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Lecture Notes on Mathematics for Economists 1

by

Takashi Kunimoto
First Version: August 9, 2007
This Version: May 18, 2010
Summer 2010, Department of Economics, McGill University
August 16 - 27 (tentative): Monday - Friday, 10:00am - 1:00pm; at TBA
Instructor: Takashi Kunimoto
Email: takashi.kunimoto@mcgill.ca
Class Web: http://people.mcgill.ca/takashi.kunimoto/?View=Publications
Oce: Leacock 438
COURSE DESCRIPTION: This course is designed to provide you with
mathematical tools that are extensively used in graduate economics courses. The topics
which will be covered is
Sets and Functions;
Topology in the Euclidean Space;
Linear Algebra
Multivariate Calculus;
Static Optimization;
(Optional) Correspondences and Fixed Points; and
(Optional) The First-Order Dierential Equations in One Variable.
A good comprehension of the material covered in the notes is essential for successful
graduate studies in economics. Since we are seriously time constrained which you
might not believe , it would be very useful for you to carry one of the books provided
below as a reference after you start to study in graduate school in September.
READING:
The main textbook of this course is Further Mathematics for Economic Analysis. I
mostly use this book for the course. However, if you dont nd the main textbook helpful
enough, I strongly recommend you that you should buy at least one of the other books
I listed below as well as Further Mathematics for Economic Analysis. Of course, you
can buy any math book which you nd useful.
1

I am thankful to the students for their comments, questions, and suggestions. Yet, I believe that
there are still many errors in this manuscript. Of course, all remaining ones are my own.

Further Mathematics for Economic Analysis, by Knut Sydsaeter, Peter Hammond, Atle Seierstad, and Atle Strom, Prentice Hall, 2005 (Main Textbook. If
you dont have any math book or are not condent about your math skill, this
book will help you a lot.)
Mathematical Appendix, in Advanced Microeconomic Theory, Second Edition,
by Georey A. Jehle and Philip J. Reny, (2000), Addison Wesley (Supplementary.
This is the main textbook for Econ 610 but the mathematical appendix of this
book is too concise in many times)
Mathematics for Economists, by Simon and Blume, Norton, (1994). (Supplementary. This book is a popular math book in many Ph.D programs in economics.
There has to be a reason for that, although I dont know the true one.)
Fundamental Methods of Mathematical Economics, by A. Chiang, McGraw-Hill.
(more elementary and supplementary)
Introductory Real Analysis, by A. N. Kolmogorov and S.V. Fomin, Dover Publications (very very advanced and supplementary. If you really like math, this is the
book for you.)
OFFICE HOURS: Wednesday and Friday, 2:00pm - 3:00pm

PROBLEM SETS: There will be several problem sets. Problem sets are essential to
help you understand the course and to develop your skill to analyze economic problems.
ASSESSMENT: No grade will be assigned. However, you are expected to do the
problem sets assigned.

Contents
1 Introduction

2 Preliminaries
2.1 Logic . . . . . . . . . . . . . . . . . .
2.1.1 Necessity and Suciency . .
2.1.2 Theorems and Proofs . . . .
2.2 Set Theory . . . . . . . . . . . . . .
2.3 Relations . . . . . . . . . . . . . . .
2.3.1 Preference Relations . . . . .
2.4 Functions . . . . . . . . . . . . . . .
2.4.1 Least Upper Bound Principle

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3 Topology in Rn
3.1 Sequences on R . . . . . . . . . . . . . . . . .
3.1.1 Subsequences . . . . . . . . . . . . . .
3.1.2 Cauchy Sequences . . . . . . . . . . .
3.1.3 Upper and Lower Limits . . . . . . . .
3.1.4 Inmum and Supremum of Functions
3.1.5 Indexed Sets . . . . . . . . . . . . . .
3.2 Point Set Topology in Rn . . . . . . . . . . .
3.3 Topology and Convergence . . . . . . . . . .
3.4 Properties of Sequences in Rn . . . . . . . . .
3.5 Continuous Functions . . . . . . . . . . . . .
4 Linear Algebra
4.1 Basic Concepts in Linear Algebra . . . . .
4.2 Determinants and Matrix Inverses . . . .
4.2.1 Determinants . . . . . . . . . . . .
4.2.2 Matrix Inverses . . . . . . . . . . .
4.2.3 Cramers Rule . . . . . . . . . . .
4.3 Vectors . . . . . . . . . . . . . . . . . . .
4.4 Linear Independence . . . . . . . . . . . .
4.4.1 Linear Dependence and Systems of
4.5 Eigenvalues . . . . . . . . . . . . . . . . .
3

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Equations
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37
39
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47
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49
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53
54

5 Calculus
5.1 Functions of a Single Variable . . . . . . . . . . . .
5.2 Real-Valued Functions of Several Variables . . . .
5.3 Gradients . . . . . . . . . . . . . . . . . . . . . . .
5.4 The Directional Derivative . . . . . . . . . . . . . .
5.5 Convex Sets . . . . . . . . . . . . . . . . . . . . . .
5.5.1 Upper Contour Sets . . . . . . . . . . . . .
5.6 Concave and Convex Functions . . . . . . . . . . .
5.7 Concavity/Convexity for C 2 Functions . . . . . . .
5.7.1 Jensens Inequality . . . . . . . . . . . . . .
5.8 Quasiconcave and Quasiconvex Functions . . . . .
5.9 Total Dierentiation . . . . . . . . . . . . . . . . .
5.9.1 Linear Approximations and Dierentiability
5.10 The Inverse of a Transformation . . . . . . . . . .
5.11 Implicit Function Theorems . . . . . . . . . . . . .

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4.6
4.7
4.8

4.9

4.5.1 Motivations . . . . . . . . . . . . . . . . .
4.5.2 How to Find Eigenvalues . . . . . . . . .
Diagonalization . . . . . . . . . . . . . . . . . . .
Quadratic Forms . . . . . . . . . . . . . . . . . .
Appendix 1: Farkas Lemma . . . . . . . . . . . .
4.8.1 Preliminaries . . . . . . . . . . . . . . . .
4.8.2 Fundamental Theorem of Linear Algebra
4.8.3 Linear Inequalities . . . . . . . . . . . . .
4.8.4 Non-Negative Solutions . . . . . . . . . .
4.8.5 The General Case . . . . . . . . . . . . .
Appendix 2: Linear Spaces . . . . . . . . . . . .
4.9.1 Number Fields . . . . . . . . . . . . . . .
4.9.2 Denitions . . . . . . . . . . . . . . . . .
4.9.3 Bases, Components, Dimension . . . . . .
4.9.4 Subspaces . . . . . . . . . . . . . . . . . .
4.9.5 Morphisms of Linear Spaces . . . . . . . .

6 Static Optimization
6.1 Unconstrained Optimization . . . . . . . . . . . . . . .
6.1.1 Extreme Points . . . . . . . . . . . . . . . . . .
6.1.2 Envelope Theorems for Unconstrained Maxima
6.1.3 Local Extreme Points . . . . . . . . . . . . . .
6.1.4 Necessary Conditions for Local Extreme Points
6.2 Constrained Optimization . . . . . . . . . . . . . . . .
6.2.1 Equality Constraints: The Lagrange Problem .
6.2.2 Lagrange Multipliers as Shadow Prices . . . . .
6.2.3 Tangent Hyperplane . . . . . . . . . . . . . . .
6.2.4 Local First-Order Necessary Conditions . . . .

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6.2.5

6.3
6.4
6.5
6.6
6.7
6.8
6.9

Second-Order Necessary and Sucient Conditions


treme Points . . . . . . . . . . . . . . . . . . . . .
6.2.6 Envelope Result for Lagrange Problems . . . . . .
Inequality Constraints: Nonlinear Programming . . . . . .
Properties of the Value Function . . . . . . . . . . . . . .
Constraint Qualications . . . . . . . . . . . . . . . . . .
Nonnegativity Constraints . . . . . . . . . . . . . . . . . .
Concave Programming Problems . . . . . . . . . . . . . .
Quasiconcave Programming . . . . . . . . . . . . . . . . .
Appendix: Linear Programming . . . . . . . . . . . . . . .

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Local Ex. . . . . . .
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7 Dierential Equations
97
7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
8 Fixed Point Theorems
98
8.1 Banach Fixed Point Theorem . . . . . . . . . . . . . . . . . . . . . . . . . 98
8.2 Brouwer Fixed Point Theorem . . . . . . . . . . . . . . . . . . . . . . . . 99
9 Topics on Convex Sets
9.1 Separation Theorems . . . .
9.2 Polyhedrons and Polytopes
9.3 Dimension of a Set . . . . .
9.4 Properties of Convex Sets .

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102
102
104
105
105

Chapter 1

Introduction
I start my lecture with Rakesh Vohras message about what economic theory is. He is a
professor at Northwestern University. 1
All of economic theorizing reduces, in the end, to the solution of one of
three problems.
Given a function f and a set S:
1. Find an x such that f (x) is in S. This is the feasibility question.
2. Find an x in S that optimizes f (x). This is the problem of optimality.
3. Find an x in S such that f (x) = x, this is the xed point problem.
These three problems are, in general, quite dicult. However, if one is
prepared to make assumptions about the nature of the underlying function
(say it is linear, convex or continuous) and the nature of the set S (convex,
compact etc.) it is possible to provide answers and very nice ones at that.
I think this is the biggest picture of economic theory you could have as you go along
this course. Whenever you are at a loss, please come back to this message.
We build our theory on individuals. Assume that all commodities are traded in the
centralized markets. Throughout Econ 610 and 620, we assume that each individual
(consumer and rm) takes prices as given. We call this the price taking behavior assumption. You might ask why individuals are price takers. My answer would be why not?
Let us go as far as we can with this behavioral assumption and thereafter try to see the
limitation of the assumption. However, you have to wait for Econ 611 and 621 for how
to relax this assumption. So, stick with this assumption. For each consumer, we want
to know
1. What is the set of physically feasible bundles? Is there any such a bundle at all
(feasibility)? We call this set the consumption set.
1

See Preface of Advanced Mathematical Economics by Rakesh V. Vohra.

