implies > 0 since e
+1
z = .
= (
, 1) and the rst inequality implies

z = (
, 1)
(
x
)
=
x +1 0
or
x 1 > 0
Thus system I has a solution x
+
. Since x = 0 implies x = 0, we conclude that
x 0.
Conversely, assume that II has a solution y 0 such that y 0. Then, for every
x
+
x
y = y
x 0
Since y 0, this implies
x 0
for every x
+
which contradicts I.
3.246 We give a constructive proof, by proposing an algorithm which will generate
the desired decomposition. Assume that x satises x 0. Arrange the rows of
such that the positive elements of x are listed rst. That is, decompose into two
submatrices such that
1
x > 0
1
x = 0
Either
Case 1
1
x 0 has no solution and the result is proved or
192
All rights reserved
Case 2
1
x 0 has a solution x
.
Let x be a linear combination of x and x
. Specically, dene
x = x +x
where
> max
b
x
b
where b
is the th row of
1
. is chosen so that
1
x >
1
x
By direct computation
1
x =
1
x +
1
x
> 0
1
x =
1
x +
1
x
0
since
1
x = 0 and
1
x
0. By construction, x is another solution to x 0

such that x has more positive components than x. Again, collect all the positive
components together, decomposing into two submatrices such that
2
x > 0
2
x = 0
Either
Case 1
2
x 0 has no solution and the result is proved or
Case 2
2
x 0 has a solution x
.
In the second case, we can repeat the previous procedure, generating another decom-
position
3
,
3
and so on. At each stage , the matrix
get larger and
smaller.
The algorithm must terminate before
equals , since we began with the assumption

that x > 0 has no solution.
3.247 There are three possible cases to consider.
Case 1: y = 0 is the only solution of
y = 0. Then x > 0 has a solution x
by
Gordans theorem and
x
+0 > 0
Case 2:
y = 0 has a positive solution y > 0 Then 0 is the only solution x 0

by Stiemkes theorem and
0 +y > 0
Case 3
y = 0 has a solution y 0 but y > 0. By Gordans theorem x > 0 has

no solution. By the previous exercise, can be decomposed into two consistent
subsystems
x > 0
x = 0
193
All rights reserved
such that x 0 has no solution. Assume that is and is where
= . Applying Stiemkes theorem to , there exists z > 0, z
. Dene
y
+
by
=
{
0 = 1, 2, . . . ,
= + 1, + 2, . . . ,
Then x, y is the desired solution since for every , = 1, 2, . . . , either
> 0
or (x)
= (x)
> 0.
3.248 Consider the dual pair
(

)
x 0 and (
, )
(
y
z
)
= 0, y 0, z 0
By Tuckers theorem, this has a solution x
, y
, z
such that
x
0, x
0,
+z
= 0, y
0, z
0
x +y > 0
x
+z > 0
Substituting z
implies
y 0
and
x
> 0
3.249 Consider the dual pair
x 0 and
y = 0, y 0
where is an matrix. By Tuckers theorem, there exists a pair of solutions
x
and y
such that
x
+y
> 0 (3.77)
Assume that x > 0 has no solution (Gordan I). Then there exists some such that
(x
= 0 and (3.77) implies that
> 0. Therefore y
0 and solves Gordan II.

y = 0 has no solution y > 0 (Stiemke II). Then, there

exists some such that
= 0 and (3.77) implies that (x
> 0). Therefore x
solves x 0 (Stiemke I).

3.250 We have already shown that Farkas I and II are mutually inconsistent. Assume
that Farkas system I
x 0, c
x < 0
has no solution. Dene the (+1) matrix =
(

c
)
. Our assumption is that
the system
x 0
194
All rights reserved
has no solution with (x)
+1
= cx > 0. By Tuckers theorem, the dual system
z = 0
has a solution z
+1
+
with z
+1
> 0. Without loss of generality, we can normalize
so that z
+1
= 1. Decompose z into z = (y, 1) with y
+
. Since
= (
, c),
z = 0 implies
z = (
, c)(y, 1) =
y c = 0
or
y = c
y
+
solves Farkas II.
3.251 If x 0 solves I, then
x
y
1
+
y
2
+
y
3
) = x
y
1
+x
y
2
+x
y
3
) > 0
since x
y
1
= y
1
x > 0, x
y
2
= y
2
x 0 and x
y
3
= y
3
x = 0 which
contradicts II.
The equation x = 0 is equivalent to the pair of inequalities x 0, x 0. By
Tuckers theorem the dual pair
x 0
y
1
+
y
2
+
y
3
y
4
= 0
x 0
x 0
x 0
has solutions
, y
1

1
, y
2

2
, u
3
, v
3

3
such that
y
1
0 x +y
1
> 0
y
2
0 x +y
2
> 0
u
3
0 x +u
3
> 0
v
3
0 x +v
3
> 0
Assume Motzkin I has no solution. That is, there is y
1
0. Dene y
3
= u
3
v
3
.
Then y
1
, y
2
, y
3
satises Motzkin II.
3.252 1. For every a , let
a
be the polar set
a
= { x
: x = 1, xa 0 }
a
is nonempty since 0
a
. Let x be the limit of a sequence x
of points in
a
.
Since x
a 0 for every , xa 0 so that x
a
. Hence
a
is a closed subset of
= { x
: x = 1 }.
2. Let {a
1
, a
2
, . . . , a
} be any nite set of points in . Since 0 / , the system
=1
= 0,
=1
= 1,
0
has no solution. A fortiori, the system
=1
= 0
195
All rights reserved
has no solution
+
. If is the n matrix whose rows are a
, the latter
system can be written as
y = 0
3. By Gordans theorem, the system
x > 0 (3.78)
has a solution x = 0.
4. Without loss of generality, we can take x = 1. (3.78) implies that
a
x = xa
> 0
for every = 1, 2 . . . , so that x
a
. Hence
x
=1
a
5. We have shown that for every nite set {a
1
, a
2
, . . . , a
} ,
=1
a
is non-
empty closed subset of the compact set = {
: x = 1}. By the Finite

intersection property (Exercise 1.116)
a
=
6. For every p
a
pa 0 for every a
p denes a hyperplane (a) = pa which separates from 0.
3.253 The expected outcome if player 1 adopts the mixed strategy p = (
1
,
2
, . . . ,
)
and player 2 plays her pure strategy is
(p, ) =
=1
= pa
where a
is the th column of . The expected payo to 1 for all possible responses

of player 2 is the vector (p)
p. The mixed strategy p ensures player 1 a

nonnegative security level provided
p 0.
Similarly, if 2 adopts the mixed strategy q = (
1
,
2
, . . . ,
), the expected payo to 2

if 1 plays his strategy is a
q where a
is the th row of . The expected outcome for

all the possible responses of player 1 is the vector q. The mixed strategy q ensures
player 2 a nonpositive security level provided q 0.
By the von Neumann alternative theorem (Exercise 3.245), at least one of these alter-
natives must be true. That is, either
Either I
p > 0, p 0 for some p
or II q 0, q 0 for some q
Since p 0 and q 0, we can normalize so that p

1
and q
1
. At least
one of the players has a strategy which guarantees she cannot lose.
196
All rights reserved
3.254 1. For any , dene the game
(a
1
, a
2
) = (a
1
, a
2
)
with

1
= max
p
min
(p, ) = max
p
min
(p, ) =
1

2
= min
q
max
(, q) = min
q
max
(, q) =
2
By the previous exercise,

Either
1
0 or
0
That is
Either
1
or
2

2. Since this applies for arbitrary , it implies that while
1

2
and there is no such that
1
< <
2
Therefore, we conclude that
1
=
2
as required.
3.255 1. The mixed strategies p of player 1 are elements of the simplex
1
,
which is compact (Example 1.110). Since
1
(p) = min
=1
(p, ) is continuous
(Maximum theorem 2.3),
1
(p) achieves its maximum on
1
(Weierstrass
theorem 2.2). That is, there exists p

1
such that
1
=
1
(p
) = max
p
1
(p)
Similarly, there exists q

1
such that
2
=
2
(q
) = min
q
2
(q)
2. Let (p, q) denote the expected outcome when player 1 adopts mixed strategy p
and player 2 plays q. That is
(p, q) =
=1
=1
Then
= (p
, q
) = max
(, q
(, q
) = (p, q
) for every p
1
Similarly
= (p
, q
) = min
(p
, )
(p
, ) = (p
, q) for every q
1
(p
, q
) is a Nash equilibrium.
197
All rights reserved
3.256 By the Minimax theorem, every nite two person zero-sum game has a value.
The previous result shows that this is attained at a Nash equilibrium.
3.257 If player 2 adopts the strategy
1
p
(
1
) =
1
+ 2
2
< 0 if
1
> 2
2
If player 2 adopts the strategy
5
p
(
5
) =
1
2
2
< 0 if
1
< 2
2
Therefore
1
(p) = min
p
(z) min{
p
(
1
),
p
(
5
)} < 0
for every p such that
1
=
2
. Since
1
+
2
= 1, we conclude that
1
(p)
{
= 0 p = p
= (
2
/
3
,
1
/
3
)
< 0 otherwise
We conclude that
1
= max
p
1
(p) = 0
which is attained at p
= (
2
/
3
,
1
/
3
).
3.258 1.
2
= min
z
max
=1
Since is compact,
2
= 0 implies there exists z such that
max
=1

= 0
which implies that z 0. Consequently
= .
2. Assume to the contrary that there exists
z int
That is, there exists some strategy q

1
such that q < 0 and therefore
2
< 0, contrary to the hypothesis.
3. There exists a hyperplane with nonnegative normal separating from
(Ex-
ercise 3.227). That is, there exists p
+
, p
= 0 such that
p
(z) 0 for every z
and therefore
1
(p
) = min
z
p
(z) 0
Without loss of generality, we can normalize so that
=1
= 1 and therefore
p

1
.
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4. Consequently
1
= max
p
1
(p)
1
(p
) 0
On the other hand, we know that contains a point z 0. For every p 0
p
(z) 0
and therefore
1
(p) = min
z
p
(z)
p
( ) 0
so that
1
= max
p
1
(p) 0
We conclude that
1
= 0 =
2
3.259 Consider the game with the same strategies and the payo function
(a
1
, a
2
) = (a
1
, a
2
)
The expected value to player 2 is

2
= min
q
max
(, q) = min
q
max
(, q) =
2
= 0
By the previous exercise
1
=
2
= 0 and
1
= max
p
min
(p, ) = max
q
min
(p, ) + =
1
+ = =
2
3.260 Assume that p
1
and p
2
are both optimal strategies for player 1. Then
(p
1
, q) for every q
1
(p
2
, q) for every q
1
Let p = p
1
, p
2
+ (1 ). Since is bilinear
( p, q) = (p
1
, q) + (1 )(p
2
, q) for every q
1
Consequently, p is also an optimal strategy for player 1.
3.261 is the payo function of some 2 person zero-sum game in which the players
have + 1 and + 1 strategies respectively. The result follows from the Minimax
Theorem.
3.262 1. The possible partitions of = {1, 2, 3} are:
{1}, {2}, {3}
{, }, {}, , , = , = =
{1, 2, 3}
In any partition, at most one coalition can have two or more players, and therefore
=1
(
) 1
199
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2. Assume x = (
1
,
2
,
3
) core. Then x must satisfy the following system of
inequalities
1
+
2
1 = ({1, 2})
1
+
3
1 = ({1, 3})
2
+
3
1 = ({2, 3})
which can be summed to yield
2(
1
+
2
+
3
) 3
or
1
+
2
+
3
3/2
which implies that x exceeds the sum available. This contradiction establishes
that the core is empty.
Alternatively, observe that the three person majority game is a simple game with
no veto players. By Exercise 1.69, its core is empty.
3.263 Assume that the game (, ) is not cohesive. Then there exists a partition
{
1
,
2
, . . . ,
} of such that
() <
=1
(
)
Assume x core. Then
) = 1, 2, . . . ,
Since {
1
,
2
, . . . ,
} is a partition
=1
=1
(
) > ()
which contradicts the assumption that x core. This establishes that cohesivity is
necessary for the existence of the core.
To show that cohesivity is not sucient, we observe that the three person majority
game is cohesive, but its core is empty.
3.264 The other balanced families of coalitions in a three player game are
1. = {} with weights
() =
{
1 =
0 otherwise
2. = {{1}, {2}, {3}} with weights () = 1 for every
3. = {{}, {, }}, , , , = = with weights () = 1 for every
3.265 The following table lists some nontrivial balanced families of coalitions for a four
player game. Other balanced families can be obtained by permutation of the players.
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Weights
{123}, {124}, {34} 1/2, 1/2, 1/2
{12}, {13}, {23}, {4} 1/2, 1/2, 1/2, 1
{123}, {14}, {24}, {3} 1/2, 1/2, 1/2, 1/2
{123}, {14}, {24}, {34} 2/3, 1/3, 1/3, 1/3
{123}, {124}, {134}, {234} 1/3, 1/3, 1/3, 1/3
3.266 Both sides of the expression
e
are vectors, with each component corresponding to a particular player. For player ,
the
component of e
is 1 and the
component of e
is 1 if and 0 otherwise.
Therefore, for each player , the preceding expression can be written
= 1
For each coalition , the share of the coalition at the allocation x is
(x) =
= e
x (3.79)
The condition
means that for every x
(x) =
(x)
Substituting (3.79)
e
x =
x
which is equivalent to the condition
= e
3.267 By construction, 0. If = 0,
= 0
implies that
= 0 for all and consequently
() () 0
is trivially satised. On the other hand, if > 0, we can divide both conditions by .)
201
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3.268 Let (,
1
) and (,
2
) be balanced games. By the Bondareva-Shapley theorem,
they have nonempty cores. Let x
1
core(,
1
) and x
2
core(,
2
). That is,
(x
1
)
1
() for every
(x
2
)
2
() for every
Adding, we have
(x
1
) +
(x
2
) =
(x
1
+x
2
)
1
() +
2
() for every
1
+ x
2
belongs to core(,
1
+
2
). Therefore (,
1
+
2
) is
balanced. Similarly, if x core(, ), then x belongs to core(, ) for every

