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x , y U
A function
x , y U
f :U R
( 0,1) ,
f ( x+ (1 ) y ) min ( f ( x ) , f ( y ) )
f ( x+ (1 ) y ) max ( f ( x ) , f ( y ) )
Uf (a )
is a convex set
U f (a)
x + ( 1 ) y U f (a)
f ( x+ ( 1 ) y ) a=f ( y ) =min {f ( x ) , f ( y ) }
Page 59
Chapter 4
Conversely,
Uf (a )
If
f ( x + ( 1 ) y ) min { f ( x ) , f ( y ) }
for all x , y in U
(0,1) , a R
f ( x ) af ( y ) a .
min { f ( x ) , f ( y ) }
By hypothesis
f ( x + ( 1 ) y ) min { f ( x ) , f ( y ) } a
x + ( 1 ) y U f ( a ) . Hence U f ( a )
f :U R R
on U. If f is convex on U, it is quasiconvex on U.
Proof: Suppose f is concave.
f ( x+ ( 1 ) y ) f (x )+ (1 ) f ( y)
f is quasiconcave.
or
Page 60
Chapter 4
For, let f : R
x >
( 0,1)
x+ ( 1 ) y > y ,
f (x) f ( x + ( 1 ) y ) f ( y )
max {f ( x ) , f ( y ) } f ( x + ( 1 ) y ) min { f ( x ) , f ( y ) }
Theorem 3:
is quasiconcave on U and
:R R
is a
is
(0,1)
is
nondecreasing
f ( x+ (1 ) y) min {f ( x ) , f ( y ) }
function
( f ( x + ( 1 ) y ))
(min { f ( x ) , f ( y ) })
= min ( (f ( x ) ), ( f ( y )) ,
Therefore,
f Quasiconcave function.
Note:
1. Quasi-concave and Quasi- convex functions are not necessarily
continuous in the interior of the domains
2. Quasi-concave functions can have local maxima that are not global
maxima, quasi-convex functions that have local minima that are not
global minima.
Page 61
Chapter 4
3. First order conditions are not sufficient to identify even local optima
under quasiconvexity.
For, let us consider the function,
x 3 x [ 0,1]
f ( x )= 1, x [ 1,2]
x 3 , x >2
Clearly, f is nondecreasing function. It is both quasiconcave and
quasiconvex on R.
The function is discontinuous at x = 2.
f is constant on (1, 2). Every point is a local maximum as well as local
minimum.
No point in (0, 1) is either a global maximum or global minimum.
f(0) = 0 but 0 is neither a local maximum nor a local minimum.
Theorem 4: If the production function f(K,L) is concave and f(0,0) = 0,
then it has decreasing or constant return to scale. However, quasiconcave
Cobb-Douglas production function can have increasing return to scale.
Proof: Suppose that s > 1.
f ( K , L )=f
1
1
( sK , sL ) + 1 f (0,0)
s
s
( )
1
1
f ( sK , sL )+ 1 f (0,0)
s
s
( )
1
f ( sK , sL) f (sK , sL) sf ( K , L)
s
We know that if
Page 62
Chapter 4
K L = K + L +
K L =(r)
where r= K + L +
K L =q ( r )=( r ) +
When
Therefore,
K L
quasiconcave function.
f :U Rn R
f ( x +t ( y x ) ) =f ( ( 1t ) x+ ty ) min { f ( x ) , f ( y ) } =f ( x )
x+ t ( yx )f (x )
.
f
x+ t ( yx )f (x )
Letting t
f
0 , we get Df(x)(y-x)
Page 63
such that
Chapter 4
Conversely, for x, y in U,
min { f ( x ) , f ( y ) }=f ( x ) .
Let
f ( ( 1t ) x+ ty ) min { f ( x ) , f ( y ) } =f ( x )
We
shall
Df ( x )( yx ) 0
show
that
g ( 0 )=f ( x ) f ( y )=g( 1)
f ( x +t ( y x ) )
Let g(t) =
we have
'
g(o)
f(x)
g(t)
f ( x +t ( y x ) ) .
Hence
is
Quasiconcave.
Similar result for quasiconvex function can be established.
Second Derivative Test for QuasiConcavity and Quasiconvexity
n
f :U R R
Let
Then, if
(1 ) k|C k ( x )|>0
The matrix
0
f
x1
f
xk
Ck( x )
x1
2 f
x 12
2 f
xk x1
is
f
xk
2 f
x1 xk
2 f
2
xk
Page 64
Chapter 4
on
subject
to
the
constraints
x
(1)
k h
constraints.
The function
(xi )
(1)
If h j
(x*)
h j( x)
then by CS condition
j=0, so
xi
x
h j( x i )=0
j
(x i )
n
Page 65
Chapter 4
Suppose
hj
xi
x
h j( x i ) 0
j
(x i )
n
xi
x
h j( x i ) 0
j
Combining the above two cases, we have,
(x i )
n
Page 66
h j
j
g
(2)
Chapter 4
xi
x
h j( x i )
j
m
(3)
(xi )
g
(xi )
n
Page 67