2. What is the set of nancially feasible bundles? Is there any such a bundle at all
(feasibility)? We call this set the budget set.
3. What is the best bundle to the consumer among all feasible bundles (optimality)?
We call this bundle the consumers demand.
We can make the exact parallel argument for the rm. What is the set of technically
feasible inputs (feasibility)? We call this the production set of the rm. What is the
best combination of inputs to maximize its prot (optimality)? We call this the rms
supply. Once we gure out what are feasible and best choices to each consumer and each
rm under any possible circumstance, we want to know if there is any coherent state of
aairs where everybody makes her best choice. In particular, all markets must clear. We
call this coherent state competitive (Walrasian) equilibrium. (a xed point).
If we move from microeconomics to macroeconomics, we must pay special attention
to time. Now, each individuals budget set does depend upon time. At each point in
time, he can change his asset portfolio so that he smoothes out his consumption plan
and/or production plan over time. If you know exactly when you die, there is no problem.
Because you just leave no money when you die, unless you want to leave some money
to your kids (i.e., altruistic preferences). This is called the nite time horizon problem.
What if you might live longer than you expected with no money left? Then, what do
you do? So, in reality, you dont know exactly when you die. This situation can be
formulated as the innite time horizon problem. Do you see why? To deal with the
innite horizon problem, we use the transversality condition as the terminal condition of
the feasible set. Moreover, his optimization must be taken into account time. You can
also analogously dene a sequence of competitive equilibria of the economy.
How can we summarize what we discussed above? Given a (per capita) consump
tion stream {ct }
t=0 , (per capita) capital accumulation {kt }t=0 , (per capita) GDP stream

{f (kt )}t=0 , capital depreciation rate , the population growth rate n, (per capita) consumption growth g, instantaneous utility function of the representative consumer u(),
the eective discount rate of the representative consumer > 0, (per capita) wage prole

{wt }
t=0 , and capital interest rate prole {rt }t=0 :

1. Find a {ct }
t=0 such that kt = f (kt ) ct ( + g + n)kt holds at each t 1 and
k0 > 0 is exogenously given. This is the feasibility question. Any such {ct } is called
a feasible consumption stream.
 t
u(ct )dt.
2. Find a feasible consumption stream {ct }
t=0 that maximizes V0 = 0 e
This is the problem of optimality. I assume that V0 < .
3. Find a {rt , wt }
t=0 such that V0 (the planners optimization) is sustained through
market economies where k t = (rt n g)kt + wt ct holds at each t 1 and
another condition limt t et kt = 0 holds. This latter condition is sometimes
called the transversality condition. This is the xed point problem. This, in fact,


can be done by choosing rt = f (kt ) t and wt = f (kt ) f (kt )kt at each t 1.
7

With appropriate re-interpretations, the above is exactly what we had in the beginning except the transversality condition, which is a genuine feature of macroeconomics.

Chapter 2

Preliminaries
2.1

Logic

Theorems provide a compact and precise format for presenting the assumptions and
important conclusions of sometimes lengthy arguments, and so help identify immediately
the scope and limitations of the result presented. Theorems must be proved and a proof
consists of establishing the validity of the statement in the theorem in a way that is
consistent with the rules of logic.

2.1.1

Necessity and Suciency

Consider any two statements, p and q. When we say p is necessary for q, we mean
that p must be true for q to be true. For q to be true requires p to be true, so whenever
q is true, we know that p must also be true. So we might have said, instead, that p is
true if q is true, or simply that p is implied by q (p q).
Suppose we know that p q is a true statement. What if p is not true? Because
p is necessary for q, when p is not true, then q cannot be true, either. But doesnt this
just say that q not true is necessary for p not true? Or that not-q is implied by
not-p (q p). This latter form of the original statement is called the contrapositive
form.
Lets consider a simple illustration of these ideas. Let p be the statement, x is an
integer less than 10. Let q be the statement that x is an integer less than 8. Clearly,
p is necessary for q (q p). If we form the contrapositive of these two statements, the
statement p becomes x is not an integer less than 10, and x is not an integer less
than 8. Then, observe that q p. However, p q is false. The value of x could
well be 9.
The notion of necessity is distinct from that of suciency. When we say p is
sucient for q, we mean that whenever p holds, q must hold. We can say, p is true
only if q is true, or that p implies q (p q). Once again, whenever the statement
9

p q is true, the contrapositive statement, q p is also true.


Two implications, p q and p q, can both be true. When this is so, I say
that p is necessary and sucient for q, or p is true if and only if q is true, or p i
q. When p is necessary and sucient for q, we say that the statements p and q are
equivalent and write p q.
To illustrate briey, suppose that p and q are the following statements:
p X is yellow,
q X is a lemon.
Certainly, if X is a lemon, then X is yellow. Here, p is necessary for q. At the same
time, just because X is yellow does not mean that it must be a lemon. It could be a
banana. So p is not sucient for q.

2.1.2

Theorems and Proofs

Mathematical theorems usually have the form of an implication or an equivalence, where


one or more statements are alleged to be related in particular ways. Suppose we have
the theorem p q. Here, p is the assumption and q is the conclusion. To prove a
theorem is to establish the validity of its conclusion given the truth of its assumption,
and several methods can be used to do that.
1. In a constructive proof, we assume that p is true, deduce various consequences of
that, and use them to show that q must also hold. This is also sometimes called a
direct proof, for obvious reasons.
2. In a contrapositive proof, we assume that q does not hold, then show that p cannot
hold. This approach takes advantage of the logical equivalence between the claims
p q and q p noted earlier, and essentially involves a constructive proof
of the contrapositive to the original statement.
3. In a proof by contradiction, the strategy is to assume that p is true, assume that q
is not true, and attempt to derive a logical contradiction. This approach relies on
the fact that p q or q always is true and if p q is false, then p q must
be true.
4. In a proof by mathematical induction, I have a statement H(k) which does depend
upon a natural number k. What I want to show is that a statement H(k) is true
for each k = 1, 2, . . . . First, I show that H(1) is true. This step is usually easy to
establish. Next, I show that H(k) = H(k + 1), i.e., if H(k) is true, then H(k + 1)
is also true. These two steps allows me to claim that I am done.
If I assert that p is necessary and sucient for q, or that p q, we must give a
proof in both directions. That is, both p q and q p must be established
before a complete proof of the assertion has been achieved.
10

It is important to keep in mind the old saying that goes, Proof by example is no
proof. Suppose the following two statements are given:
p x is a student,
q x has red hair.
Assume further that we make the assertion p q. Then clearly nding one student
with red hair and pointing him out to you is not going to convince you of anything.
Examples are good for illustrating but typically not for proving.
Finally, a sort of converse to the old saying about examples and proofs should be
noted. Whereas citing a hundred examples can never prove that a certain property
always holds, citing one solitary counterexample can disprove that the property always
holds. For instance, to disprove the assertion about the color of students hair, you need
simply point out one student with brown hair. A counterexample proves that the claim
cannot always be true because you have found at least one case where it is not.

2.2

Set Theory

A set is any collection of elements. Sets of objects will usually be denoted by capital
letters, A, S, T for example, while their members by lower case, a, s, t for example (English
or Greek). A set S is a subset of another set T if every element of S is also an element
of T . We write S T . If S T , then x S x T . The set S is a proper subset of T
if S T and S
= T ; sometimes one writes S  T in this case. Two sets are equal sets if
they each contain exactly the same elements. We write S = T whenever x S x T
and x T x S. The number of elements in a set S, its cardinality, is denoted
|S|. The upside down A, , means for all, while the backward E, means there
exists.
A set S is empty or is an empty set if it contains no elements at all. It is a subset
of every set. For example, if A = {x| x2 = 0, x > 1}, then A is empty. We denote
the empty set by the symbol . The complement of a set S in a universal set U is the
set of all elements in U that are not in S and is denoted S c . For any two sets S and T
in a universal set U , we dene the set dierence denoted S\T , as all elements in the set
S that are not elements of T . Thus, we can think S c = U \S. The symmetric dierence
ST = (S\T ) (T \S) is the set of all elements that belong to exactly one of the sets S
and T . Note that if S = T , then ST = .
For two sets S and T , we dene the union of S and T as the set ST {x| x S or x T }.
We dene the intersection of S and T as the set S T {x| x S and x T }. Let
. }, we can write
{1, 2, 3, . . . } be an index set. In stead of writing {S1 , S2 , S3 , . .
sets
in
the
collection
by
{S } . We would denote the union of all
S , and the

intersection of all sets in the collection as S .

11

The following are some important identities involving the operations dened above.
A B = B A, (A B) C = A (B C), A = A
A B = B A, (A B) C = A (B C), A =
A (B C) = (A B) (A C), A (B C = (A B) (A C) (Distribute laws)
A\(B C) = (A\B) (A\C), A\(B C) = (A\B) (A\C) (De Morgans laws)
AB = BA, (AB)C = A(BC), A = A
The collection of all subsets of a set A is also a set, called the power set of A and
denoted by P(A). Thus, B P(A) B A.
Example 2.1 Let A = {a, b, c}. Then, P(A) = {, {a}, {b}, {c}, {a, b}, {a, c}, {b, c}, {a, b, c}}.
The previous argument reveals its stance that the order of the elements in a set
specication does not matter. In particular, {a, b} = {b, a}. However, on many occasions,
one is interested in distinguishing between the rst and the second elements of a pair.
One such example is the coordinates of a point in the x y-plane. These coordinates
are given as an ordered pair (a, b) of real numbers. The important property of ordered
pairs is that (a, b) = (c, d) if and only if a = c and b = d. The product of two sets S and
T is the set of ordered pairs in the form (s, t), where the rst element in the pair is a
member of S and the second is a member of T . The product of S and T is denoted
S T {(s, t)| s S, t T }.
The set of real numbers is denoted by the special symbol R and is dened as
R {x| < x < }.
Any n-tuple, or vector, is just an n dimensional ordered tuple (x1 , . . . , xn ) and can
be thought of as a point in n dimensional Euclidean space. This space is dened as
the set product
R {(x1 , . . . , xn ) | xi R, i = 1, . . . , n}.
Rn R
 
n times
Often, we want to restrict our attention to a subset of Rn , called the nonnegative
orthant and denoted Rn+ , where
Rn+ {(x1 , . . . , xn ) | xi 0, i = 1, . . . , n} Rn .
Furthermore, we sometimes talk about the strictly positive orthant of Rn
Rn++ {(x1 , . . . , xn ) | xi > 0, i = 1, . . . , n} Rn+ .