+
. That is (, ) is balanced for every
+
.
3.269 1. Assume otherwise. That is assume there exists some y . Taking
the rst components, this implies that
e
for some (
0 : ). Let = {
> 0} be the set of coalitions

with strictly positive weights. Then is a balanced family of coalitions with
weights
(Exercise 3.266).
However, looking at the last coordinate, y implies
() = () + > ()
which contradicts the assumption that the game is balanced. We conclude that
and are disjoint if the game is balanced.
2. (a) Substituting y = (e
, 0) in (3.36) gives
(z,
0
)
(0, 0) = 0
which implies that 0.
NOTE We still have to show that 0.
(b) Substituting (e
, ()) in (3.36) gives

e
+
0
() > e
+
0
() +
0
for all > 0, which implies that

0
< 0.
3. Without loss of generality, we can normalize so that
0
= 1. Then the separating
hyperplane conditions become
(z, 1)
y 0 for every y (3.80)

(z, 1)
(e
, () +) < 0 for every > 0 (3.81)

For any , (e
, ()) . Substituting y = (e
, ()) in (3.80) gives

e
z () 0
that is
(z) = e
z = ()
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while (3.81) implies
(z) = e
z > () + for every > 0

This establishes that z belongs to the core. Hence the core is nonempty.
3.270 1. Let = ()
> 0 since (, ) is essential. For every ,

dene
0
() =
1
(
()
)
Then
0
({}) = 0 for every
0
() = 1
0
is 01 normalized.
2. Let y core(,
0
). Then for every

0
() (3.82)
= 1 (3.83)
Let w = (
1
,
2
, . . . ,
) where
= ({}). Let x = y+w. Using (3.82) and

(3.83)
)
=

0
() +
=
1
(
()
)
+
= ()
)
= +
= ()
Therefore, x = y +w core(, ). Similarly, we can show that
x core(, ) = y =
1
(x w) core(,
0
)
and therefore
core(, ) = core(,
0
) +w
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3. This immediately implies
core(, ) = core(,
0
) =
3.271 (, ) is 01 normalized, that is
({} = 0 for every
() = 1
Consequently, x belongs to the core of (, ) if and only if
= 0 (3.84)
= () = 1 (3.85)
() for every (3.86)

(3.84) and (3.85) ensure that x = (
1
,
2
, . . . ,
) is a mixed strategy for player 1 in the

two-person zero-sum game. Using this mixed strategy, the expected payo to player I
for any strategy of player II is
(x, ) =
(, ) =
1
()
(3.86) implies
(x, ) =
1
()
1 for every
That is any x core(, ) provides a mixed strategy for player I which ensures a
payo at least 1. That is
core(, ) = = 1
Conversely, if the < 1, there is no mixed strategy for player I which satises (3.86) and
consequently no x which satises (3.84), (3.85) and (3.86). In other words, core(, ) =
.
3.272 If is the value of , there exists a mixed strategy which will guarantee that II
pays no more than . That is, there exists numbers
0 for every coalition

such that
= 1
and
(, ) for every
that is
1
()
for every
204
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or
()
1 for every (3.87)
For each coalition let
()
in (3.87)
1
Augment the collection with the single-player coalitions to form the collection
= { {} : }
and with weights {
: } and
{}
= 1
Then is a balanced collection.

Since the game (, ) is balanced
1 = ()
()
=
()
=
()
()
=
1
=
1
that is
1
1
(3.88)
If I plays the mixed strategy x = (1/, 1/, . . . , 1/), the payo is
( x, ) =
1
()
=
1
()
> 0 for every
Therefore > 0 and (3.88) implies that
1
205
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3.273 Assume core(, ) = and let core(, ). Then
(x) () for every (3.89)

where
measures the share coalition at the allocation x.

Let be a balanced family of coalitions with weights
. For every , (3.89)

implies
(x)
()
Summing over all
(x)
() (3.90)
Evaluating the left hand side of this inequality
(x) =
= ()
Substituting this in (3.90) gives
()
()
The game is balanced.
206
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Chapter 4: Smooth Functions
4.1 Along the demand curve, price and quantity are related according to the equation
= 10
This is called the inverse demand function. Total revenue () (price times quantity)
is given by
() =
= (10 )
= 10
2
= ()
() can be rewritten as
() = 21 + 4( 3)
At = 3, the price is 7 but the marginal revenue of an additional unit is only 4. The
function decomposes (approximately) the total revenue into two components the
revenue from the sale of 3 units (21 = 3 7) plus the marginal revenue from the sale
of additional units (4( 3)).
4.2 If your answer is 5 per cent, obtained by subtracting the ination rate from the
growth rate of nominal GDP, you are implicitly using a linear approximation. To see
this, let
= price level at the beginning of the year
= real GDP at the beginning of the year
= change in prices during year
= change in output during year
We are told that nominal GDP at the end of the year, ( + )( + ), equals 1.10
times nominal GDP at the beginning of the year, . That is
( +)( +) = 1.10 (4.42)
Furthermore, the price level at the end of the year, + equals 1.05 times the price
level of the start of year, :
+ = 1.05
Substituting this in equation (4.38) yields
1.05( +) = 1.10
which can be solved to give
= (
1.10
1.05
1) = 0.0476
The growth rate of real GDP (/) is equal to 4.76 per cent.
207
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To show how the estimate of 5 per cent involves a linear approximation, we expand the
expression for real GDP at the end of the year.
( +)( +) = + + +
Dividing by
( +)( +)
= 1 +

The growth rate of nominal GDP is

( +)( +)
=
( +)( +)
1
=

= Growth rate of output

+ Ination rate
+ Error term
For small changes, the error term / is insignicant, and we can approximate the
growth rate of output according to the sum
Growth rate of nominal GDP = Growth rate of output + Ination rate
This is a linear approximation since it approximates the function ( + )( + ) by
the linear function + + . In eect, we are evaluating the change output at
the old prices, and the change in prices at the old output, and ignoring in interaction
between changes in prices and changes in quantities. The use of linear approximation
in growth rates is extremely common in practice.
4.3 From (4.2)
x (x) = (x
0
+x) (x
0
) (x)
and therefore
(x) =
(x
0
+x) (x
0
) (x)
x
(x) 0
as x 0
can be expressed as
lim
x0
(x) = 0
4.4 Suppose not. That is, there exist two linear maps such that
(x
0
+x) = (x
0
) +
1
(x) +x
1
(x)
(x
0
+x) = (x
0
) +
2
(x) +x
2
(x)
with
lim
x0
(x) = 0, = 1, 2
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Subtracting we have
1
(x)
2
(x) = x (
1
(x)
2
(x))
and
lim
x0
1
(x)
2
(x)
x
= 0
Since
1
2
is linear, (4) implies that
1
(x) =
2
(x) for all x .
To see this, we proceed by contradiction. Again, suppose not. That is, suppose there
exists some x such that
1
(x) =
2
(x)
For this x, let
=

1
(x)
2
(x)
x
By linearity,
1
(x)
2
(x)
x
= for every > 0
and therefore
lim
0
1
(x)
2
(x)
x
= = 0
which contradicts (4). Therefore
1
(x) =
2
(x) for all x .
4.5 If : is dierentiable at x
0
, then
(x
0
+x) = (x
0
) +(x) +(x) x
where (x) 0
as x 0
. Since is a continuous linear function, (x) 0
as
x 0
. Therefore
lim
x0
(x
0
+x) = lim
x0
(x
0
) + lim
x0
(x) + lim
x0
(x) x
= (x
0
)
is continuous.
4.6
4.7
4.8 The approximation error at the point (2, 16) is
(2, 16) =8.0000
(2, 16) =11.3333
Absolute error =-3.3333
Percentage error =-41.6667
Relative error =-4.1667
By contrast, (2, 16) = 8 = (2, 16). Table 4.1 shows that gives a good approximation
to in the neighborhood of (2, 16).
209
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Table 4.1: Approximating the Cobb-Douglas function at (2, 16)
Approximation Error
x x0 +x (x0 +x) (x0 +x) Percentage Relative
At their intersection:
(0.0, 0.0) (2.0, 16.0) 8.0000 8.0000 0.0000 NIL
Around the unit circle:
(1.0, 0.0) (3.0, 16.0) 9.1577 9.3333 -1.9177 -0.1756
(0.7, 0.7) (2.7, 16.7) 9.1083 9.1785 -0.7712 -0.0702
(0.0, 1.0) (2.0, 17.0) 8.3300 8.3333 -0.0406 -0.0034
(-0.7, 0.7) (1.3, 16.7) 7.1196 7.2929 -2.4342 -0.1733
(-1.0, 0.0) (1.0, 16.0) 6.3496 6.6667 -4.9934 -0.3171
(-0.7, -0.7) (1.3, 15.3) 6.7119 6.8215 -1.6323 -0.1096
(0.0, -1.0) (2.0, 15.0) 7.6631 7.6667 -0.0466 -0.0036
(0.7, -0.7) (2.7, 15.3) 8.5867 8.7071 -1.4018 -0.1204
Around a smaller circle:
(0.10, 0.00) (2.1, 16.0) 8.1312 8.1333 -0.0266 -0.0216
(0.07, 0.07) (2.1, 16.1) 8.1170 8.1179 -0.0103 -0.0083
(0.00, 0.10) (2.0, 16.1) 8.0333 8.0333 -0.0004 -0.0003
(-0.07, 0.07) (1.9, 16.1) 7.9279 7.9293 -0.0181 -0.0143
(-0.10, 0.00) (1.9, 16.0) 7.8644 7.8667 -0.0291 -0.0229
(-0.07, -0.07) (1.9, 15.9) 7.8813 7.8821 -0.0110 -0.0087
(0.00, -0.10) (2.0, 15.9) 7.9666 7.9667 -0.0004 -0.0003
(0.07, -0.07) (2.1, 15.9) 8.0693 8.0707 -0.0171 -0.0138
Parallel to the x1 axis:
(-2.0, 0.0) (0.0, 16.0) 0.0000 5.3333 NIL -2.6667
(-1.0, 0.0) (1.0, 16.0) 6.3496 6.6667 -4.9934 -0.3171
(-0.5, 0.0) (1.5, 16.0) 7.2685 7.3333 -0.8922 -0.1297
(-0.1, 0.0) (1.9, 16.0) 7.8644 7.8667 -0.0291 -0.0229
(0.0, 0.0) (2.0, 16.0) 8.0000 8.0000 0.0000 NIL
(0.1, 0.0) (2.1, 16.0) 8.1312 8.1333 -0.0266 -0.0216
(0.5, 0.0) (2.5, 16.0) 8.6177 8.6667 -0.5678 -0.0979
(1.0, 0.0) (3.0, 16.0) 9.1577 9.3333 -1.9177 -0.1756
(2.0, 0.0) (4.0, 16.0) 10.0794 10.6667 -5.8267 -0.2936
(4.0, 0.0) (6.0, 16.0) 11.5380 13.3333 -15.5602 -0.4488
Parallel to the x2 axis:
(0.0, -4.0) (2.0, 12.0) 6.6039 6.6667 -0.9511 -0.0157
(0.0, -2.0) (2.0, 14.0) 7.3186 7.3333 -0.2012 -0.0074
(0.0, -1.0) (2.0, 15.0) 7.6631 7.6667 -0.0466 -0.0036
(0.0, -0.5) (2.0, 15.5) 7.8325 7.8333 -0.0112 -0.0018
(0.0, -0.1) (2.0, 15.9) 7.9666 7.9667 -0.0004 -0.0003
(0.0, 0.0) (2.0, 16.0) 8.0000 8.0000 0.0000 NIL
(0.0, 0.1) (2.0, 16.1) 8.0333 8.0333 -0.0004 -0.0003
(0.0, 0.5) (2.0, 16.5) 8.1658 8.1667 -0.0105 -0.0017
(0.0, 1.0) (2.0, 17.0) 8.3300 8.3333 -0.0406 -0.0034
(0.0, 2.0) (2.0, 18.0) 8.6535 8.6667 -0.1522 -0.0066
(0.0, 4.0) (2.0, 20.0) 9.2832 9.3333 -0.5403 -0.0125
210
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4.9 To show that is nonlinear, consider
((1, 2, 3, 4, 5) + (66, 55, 75, 81, 63)) = (67, 57, 78, 85, 68)
= (85, 78, 68, 67, 58)
= (5, 4, 3, 2, 1) + (81, 75, 67, 63, 55)
To show that is dierentiable, consider a particular point, say (66, 55, 75, 81, 63).
Consider the permutation :
dened by
(
1
,
2
, . . . ,
5
) = (
4
,
3
,
1
,
5
,
2
)
is linear and
(66, 55, 75, 81, 63) = (81, 75, 67, 63, 55) = (66, 55, 75, 81, 63)
Furthermore, (x) = (x) for all x close to (66, 55, 75, 81, 63). Hence, (x) approxi-
mates (x) in a neighborhood of (66, 55, 75, 81, 63) and so is dierentiable at (66, 55, 75, 81, 63).
The choice of (66, 55, 75, 81, 63) was arbitrary, and the argument applies at every x such
that x
= x
.
In summary, each application of involves a permutation, although the particular
permutation depends upon the argument, x. However, for any given x
0
with x
0
=
x
0
, the same permutation applies to all x in the neighborhood of x

0
, so that the
permutation (which is a linear function) is the derivative of at x
0
.
4.10 Using (4.3), we have for any x
lim
x0
(x
0
+x) (x
0
) [x
0
](x)
x
= 0
or
lim
0
(x
0
+x) (x
0
) [x
0
](x)
x
= 0
For x = 1, this implies
lim
0
(x
0
+x) (x
0
)
=
[x
0
](x)
that is
x
[x
0
] = lim
0
(x
0
+x) (x
0
)
= [x
0
](x)
4.11 By direct calculation
[x
0
] = lim
0
(x
0
+) (x
0
= lim
0
(x
0
1
, x
0
2
, . . . , x
0
+, . . . , x
0
) (x
0
1
, x
0
2
, . . . , x
0
, . . . , x
0
= lim
0
(x
0
+e
) (x
0
)
e
[x
0
]
211
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4.12 Dene the function
() =
(
(8, 8) +(1, 1)
)
= (8 +)
1/3
(8 +)
2/3
= 8 +
The directional derivative of in the direction (1, 1) is
(1,1)
(8, 8) = lim
0
() (0)
= 1
Generalization of this example reveals that the directional derivative of along any
ray through the origin equals 1, that is

x
0[x
0
] = 1 for every x
0
. Economically,
this means that increasing inputs in the same proportions leads to a proportionate
increase in output, which is the property of constant returns to scale. We will study
this property of homogeneity is some depth in Section 4.6.
4.13 Let p = (x
0
). Each component of p represents the action of the derivative on
an element of the standard basis {e
1
, e
2
, . . . , e
}(see proof of Theorem 3.4)
= [x
0
](e
)
Since e
= 1, [x
0
](e
) is the directional derivative at x

0
in the direction e
(Exer-
cise 4.10)
= [x
0
](e
) =

e
(x
0
)
But this is simply the partial derivative of (Exercise 4.11)
= [x
0
](e
) =

e
(x
0
) =
(x
0
)
4.14 Using the standard inner product on
(Example 3.26) and Exercise 4.13

< (x
0
), x >=
=1
[x
0
]x
= [x
0
](x)
4.15 Since is dierentiable
(x
1
+x) = (x
1
) +(x
0
)
x +(x) x
with (x) 0 as x 0. If is increasing, (x
1
+ x) (x
1
) for every x 0 and
> 0. Therefore
(x
0
)
x +(x) x = (x
0
)
x +(x) x 0
Dividing by and letting 0
(x
0
)
x 0 for every x 0
In particular, this applies for unit vectors e
. Therefore
(x
1
) 0, = 1, 2, . . . ,
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4.16 The directional derivative

x
(x
0
) measures the rate of increase of in the di-
rection x. Using Exercises 4.10, 4.14 and 3.61, assuming x has unit norm,
x
(x
0
) = [x
0
](x) =< (x
0
), x >
(x
0
)
This bound is attained when x = (x

0
)/
(x
0
)
since
x
(x
0
) =< (x
0
),
(x
0
)
(x
0
)
>=
(x
0
)
2
(x
0
)
=
(x
0
)
The directional derivative is maximized when (x

0
) and x are aligned.
4.17 Using Exercise 4.14
= { x :< [x
0
], x >= 0 }
4.18 Assume each
is dierentiable at x
0
and let
[x
0
] = (
1
[x
0
],
2
[x
0
], . . . ,
[x
0
])
Then
f (x
0
+x) f [x
0
] f [x
0
]x =
1
(x
0
+x)
1
[x
0
]
1
[x
0
]x
2
(x
0
+x)
2
[x
0
]
2
[x
0
]x
.
.
.
(x
0
+x)
(x
0
)
[x
0
]x
and
(x
0
+x)
(x
0
)
[x
0
]x
x
0 as x 0
for every implies
f (x
0
+x) f (x
0
) f [x
0
](x)
x
0 as x 0 (4.43)
Therefore f is dierentiable with derivative
f [x
0
] = = (
1
(x
0
),
2
[x
0
], . . . ,
[x
0
])
Each
[x
0
] is represented by the gradient
[x
0
] (Exercise 4.13) and therefore
[x
0
] is represented by the matrix
=
1
[x
0
]
2
[x
0
]
.
.
.
[x
0
]
1
[x
0
]
2
1
[x
0
] . . .
1
[x
0
]
2
[x
0
]
2
2
[x
0
] . . .
2
[x
0
]
.
.
.
.
.
.
.
.
.
.
.
.
[x
0
]
2
[x
0
] . . .
[x
0
]
Conversely, if f is dierentiable, its derivative f [x

0
] :
be decomposed into
component
1
[x
0
],
2
[x
0
], . . . ,
[x
0
] functionals such that
f (x
0
+x) f (x
0
) f [x
0
]x =
1
(x
0
+x)
1
(x
0
)
1
[x
0
]x
2
(x
0
+x)
2
(x
0
)
2
[x
0
]x
.
.
.
(x
0
+x)
(x
0
)
[x
0
]x
213
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(4.43) implies that
(x
0
+x)
(x
0
)
[x
0
]x
x
0 as x 0
for every .
4.19 If [x
0
] has full rank, then it is one-to-one (Exercise 3.25) and onto (Exercise
3.16). Therefore [x
0
] is nonsingular. The Jacobian
(x
0
) represents [x
0
], which
is therefore nonsingular if and only if det
(x
0
) = 0.
4.20 When is a functional, rank = 1. If [x
0
] has full rank (1), then
[x
0
] maps onto (Exercise 3.16), which requires that (x
0
) = 0.
4.21
4.23 If : is bilinear
(x
0
+x, y
0
+y) = (x
0
, y
0
) +(x
0
, y) +(x, y
0
) +(x, y)
Dening
[x
0
, y
0
](x, y) = (x
0
, y) +(x, y
0
)
(x
0
+x, y
0
+y) = (x
0
, y
0
) +[x
0
, y
0
](x, y) +(x, y)
Since is continuous, there exists such that
(x, y) x y for every x and y
and therefore
NOTE This is not quite right. See Spivak p. 23. Avez (Tilburg) has
(x, y) x y
(
x +y
)
2
(x, y)
2
which implies that
(x, y)
(x, y)
0 as (x, y) 0
lim
x1,x20
(x
1
, x
2
)
x
1
x
2
= 0
Therefore is dierentiable with derivative
[x
0
, y
0
] = (x
0
, y) +(x, y
0
)
4.24 Dene :
2
by
(
1
,
2
) =
1
2
Then is bilinear (Example 3.23) and continuous (Exercise 2.79) and therefore dier-
entiable (Exercise 4.23) with derivative
[
1
, z
2
] = (z
1
, ) +(, z
2
)
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All rights reserved
The function is the composition of with and ,
(x, y) = ((x), (y))
By the chain rule, the derivative of is
[x, y] = [
1
, z
2
]
(
[x], [x]
)
= (z
1
, [y]) +([x], z
2
)
= [x][y]) +(y)[x]
where z
1
= (x) and z
2
= (y).
4.25 For = 1, () = is linear and therefore (Exercise 4.6) [] = 1 ([]() =
). For = 2, let () = so that () =
2
= ()(). Using the product rule
[x] = ()() +()() = 2
Now assume it is true for 1 and let () =
1
, so that (x) = (). By the
product rule
[x] = [] +()1
By assumption [] = ( 1)
2
and therefore
[x] = [] +()1 = ( 1)
2
+
1
=
1
4.26 Using the product rule (Exercise 4.24)
(
0
) = (
0
)
+
0
(
0
)
=
0
+
0
(
0
)
where
0
= (
0
). Marginal revenue equals one unit at the current price minus the
reduction in revenue caused by reducing the price on existing sales.
4.27 Fix some x
0
and let =
(
[x
0
]
)
1
. Let y
0
= (x
0
). For any y, let x =
1
(y
0
+y)
1
(y
0
) so that (y) = (x
0
+x) (x
)
and
1
(y
0
+y)
1
(y
0
) (y)
(x
(
(x
0
+x) (x
0
))
)
Since is dierentiable at x
0
with [x
0
] =
1
(x
0
+x) (x
0
) =
1
(x) +(x) x
Substituting
1
(y
0
+y)
1
(y
0
) (y)
x
(
1
(x) +(x) x
)
(
(x) x
)
= x
(
(x)
)
with (x) 0
as x 0
. Since
1
and are continuous,
(
(x)
)
0
as y 0.
We conclude that
1
is dierentiable with derivative =
(
[x
0
]
)
1
.
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All rights reserved
4.28
log () = log
and therefore
() = exp
(
log ()
)
=
log
By the Chain Rule, is dierentiable with derivative
() =
log
log =
log
4.29 By Exercise 4.15, the function : dened by () =
1
=
1
is dieren-
tiable with derivative
[] =
2
=
1
2
Applying the Chain Rule, 1/ = is dierentiable with derivative
[x] = [(x)][x] =
[x]
(
(x)
)
2
4.30 Applying the Product Rule to (1/)
[x, y] = (x)
1
[y] +
1
(y)
[x]
= (x)
[y]
(
(y)
)
2
+
1
(y)
[x]
=
(y)[x] (x)[y]
(
(y)
)
2
4.31 In the particular case where
(x
1
, x
2
) = x
1/3
1
x
2/3
2
the partial derivatives at the point (8, 8) are
1
[(8, 8)] =
2
3
and
2
[(8, 8)] =
1
3
4.32 The partial derivatives of (x) are from Table 4.4
[x] =
1
1

2
2
. . .
. . .
(x)
so that the gradient is

(x) =
(
1
,

2
2
, . . . ,

)
(x)
4.33 Applying the chain rule (Exercise 4.22) to general power function (Example 4.15),
the partial derivatives of the CES function are
[x] =
1
(
1
1
+
2
2
+ +
)
1
(
1
1
+
2
2
+ +
)
1
(
(x)
)
1
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4.34 Dene
() = ()
() ()

( )
Then is continuous on [, ] and dierentiable on (, ) with
() = ()
() ()

( )() = ()
By Rolles theorem (Exercise 5.8), there exists (, ) such that
() =
()
() ()

= 0
4.35 Assume (x) 0 for every x . By the mean value theorem, for any x
2
x
1
in , there exists x (x
1
, x
2
) such that
(x
2
) = (x
1
) +[ x](x
2
x
1
)
Using (4.6)
(x
2
) = (x
1
) +
=1
( x)(
2
) (4.44)
( x) 0 and x
2
x
1
implies that
=1
( x)(
2
) 0
and therefore (x
2
) (x
1
). is increasing. The converse was established in Exercise
4.15
4.36 ( x) > 0 and x
2
x
1
implies that
=1
( x)(
2
) > 0
(x
2
) = (x
1
) +
=1
( x)(
2
) > (x
1
)
4.37 Dierentiability implies the existence of the gradient and hence the partial deriv-
atives of (Exercise 4.13). Continuity of [x] implies the continuity of the partial
derivatives.
To prove the converse, choose some x
0
and dene for the partial functions
() = (
0
1
,
0
2
, . . . ,
0
1
, ,
0
+1
+
+1
, . . . ,
0
) = 1, 2, . . . ,
so that
() =
(x
) where x
= (
0
1
,
0
2
, . . . ,
0
, ,
0
+1
+
+1
, . . . ,
0
). Fur-
ther,
1
(
0
1
+
1
) = (x
0
+x),
(
0
) = (x
0
), and
(
0
) =
1
(
0
) so that
(x
0
+x) (x
0
) =
=1
(
(
0
(
0
)
)
217
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By the mean value theorem, there exists, for each ,

between
0
and
such
that
(
0
) =
( x
where x
= (
0
1
,
0
2
, . . . ,
0
,
0
+1
+
+1
, . . . ,
0
). Therefore
(x
0
+x) (x
0
) =
=1
( x
Dene the linear functional

(x) =
=1
(x
0
)
Then
(x
0
+x) (x
0
) (x) =
=1
(
( x
(x
0
)
)
and
(x
0
+x) (x
0
) (x)
=1
( x
(x
0
)
so that
lim
x0
(x
0
+x) (x
0
) (x)
=1
( x
(x
0
)
=1
( x
(x
0
)
= 0
since the partial derivatives
(x) are continuous. Therefore is dierentiable with

derivative
(x) =
=1
[x
0
]
4.38 For every x

1
, x
2

(x
1
) (x
2
) sup
x[x1,x2]
(x) x
1
x
2
by Corollary 4.1.1. If [x] = 0 for every x , then

(x
1
) (x
2
) = 0
1
) = (x
2
). We conclude that is constant on . The converse
was established in Exercise 4.7.
4.39 For any x
0
, let be an open ball of radius of radius centered on x
0
.
Applying the mean value inequality (Corollary 4.1.1) to
we have
(x)
(x)
(
(x
0
)
(x
0
)
)
sup
x
[ x]
[ x] x x
0
sup
x
[ x]
[ x]
218
All rights reserved
for every x . Given > 0, there exists such that for every , >
< / and
<
Letting
(x) (x)
(
(x
0
) (x
0
)
)
x x
0
(4.45)
for and x . Applying the mean value inequality to
, there exists such

that
(x)
(x
0
) x x
0
(4.46)
Using (4.45) and (4.46) and the fact that
< we deduce that

(x) (x
0
) (x
0
) 3 x x
0
is dierentiable with derivative .