12

2.3

Relations

Any ordered pair (s, t) associates an element s S to an element t T . Any collection


of ordered pairs is said to constitute a binary relation between the sets S and T . Many
familiar binary relations are contained in the product of one set with itself. For example,
let X be the closed unit interval, X = [0, 1]. Then the binary relation consists of all
ordered pairs of numbers in X where the rst one in the pair is greater than or equal to
the second one. When, as here, a binary relation is a subset of the product of one set
X with itself, we say that it is a relation on the set X. A binary relation R on X is
represented by the subset of X X, i.e., R X X. We can build more structure for
a binary relation on some set by requiring that it possesses certain properties.
Denition 2.1 A relation R in X is reexive if xRx for all x X.
For example, and = on R are reexive, while > is not.
Denition 2.2 A relation R on X is complete if, for all elements x and y in X, xRy
or yRx.
For example, on R is complete, while > and = are not. Note that R on X is
reexive if it is complete.
Denition 2.3 A relation R on X is transitive if, for any three elements x, y, and
z X, xRy and yRz implies xRz.
For instance, all , =, > on R are transitive.
Denition 2.4 A relation R on X is symmetric if xRy implies yRx and it is antisymmetric if xRy and yRx implies x = y.
For example, = is symmetric, while and > are not. However, is anti-symmetric,
while > is not as well. A relation R is said to be a partial ordering on X if it is reexive,
transitive, and anti-symmetric. If a partial ordering is complete, it is called a linear
ordering. For instance, the relation in R is a linear ordering.
For n 2, the less-than-or-equal-to relation on Rn is dened by (x1 , . . . , xn )
(y1 , . . . , yn ) if and only if xk yk for k = 1, . . . , n. There is also a strict inequality
relation , which is given by (x1 , . . . , xn )  (y1 , . . . , yn ) if and only if xk > yk for all
k = 1, . . . , n.

2.3.1

Preference Relations

I now talk a little bit about economics. Here I apply the concept of relations to the
consumer choice problem. The number of commodities is nite and equal to n. Each
commodity is measured in some innitely divisible units. Let x = (x1 , . . . , xn ) Rn+
be a consumption bundle. Let Rn+ be a consumption set that is the set of bundles the
consumer can conceive. We represent the consumers preferences by a binary relation,
13

, dened on the consumption set, Rn+ . If x  x , we say that x is at least as good as



x , for this consumer.
Denition 2.5 The binary relation  on X is said to be strict preference relation



if, x  x if and only if x  x but x  x.
Denition 2.6 The binary relation on X is said to be indierence relation if,



x x if and only if x  x and x  x.
Exercise 2.1 Show the following:
1.  on Rn+ is reexive if it is complete.
2.  on Rn+ is not symmetric.
3. on Rn+ is symmetric.

2.4

Functions

A function is a relation that associates each element of one set with a single, unique
element of another set. We say that the function f is a mapping, map, or transformation
from one set D to another set R and write f : D R. We call the set D the domain
and the set R the range of the mapping. If y is the point in the range mapped into by
the point x in the domain, we write y = f (x). In set-theoretic terms, f is a relation from
D to R with the property that for each x D, there is exactly one y R such that xf y
(x is related to y via f ).
The image of f is that set of points in the range into which some point in the domain
is mapped, i.e.,
I {y | y = f (x) for some x D} R.
The inverse image of a set of points S I is dened as
f 1 (S) {x | x D, f (x) S} .
The graph of the function f is the set of ordered pairs
G {(x, y) | x D, y = f (x)} .
If f (x) = y, one also writes x  y. The squaring function s : R R, for example,
can then be written as s : x  x2 . Thus,  indicates the eect of the function on an
element of the domain. If f : A B is a function and S A, the restriction of f to S
is the function f |S dened by f |S (x) = f (x) for every x S. There is nothing in the
denition of a function that prohibits more than one element in the domain from being
mapped into the same element in the range. If, however, every point in the range is
assigned to at most a single point in the domain, the function is said to be one-to-one,
14

that is, for all x, x D, whenever f (x) = f (x ), then x = x . If the image is equal to
the range - if for every y R, there is x D such that f (x) = y, the function is said
to be onto. If a function is one-to-one and onto (sometimes called bijective), then an
inverse function f 1 : R D exists that is also one-to-one and onto. The composition
of a function f : A B and a function g : B C is the function g f : A C given
by (g f )(a) = g(f (a)) for all a A.
Exercise 2.2 Show that f (x) = x2 is not a one-to-one mapping.

2.4.1

Least Upper Bound Principle

A set S of real numbers is bounded above if there exists a real number b such that b x
for all x S. This number b is called an upper bound for S. A set that is bounded above
has many upper bounds. A least upper bound for the set S is a number b that is an
upper bound for S and is such that b b for every upper bound b. The existence of a
least upper bound is a basic and non-trivial property of the real number system.
Fact 2.1 (Least Upper Bound Principle) Any nonempty set of real numbers that is
bounded above has a least upper bound.
This principle is rather an axiom of real numbers. A set S can have at most one least
upper bound, because if b1 and b2 are both least upper bounds for S, then b1 b2 and
b2 b1 , which thus implies that b1 = b2 . The least upper bound b of S is often called
the supremum of S. We write b = sup S and b = supxS x.
Example 2.2 The set S = (0, 5), consisting of all x such that 0 < x < 5, has many
upper bounds, some of which are 100, 6.73, and 5. Clearly no number smaller than 5
can be an upper bound, so 5 is the least upper bound. Thus, sup S = 5.
A set S is bounded below if there exists a real number a such that x a for all x S.
The number a is a lower bound for S. A set S that is bounded below has a greatest
lower bound a , with the property a x for all x S, and a a for all lower bounds
a. The number a is called the inmum of S and we write a = inf S or a = inf xS x.
Thus, we summarize
sup S = the least number greater than or equal to all numbers in S; and
inf S = the greatest number less than or equal to all numbers in S.
Theorem 2.1 Let S be a set of real numbers and b a real number. Then sup S = b if
and only if the following two conditions are satised:
1. x b for all x S.
2. For each > 0, there exists an x S such that x > b .

15

Proof of Theorem 2.1: (=) Since b is an upper bound for S, by denition,


property 1 holds, that is, x b for all x S. Suppose, on the other hand, that there
is some > 0 such that x b for all x S. Dene b = b . This implies
that b is also an upper bound for S and b < b . This contradicts our hypothesis that
b is a least upper bound for S. (=) Property 1 says that b is an upper bound for
S. Suppose, on the contrary, that b is not a least upper bound. That is, there is some
other b such that x b < b for all x S. Dene = b b. Then, we obtain that
x b for all x S. This contradicts property 2. 

16

Chapter 3

Topology in Rn
3.1

Sequences on R

A sequence is a function k  x(k) whose domain is the set {1, 2, 3, . . . } of all positive integers. I denote the set of natural numbers by N = {1, 2, . . . }. The terms
x(1), x(2), . . . , x(k), . . . of the sequence are usually denoted by using subscripts: x1 , x2 , . . . , xk , . . . .
We shall use the notation {xk }
k=1 , or simply {xk }, to indicate an arbitrary sequence of
real numbers. A sequence {xk } of real numbers is said to be
1. nondecreasing if xk xk+1 for k = 1, 2, . . .
2. strictly increasing if xk < xk+1 for k = 1, 2, . . .
3. nonincreasing if xk xk+1 for k = 1, 2, . . .
4. strictly decreasing if xk > xk+1 for k = 1, 2, . . .
A sequence that is nondecreasing or nonincreasing is called monotone. A sequence
{xk } is said to converge to a number x if xk becomes arbitrarily close to x for all
sucient large k. We write limk xk = x or xk x as k . The precise denition
of convergence is as follows:
Denition 3.1 The sequence {xk } converge to x if for every > 0, there exists a
natural number N such that |xk x| < for all k > N . The number x is called
the limit of the sequence {xk }. A convergent sequence is one that converges to some
number.
Note that the limit of a convergent sequence is unique. A sequence that does not
converge to any real number is said to diverge. In some cases we use the notation
limk xk even if the sequence {xk } is divergent. For example, we say that xk as
k . A sequence {xk } is bounded if there exists a number M such that |xk | M for
all k = 1, 2, . . . . It is easy to see that every convergent sequence is bounded: If xk x,
by the denition of convergence, only nitely many terms of the sequence can lie outside
the interval I = (x 1, x + 1). The set I is bounded and the nite set of points from the
17

sequence that are not in I is bounded, so {xk } must be bounded. On the other hand, is
every bounded sequence convergent? No. For example, the sequence {yk } = {(1)k } is
bounded but not convergent.
Theorem 3.1 Every bounded monotone sequence is convergent.
Proof of Theorem 3.1: Suppose, without loss of generality, that {xk } is nondecreasing and bounded. Let b be the least upper bound of the set X = {xk |k = 1, 2, . . . },
and let > 0 be an arbitrary number. Theorem 2.1 already showed that there must be a
term xN of the sequence for which xN > b . Because the sequence is nondecreasing,
b < xN xk for all k > N . But the xk are all less than or equal to b because of
boundedness, so we have b < xk b . Thus, for any > 0, there exists a number
N such that |xk b | < for all k > N . Hence, {xk } converges to b . 
Theorem 3.2 Suppose that the sequences {xk } and {yk } converge to x and y, respectively. Then,
1. limk (xk yk ) = x y
2. limk (xk yk ) = x y
3. limk (xk /yk ) = x/y, assuming that yk
= 0 for all k and y
= 0.
Exercise 3.1 Prove Theorem 3.2.

3.1.1

Subsequences

Let {xk } be a sequence. Consider a strictly increasing sequence of natural numbers


k1 < k2 < k3 <
and form a new sequence {yj }
j=1 , where yj = xkj for j = 1, 2, . . . . The sequence
{yj }j = {xkj }j is called a subsequence of {xk }.
Theorem 3.3 Every subsequence of a convergent sequence is itself convergent, and has
the same limit as the original sequence.
Proof of Theorem 3.3: It is trivial. 
Theorem 3.4 If the sequence {xk } is bounded, then it contains a convergent subsequence.
Proof of Theorem 3.4: Since {xk } is bounded, we can assume that there exists
some M R such that |xk | M for all k N. Let yn = sup{xk |k n} for n N.
By construction, {yn } is a nonincreasing sequence because the set {xk |k n} shrinks
as n increases. The sequence {yn } is also bounded because M yn M . Theorem
3.1 already showed that the sequence {yn } is convergent. Let x = limn yn . By the

18

denition of yn , we can choose a term xkn from the original sequence {xk } (with kn n)
satisfying |yn xkn | < 1/n.
|x xkn | = |x yn + yn xkn | |x yn | + |yn xkn | < |x yn | + 1/n.
This shows that xkn x as n . 