4.40 Dene
() =

+
By the chain rule (Exercise 4.22)
() =

+
= ()
which implies (Example 4.21) that
() =

+
for some
Evaluating at = 0 using
0
= 1 gives
(0) =

= for some
so that
() =

+
which implies that
+
=
4.41 If =
() =
1
and
() =
=
To show that this is the only function with constant elasticity, dene
() =
()
is dierentiable (Exercise 4.30) with derivative
() =

() ()
1
2
=

() ()
+1
(4.47)
219
All rights reserved
If
() =
()
()
=
then
() = ()
() =

() ()
+1
= 0 for every
Therefore, is a constant function (Exercise 4.38). That is, there exists such
that
() =
()
= or () =
4.42 Dene : by
(x) = (x) [x
0
](x)
is dierentiable with
[x] = [x] [x
0
]
Applying Corollary 4.1.1 to ,
(x
1
) (x
2
) sup
x[x1,x2]
[x] x
1
x
2
for every x
1
, x
2
. Substituting for and
(x
1
) [x
0
](x
1
) (x
2
) +[x
0
](x
2
) = (x
1
) (x
2
) [x
0
](x
1
x
2
)
sup
x[x1,x2]
[x] [x
0
] x
1
x
2
4.43 Since is continuous, there exists a neighborhood of x

0
such that
[x] [x
0
] < for every x
and therefore for every x
1
, x
2

sup
x[x1,x2]
[x] [x
0
] <
By the previous exercise (Exercise 4.42)
(x
1
) (x
2
) [x
0
](x
1
x
2
) x
1
x
2
4.44 By the previous exercise (Exercise 4.43), there exists a neighborhood such that
(x
1
) (x
2
) [x
0
](x
1
x
2
) x
1
x
2
The Triangle Inequality (Exercise 1.200) implies

(x
1
) (x
2
) [x
0
](x
1
x
2
) (x
1
) (x
2
) [x
0
](x
1
x
2
) x
1
x
2
and therefore
(x
1
) (x
2
) [x
0
](x
1
x
2
) + x
1
x
2
[x
0
] + x
1
x
2
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All rights reserved
4.45 Assume not. That is, assume that
y = (x
1
) (x
2
) conv
Then by the (strong) separating hyperplane theorem (Proposition 3.14) there exists a
linear functional on such that
(y) > (a) for every a (4.48)
where
() = ((x
1
) (x
2
)) = ((x
1
)) ((x
2
))
is a functional on . By the mean value theorem (Theorem 4.1), there exists some
x [x
1
, x
2
] such that
(x
1
) (x
2
)) = ( )[ x](x
1
x
2
) = [ x](x x
2
) = ()
for some contradicting (4.44).
4.46 Dene : [, ] by
() =
(
() ()
)
()
(
() ()
)
()
[, ] and is dierentiable on , ) with
() =
(
() ()
)
()
(
() ()
)
() = ()() ()() = ()
By Rolles theorem (Exercise 5.8), there exists (, ) such that
() =
(
() ()
)
()
(
() ()
)
() = 0
4.47 The hypothesis that lim
()/() exists contains two implicit assump-

tions, namely
and are dierentiable on a neighborhood of (except perhaps at )

() = 0 in this neighborhood (except perhaps at ).

Applying the Cauchy mean value theorem, for every , there exists some
(, )
such that
)
=
() ()
() ()
=
()
()
and therefore
lim
()
()
= lim
)
= lim
()
()
4.48 Let =
1
+
2
+ +
= 1. Then from (4.12)

lim
0
() =

1
log
1
+
2
log
2
+. . .
log
=

1
log
1
+

2
log
2
+. . .

log
and therefore
lim
0
log (, x) =

1
log
1
+

2
log
2
+. . .

log
so that
lim
0
(, x) =
2
. . .
which is homogeneous of degree one.

221
All rights reserved
4.49 Average cost is given by ()/ which is undened at = 0. We seek lim
0
()/.
By LH opitals rule
lim
0
()
= lim
0
()
1
=
(0)
which is marginal cost at zero output.
4.50 1. Since lim
()/
() = k, for every > 0 there exists such that
( )
( )

< /2 for every > (4.49)

For every > , there exists (Exercise 4.46) (, ) such that
() ()
() ()
=

( )
( )
and therefore by (4.49)
() ()
() ()

< /2 for every >

2.
()
()
=
() ()
() ()

()
() ()

() ()
()
=
() ()
() ()

1
()
()
1
()
()
For xed
lim
1
()
()
1
()
()
= 1
and therefore there exists
2
such that
1
()
()
1
()
()
< 2 for every >
2
which implies that
()
()

<

2
2 for every > = max{
1
,
2
}
4.51 We know that the result holds for = 1 (Exercise 4.22). Assume that the result
holds for 1. By the chain rule
( )[x] = [(x)] [x]
If ,
, the ,
1
and therefore (by assumption) ( )
1
,
which implies that
.
222
All rights reserved
4.52 The partial derivatives of the quadratic function are
1
= 2
1
+ 2
2
2
= 2
1
+ 2
2
The second-order partial derivatives are
11
= 2
21
= 2
12
= 2
22
= 2
4.53 Apply Exercise 4.37 to each partial derivative
[x].
4.54
(x
0
) =
(

11
[x
0
]
12
[x
0
]
21
[x
0
]
22
[x
0
]
)
= 2
(

)
4.55
4.56 For any
1
, dene : by
() = () +
[](
1
) +
2
(
1
)
2
is dierentiable on with
() =
[]
[] +
[](
1
) 2
2
(
1
) =
[](
1
) 2
2
(
1
)
Note that (
1
) = (
1
) and
(
0
) = (
0
) +
(
0
)(
1

0
) +
2
(
1

0
)
2
(4.50)
is a quadratic approximation for near
0
. If we require that this be exact at
1
=
0
,
then (
0
) = (
1
) = (
1
). By the mean value theorem (Theorem 4.1), there exists
some between
0
and
1
such that
(
1
) (
0
) =
( )(
1

0
) =
( )(
1

0
) 2
2
(
1
) = 0
which implies that
2
=
1
2
( )
Setting =
1
0
in (4.50) gives the required result.
4.57 For any
1
, dene : by
() = () +
[](
1
) +
1
2
[](
1
)
2
+
1
3!
(3)
[](
1
)
3
+. . .
+
1
!
()
[](
1
)
+
+1
(
1
)
+1
is dierentiable on with
() =
[]
[] +
[](
1
)
[](
1
) +
1
2
(3)
[](
1
)
2
1
2
(3)
[](
1

0
)
2
+. . .
+
1
( 1)!
()
[](
1
)
1
+
1
!
(+1)
[](
1
)
( + 1)
+1
(
1
)
All but the last two terms cancel, so that
() =
1
!
(+1)
[](
1
)
( + 1)
+1
(
1
)
=
(
1
!
(+1)
[] ( + 1)
+1
)
(
1
)
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All rights reserved
Note that (
1
) = (
1
) and
(
0
) = (
0
) +
[
0
](
1

0
) +
1
2
[
0
](
1

0
)
2
+
1
3!
(3)
[
0
](
1

0
)
3
+. . .
+
1
!
(+1)
[
0
](
1

0
)
+
+1
(
1
0
)
+1
(4.51)
is a polynomial approximation for near
0
. If we require that
+1
be such that
(
0
) = (
1
) = (
1
), there exists (Theorem 4.1) some between
0
and
1
such
that
(
1
) (
0
) =
( )(
1

0
) = 0
which for
1
=
0
implies that
( ) =
1
!
+1
[ ] ( + 1)
+1
= 0
or
+1
=
1
( + 1)!
+1
[ ]
Setting =
1
0
in (4.51) gives the required result.
4.58 By Taylors theorem (Exercise 4.57), for every
0
, there exists between
0 and such that
(
0
+) = (
0
) +
[
0
] +
1
2
[
0
]
2
+()
where
() =
1
3!
(3)
[ ]
3
and
()
2
=
1
3!
(3)
[ ]()
Since
3
,
(3)
[ ] is bounded on [0, ] and therefore
lim
0
()
2
= lim
0
1
3!
(3)
[ ]() = 0
4.59 The function : dened by
() = x
0
+ (1 )x
is
with [] = x and
() = 0 for = 2, 3, . . . . By Exercise 4.51, the

composite function = is
+1
. By the Chain rule
() = [()] [] = [()](x)
Similarly
() =
(
[()](x)
)
=
2
[()] [](x x
0
)
=
2
[()](x)
(2)
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All rights reserved
and for all 1 + 1
()
() =
(
(1)
[()](x)
(1)
)
=
[()] [](x x
0
)
(1)
=
[()](x)
()
4.60 From Exercise 4.54, the Hessian of is
(x) = 2
(

)
and the gradient of is
(x) = (2
1
, 2
2
) with
(
(0, 0)
)
= 0
so that the second order Taylor series at (0, 0) is
(x) = (0, 0) +(0, 0)x +
1
2
2x
(

)
x
=
2
1
+ 2
1
2
+
2
2
Not surprisingly, we conclude that the best quadratic approximation of a quadratic
function is the function itself.
4.61 1. Since [x
0
] is continuous and one-to-one (Exercise 3.36), there exists a
constant such that
x
1
x
2
[x
0
](x
1
x
2
) (4.52)
Let = /2. By Exercise 4.43, there exists a neighborhood such that
[x
0
](x
1
x
2
) ((x
1
) (x
2
)) = (x
1
) (x
2
) [x
0
](x
1
x
2
) x
1
x
2
for every x
1
, x
2
. The Triangle Inequality (Exercise 1.200) implies
[x
0
](x
1
x
2
) ((x
1
) (x
2
)) x
1
x
2
Substituting (4.52)
2 x
1
x
2
((x
1
) (x
2
)) x
1
x
2
That is
x
1
x
2
((x
1
) (x
2
)) (4.53)
and therefore
(x
1
) = (x
2
) = x
1
= x
2
2. Let = (). Since the restriction of to is one-to-one and onto, and therefore
there exists an inverse
1
: . For any y
1
, y
2
, let x
1
=
1
(y
1
) and
x
2
=
1
(y
2
). Substituting in (4.53)
1
(y
1
)
1
(y
2
)
y
1
y
2
so that
1
(y
1
)
1
(y
2
)
y
1
y
2
1
is continuous.
225
All rights reserved
3. Since is open, =
1
() is open. Therefore, = () is a neighborhood of
(x
0
). Therefore, is locally onto.
4.62 Assume to the contrary that there exists x
0
= x
1
with (x
0
) = (x
1
). Let
x = x
1
x
0
. Dene : [0, 1] by () = (1 )x
0
+x
1
= x
0
+x. Then
(0) = x
0
(1) = x
1

() = x
Dene
() = x
(
()
)
(x
0
)
)
Then
(0) = 0 = (1)
By the mean value theorem (Mean value theorem), there exists 0 < < 1 such that
() and
() = x
[()]x = x
(())x = 0
which contradicts the deniteness of
.
4.63 Substituting the linear functions in (4.35) and (4.35), the IS-LM model can be
expressed as
(1
=
0
+
0
+
= /
which can be rewritten in matrix form as
(
1
)(

)
=
(

/
)
where =
0
+
0
+. Provided the system is nonsingular, that is
=
= 0
the system can be solved using Cramers rule (Exercise 3.103) to yield
=
(1
)/
4.64 The kernel

kernel [(x
0
,
0
)] = { (x, ) : [(x
0
,
0
)](x, ) = 0 }
is the set of solutions to the equation
[x
0
,
0
]
(
x
)
=
(

x
(x
0
,
0
)x +
(x
0
,
0
)
)
=
(
0
0
)
Only = 0 satises this equation. Substituting = 0, the equation reduces to
x
(x
0
,
0
)x = 0
which has a unique solution x = 0 since
x
[x
0
,
0
] is nonsingular. Therefore the
kernel of [x
0
,
0
] consists of the single point (0, 0) which implies that [x
0
,
0
] is
nonsingular (Exercise 3.19).
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4.65 The IS curve is horizontal if its slope is zero, that is
=
1
This requires either

1. unit marginal propensity to consume (
= 1)
2. innite interest elasticity of investment (
= )
4.66 The LM curve = () is implicitly dened by the equation
(, ; , , ) = (, ) / = 0
the slope of which is given by
Economic considerations dictate that the numerator (
) is positive while the de-

nominator (
) is negative. Preceded by a negative sign, the slope of the LM curve

is positive. The LM curve would be vertical (innite slope) if the interest elasticity of
the demand for money was zero (
= 0).
4.67 Suppose is convex. For any x, x
0
let
() =
(
x + (1 )x
0
)
(x) + (1 )(x
0
)
for 0 < < 1. Subtracting (0) = (x
0
)
() (0) (x) (x
0
)
and therefore
(x) (x
0
)
() (0)
Using Exercise 4.10

(x) (x
0
) lim
0
() (0)
x
[x
0
] = [x
0
](x x
0
)
Conversely, let x
0
= x
1
+(1 )x
2
for any x
1
, x
2
. If satises (4.29) on , then
(x
1
) (x
0
) +[x
0
](x
1
x
0
)
(x
2
) (x
0
) +[x
0
](x
2
x
0
)
and therefore for any 0 1
(x
1
) (x
0
+[x
0
](x
1
x
0
)
(1 )(x
2
) (1 )(x
0
+ (1 )[x
0
](x
2
x
0
)
Adding and using the linearity of (Exercise 4.21)
(x
1
) + (1 )(x
2
) (x
0
) +[x
0
](x
1
+ (1 )x
2
x
0
) (4.54)
= (x
0
) = (x
1
+ (1 )x
2
)
That is, is convex. If (4.29) is strict, so is (4.54).
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4.68 Since is convex, it has a subgradient
(Exercise 3.181) such that

(x) (x
0
) +(x x
0
) for every x
(4.31) implies that is also a subgradient of on
(x) (
0
) +(x x
0
) for every x
Since is dierentiable, this implies that is unique (Remark 4.14) and equal to the
derivative of . Hence is dierentiable at x
0
with [x
0
] = [x
0
].
4.69 Assume is convex. For every x, x
0
, Exercise 4.67 implies
(x) (x
0
) +(x
0
)
(
x x
0
)
(x
0
) (x) +(x)
(
x
0
x
)
Adding
(x) +(x
0
) (x) +(x
0
) +(x)
(
x
0
x
)
+(x
0
)
(
x x
0
)
or
(x)
(
x x
0
)
(x
0
)
(
x x
0
)
and therefore
(x) (x
0
)
x x
0
0
When is strictly convex, the inequalities are strict.
Conversely, assume (4.32). By the mean value theorem (Theorem 4.1), there exists
x (x, x
0
) such that
(x) (x
0
) = ( x)
x x
0
By assumption
( x) (x
0
)
x x
0
0
But
x x
0
= x
0
+ (1 )x x
0
= (1 )(x x
0
)
and therefore
(1 )( x) (x
0
)
x x
0
0
so that
( x)
x x
0
(x
0
)
x x
0
0
and therefore
(x) (x
0
) = ( x)
x x
0
(x
0
)
x x
0
Therefore is convex by Exercise 4.67.
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4.70 For , () =
() and (4.32) becomes

(
(
2
)
(
1
)(
2

1
) 0
for every
1
,
2
. This is equivalent to
(
2
)(
2

1
)
(
1
)(
2

1
)0
or
2
>
1
=
(
2
)
(
1
)
is strictly convex if and only if the inequalities are strict.
4.71
is increasing if and only if
0 (Exercise 4.35).
is strictly increasing
if
> 0 (Exercise 4.36).

4.72 Adapting the previous example
() = ( 1)
2 =
= 0 if = 1
0 if = 2, 4, 6,
indeterminate otherwise
Therefore, the power function is convex if is even, and neither convex if 3 is odd.
It is both convex and concave when = 1.
4.73 Assume is quasiconcave, and (x) (x
0
). Dierentiability at x
0
implies for
all 0 < < 1
(x
0
+(x x
0
) = (x
0
) +(x
0
)(x x
0
) +() (x x
0
)
where () 0 and 0. Quasiconcavity implies
(x
0
+(x x
0
) (x
0
)
and therefore
(x
0
)(x x
0
) +() (x x
0
) 0
Dividing by and letting 0, we get
(x
0
)(x x
0
) 0
Conversely, assume is a dierentiable functional satisfying (4.36). For any x
1
, x
2

with (x
1
) (x
2
for every x, x
0
), dene : [0, 1] by
() =
(
(1 )x
1
+x
2
)
=
(
x
1
+(x
2
x
1
)
)
We need to show that () (1) for every (0, 1). Suppose to the contrary that
(
1
) < (1). Then (see below) there exists
0
with (
0
) < (1) and
(
0
) < 0. By
the Chain Rule, this implies
(
0
) = (x
0
)(x
2
x
1
) < 0
critical where x
0
= x
1
+(x
2
x
1
). Since x
2
x
0
= (1 )(x
2
x
1
) this implies that
(
0
) =
1
1
(x
0
)(x
2
x
0
) (4.55)
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On the other hand, since (x
0
) (x
2
), (4.36) implies
(x
0
)(x
2
x
0
) 0
contradicting (4.55).
To show that there exists
0
with (
0
) < (1) and
(
0
) < 0: Since is continuous,
there exists an open interval (, ) with <
1
< with () = () = (1) and
() < (1) for every (, ). By the Mean Value Theorem, there exist
0
(,
1
)
such that
0 < (
1
) () =
(
0
)(
1
)
which implies that
(
0
) > 0.
4.74 Suppose to the contrary that
(x) > (x
0
) and (x
0
)(x x
0
) 0
critical Let x
1
= (x
0
) = 0. For every
+
(x
0
)(x +x
1
x
0
) = (x
0
)x
1
+(x
0
)(x x
0
)
(x
0
)x
1
= (x
0
)
2
< 0
Since is continuous, there exists > 0 such that
(x +x
1
) > (x
0
) and (x
0
)(x +x
1
x
0
) < 0
contradicting the quasiconcavity of (4.36).
4.75 Suppose
(x) < (x
0
) = (x
0
)(x x
0
) < 0
This implies that
(x) > (x
0
) = (x
0
)(x x
0
) > 0
and is pseudoconcave.
4.76 1. If [] is concave (and dierentiable)
(x) (x
0
) +(x
0
)
(x x
0
)
for every x, x
0
(equation 4.30). Therefore
(x) > (x
0
) = (x
0
)
(x x
0
) > 0
is pseudoconcave.
2. Assume to the contrary that is pseudoconcave but not quasiconcave. Then,
there exists x = x
1
+ (1 )x
2
, x
1
, x
2
such that
( x) < min{(x
1
), (x
2
)} (4.56)
Assume without loss of generality that
( x) < (x
1
) (x
2
)
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Pseudoconcavity (4.38) implies
( x)(x
2
x) > 0 (4.57)
Since x
1
= ( x (1 )x
2
)/
x
1
x =
1
(
x (1 )x
2
x
)
=
1
(x
2
x)
Substituting in (4.57) gives
( x)(x
1
x) < 0
which by pseudoconcavity implies (x
1
) ( x) contradicting our assumption
(4.56) .
3. Exercise 4.74.
4.77 The CES function is quasiconcave provided 1 (Exercise 3.58). Since
(x) >
0 for all x
+
+, the CES function with 1 is pseudoconcave on
++
.
4.78 Assume that : is homogeneous of degree , so that for every x
(x) =
(x) for every > 0

Dierentiating both sides of this identity with respect to
(x) =
(x)
and dividing by > 0
(x) =
1
(x)
4.79 If is homogeneous of degree
x
(x) = lim
0
(x +x) (x)
= lim
0
((1 +)x) (x)
= lim
0
(1 +)
(x) (x)
= lim
0
(1 +)
(x)
Applying LHopitals Rule (Exercise 4.47)
lim
0
(1 +)
1
(x) = lim
0
(1 +)
1
1
=
and therefore
x
(x) = (x) (4.58)
4.80 For xed x, dene
() = (x)
By the Chain Rule
() = [x](x) = (x) = () (4.59)

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using(4.40). Dierentiating the product ()
(
()
)
= ()
1
+
() =
() ()
)
= 0
from (4.59). Since this holds for every , ()
must be constant (Exercise 4.38), that

is there exists such that
()
= = () =
Evaluating at = 1, (1) = and therefore

() =
(1)
Since () = (x) and (1) = (x), this implies
(x) =
(x) for every x and > 0

is homogeneous of degree .
4.81 If is linearly homogeneous and quasiconcave, then is concave (Proposition
3.12). Therefore, its Hessian is nonpositive denite (Proposition 4.1). and its diagonal
elements
2
(x) are nonpositive (Exercise 3.95). By Wicksells law,

2
(x) is
nonnegative.
4.82 Assume is homogeneous of degree , that is
(x) =
(x) for every x and > 0

By Eulers theorem
[x](x) = (x)
and therefore the elasticity of scale is
(x) =

(x)
(x)
=1
=

(x)
(x) =
(x) =

(x)
(x)
=1
=
that is
(x) = (x)
By Eulers theorem, is homogeneous of degree .
4.83 Assume () is dierentiable and homogeneous of degree = 0. By Eulers
theorem
[x](x) = (x) = 0
for every x such that (x) = 0.
4.84 satises Eulers theorem
(x) =
=1
(x)
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Dierentiating with respect to
(x) =
=1
(x)
(x)
or
( 1)
(x) =
=1
(x)
= 1, 2, . . . ,
Multiplying each equation by
and summing
( 1)
=1
(x)
=1
=1
(x)
= x
x
By Eulers theorem, the left hand side is
( 1)(x) = x
x
4.85 If is homothetic, there exists strictly increasing and linearly homogeneous
such that = (Exercise 3.175). Using the Chain Rule and Exercise 4.78
(x) =
((x))
(x) =
((x))
(x)
and therefore
(x)
(x)
=

((x))
(x)
((x))
(x)
=

(x)
(x)
=

((x)
(x)
((x))
(x)
=

(x)
(x)
233
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Chapter 5: Optimization
5.1 As stated, this problem has no optimal solution. Revenue () increases without
bound as the rate of exploitation gets smaller and smaller. Given any positive ex-
ploitation rate
0
, a smaller rate will increase total revenue. Nonexistence arises from
inadequacy in modeling the island leaders problem. For example, the model ignores
any costs of extraction and sale. Realistically, we would expect per-unit costs to de-
crease with volume (increasing returns to scale) at least over lower outputs. Extraction
and transaction costs should make vanishingly small rates of output prohibitively ex-
pensive and encourage faster utilization. Secondly, even if the government weights
future generations equally with the current generation, it would be rational to value
current revenue more highly than future revenue and discount future returns. Dis-
counting is appropriate for two reasons
Current revenues can be invested to provide a future return. There is an oppor-
tunity cost (the interest foregone) to delaying extraction and sale.
Innovation may create substitutes which reduce the future demand for the fertil-
izer. If the government is risk averse, it has an incentive to accelerate exploitation,
trading-o of lower total return against reduced risk.
5.2 Suppose that x
is a local optimum which is not a global optimum. That is, there

exists a neighborhood of x
such that
(x

and also another point x
() such that
(x
, ) > (x
, )
Since () is convex, there exists (0, 1) such that
x
+ (1 )x
()
By concavity of
(x
+ (1 )x
, ) (x
, ) + (1 )(x
, ) > (x
, )
contradicting the assumption that x
is a local optimum.
5.3 Suppose that x
is a local optimum which is not a global optimum. That is, there

exists a neighborhood of x
such that
(x

and also another point x
() such that
(x
, ) > (x
, )
x
+ (1 )x
()
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By strict quasiconcavity of
(x
+ (1 )x
, ) > min{ (x
, ), (x
, ) } > (x
, )
is a local optimum. Therefore, if x
is local
optimum, it must be a global optimum.
Now suppose that x
is a weak global optimum, that is

(x
, ) (x, ) for every x

but there another point x
such that
(x
, ) = (x
, )
x
+ (1 )x
()
By strict quasiconcavity of
(x
+ (1 )x
, ) > min{ (x
, ), (x
, ) } = (x
, )
is a global optimum. We conclude that every

optimum is a strict global optimum and hence unique.
5.4 Suppose that x
is a local optimum of (5.3) in , so that

(x
) (x) (5.80)
for every x in a neighborhood of x
. If is dierentiable,
(x) = (x
) +[x
](x x
) +(x) x x
where (x) 0 as x x
. (5.80) implies that there exists a ball
(x
) such that
[x
](x x
) +(x) x x
0
for every x
(x
). Letting x x
, we conclude that
[x
](x x
) 0
for every x
(x
).
Suppose there exists x
(x
) such that
[x
](x x
) = < 0
Let dx = xx
so that x = x
+dx. Then x
dx
(x
). Since [x
] is linear,
[x
](dx) = [x
](dx) = > 0
contradicting (5.80). Therefore
[x
](x x
) = 0
for every x
(x
).
235
All rights reserved
5.5 We apply the reasoning of Example 5.5 to each component. Formally, for each ,
let

be the projection of along the
axis
) = (
1
,
2
, . . . ,
1
,
+1
, . . . ,
maximizes

) over
+
, for which it is necessary that
) 0
) = 0
Substituting
) =
[x
]
yields
[x
] 0
[x
] = 0
5.6 By Taylors Theorem (Example 4.33)
(x
+dx) = (x
) +(x
)dx +
1
2
dx
(x
)dx +(dx) dx
2
with (dx) 0 as dx 0. Given
1. (x
) = 0 and
2.
(x
) is negative denite
and letting dx 0, we conclude that
(x
+dx) < (x
)
for small dx. x
is a strict local maximum.