3.1.2

Cauchy Sequences

I have dened the concept of convergence of sequences. Then, a natural question arises as
to how we can check if a given sequence is convergent. The concept of Cauchy sequence,
indeed, enables us to do so.
Denition 3.2 A sequence {xk } of real numbers is called a Cauchy sequence if for
every > 0, there exists a natural number N such that |xm xn | < for all m, n > N .
The theorem below is a characterization of convergent sequences.
Theorem 3.5 A sequence is convergent if and only if it is a Cauchy sequence.
Proof of Theorem 3.5: (=) Suppose that {xk } converges to x. Given > 0,
we can choose a natural number N such that |xn x| < /2 for all n > N . Then, for
m, n > N ,
|xm xn | = |xm x + x xn | |xm x| + |x xm | < /2 + /2 = .
Therefore, {xk } is a Cauchy sequence. (=) Suppose that {xk } is a Cauchy sequence.
First, we shall show that the sequence is bounded. By the Cauchy property, there is a
number M such that |xk xM | < 1 for k > M . Moreover, the nite set {x1 , x2 , . . . , xM 1 }
is clearly bounded. Hence, {xk } is bounded. Theorem 3.4 showed that the bounded
sequence {xk } has a convergent subsequence {xkj }. Let x = limj xkj . Because {xk } is a
Cauchy sequence, for every > 0, there is a natural number N such that |xm xn | < /2
for all m, n > N . If we take J is suciently large, we have |xkj x| < /2 for all j > J.
Then for k > N and j > max{N, J},
|xk x| = |xk xkj + xkj x| |xk xkj | + |xkj x| < /2 + /2 =
Hence xk x as k . 
Exercise 3.2 Consider the sequence {xk } with the generic term
k

1
1
1
1
xk = 2 + 2 + + 2 =
1
2
k
i2
i=1

19

Prove that this sequence is a Cauchy sequence. Hint:


1
1
1
+
+ +
2
2
(n + 1)
(n + 2)
(n + k)2
1
1
1
+
+ +
<
n(n + 1) (n + 1)(n + 2)
(n + k 1)(n + k)

1
1
1
1
1
1

+ +

=
n n+1
n+1 n+2
n+k1 n+k
Exercise 3.3 Prove that a sequence can have at most one limit. Use proof by contradiction. Namely, you rst suppose, by way of contradiction, that there are two limit
points.

3.1.3

Upper and Lower Limits

Let {xk } be a sequence that is bounded above, and dene yn = sup{xk |k n} for
n = 1, 2, . . . . Each yn is a nite number and {yn } is a nonincreasing sequence. Then
either limn yn exists or is . We call this limit the upper limit (or lim sup) of the
sequence {xk }, and we introduce the following notation:
lim sup xk = lim (sup{xk |k n})

If {xk } is not bounded above, we write lim supk xk = . Similarly, if {xk } is


bounded below, its lower limit (or lim inf, is dened as
lim inf xk = lim (inf{xk |k n)

If {xk } is not bounded below, we write lim inf k xk = .


Theorem 3.6 If the sequence {xk } is convergent, then
lim sup xk = lim inf xk = lim xk .

On the other hand, if limk sup xk = limk inf xk , then {xk } is convergent.
I omit the proof of Theorem 3.6.
Exercise 3.4 Determine the lim sup and lim inf of the following sequences.
1. {xk } = {(1)k }


2. {xk } = (1)k (2 + 1/k) + 1

20

3.1.4

Inmum and Supremum of Functions

Suppose that f (x) is dened for all x B, where B Rn . We dene the inmum and
supremum of the function f over B by
inf f (x) = inf{f (x)|x B}, sup f (x) = sup{f (x)|x B}.

xB

xB

If a function f is dened over a set B, if inf xB f (x) = y, and if there exists a c B


such that f (c) = y, then we say that the inmum is attained (at the point c) in B. In
this case the inmum y is called the minimum of f over B, and we often write min
instead of inf. In the same way we write max instead of sup when the supremum
of f over B is attained in B, and so becomes the maximum.

3.1.5

Indexed Sets

Suppose that, for each , we specify an object a . Then, these objects form an
indexed set {a } with as its index set. In formal terms, an indexed set is a function
whose domain is the index set. For example, a sequence is an indexed set {ak }k with
the set N of natural numbers as its index set. In stead of {ak }k one often writes
{ak }
k=1 .
A set whose elements are sets is often called a family of sets, and so an indexed set
of sets is also called an indexed family of sets. Consider a nonempty indexed family
{A } of sets. The union and the intersection of this family are the sets

A = the set consisting of all x that belong to A for at least one

A = the set consisting of all x that belong to A for all .
The distributive laws can be generalized to








B =
(A B ) , A
B =
(A B )
A

and De Morgans laws to










B =
(A\B ) , A\
B =
(A\B )
A\

The union
of a sequence {An }n = {An }
n=1 of sets is often

 and the intersection
written as n=1 An and n=1 An .

3.2

Point Set Topology in Rn

Consider the n-dimensional Euclidean space Rn , whose elements, or points, are nvectors x = (x1 , . . . , xn ). The Euclidean distance d(x, y) between any two points x =
21

(x1 , . . . , xn ) and y = (y1 , . . . , yn ) in Rn is the norm x y of the vector dierence


between x and y. Thus,

d(x, y) = x y = (x1 y1 )2 + + (xn yn )2
If x, y, and z are points in Rn , then
d(x, z) d(x, y) + d(y, z) (triangle inequality)
If x0 is a point in Rn and r is a positive real number, then the set of all points x Rn
whose distance from x0 is less than r, is called the open ball around x0 with radius r.
This open ball is denoted by Br (x0 ). Thus,
Br (x0 ) = {x Rn |d(x0 , x) < r}
Denition 3.3 A set S Rn is open if, for all x0 S, there exists some > 0 such
that B (x0 ) S.
On the real line R, the simplest type of open set is an open interval. Let S be any
subset of Rn . A point x0 S is called an interior point of S if there is some > 0 such
that B (x0 ) S. The set of all interior points of S is called the interior of S, and is
denoted int(S). A set S is said to be a neighborhood of x0 if x0 is an interior point of S,
that is, if S contains some open ball B (x0 ) (i.e., B (x0 ) S) for some > 0.
Theorem 3.7

1. The entire space Rn and the empty set are both open.

2. arbitrary unions of open 


sets are open: Let be an arbitrary index set. If A is
open for each , then, A is also open.
3. The intersection of nitelymany open sets is open: Let be a nite set. If A is
open for each , then A is open.
Proof of Theorem 3.7: (1) It is clear that B1 (x) Rn for all x Rn , so Rn is
open. The empty set is open because the set has no element, so every member is an
interior point.

(2) Let {U } be an arbitrary family of open sets in Rn , and let U = U be
the union of the whole family. For each x U , there is at least one such that
x U . Since U is open by our hypothesis, there exists > 0 such that B (x) U
U . Hence, U is open.
K
n
(3) Let {Ui }K
k=1 Uk be the
k=1 be nite collection of open sets in R , and let U =
intersection of all these sets. Let x be any point in U . Since Uk is open for each k,
there is k > 0 such that Bk (x) Uk for each k. Let = min{1 , . . . , K }. This is
well dened because of niteness. Then, B (x) Uk for each k, which implies that
B (x) U . Hence, U is open. 

22

Exercise 3.5 There are two questions. First, draw the graph of S = {(x, y) R2 |2x
y < 2 and x 3y < 5}. Second, prove that S is open in R2 .
Denition 3.4 A set S is closed if its complement, Rn \S is open.
A point x0 Rn is said to be a boundary point of the set S Rn if B (x0 ) S c
=
and B (x0 ) S
= for every > 0. Here, S c = R\S. In general, a set may include
none, some, or all of its boundary points. An open set, for instance, contains none of its
boundary points.
Each point in a set is either an interior point or a boundary point of the set. The set
of all boundary points of a set S is said to be the boundary of S and is denoted S or
bd(S). Note that, given any set S Rn , there is a corresponding partition of Rn into
three mutually disjoint sets (some of which may be empty), namely;
1. the interior of S, which consists of all points x Rn such that N S for some
neighborhood N of x;
2. the exterior of S, which consists of all points x Rn for which there exists some
neighborhood N of x such that N Rn \S;
3. the boundary of S, which consists of all points x Rn with the property that every
neighborhood N of x intersects both S and its complement Rn \S.
A set S Rn is said to be closed if it contains all its boundary points. The union of
A point x belongs
S and its boundary (S S) is called the closure of S, denoted by S.

to S if and only if B (x) S


= for any > 0. The closure S of any set S is indeed
closed. In fact, S is the smallest closed set containing S.
Theorem 3.8

1. The whole space Rn and the empty set are both closed.

2. Arbitrary intersections of closed sets are closed.


3. The union of nitely many closed sets is closed.
Exercise 3.6 Prove Theorem 3.8. Use the fact that the complement of open set is closed
and Theorem 3.7.
In topology, any set containing some of its boundary points but not all of them, is
neither open nor closed. The half-open intervals [a, b) and (a, b], for examples, are neither
open nor closed. Hence, openness and closedness are not mutually exclusive.

3.3

Topology and Convergence

I want to generalize the argument in Section 3.1 into Rn . The basic idea to do so is to
n
apply the previous argument coordinate-wise. A sequence {xk }
k=1 in R is a function
n
that for each natural number k yields a corresponding point xk in R .
23

Denition 3.5 A sequence {xk } in Rn converges to a point x Rn if for each > 0,


there exists a natural number N such that xk B (x) for all k N , or equivalently, if
d(xk , x) 0 as k .
Theorem 3.9 Let {xk } be a sequence in Rn . Then, {xk } converges to the vector x Rn
(j)
if and only if for each j = 1, . . . , n, the real number sequence {xk }
k=1 , consisting of jth
(j)
component of each vector xk , converges to x R, the jth component of x.
Proof of Theorem 3.9: (=) For every k and every j, one has d(xk , x) = xk x|
(j)
that if xk x, then xk x(j) for each j. (=) Suppose that
for j = 1, . . . , n. Then, given any > 0, for each i = 1, . . . , n,

(j)
there exists a number Nj such that |xk x(j) | < / n for all k > Nj . It follows that
(j)
|xk x(j) |. It follows
(j)
xk x(j) as k


d(xk , x) =

(1)

(n)

|xk x(1) |2 + + |xk x(n) |2 <

2 /n + 2 /n = ,

for all k > max{N1 , . . . , Nn }. This is well dened because of the niteness of n. Therefore, xk x as k 
Denition 3.6 A sequence {xk } in Rn is said to be Cauchy sequences if for every
> 0, there exists a number N such that d(xm , xn ) < for all m, n > N .
Theorem 3.10 A sequence {xk } in Rn is convergent if and only if it is a Cauchy sequence.
Exercise 3.7 Prove Theorem 3.10. Apply the same argument in Theorem 3.5 to each
coordinate.