5.7 If x
is a local minimum of (x), it is necessary that

(x
) (x)
for every x in a neighborhood of x
. Assuming that is
2
, (x) can be approxi-
mated by
(x) (x
) +(x
)dx +
1
2
dx
(x
)dx
where dx = xx
. If x
is a local minimum, then there exists a ball
(x
) such that
(x
) (x
) + (x
)dx +
1
2
dx
(x
)dx
or
(x
)dx +
1
2
dx
(x
)dx 0
for every dx
(x
). To satisfy this inequality for all small dx requires that the

rst term be zero and the second term nonnegative. In other words, for a point x
to
be a local minimum of a function , it is necessary that the gradient be zero and the
Hessian be nonnegative denite at x
. Furthermore, by Taylors Theorem

(x
+dx) = (x
) +(x
)dx +
1
2
dx
(x
)dx +(dx) dx
2
with (dx) 0 as dx 0. Given
236
All rights reserved
1
2
1
2
3
(1,2,3)
1
2
0
1
Figure 5.1: The strictly concave function (
1
,
2
) =
1
2
+3
2
2
1
2
2
has a unique
global maximum.
1. (x
) = 0 and
2.
(x
) is positive denite
and letting dx 0, we conclude that
(x
+dx) > (x
)
for small dx. x
is a strict local minimum.

5.8 By the Weierstrass theorem (Theorem 2.2), has a maximum
and a minimum
on [, ]. Either

(, ) and
) = 0 (Theorem 5.1) or

(, ) and
) = 0 (Exercise 5.7) or
Both maxima and minima are boundary points, that is
{, } which
implies that is constant on [, ] and therefore
() = 0 for every (, )
(Exercise 4.7).
5.9 The rst-order conditions for a maximum are
1
(
1
,
2
) =
2
2
1
= 0
2
(
1
,
2
) =
1
+ 3 2
2
= 0
which have the unique solution
1
= 1,
2
= 2. (1, 2) is the only stationary point of
and hence the only possible candidate for a maximum. To verify that (1, 2) satises
the second-order condition for a maximum, we compute the Hessian of
(x) =
(
2 1
1 2
)
which is negative denite everywhere. Therefore (1, 2) is a strict local maximum of .
Further, since is strictly concave (Proposition 4.1), we conclude that (1, 2) is a strict
global maximum of (Exercise 5.2), where it attains its maximum value (1, 2) = 3
(Figure 5.1).
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All rights reserved
5.10 The rst-order conditions for a maximum (or minimum) are
1
() = 2
1
= 0
2
() = 2
2
= 0
which have a unique solution
1
=
2
= 0. This is the only stationary point of . Since
the Hessian of
=
(
2 0
0 2
)
is positive denite, we deduce (0, 0) is a strict global minimum of (Proposition 4.1,
Exercise 5.2).
5.11 The average rms prot function is
(, ) =
1
2

1
6
and the rms prot maximization problem is
max
,
(, ) =
1/6
1/3
1
2

1
6
A necessary condition for a prot maximum is that the prot function be stationary,
that is
(, ) =
1
6
5/6
1/3
1
2
= 0
(, ) =
1
3
1/6
2/3
1 = 0
which can be solved to yield
= =
1
9
The rms output is
=
1
9
1/6
1
9
1/3
=
1
3
and its prot is
(
1
3
,
1
3
) =
1
3

1
2
1
9

1
9

1
6
= 0
5.12 By the Chain Rule
x
( )[x
] =
x
[x
] = 0
Since > 0
x
( )[
] = 0
x
[x
] = 0
has the same stationary points as .
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5.13 Since the log function is monotonic, nding the maximum likelihood estimators is
equivalent to solving the maximization problem ( Exercise 5.12)
max
,
log (, ) =
2
log 2 log
1
2
2
=1
(
)
2
For ( ,
2
) to solve this problem, it is necessary that log be stationary at ( ,
2
),
that is
log ( ,
2
) =
1

2
=1
(
) = 0
log ( ,
2
) =

+
1

3
=1
(
)
2
= 0
= =
1
=1

2
=
1
=1
(
)
2
5.14 The gradient of the objective function is
(x) =
(
2(
1
1)
2(
2
1)
)
while that of the constraint is
(x) =
(
2
1
2
2
)
A necessary condition for the optimal solution is that these be proportional that is
() =
(
2(
1
1)
2(
2
1)
)
=
(
2
1
2
2
)
= (x)
1
=
2
=
1
1 +
which includes an unknown constant of proportionality . However, any solution must
also satisfy the constraint
(
1
,
2
) = 2
(
1
1 +
)
2
= 1
This can be solved for
=
2 1
and substituted into (5.80)
1
=
2
=
1
2
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5.15 The consumers problem is
max
x0
(x) =
1
+ log
2
subject to (x) =
1
+
2
2
= 0
The rst-order conditions for a (local) optimum are
1
(x
) = 1 =
1
(
)
1
0
1
(1 ) = 0 (5.81)
2
(x
) =

2

2
=
2
(
)
2
0
2
(

2
)
= 0 (5.82)
We can distinguish two cases:
Case 1
1
= 0 in which case the budget constraint implies that
2
= /
2
.
Case 2
1
> 0 In this case, (5.81) implies that = 1. Consequently, the rst inequal-
ity of (5.82) implies that
2
> 0 and therefore the last equation implies
2
= /
2
with
1
= .
We deduce that the consumer rst spends portion of her income on good 2 and the
remainder on good 1.
5.16 Suppose without loss of generality that the rst components of y
are strictly
positive while the remaining components are zero. That is
> 0 = 1, 2, . . . ,
= 0 = + 1, + 2, . . . ,
(x
, y
) solves the problem

max (x)
subject to g(x) = 0
= 0 = + 1, + 2, . . . ,
By Theorem 5.2, there exist multipliers
1
,
2
, . . . ,
and
+1
,
+2
, . . . ,
such that
x
[x
, y
] =
=1
[x
, y
y
[x
, y
] =
=1
[x
, y
] +
=+1
Furthermore,
0 for every so that
y
[x
, y
=1
[x
, y
]
with
[x
, y
] =
=1
[x
, y
] if
> 0
5.17 Assume that x
= (
1
,
2
) solves
max
1,2
(
1
,
2
)
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subject to
(
1
,
2
) = 0
By the implicit function theorem, there exists a function : such that
1
= (
2
) (5.83)
and
((
2
),
2
) = 0
for
2
in a neighborhood of
2
. Furthermore
[
2
] =
1
[x
2
[x
]
(5.84)
Using (5.41), we can convert the original problem into the unconstrained maximization
of a function of a single variable
max
2
((
2
),
2
)
If
2
maximizes this function, it must satisfy the rst-order condition (applying the
Chain Rule)
1
[] [
2
] +
2
[x
] = 0
Substituting (5.42) yields
1
[]
(
1
[x
2
[x
]
)
+
2
[x
] = 0
or
1
[]
2
[x
]
=

1
[x
2
[x
]
5.18 The consumers problem is
max
x
(x)
subject to p
x =
Solving for
1
from the budget constraint yields
1
=

=2
1
Substituting this in the utility function, the aordable utility levels are
(
2
,
3
, . . . ,
) =
(
=2
1
,
2
,
3
, . . . ,
)
(5.85)
and the consumers problem is to choose (
2
,
3
, . . . ,
) to maximize (5.85). The

rst-order conditions are that (
2
,
3
, . . . ,
) be stationary, that is for every good

= 2, 3, . . . ,
(
2
,
3
, . . . ,
) =
1
(x
=2
1
)
+
(x
) = 0
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which reduces to
1
(x
)(
) +
(x
) = 0
or
1
(x
(x
)
=

1
= 2, 3, . . . ,
This is the familiar equality between the marginal rate of substitution and the price
ratio (Example 5.15). Since our selection of
1
was arbitrary, this applies between any
two goods.
5.19 Adapt Exercise 5.6.
5.20 Corollary 5.1.2 implies that x
is a global maximum of (x, ), that is

(x
, ) (x, ) for every x

which implies
(x
(x
) (x)
(x) for every x

Since g(x
) = 0 this implies
(x
) (x)
(x) for every x

A fortiori
(x
) (x) for every x = { x : g(x) = 0}

5.21 Suppose that x
is a local maximum of on . That is, there exists a neighborhood

such that
(x
) (x) for every x

But for every x ,
(x) = 0 for every and

(x) = (x) +
(x) = (x)
and therefore
(x
) (x) for every x

5.22 The area of the base is
Base =
2
= /3
and the four sides
Sides = 4
= 4
12
=
4
16
=
2
3
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5.23 Let the dimensions of the vat be . We wish to
min
,,
Surface area = = + 2 + 2
subject to = 32
The Lagrangean is
(, , , ) = + 2 + 2 .
The rst-order conditions for a maximum are
= + 2 = 0 (5.86)
= + 2 = 0 (5.87)
= 2 + 2 = 0 (5.88)
= 32
Subtracting (5.45) from (5.44)
= ( )
This equation has two possible solutions. Either
=
1
or =
But if = 1/, (5.44) implies that = 0 and the volume is zero. Therefore, we conclude
that = . Substituting = in (5.45) and (5.46) gives
+ 2 =
4 =
2
from which we deduce that
=
4
+ 2 =
4
= 4
which implies that
= 2 or =
1
2
To achieve the required volume of 32 cubic metres requires that

=
1
2
= 32
so that the dimensions of the vat are
= 4 = 4 = 2
The area of sheet metal required is
= + 2 + 2 = 48
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5.24 The Lagrangean for this problem is
(x, ) =
2
1
+
2
2
+
2
3
(2
1
3
2
+ 5
3
19)
A necessary condition for x
to solve the problem is that the Lagrangean be stationary

at x
, that is
1
= 2
1
2 = 0
2
= 2
2
+ 3 = 0
3
= 2
3
5 = 0
which implies
1
=
2
=
3
2

2
=
5
2
(5.89)
It is also necessary that the solution satisfy the constraint, that is
2
1
3
2
+ 5
3
= 19
Substituting (5.89) into the constraint we get
2 +
9
2
+
25
2
= 19 = 19
which implies = 1. Substituting in (5.89), the solution is x
= (1,
3
2
,
5
2
). Since the
constraint is ane and the objective () is concave, stationarity of the Lagrangean
is also sucient for global optimum (Corollary 5.2.4).
5.25 The Lagrangean is
(
1
,
2
, ) =
1
2
(
1
1
+
2
2
)
The Lagrangean is stationary where
1
=
1
1

1
2

1
= 0
2
= 1
11
2

2
= 0
Therefore the rst-order conditions for a maximum are
1
1

1
2
=
1
(5.90)
1
11
2
=
2
(5.91)
1
+
2
2
(5.92)
Dividing (5.48) by (5.49) gives
1
1

1
2
1
(1)1
2
=
1
2
which simplies to
2
(1 )
1
=

1
2
or
2
2
=
(1 )
1
Substituting in the budget constraint (5.50)
1
+
(1 )
1
=
+ (1 )
1
=
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so that
1
=

+ (1 )
1
From the budget constraint (5.92)
2
=
(1 )
+ (1 )
2
(x, ) =
1
1

2
2
. . .
(
1
1
+
2
2
+... +
)
The rst-order conditions for a maximum are
1
1

2
2
. . .
1
. . .
()
= 0
or
()
= 1, 2, . . . , (5.93)
Summing over all goods and using the budget constraint
=1
()
=
()
=1
=1
=
Letting
=1
= , this implies
(x)

or
= 1, 2, . . . ,
(x, ) =
1
1
+
2
2
(
1
+
).
The necessary conditions for stationarity are
1
(x, ) =
1
1
1
= 0
2
(x, ) =
2
1
2
= 0
or
1
=
1
1
2
=
1
2
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which reduce to
2
=

1
1
1
2
1
2
=

2
1
1
2
=
(
1
)

1
1
Substituting in the production constraint
1
+
(
1
)

1
1
=
(
1 +
(
1
)

1
)
1
=
we can solve
1
1
=
(
1 +
(
1
)

1
)
1
1
=
(
1 +
(
1
)

1
)
1/
Similarly
2
=
(
1 +
(
2
)

1
)
1/
5.28 Example 5.27 is awed. The optimum of the constrained maximization problem
( = /2) is in fact a saddle point of the Lagrangean. It maximizes the Lagrangean in
the feasible set, but not globally.
The net benet approach to the Lagrange multiplier method is really only applicable
when the Lagrangean (net benet function) is concave, so that every stationary point
is a global maximum. This requirement is satised in many standard examples, such
as the consumers problem (Example 5.21) and cost minimization (Example 5.28). It
is also met in Example 5.29. The requirement of concavity is not recognized in the
text, and Section 5.3.6 should be amended accordingly.
5.29 The Lagrangean
(x, ) =
=1
) +
(
=1
)
(5.94)
can be rewritten as
(x, ) =
=1
(
)
)
+ (5.95)
The th term in the sum is the net prot of plant if its output is valued at . Therefore,
if the company undertakes to buy electricity from its plants at the price and instructs
each plant manager to produce so as to maximize the plants net prot, each manager
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All rights reserved
will be induced to choose an output level which maximizes the prot of the company
as a whole. This is the case whether the price is the market price at which the
company can buy electricity from external suppliers or the shadow price determined
by the need to satisfy the total demand . In this way, the shadow price can be used
to decentralize the production decision.
(
1
,
2
,
1
,
2
) =
1
1
(
2
1
+ 2
2
2
3)
2
(2
2
1
+
2
2
3)
The rst-order conditions for stationarity
1
=
2
2
1
1
4
2
1
= 0
2
=
1
4
1
2
2
2
2
= 0
can be written as
2
= 2(
1
+ 2
2
)
1
(5.96)
1
= 2(2
1
+
2
)
2
(5.97)
which must be satised along with the complementary slackness conditions
2
1
+ 2
2
2
3 0
1
0
1
(
2
1
+ 2
2
2
3) = 0
2
2
1
+
2
2
3 0
2
0
2
(2
2
1
+
2
2
3) = 0
First suppose that both constraints are slack so that
1
=
2
= 0. Then the rst-order
conditions (5.96) and (5.97) imply that
1
=
2
= 0. (0, 0) satises the Kuhn-Tucker
conditions. Next suppose that the rst constraint is binding while the second constraint
is slack (
2
= 0). The rst-order conditions (5.96) and (5.97) have two solutions,
1
=
3/2,
2
=
3/2, = 1/(2
2) and
1
=
3/2,
2
=
3/2, = 1/(2
2),
but these violate the second constraint. Similarly, there is no solution in which the rst
constraint is slack and the second constraint binding. Finally, assume that the both
constraints are binding. This implies that
1
=
2
= 1 or
1
=
2
= 1, which points
satisfy the rst-order conditions (5.96) and (5.97) with
1
=
2
= 1/6.
We conclude that three points satisfy the Kuhn-Tucker conditions, namely (0, 0), (1, 1)
and (1, 1). Noting the objective function, we observe that (0, 0) in fact minimizes
the objective. We conclude that there are two local maxima, (1, 1) and (1, 1), both
of which achieve the same level of the objective function.
5.31 Dividing the rst-order conditions, we obtain
(, )
(, )
=

( )
(1 )
Using the revenue function
(, ) = ((, ))(, )
the marginal revenue products of capital and labor are
(, ) =
()
(, )
(, ) =
()
(, )
so that their ratio is equal to the ratio of the marginal products
(, )
(, )
=

(, )
(,
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The necessary condition for optimality can be expressed as
(, )
(, )
=

whereas the necessary condition for cost minimization is (Example 5.16)
(, )
(, )
=

The regulated rm does not use the cost-minimizing combination of inputs.

5.32 The general constrained optimization problem
max
x
(x)
subject to g(x) 0
can be transformed into an equivalent equality constrained problem
max
x,s
(x)
subject to g(x) +s = 0 and s 0
through the addition of nonnegative slack variables s. Letting g(x, s) = g(x) +s, the
rst-order conditions a local optimum are (Exercise 5.16)
x
(x
) =
(x
, s
) =
(x
)
0 =
s
(x
(x, s) = (5.98)
s 0
s = 0 (5.99)
Condition (5.98) implies that
0 for every . Furthermore, rewriting the constraint

as
s = g(x)
the complementary slackness condition (5.99) becomes
g(x) 0
g(x) = 0
This establishes the necessary conditions of Theorem 5.3.
5.33 The equality constrained maximization problem
max
x
(x)
subject to g(x) = 0
is equivalent to the problem
max
x
(x)
subject to g(x) 0
g(x) 0
By the Kuhn-Tucker theorem (Theorem 5.3), there exists nonnegative multipliers
+
1
,
+
2
, . . . ,
+
and
1
,
2
, . . . ,
such that
(x
) =
[x
[x
] = 0 (5.100)
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All rights reserved
with
(x) = 0 and
(x) = 0 = 1, 2, . . . ,
Dening
=
+
, (5.100) can be written as

(x
) =
[x
]
which is the rst-order condition for an equality constrained problem. Furthermore, if
x
satises the inequality constraints

(x
) 0 and (x
) 0
it satises the equality
(x
) = 0
5.34 Suppose that x
solves the problem

max
x
c
x subject to x 0
with Lagrangean
= c
x
Then there exists 0 such that
x
= c
= 0
that is,
= c. Conversely, if there is no solution, there exists x such that x 0

and
c
x > c
0 = 0
5.35 There are two binding constraints at (4, 0), namely
(
1
,
2
) =
1
+
2
4
(
1
,
2
) =
2
0
with gradients
(4, 0) = (1, 1)
(4, 0) = (0, 1)
which are linearly independent. Therefore the binding constraints are regular at (0, 4).
(x, ) = (x) (p
x )
and the rst-order (Kuhn-Tucker) conditions are (Corollary 5.3.2)
[x
, ] =
[x
0 x
[x
) = 0 (5.101)
p
0 (p
) = 0 (5.102)
for every good = 1, 2, . . . , . Two cases must be distinguished.
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Case 1 > 0 This implies that p
x = , the consumer spends all her income.

Condition (5.101) implies
[x
for every with
[x
] =
for every for which
> 0
This case was analyzed in Example 5.17.
Case 2 = 0 This allows the possibility that the consumer does not spend all her
income. Substituting = 0 in (5.101) we have
[x
] = 0 for every . At the

optimal consumption bundle x
, the marginal utility of every good is zero. The

consumer is satiated, that is no additional consumption can increase satisfaction.
This case was analyzed in Example 5.31.
In summary, at the optimal consumption bundle x
, either
the consumer is satiated (
[x
] = 0 for every ) or
the consumer consumes only those goods whose marginal utility exceeds the
threshold
[x
and adjusts consumption so that the marginal

utility is proportional to price for all consumed goods.
5.37 Assume x (x
). Then there exists such that x
+ x for every
0 . Dene ([0, ]) by () = (x
+ x). If x
is a local maximum,
has a local maximum at 0, and therefore
(0) 0 (Theorem 5.1). By the chain rule

(Exercise 4.22), this implies
(0) = [x
](x) 0
and therefore x /
+
(x
).
5.38 If x is a tangent vector, so is x for any nonnegative (replace 1/
by /
in
the preceding denition. Also, trivially, x = 0 is a tangent vector (with x
= x
and
= 1 for all ). The set of all vectors tangent to at x
is therefore a nonempty
cone, which is called the cone of tangents to at x
.
To show that is closed, let x
be a sequence in converging to some x
. We
need to show that x . Since x
, there exist feasible points x
and
such that
(x
)/
as
For any choose such that
x
x
1
2
and then choose such that

x
and (x
)/

1
2
Relabeling x
as x
and
as
we have we have constructed a sequence x
in
S such that

and
(x
)/
(x
)/
+x
x
1
1
Letting , x
converges to x
and (x
)/
converges to x, which proves

that x as required.
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5.39 Assume x (x
). That is, there exists such that x
+ x for every
[0, ]. For = 1, 2, . . . , let
= /. Then x
= x
x , x
and
(x
)/
= (x
x x
)/
= x. Therefore, x (x
).
5.40 Let dx (x
). Then there exists a feasible sequence {x
} converging to x
and a
sequence {
} of nonnegative scalars such that the sequence {(x
)/
} converges
to dx. For any (x
),
(x
) = 0 and
(x
) =
[x
](x
) +
where
0 as k . This implies
1
(x
) =
1
[x
](x
) +
(x
)/
Since x
is feasible
1
(x
) 0
and therefore
[x
]((x
)/
) +
(x
)/
0
Letting we conclude that
[x
](dx) 0
That is, dx .
5.41
0

1
by denition. Assume dx
1
. That is
[x
](dx) < 0 for every
(x
) (5.103)
[x
](dx) 0 for every
(x
) (5.104)
where
(x
) = (x
(x
) is the set of concave binding constraints at x
. By
concavity (Exercise 4.67), (5.104) implies that
(x
+dx)
(x
) = 0 for every 0 and
(x
)
From (5.103) there exists some
such that
(x
+dx) < 0 for every [0,
] and
(x
)
Furthermore, since
(x
) < 0 for all (x
), there exists some
> 0 such that
(x
+dx) < 0 for every [0,
] and (x
)
Setting = min{
} we have
(x
+dx) 0 for every [0, ] and = 1, 2, . . . ,

or
x
+dx = { x :
(x) 0, = 1, 2, . . . , } for every [0, ]

Therefore dx . We have previously shown (Exercises 5.39 and 5.40) that
.
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5.42 Assume that g satises the Quasiconvex CQ condition at x
. That is, for every

(x
),
is quasiconvex,
(x
) = 0 and there exists x such that
( x) < 0.
Consider the perturbation dx = x x
. Quasiconvexity and regularity implies that

for every binding constraint (x
) (Exercises 4.74 and 4.75)
( x) <
(x
) =
(x
( x x
) =
(x
dx < 0
That is
[x
](dx) < 0
Therefore, dx
0
(x
) = and g satises the Cottle constraint qualication condition.

5.43 If the binding constraints (x
) are regular at x
, their gradients are linearly

independent. That is, there exists no
= 0, (x
) such that
(x
[x
] = 0
By Gordans theorem (Exercise 3.239), there exists dx
such that
[x
dx < 0 for every (x
)
Therefore dx
0
(x
) = .
5.44 If
concave,
(x
) = , and AHUCQ is trivially satised (with dx = 0

1
).
For every , let
= { dx :
[x
](dx) < 0 }
Then
1
(x
) =
(x
(x
where
(x
) and
(x
) are respectively the concave and nonconcave constraints

binding at x
. If
satises the AHUCQ condition,

1
(x
) = and Exercise 1.219

implies that
1
=
(x
(x
Now
= { dx :
[x
](dx) 0 }
and therefore
1
=
(x
=
Since (Exercise 5.41)
1

and is closed (Exercise 5.38), we have
=
1

which implies that = .
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5.45 For each = 1, 2, . . . , , either
(x
) < 0 which implies that
= 0 and therefore
[x
](x x
) = 0
or
(x
) = 0 Since
is quasiconvex and
(x) 0 = (x
), Exercise 4.73 implies that
[x
](x x
) 0. Since
0, this implies that
[x
](x x
) 0.
We have shown that for every ,
[x
](x x
) 0. The rst-order condition

implies that
[x
](x x
) =
[x
](x x
) 0
If
(x
(x
) x
0
(
(x
(x
)
)
= 0
The rst-order conditions imply that for every x , x 0 and
(
(x
(x
)
)
x 0
and therefore
(
(x
(x
)
)
(x x
) 0
or
(x
(x x
(x
(x x
) 0
5.46 Assuming
= 0, the constraints become

2
30
2
25
20
The rst and third conditions are redundant, which implies that
= 0. Com-
plementary slackness requires that, if
> 0,
= 1 2
= 0
or
=
1
2
. Evaluating the Lagrangean at (0, 1/2, 0) yields
(
x,
(
0,
1
2
, 0
))
= 3
+ 3
1
2
(
+ 2
+ 3
25)
=
25
2
+
5
2
+
3
2
This basic feasible solution is clearly not optimal, since prot would be increased by
increasing either
or
.
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All rights reserved
Following the hint, we allow
> 0, retaining the assumption that
= 0. We must
be alert to the possibility that
= 0. With
= 0, the constraints become