3.4

Properties of Sequences in Rn

Theorem 3.11
1. For any set S Rn , a point x Rn belongs to S if and only if
there exists {xk } S such that xk x as k .
2. A set S Rn is closed if and only if every convergent sequence of points in S has
its limit in S.
Regardless of whether
Proof of Theorem 3.11: (= of Property 1) Let x S.
x intS or S, for each k N, we can construct xk such that xk B1/k (x) S (In
particular, take xk = x for each k). Then xk x as k . (= of Property 1) Suppose
that {xk } is a convergent sequence for which xk S for each k and x = limk xk . We
For any > 0, there is a number N N such that xk B (x) for
claim that x S.
all k > N . Since xk S for each k, it follows that B (x) S
= . Suppose, on the
Since S is closed, there is some > 0 such that B (x) S = . This
other hand, x
/ S.

contradicts the conclusion I just drew that B (x) S


= for any > 0. Hence, x S.

24

(= of Property 2) Assume that S is closed and let {xk } be a convergent sequence


such that xk S for each k. Note that x S by property 1. Since S = S if S is closed,
there is
it follows that x S. (= of Property 2) By property 1, for any point x S,
some sequence {xk } for which xk S for each k and limk xk = x. By our hypothesis,
x S. This shows that x S implies x S, i.e., S S. By denition, S S for any
that is, S is closed. 
S. Hence S = S,
Denition 3.7 A set S in Rn is bounded if there exists a number M R such that
x M 
for all x S. A set that is not bounded is called unbounded. Here x =
d(x, 0) = x21 + + x2n , called the Euclidean norm.
Similarly, a sequence {xk } in Rn is bounded if the set {xk |k = 1, 2, . . . } is bounded.
Lemma 3.1 Any convergent sequence {xk } in Rn is bounded.
Proof of Lemma 3.1: If xk x, then only nitely many terms of sequence can lie
outside the ball B1 (x). The ball B1 (x) is bounded and any nite set of points is bounded,
so {xk } must be bounded. 
On the other hand, a bounded sequence {xk } in Rn is not necessarily convergent.
This is the same as the sequences in R. The theorem below gives us a characterization
of boundedness of the set in terms of sequences.
Theorem 3.12 A subset S of Rn is bounded if and only if every sequence of points in
S has a convergent subsequence.
I omit the proof of this theorem. Although it is not a dicult proof, it is tedious to
prove that. The next concept of compact sets is used extensively in both mathematics
and economics.
Denition 3.8 A set S in Rn is compact if it is closed and bounded.
Theorem below is a characterization of compact sets in terms of sequences.
Theorem 3.13 (Bolzano-Weierstrass) A subset S of Rn is compact if and only if
every sequence of points in S has a subsequence that converges to a point in S.
Proof of Bolzano-Weierstrasss theorem: (=) Suppose that S is compact and
let {xk } be a sequence such that xk S for each k. Since S is also bounded, there is
a convergent subsequence {yn } = {xkn }. Furthermore, limn yn = y S because S
is closed. (=) Let {xk } be any sequence for which xk S for each k. Suppose that
there exists a subsequence {yn } = {xkn } of the sequence {xk } with limn yn = y S.
This with the previous theorem (Theorem 3.12) already showed that S is bounded. Let
{xk } be any sequence for which xk S for each k and x = limk xk . Since S is closed
By assumption, {xk } has a subsequence {xk } that
by denition, it follows that x S.
j

converges to limj xkj = x S. But {xkj } also converges to x. Hence, the limit

points must be the same, that is, x = x S. 
25

Exercise 3.8 Let the number of commodities of the competitive market be n. Let pi > 0
be a price for commodity i for each i = 1, . . . , n. Let y > 0 be the consumers income.
Dene the consumers budget set B(p, y) as



n

pi xi y .
B(p, y) x = (x1 , . . . , xn ) Rn+ 
i=1

Show that B(p, y) is nonempty and compact.

3.5

Continuous Functions

Consider rst a real-valued function z = f (x) = f (x1 , . . . , xn ) of n variables. Roughly


speaking, f is continuous if small changes in the independent variables cause only small
changes in the function value.
Denition 3.9 A function f : S R with domain S Rn is continuous at a point
x0 in S if for every > 0 there exists a > 0 such that
|f (x) f (x0 )| < for all x S with x x0  < .
If f is continuous at every point in a set S, we simply say that f is continuous on S.
Exercise 3.9 Let f (x) =

x be a function f : R+ R. Prove that f is continuous.

Exercise 3.10 Let f : R+ R be given below.



1 if x 1
f (x) =
0 if x < 1
Show that f is not a continuous function.
Consider next the general case of vector-valued functions.
Denition 3.10 A function f = (f1 , . . . , fm ) from a subset S of Rn to Rm is said to be
continuous at x0 in S if for every > 0, there exists a > 0 such that d(f (x), f (x0 )) <
for all x S with d(x, x0 ) < , or equivalently, such that f (B (x0 ) S) B (f (x0 )).
The next theorem shows that the continuity of vector-valued functions can reduce to
the continuity of each component (coordinate) functions, and vice versa.
Theorem 3.14 A function f = (f1 , . . . , fm ) from S Rn to Rm is continuous at a
point x0 in S if and only if each component function fj : S R, j = 1, . . . , m, is
continuous at x0 .

26

Proof of Theorem 3.14: (=) Suppose f is continuous at x0 . Then, for every


> 0, there exists a > 0 such that
|fj (x) fj (x0 )| d(f (x), f (x0 )) <
for every x S with d(x, x0 ) < . Hence, fj is continuous at x0 for j = 1, . . . , m. (=)
Suppose that each component fj is continuous at x0 . Then, for every > 0 and every

j = 1, . . . , m, there exists j > 0 such that |fj (x) fj (x0 )| < / m for every point x S
with d(x, x0 ) < j . Let = min{1 , . . . , m }. Then x B (x0 ) S implies that


2
2
+ +
= .
d(f (x), f (x0 )) = |f1 (x) f1 (x0 )|2 + + |fm (x) fm (x0 )|2 <
m
m
This proves that f is continuous at x0 . 
Here, I want to characterize the continuity of the functions in terms of sequences.
Theorem 3.15 A function f from S Rn into Rm is continuous at a point x0 in S if
and only if f (xk ) f (x0 ) for every sequence {xk } of points in S that converges to x0 .
Proof of Theorem 3.15: (=) Suppose that f is continuous at x0 and let {xk } be
a sequence for which xk S and limk xk = x0 . Let > 0 be given. Since xk x0 ,
for any > 0, there exists a number N N such that d(xk , x0 ) < for all k > N .
Therefore, because of the continuity of f , there exists > 0 such that d(f (x), f (x0 )) <
whenever x B (x0 ) S. But then xk B (x0 ) S and so d(f (xk ), f (x0 )) < for
all k > N . This implies that f (xk ) f (x0 ). (=) Let {xk } be a sequence for which
xk S for each k and x0 = limk xk . Since xk x0 , for any > 0, there is a number
N such that d(xk , x0 ) < for all k > N . Similarly, since f (xk ) f (x0 ), for any
> 0, there exists a number N such that d(f (xk ), f (x0 )) < for all k > N . Dene
N = max{N , N }. Then, by choosing k > N , there exists a > 0 with d(xk , x0 ) <
such that d(f (xk ), f (x0 )) < . In fact, this holds for any > 0. Hence, we prove that f
is continuous at x0 . 
The theorem below shows that continuous mappings preserve the compactness of the
set.
Theorem 3.16 Let S Rn and let f : S Rm be continuous. Then f (K) = {f (x)|x
K} is compact for every compact subset K of S.
Proof of Theorem 3.16: Let {yk } be any sequence in f (K). By denition, for each
k, there is a point xk K such that yk = f (xk ). Because K is compact, by BolzanoWeierstrasss theorem, the sequence {xk } has a subsequence {xkj } with the property that
xkj K for each j and limj xkj = x0 K. Because f is continuous, by the previous
theorem (Theorem 3.15), f (xkj ) f (x0 ) as j , where f (x0 ) f (K) because
x0 K. But then {ykj } is a subsequence of {yk } that converges to a point f (x0 ) f (K).
So, we have proved that any sequence in f (K) has a subsequence converging to a point
of f (K). 
27

Suppose that f is a continuous function from Rn to Rm . If V is an open set in Rn ,


the image f (V ) = {f (x)|x V } of V need not be open in Rm . Nor need f (C) be closed
if C is closed. Nevertheless, the inverse image f 1 (U ) = {x|f (x) U } of an open set U
under continuous function f is always open. Similarly, the inverse image of any closed
set must be closed.
Theorem 3.17 Let f be any function from Rn to Rm . Then f is continuous if and only
if either of the following equivalent conditions is satised.
1. f 1 (U ) is open for each open set U in Rm .
2. f 1 (F ) is closed for each closed set F in Rm .
I omit the proof of Theorem 3.17. Because it is conceptually involved. So, just accept
the result.
Theorem 3.18 Let S be a compact set in R and let x be the greatest lower bound of S
and x be the lowest upper bound of S. Then, x S and x S.
Proof of Theorem 3.18: Let S R be closed and bounded and let x be the
lowest upper bound of S. Then, by denition of any lower bound, we have x x for
all x S. If x = x for some x S, we are done. Suppose, therefore, that x is strictly
/ S, so x R\S.
greater than every point in S. If x > x for all x S, then x
Since S is closed, R\S is open. Then, by the denition of open sets, there exists some
> 0 such that B (x ) = (x , x + ) R\S. Since x > x for all x S and
B (x ), we must have x
> x for all x S. In
B (x ) R\S, we claim that for any x

particular, x /2 B (x ) and x /2 > x for all x S. But then this contradicts


our hypothesis that x is the lowest upper bound of S. Thus, we must conclude that
x S. The same argument should be constructed for the greatest lower bound of S,
i.e., x . 
Theorem 3.19 (Weierstrasss Theorem) Let f : S R be a continuous real-valued
mapping where S is a nonempty compact subset of Rn . Then there exists a vector x , x
S such that for all x S,
f (x ) f (x) f (x ).
Proof of Weierstrasss Theorem: It follows from Theorem 3.16 and 3.18. 

28

Chapter 4

Linear Algebra
4.1

Basic Concepts in Linear Algebra

Let f : Rn Rm be a mapping (transformation). A mapping f is said to be linear


if for any x, y Rn and any R, the following two conditions are satised: (1)
f (x + y) = f (x) + f (y) and (2) f (x) = f (x). For any linear mapping f : Rn Rm ,
there exists a unique m n matrix A such that f (x) = Ax for all x Rn . 1 An m n
matrix is a rectangular array with m rows and n columns:

a11 a12 a1n


a21 a22 a2n

A = (aij )mn = .
..
..
.
.
.
.
.
.
.
am1 am2 amn
Here aij denotes the elements in the ith row
we can express f (x) = Ax as below:

(1)
f (x)

a11

..

.
a21

(j)

f (x) =
.
f (x) =
..

..

.
am1
(m)
f (x)

and the jth column. With this notation,

..
.

a1n
a2n
..
.

am2

amn

a12
a22
..
.

x1
x2
..
.

xn

Exercise 4.1 Show that any linear mapping f : Rn Rm is continuous.


If A = (aij )mn , B = (bij )mn , and is a scalar, we dene
A + B = (aij + bij )mn ,
A = (aij )mn ,
1
This is a non-trivial statement. But I take this one-to-one correspondence between linear mapping
and matrix representation as a fact with no proof provided.

29

A B = A + (1)B = (aij bij )mn .


Let f : Rn Rm and g : Rn Rp be linear mappings. Then, we can set m n
matrix A = (aij )mn associated with f and p m matrix B = (bij )pm associated with
g. Consider the composite mapping g f (x) = g(f (x)). What I would like to have is the
requirement on the product of matrices that g f BA. Then the product C = BA
is dened as the p n matrix C = (cij )pn , whose element in the ith row and the jth
column is the inner product of the ith row of A and the jth column of B. That is,
cij =

n

r=1

air brj = ai1 b1j + ai2 b2j + + aik bkj + ain bnj



n terms

It is important to note that the product BA is well dened only if the number of
columns in B is equal to the number of rows in A.
If A, B, and C are matrices whose dimensions are such that the given operations are
well dened, then the basic properties of matrix of multiplication are:
(AB)C = A(BC) (associative law)
A(B + C) = AB + AC (left distributive law)
(A + B)C = AC + BC (right distributive law)
Exercise 4.2 Show the above three properties when we consider 2 2 matrices.
However, matrix multiplication is not commutative. In fact,
AB
= BA, except in special cases
AB = 0 does not imply that A or B is 0
AB = AC and A
= 0 do not imply that B = C
Exercise 4.3 Conrm the above three points by example.
By using matrix multiplication, one can write a general system of linear equations in
a very concise way. Specically, the system
a11 x1 + a12 x2 + + a1n xn

b1

a21 x1 + a22 x2 + + a2n xn

b2


am1 x1 + am2 x2 + + amn xn
can be written as Ax = b if we

a11 a12
a21 a22

A= .
..
..
.
am1 am2

dene

..
.

a1n
a2n
..
.

amn

, x =

x1
x2
..
.
xn

30

bm

, b =

b1
b2
..
.
bn

A matrix is square if it has an equal number of rows and columns. If A is a square


matrix and n is a positive integer, we dene the nth power of A in the obvious way:
A
An = AA
 
n factors
For diagonal matrices it

d1
0

D= .
..
0

is particularly easy to compute powers:


n

d1 0
0 0
0 dn
d2 0
2

n
.. . .
.. = D = ..
.. . .

.
.
.
.
.
.
0

dm

0
0
..
.

dnm

The identity matrix of order n, denoted by In , is the n n matrix having ones along
the main diagonal and zeros elsewhere:

1 0 0
0 1 0

(identity matrix)
In = . . .
. . ...
.. ..

0 0

If A is any m n matrix, then AIn = A = Im A. In particular,


AIn = In A = A for every n n matrix A
If A = (aij )mn is any matrix, the transpose of A is dened as AT = (aji )nm .
The subscripts i and j are interchanged because every row of A becomes a column of
AT , and every column of A becomes a row of AT . The following rules apply to matrix
transposition:
1. (AT )T = A
2. (A + B)T = AT + B T
3. (A)T = AT
4. (AB)T = B T AT
Exercise 4.4 Prove the above four properties when we consider 2 2 matrices.
A square matrix is said to be symmetric if A = AT .

31

4.2
4.2.1

Determinants and Matrix Inverses


Determinants

Recall that the



 a
|A| =  11
a21

 a11

|A| =  a21
 a31

determinants |A| of 2 2 and 3 3 matrices are dened by



a12 
= a11 a22 a12 a21
a22 

a12 a13 
a22 a23  = a11 a22 a33 + a12 a23 a31 + a13 a21 a32 a11 a23 a32 a12 a21 a33 a13 a22 a31
a32 a33 

For a general n n matrix A = {aij }, the determinant |A| can be dened recursively.
In fact,
|A| = ai1 Ai1 + ai2 Ai2 + aij Aij + + ain Ain
where the cofactors Aij are determinants of (n 1) (n 1)

 a11 a1,j1 a1j a1,j+1

 a21 a2,j1 a2j a2,j+1

..
..
..
 ..

.
.
.
i+j  .
Aij = (1) 

a
a
a
a
i1
i,j1
ij
i,j+1

 .
..
..
..
 ..
.
.
.

 a
an,j1 anj an,j+1
n1

matrices given by

a1n 
a2n 
.. 
. 
ain 
.. 
. 
ann 

Here row i and column j are to be deleted from the matrix A to produce Aij .
Proposition 4.1 Let A and B be n n matrices. Then, |AB| = |A||B|
Exercise 4.5 Prove Proposition 1 when n = 2.

4.2.2

Matrix Inverses

The inverse A1 of an n n matrix A has the following properties:


B = A1 AB = In BA = In
A1 exists |A|
= 0
If A = (aij )nn and |A|
= 0, the unique inverse of A is given by

A11 A21 An1

1
A12 A22 An2
adj(A), where adj(A) = .
A1 =
..
..
..
|A|
..
.
.
.
A1n A2n Ann

with Aij , the cofactor of the element aij . Note carefully the order of the indices in the
adjoint matrix, adj(A) with the column number preceding the row number. The matrix
(Aij )nn is called the cofactor matrix, whose transpose is the adjoint matrix.
32

Exercise 4.6 Dene A as

a11 a12 a13


A = a21 a22 a23
a31 a32 a33

Then, derive A1 . Assume that |A|


= 0.
Lemma 4.1 The following rules for inverses can be established.
(A1 )1 = A,
(AB)1 = B 1 A1 ,
(AT )1 = (A1 )T ,
(A)1 = 1 A1 , where R.
Exercise 4.7 Prove Lemma 4.1 when n = 2.
Proposition 4.2 Let A be a n n matrix. Then, |A1 | = 1/|A|.
Exercise 4.8 Prove Proposition 4.2 when n = 2.

4.2.3

Cramers Rule

A linear system of n equations and n unknowns,


a11 x1 + a12 x2 + + a1n xn

b1

a21 x1 + a22 x2 + + a2n xn

b2

()


an1 x1 + an2 x2 + + ann xn

bn

has a unique solution if and only if |A|


= 0. The solution is then
xj =

|Aj |
, j = 1, . . . , n
|A|

where the determinant


 a11


 a21
|Aj | =  .
..
.
 ..

 an1

a1,j1
a2,j1
..
.

b1
b2
..
.

an,j1

bn

a1,j+1
a2,j+1
..
..
.
.
an,j+1

a1n
a2n
..
.
ann












is obtained by replacing the jth column of |A| by the column whose components are
b1 , b2 , . . . , bn . If the right-hand side of the equation system () consists only of zeros, so
that it can be written in matrix form as Ax = 0, the system is called homogeneous. A
homogeneous system will always have the trivial solution x1 = x2 = = xn = 0.
33

Lemma 4.2 Ax = 0 has nontrivial solutions if and only if |A| = 0.


I omit the proof of Lemma 4.2.
Exercise 4.9 Use Cramers rule to solve the following system of equations:
2x1 3x2 = 2
4x1 6x2 + x3 = 7
x1 + 10x2 = 1.

4.3

Vectors

An n-vector is an ordered n-tuple of numbers. It is often convenient to regard the rows


and columns of a matrix as vectors, and an n-vector can be understood either as a 1 n
matrix a = (a1 , a2 , . . . , an ) (a row vector ) or as an n 1 matrix aT = (a1 , a2 , . . . , an )T
(a column vector). The operations of addition, subtraction and multiplication by scalars
of vectors are dened in the obvious way. The dot product (or inner product) of the
n-vectors a = (a1 , a2 , . . . , an ) and b = (b1 , b2 , . . . , bn ) is dened as
a b = a1 b1 + a2 b2 + + an bn =

ai bi

i=1

Proposition 4.3 If a, b, and c are n-vectors and is a scalar, then


1. a b = b a,
2. a (b + c) = a b + a c,
3. (a) b = a (b) = (a b).
4. a a = 0 = a = 0
5. (a + b) (a + b) = a a + 2(a b) + b b.
Exercise 4.10 Prove Proposition 4.1. If you nd it dicult to do so, focus on vectors
in R2 .
The Euclidean norm or length of the vector a = (a1 , a2 , . . . , an ) is


a = a a = a21 + a22 + + a2n


Note that a = ||a for all scalars and vectors.
Lemma 4.3 The following useful inequalities hold.
1. |a b| a b (Cauchy-Schwartz inequality)

34

2. a + b a + b (Minkowski inequality)


Proof of Cauchy-Schwartz inequality: Dene f (t) as
f (t) = (ta + b) (ta + b),
where t R. Because of the denition of dot products, we have f (t) 0 for any t R.
f (t) = t2 a2 + 2t(a b) + b2 .
Then, using the formula, we solve the above equation with respect to t:

(a b) (a b)2 a2 b2
t=
a2
Since f (t) 0 for any t R, we must have
|a b| ab. 
Exercise 4.11 Prove property 2 in Lemma 4.3. (Hint: It suces to show that a+b2
(a + b)2 )
Cauchy-Schwartz inequality implies that, for any a, b Rn ,
1

ab
1.
ab

Thus, the angle between nonzero vectors a and b Rn is dened by


cos =

ab
, [0, ]
a b

This denition reveals that cos = 0 if and only if a b = 0. Then = /2. In symbols,
ab a b = 0
The hyperplane in Rn that passes through the point a = (a1 , . . . , an ) and is orthogonal to the nonzero vector p = (p1 , . . . , pn ), is the set of all points x = (x1 , . . . , xn ) such
that
p (x a) = 0