2
30
2
+ 3
25
20
The rst constraint is redundant, which implies that
= 0. If
> 0, complementary
slackness requires that
= 3 3
= 0
or
= 3(1
) (5.105)
The requirement that
0 implies that
1. Substituting (5.105) in the second

rst-order condition
= 1 2
= 1 2
3(1
) = 2 +
implies that
= 2 +
< 0 for every
1
Complementary slackness then requires implies that
= 0.
The constraints now become
30
3
25
20
The rst and third are redundant, so that
and
= 0. Equation (5.105) implies

that
= 1.
Evaluating the Lagrangean at this point ( = 0, 1, 0), we have
(, (0, 1, 0)) = 3
+ 3
+ 2
+ 3
25)
= 25 + 2
Clearly this is not an optimal solution, An increase in
is indicated. This leads us

to the hypothesis
> 0,
> 0,
= 0 which was evaluated in the text, and in fact

lead to the optimal solution.
5.47 If we ignore the hint and consider solutions with
> 0,
0,
= 0, the
constraints become
2
+ 2
30
+ 2
25
2
20
These three constraints are linearly dependent, so that any one of them is redundant
and can be eliminated. For example, 3/2 times the rst constraint is equal to the sum of
254
All rights reserved
the second and third constraints. The feasible solution
= 0,
= 5,
= 10, where
the constraints are linearly dependent, is known as a degenerate solution. Degeneracy
is a signicant feature of linear programming, allowing the theoretical possibility of a
breakdown in the simplex algorithm. Fortunately, such breakdown seems very rare in
practice. Degeneracy at the optimal solution indicates multiple optima.
One way to proceed in this example is to arbitrarily designate one constraint as redun-
dant, assuming the corresponding multiplier is zero. Arbitrarily choosing
= 0 and
proceeding as before, complementary slackness (
> 0) requires that
= 3 2
= 0
or
= 3 2
(5.106)
Nonnegativity of
implies that

3
2
.
Substituting (5.106) in the second rst-order condition yields
= 1 2
= 1 2
2(3 2
)
= 5 + 2
< 0 for every

3
2
Complementary slackness therefore implies that
= 0, which takes us back to the

starting point of the presentation in the text, where
> 0,
= 0.
5.48 Assume that (c
1
,
1
) and (c
2
,
2
) belong to . That is
c
1
0
1

c
2
0
2

For any (0, 1),

c = c
1
+ (1 )c
2
0 =
1
+ (1 )
2

and therefore (c, ) . This shows that is convex. Let 1 = (1, 1, . . . , 1)
.
Then (c 1, + 1) int = . There has a nonempty interior.
5.49 Let (c, ) int . This implies that c < 0 and >
. Since is monotone
(c) (0) = z
<
which implies that (c, ) / .
5.50 The linear functional can be decomposed into separate components, so that
there exists (Exercise 3.47)
and such that

(c, ) = (c)
Assuming
, there exists (Proposition 3.4)
such that (c) =
c and
therefore
(c, ) =
c
The point (0,
+ 1) belongs to . Therefore, by (5.75),

(0,
) (0,
+ 1)
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All rights reserved
which implies that
0 (
+ 1)
0
or 0. Similarly, let { e
1
, e
2
, . . . , e
} denote the standard basis for
(Example
1.79). For any = 1, 2, . . . , , the point (0 e
) (which corresponds to decreasing

resource by one unit) belongs to and therefore (from (5.75))
(0 e
) =
0 =
which implies that
0.
5.51 Let
c = ( x) < 0 and = ( x)
Suppose = 0. Then, since is nonzero, at least one component of must be nonzero.
That is, 0 and therefore
< 0 (5.107)
But (c, ) and (5.74) implies

0
and therefore = 0 implies
0
contradicting (5.107). Therefore, we conclude that > 0.
5.52 The utilitys optimization problem is
max
, 0
(, ) =
=1

0
(
()
)
0
subject to
(y, ) =
0 = 1, 2, . . . ,
The demand independence assumption ensures that the objective function is concave,
since its Hessian
1
0 . . . 0 0
0
2
. . . 0 0
0 . . .
0
0 . . . 0 0
is nonpositive denite (Exercise 3.96). The constraints are linear and hence convex.
Moreover, there exists a point (0, 1) such that for every = 1, 2, . . . ,
(0, 1) = 0 1 < 0
Therefore the problem satises the conditions of Theorem 5.6. The optimal solution
(y
) satises the Kuhn-Tucker conditions, that is there exist multipliers

1
,
2
, . . . ,
such that for every period = 1, 2, . . . ,
) = 0 (5.108)
0 (
) = 0
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All rights reserved
and that capacity be chosen such that
=
0
=1
0 0
(
=1
)
= 0 (5.109)
where is the Lagrangean
(, , ) =
=1

0
(
()
)
0

=1
)
In o-peak periods (
< ), complementary slackness requires that
= 0 and there-
fore from (5.108)
) =
assuming
> 0. In peak periods (
= )
) =
We conclude that it is optimal to price at marginal cost in o-peak periods and charge
a premium during peak periods. Furthermore, (5.109) implies that the total premium
is equal to the marginal capacity cost
=1
=
0
Furthermore, note that
=1
Peak
O-peak
=0
=1
=
0
Therefore, the utilitys total revenue is

(, ) =
=1
=1
(
=1
=1
=1
+
0
= (, )
Under the optimal pricing policy, revenue equals cost and the utility breaks even.
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All rights reserved
Chapter 6: Comparative Statics
6.1 The Jacobian is
=
(
g
0
)
where
is the Hessian of the Lagrangean. We note that

(x
0
) is negative denite in the subspace = { x :
g
x = 0} (since x
0
satises
the conditions for a strict local maximum)

g
has rank (since the constraints are regular).
Consider the system of equations
(
g
0
)(
x
y
)
=
(
0
0
)
(6.28)
where x
and y
. It can be decomposed into
x +
g
y = 0 (6.29)
g
x = 0 (6.30)
Suppose x solves (6.30). Multiplying (6.29) by x
gives
x
x +x
g
y = x
x + (
g
x)
y = 0
But (6.30) implies that the second term is 0 and therefore x
x = 0. Since
is
positive denite on = { x :
g
x = 0}, we must have x = 0. Then (6.29) reduces to
g
y = 0
Since
g
has rank , this has only the trivial solution y = 0 (Section 3.6.1). We have
shown that the system (6.38) has only the trivial solution (0, 0). This implies that the
matrix is nonsingular.
= (x)
(
g(x) c
)
By Corollary 6.1.1
(c) =
c
=
6.3 Optimality implies
(x
1
,
1
) (x,
1
) and (x
2
,
2
) (x,
2
) for every x
In particular
(x
1
,
1
) (x
2
,
1
) and (x
2
,
2
) (x
1
,
2
)
Adding these inequalities
(x
1
,
1
) +(x
2
,
2
) (x
2
,
1
) +(x
1
,
2
)
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All rights reserved
Rearranging and using the bilinearity of gives
(x
1
x
2
,
1
) (x
1
x
2
,
2
)
and
(x
1
x
2
,
1
2
) 0
6.4 Let
1
denote the prot maximizing price with the cost function
1
() and let
1
be
the corresponding output. Similarly let
2
and
2
be the prot maximizing price and
output when the costs are given by
2
().
With cost function
1
, the rms prot is
=
1
()
Since this is maximised at
1
and
1
(although the monopolist could have sold
2
at
price
2
)
1
(
1
)
2
1
(
2
)
Rearranging
2

1
(
1
)
1
(
2
) (6.31)
The increase in revenue in moving from
2
to
1
is greater than the increase in cost.
Similarly
2
(
2
)
1
2
(
1
)
which can be rearranged to yield
2
(
1
)
2
(
2
)
1
1

2
2
Combining the previous inequality with (6.31) yields
2
(
1
)
2
(
2
)
1
(
1
)
1
(
2
) (6.32)
6.5 By Theorem 6.2
w
[w, ] = x
and
[w, ] =
and therefore
(, w) =
2
(, w) 0
(, w) =
2
(, w) 0
(, w) =
2
(, w) =
(, w)
(, w) =
2
(, w) =
(, w)
since is convex and therefore
(w, ) is symmetric (Theorem 4.2) and nonnegative

denite (Proposition 4.1).
6.6 By Shephards lemma (6.17)
(, ) =
(, )
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All rights reserved
Using Youngs theorem (Theorem 4.2),
[w, ] =
2
[w, ]
=
2
[w, ]
=
[w, ]
Therefore
[w, ] 0
[w, ] 0
6.7 The demand functions must satisfy the budget contraint identically, that is
=1
(p, ) = for every p and

Dierentiating with respect to m
=1
[p, ] = 1
This is the Engel aggregation condition, which simply states that any additional income
be spent on some goods. Multiplying each term by
/(
=1
(p, )
[p, ] = 1
the Engel aggregation condition can be written in elasticity form
=1
= 1
where
/ is the budget share of good . On average, goods must have unit

income elasticities.
Dierentiating the budget constraint with respect to
=1
[p, ] +
(, ) = 0
This is the Cournot aggregation condition, which implies that an increase in the price
of
is equivalent to a decrease in real income of
. Multiplying each term in the

sum by
gives
=1
[p, ] =
Multiplying through by
=1
[p, ] =
=1
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6.8 Supermodularity of (x, , w) follows from Exercises 2.50 and 2.51. To show
strictly increasing dierences, consider two price vectors w
2
w
1
(x, , w
1
) (x, , w
2
) =
=1
(
1
=1
(
2
=1
(
2
Since w
2
w
1
, w
2
w
1
0 and
=1
(
2
is strictly increasing in x.
6.9 For any
2

1
,
2
= (
2
) (
1
) =
1
and (
1
, ) (
2
, ) is increasing in
and therefore
(
((
2
), ) ((
1
), )) is increasing in .
6.10 The rms optimization problem is
max
+
()
The objective function
(, , ) = ()
is
supermodular in (Exercise 2.49)
displays strictly increasing dierences in (, ) since
(
2
, , ) (
1
, , ) = (
2
1
)
(
(
2
) (
1
)
)
is strictly increasing in for
2
>
1
.
Therefore (Corollary 2.1.2), the rms output correspondence is strongly increasing and
every selection is increasing (Exercise 2.45). Therefore, the rms output increases as
the yield increases. It is analogous to an increase in the exogenous price.
6.11 With two factors, the Hessian is
=
(
11

12
21

22
)
Therefore, its inverse is (Exercise 3.104)
=
1
(

22

12
21

11
)
where =
11
22
12
21
0 by the second-order condition. Therefore, the Jacobian
of the demand functions is
(

1
1

2
2

2
2
)
=
1
=
1
(

22

12
21

11
)
Therefore
2
=
21
{
< 0 if
21
> 0
0 otherwise
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Solutions Manual

Foundations of Mathematical Economics

= { Rock, Scissors, Paper } = Jenny, Chris

is the output of dam .

. That is / . This implies / and / ,

. Consequently / and / and therefore

. The other identity is proved similarly.

, which implies that x (

and / . For example, 4 is a

. We can identify the maximal

which strictly succedes

is maximal there does not exist

is complete for every . Then for every , and for all =

for all Then dene .

ensures that is dened). Then dene

. This establishes that every subset of also has a least

if and only if, for every

partition () and therefore (),

. Then, the Pareto order implies that and

. Since is decisive over and , the social

= 30) does not belong

= 20), which therefore

= 830), which corresponds to

x for every implies

for every . Summing, this

< (). Let = ()

and consider the

for every so that y

x for every . Further, y ()

= 0 for every contradicting (1.15). Thus we conclude that

d(y) and d(y)

d(x) does not imply x = y

is the best element in (

) for every player , then

for every . Therefore, a

which implies that a is a maximal element of

. To see this, assume not. That is,

is a Nash equilibrium. Therefore, a is an-

and hence also a best element of

(Exercise 1.54), which contradicts the assumption that

is the unique best element.

is the unique Nash equilibrium of the game.

satises the requirements of a metric,

from previous exercise. Therefore

. Hence no is a closure point of

contains all its closure points and is

. Hence, is an interior point

. This implies that

contains only interior points, and hence is open.

. Therefore is not connected.

= . is open by assumption. It complement

is open since is closed.

, which implies that is closed since

and is the disjoint union

= . This implies that Consider any .

which implies that and therefore

} be a (possibly innite) collection of open sets. Let =

which contains . Since

is empty? In this case, = and is open (Exercise

} is a nite collection of open sets. Let =

for all = 1, 2, . . . , . Since the sets

are open, for every , there exists an open

about . Let be the smallest radius of these open balls, that

() . is an interior point of and is open.