4.4

Linear Independence

Denition 4.1 The n vectors a1 , a2 , . . . , an in Rm are linearly dependent if there


exist numbers c1 , c2 , . . . , cn , not all zero, such that
c1 a1 + c2 a2 + + cn an = 0
If this equation holds only when c1 = c2 = = cn = 0, then the vectors are linearly
independent.
35

Exercise 4.12 a1 = (1, 2), a2 = (1, 1), and a3 = (5, 1) R2 . Show that a1 , a2 , a3 are
linearly dependent.
Leta1 , a2 , . . . , an Rn \{0}. Suppose that, for any i = 1, . . . , n, it follows that
n
ai
=
j=i j aj for any 1 , . . . , i1 , i+1 , . . . , n R. Then, the entire space R is
spanned by the set of all linear combinations of a1 , . . . , an .
Lemma 4.4 A set of n vectors a1 , a2 , . . . , an in Rm is linearly dependent if and only if
at least one of them can be written as a linear combination of the others. Or equivalently:
A set of vectors a1 , a2 , . . . , an in Rm is linearly independent if and only if none of them
can be written as a linear combination of the others.
Proof of Lemma 4.4: Suppose that a1 , a2 , . . . , an are linearly dependent. Then
the equation c1 a1 + + cn an = 0 holds with at least one of the coecients ci dierently
from 0. We can, without loss of generality, assume that c1
= 0. Solving the equation for
a1 yields
c2
cn
a1 = a2 an .
c1
c1
Thus, a1 is a linear combination of the other vectors. 

4.4.1

Linear Dependence and Systems of Linear Equations

Consider the general system of m equations in n unknowns.


a11 x1 + a12 x2 + + a1n xn

b1

a21 x1 + a22 x2 + + a2n xn

b2

x1 a1 + + xn an = b

()


an1 x1 + an2 x2 + + amn xn

bm

Here a1 , . . . , an are the column vectors of coecients, and b is the column vector with
components b1 , . . . , bm .
Suppose that () has two solutions (u1 , . . . , un ) and (v1 , . . . , vn ). Then,
u1 a1 + + un an = b and v1 a1 + + vn an = b
Subtracting the second equation from the rst yields
(u1 v1 )a1 + + (un vn )an = 0.
Let c1 = u1 v1 , . . . , cn = un vn . The two solutions are dierent if and only if c1 , . . . , cn
are not all equal to 0. We conclude that if system () has more than one solution, then
the column vectors a1 , . . . , an are linearly dependent. 2 Equivalently, If the column
vectors a1 , . . . , an are linearly independent, then system () has at most one solution.
3

Recall Lemma 4.4.


Is there anything to say when there is no solution? The answer is yes. I can use Farkas Lemma to
check if there is any solution to the system. See Appendix 1 in this chapter for Farkas Lemma.
3

36

Theorem 4.1 The n

a11
a21

A= .
..

column vectors a1 , a2 , . . . , an of the n n matrix

a12 a1n
a1j
a2j
a22 a2n

..
.. , where aj = .. j = 1, . . . , n
..

.
.
.
.

an1 an2

ann

anj

are linearly independent i |A|


= 0.
Proof of Theorem 4.1: The vectors a1 , . . . , an are linearly independent i the
vector equation x1 a1 + xn an = 0 has only the trivial solution x1 = = xn = 0. This
vector equation is equivalent to a homogeneous systems of equations, and therefore, it
has only the trivial solution i |A|
= 0. 4 
Denition 4.2 The rank of a matrix A, written r(A), is the maximum number of
linearly independent column vectors in A. If A is the 0 matrix, we put r(A) = 0.

4.5

Eigenvalues

4.5.1

Motivations

Consider the matrix A below.

A=

2 0
0 3

Let x, y be vectors in R2 . Suppose that y is derived from Ax as follows.


2 0
x1
2x1
y1
=
=
y = Ax
y2
x2
3x2
0 3
The linear transformation (matrix) A extends x1 into 2x1 along the x1 axis and x2
into 3x2 along the x2 axis. Importantly, there is no interaction between x1 and x2 through
the linear transformation A. This is, I believe, a straightforward extension of the linear
transformation in R into Rn . Dene e1 = (1, 0) and e2 = (0, 1) as the unit vectors in R2 .
Then, x = x1 e1 + x2 e2 and y = 2x1 e1 + 3x2 e2 . In other words, (e1 , e2 ) is the unit vector
in the original space and (2e1 , 3e2 ) is the unit vector in the space transformed through
A. Next, consider the matrix B as follows.


1 1
B=
2 4
Now, we dont have a clear image about what is going on through the linear transformation A. However, consider the following dierent unit vectors f1 = (1, 1) and
4

Check Section 4.2.3 for this argument. Recall that the system of linear equations is homogeneous if
it is expressed by Ax = 0.

37

f2 = (1, 2). Then,


f1

f2

  
  

1
1
1
1
1 1
1 1
=2
=3
, and
1
1
2
2
2 4
2 4
  
  







2f1

3f2

This shows that once we take f1 and f2 as the new coordinate system, the linear
transformation B is the same as A but now along the f1 and f2 axes, respectively.
Finally, consider the matrix C below.


2 3
C=
4 2
It turns out that there is no way of nding the new coordinate system in which
the linear transformation C can be seen as either extending or shrinking the vectors in
each new axis. The reason why we dont nd such a new coordinate system is that we
restrict our attention to Rn . Once we allow for the unit vectors in the new system to be
complex numbers, we again will be successful to nd the new coordinate system in which
everything is easy to understand. 5
Consider another dierent unit vector




2
2
3
3
i and f2 = 1,
i .
f1 = 1,
3
3
Then,
f1

  


1
2 3

= (2 2 3i)
2 3i
4 2
3








2 3
4 2



A

2 3i
3

(22 3i)f1

f2


1

2 33i



= (2 + 2 3i)




2 33i

(2+2 3i)f2

, and




I want to generalize the above argument. Suppose there happens to be a scalar


with the special property that
Ax = x ()
In this case, we would have A2 x = A(Ax) = A(x) = Ax = x = 2 x, in general,
An x = n x.
5

Those who are interested in the definition of complex numbers should be referred to Appendix 2 in
this chapter.

38

Denition 4.3 If A is an n n matrix, then a scalar is an eigenvalue of A if there


is a nonzero vector x Rn such that
Ax = x
Then x is an eigenvector of A (associated with )

4.5.2

How to Find Eigenvalues

The eigenvalue equation can be written as


(A I)x = 0
where I denotes the identity matrix of order n. Note that this linear system of equations
has a solution x
= 0 if and only if the coecient matrix has determinant equal to 0
that is, i |A I| = 0. Letting p() = |A I|, where A = (aij )nn , we have the
equation


 a11
a12

a1n 

 a21
a22
a2n 

p() = |A I| = 
 = 0.
..
..
..
.
..


.
.
.


 an1
an2
ann 
This is called the characteristic equation of A. From the denition of determinant,
it follows that p() is a polynomial of degree n in . According to the fundamental
theorem of algebra, it has exactly n roots (real or complex), provided that any multiple
roots are counted appropriately.
Theorem 4.2 (The Fundamental Theorem of Algebra by Gauss (1779)) Consider
a polynomial of degree n in z shown below.
z n + an1 z n1 + + a1 z + a0 = 0, ()
where a0 , . . . an1 C. Then, () has n solutions z1 , . . . , zn with the property that zi C
for each i = 1, . . . , n. This includes the case in which zi = zj for some i
= j.
Exercise 4.13 Find the eigenvalues and the associated eigenvectors of the matrices, A
and B.


1 2
A =
3 0


0 1
B =
1 0
In fact, it is convenient to write the characteristic function as a polynomial in :
p() = ()n + bn1 ()n1 + + b1 () + b0
39

The zeros of this characteristic polynomial are precisely the eigenvalues of A. Denoting
the eigenvalues by 1 , 2 , . . . , n C, we have
p() = (1)n ( 1 )( 2 ) ( n )
Theorem 4.3 If A is an n n matrix with eigenvalues 1 , 2 , . . . , n , then
1. |A| = 1 2 n
2. tr(A) = a11 + a22 + + ann = 1 + 2 + + n
Proof of Theorem 4.3: Putting = 0, we see that p(0) = b0 = |A|. Specically,
= 0 gives p(0) = (1)n (1)n 1 2 n . Since (1)n (1)n = ((1)n )2 = 1, we have
b0 = |A| = 1 2 n . The product of the elements on the main diagonal of |A I| is
(a11 )(a22 ) (ann ).
If we choose ajj from one of these parentheses and from the remaining n 1, then
add over j = 1, . . . n, we obtain the term
(a11 + a22 + + ann )()n1
Since we cannot obtain other terms with ()n1 except the above terms, we conclude
that bn1 = a11 + a22 + ann , the trace of A. 

4.6

Diagonalization

Let A and P be n n matrices with P invertible. Then A and P 1 AP have the same
eigenvalues. This is true because the two matrices have the same characteristic polynomial:
|P 1 AP I| = |P 1 AP P 1 IP | = |P 1 (A I)P |
= |P 1 ||A I||P | = |A I|
where we use the fact that |P 1 | = 1/|P | and |AB| = |A||B| (See Proposition 4.1 and
4.2.) .
An n n matrix A is diagonalizable if there exists an invertible n n matrix P and
a diagonal matrix D such that P 1 AP = D.
Theorem 4.4 (Diagonalization Theorem) An n n matrix A is diagonalizable if
and only if it has a set of n linearly independent eigenvectors x1 , . . . , xn Cn . In this
case,
P 1 AP = diag(1 , . . . , n )
where P is the matrix with x1 , . . . , xn Cn as its columns, and 1 , . . . , n C are the
corresponding eigenvalues.
40

Proof of Diagonalization Theorem: (=) Suppose that A has n linearly independent eigenvectors x1 , . . . , xn , with corresponding eigenvalues 1 , . . . , n . Let P denote
the matrix whose columns are x1 , . . . , xn . Then, AP = P D ( AP = DP because D is
diagonal), where D = diag(1 , . . . , n ). Because the eigenvectors are linearly independent, P is invertible, so P 1 AP = D. (=) If A is diagonalizable, there exists invertible
n n matrix P such that P 1 AP = D. Then, AP = P D. Since D is a diagonal matrix
by our hypothesis, we have AP = DP . The columns of P must be eigenvectors of A,
and the diagonal elements of D must be the corresponding eigenvalues. 
A matrix P is said to be orthogonal if P T = P 1 , i.e., P T P = I. If x1 , . . . , xn are the


n column vectors of P , then x1 , . . . , xn are the row vectors of the transformed matrix,

P . The condition P T P = I then reduces to the n2 equations xTi xj = 1 if i = j and
xTi xj = 0 if i
= j.
Theorem 4.5 If the matrix A = (aij )nn is symmetric, then:
1. All the n eigenvalues 1 , . . . , n are real.
2. Eigenvectors that corresponds to dierent eigenvalues are orthogonal.
3. There exists an orthogonal matrix P (i.e., P T = P 1 ) such that

1 0 0
0 2 0

P 1 AP = .
.. . .
..
.
.
. .
.
0

The columns v1 , v2 , . . . , vn of the matrix P are eigenvectors of unit length corresponding to the eigenvalues 1 , 2 , . . . , n .
Proof of Theorem 4.5: (1) We will show this for n = 2. The eigenvalues of 2 2
matrix A are given by the quadratic equation.



 a11
a
12
 = 2 (a11 + a22 ) + (a11 a22 a12 a21 ) = 0 ()
|A I| = 
a21
a22 
The roots of the quadratic equation () are

(a11 + a22 ) (a11 + a22 )2 4(a11 a22 a12 a21 )
.
=
2
These roots are real if and only if (a11 + a22 )2 4(a11 a22 a12 a21 ), which is equivalent
to
(a11 a22 )2 + 4a12 a21 0

(a11 a22 )2 + 4a212 0 if a12 = a21 because of the symmetry of A

41

This is indeed the case. (2) Suppose that Axi = i xi and Axj = j xj by i
= j .
Multiplying these equalities from the left by xTj and xTi , respectively,


xTj Axi = i xj xi and

xTi Axj = j xTi xj

Applying transpose operation on both hand sides, we obtain


xTi AT xj = i xTi xj and xTj AT xi = j xTj xi
Since A is symmetric so that A = AT , the above is simplied to
xTi Axj = i xTi xj

and xTj Axi = j xTj xi

This implies that (i j )xi xj = 0. Since i j


= 0 by our hypothesis, we must

have xi xj = 0 and thus, xi and xj are orthogonal. (3) Suppose all the real which
we are supposed to know from (1) eigenvalues are dierent. 6 Then, according to (2)
which we have shown above, the associated eigenvectors are mutually orthogonal. Hence,
the eigenvectors are linearly independent. When we dene P as the collection of the
eigenvectors x1 , . . . xn as its columns, it follows that P 1 = P T . By the diagonalization
theorem (Theorem 4.4), A is diagonalizable. We can choose the eigenvectors so that they
all have length 1, by replacing each xj with xj /xj . 
Exercise 4.14 Let a 2 2 symmetric matrix A be given below.


2 1
A=
1 2
Compute the matrix P described in Theorem 4.5.

4.7

Quadratic Forms

A quadratic form in n variables is a function Q of the form


Q(x1 , . . . , xn ) =

n
n

i=1 j=1

aij xi xj = a11 x211 + a12 x1 x2 + + aij xi xj + + ann x2n .

where the aij are constants. Suppose we put x = (x1 , . . . , xn )T and A = (aij ). Then, it
follows from the denition of matrix multiplication that
Q(x1 , . . . , xn ) = Q(x) = xT Ax.
Of course, xi xj = xj xi , so we can write aij xi xj + aji xj xi = (aij + aji )xi xj . If we replace
aij and aji by (aij + aji )/2, then the new numbers aij and aji become equal without
changing Q(x). Thus, we can assume that aij = aji for all i and j, which means that
the matrix A is symmetric. Then A is called the symmetric matrix associated with Q,
and Q is called a symmetric quadratic form.
6

We omit the case where some of the eigenvalues are equal.

42

Denition 4.4 A quadratic form Q(x) = x Ax, as well as its associated symmetric
matrix A, are said to be positive denite, positive semidenite, negative denite,
or negative semidenite according as
Q(x) > 0, Q(x) 0, Q(x) < 0, Q(x) 0,
for all x R\{0}. The quadratic form Q(x) is indenite if there exist vectors x and
y such that Q(x ) < 0 and Q(y ) > 0.
Let A = (aij ) be any n n matrix. An arbitrary principal minor of order r is the
determinant of the matrix obtained by deleting all but r rows and r columns in A with
the same numbers. In particular, a principal minor of order r always includes exactly r
elements of the main (principal) diagonal. We call the determinant |A| itself a principal
minor (no rows and columns are deleted). A principal minor is said to be a leading
principal minor of order r (1 r n), if it consists of the rst leading rows and
columns of |A|.
Suppose A is an arbitrary n n matrix.

 a11 a12

 a21 a22

Dk =  .
..
..
 ..
.
.

 ak1 ak2

The leading principal minors of A are



a1k 
a2k 
..  , k = 1, . . . , n
. 
akk 

Exercise 4.15 Consider a 3 3 matrix A:

a11 a12 a13


A = a21 a22 a23 .
a31 a32 a33
Compute all the principal minors of A.
Theorem 4.6 Consider the quadratic form
Q(x) =

n
n

aij xi xj

(aij = aji )

i=1 j=1

with the associated symmetric matrix A = (aij )nn . Let Dk be the leading principal
minor of A of order k and let k denote an arbitrary principal minor of order k. Then
we have
1. Q is positive denite Dk > 0 for k = 1, . . . , n
2. Q is positive semidenite k 0 for all principal minors of order k =
1, . . . , n.
3. Q is negative denite (1)k Dk > 0 for k = 1, . . . , n
43

4. Q is negative semidenite (1)k k 0 for all principal minors of order


k = 1, . . . , n.
Proof of Theorem 4.6: We only prove this for n = 2. Then, the quadratic form is
Q(x1 , x2 ) = a11 x21 + 2a12 x1 x2 + a22 x22
After some manipulation through perfect square, we obtain


a12
a212
x22
x2 + a22
Q(x1 , x2 ) = a11 x1 +
a11
a11 



0
>0

Thus, we obtain
Q(x1 , x2 ) > 0 a11 > 0 and a11 a22 a212 > 0.
Q(x1 , x2 ) < 0 a11 < 0 and a11 a22 a212 < 0. 


Theorem 4.7 Let Q = x Ax be a quadratic form, where the matrix A is symmetric,


and let 1 , . . . , n be the (real) eigenvalues of A. Then,
1. Q is positive denite 1 > 0, . . . , n > 0
2. Q is positive semidenite 1 0, . . . , n 0
3. Q is negative denite 1 < 0, . . . , n < 0
4. Q is negative semidenite 1 0, . . . , n 0
5. Q is indenite A has eigenvalues with opposite signs.
Proof of Theorem 4.7: According to Theorem 4.5, there exists an orthogonal

matrix P such that P AP = diag(1 , . . . , n ). Let y = (y1 , . . . , yn )T be the n 1 matrix
dened by y = P T x. Then, x = P y, so that
xT Ax = (P y)T AP y = y T P T AP y = y T diag(1 , . . . , n )y = 1 y12 + 2 y22 + + n yn2
Also, x = 0 i y = 0. This completes the proof. 

4.8

Appendix 1: Farkas Lemma

In this Appendix, I follow Advanced Mathematical Economics, by Rakesh Vohra.

44

4.8.1

Preliminaries

Denition 4.5 A vector y can be expressed as a linear combination of a vectors in


S = {x1 , x2 , . . . } if there are real numbers {j }jS such that

j xj
y=
jS

The set of all vectors that can be expressed as a linear combination of vectors in S is
called the span of S and denoted span(S).
Denition 4.6 The rank of a (not necessarily nite) set S of vectors is the size of the
largest subset of linearly independent vectors in S.
Denition 4.7 Let S be a set of vectors and B S be nite and linearly independent.
The set B of vectors is said to be a maximal linear independent set if the set B {x}
is linearly dependent for all vectors x S\B. A maximal linearly independent subset of
S is called a basis of S.
Theorem 4.8 Every S Rn has a basis. If B is a basis of S, then span(S) = span(B).


Theorem 4.9 Let S Rn . If B and B are two bases of S, then |B| = |B |.


From this theorem, one can see that if S has a basis B, then the rank of S and B.
Denition 4.8 Let S be a set of vectors. The dimension of span(S) is the rank of S.
Denition 4.9 The kernel or null space of A is the set {x Rn |Ax = 0}.
The following theorem summarizes the relationship between the span of A and its
kernel.
Theorem 4.10 If A is an m n matrix, then the dimension of span(A) plus the dimension of the kernel of A is n.
This is sometimes written as
dim[span(A)] + dim[ker(A)] = rank(A) + dim[ker(A)] = n.
The column rank of a matrix is the dimension of the span of its columns. Similarly,
the row rank is the dimension of the span of its row.
Theorem 4.11 Let A be an m n matrix. Then, the column rank of A and AT (the
tranpose of A) are the same.
Thus, the column and row rank of A are equal. This allows us to dene the rank of
a matrix A to be the dimension of span(A).

45

4.8.2

Fundamental Theorem of Linear Algebra

Let A be an m n matrix of real numbers. We will be interested in problems of the


following kind:
Given b Rm , nd an x Rn such that Ax = b or prove that no such x exists.
Convincing another that Ax = b has a solution (when it does) is easy. One merely
exhibits and they can verify that the solution does indeed satisfy the equations. What
if the system Ax = b does not admit a solution? By framing the problem in the right
way, we can bring to bear the machinery of linear algebra. Specically, given b Rm ,
the problem of nding an x Rn such that Ax = b can be stated as: is b span(A)?
Theorem 4.12 (Gauss (??)) Let A be an m n matrix, b Rm and F = {x
Rn |Ax = b}. Then, either F
= or there exists y Rm such that yA = 0 and yb
= 0
but not both.
Suppose F = . Then, b is not in the span of the columns of A. If I think of the space
of the columns of A as a plane, then b is a vector pointing out of the plane. Thus, any
vector y orthogonal to this plane (and so to every column of A) must have a non-zero
dot product with b. Now for an algebraic interpretation. Take any linear combination
of the equations in the system Ax = b. This linear combination can be obtained by
pre-multiplying each side of the equation by a suitable vector y, i.e., yAx = yb. Suppose
there is a solution x to the system, i.e., Ax = b. Any linear combination of these
equations results in an equation that x satises as well. In particular, x must also be
a solution to the resulting equation: yAx = yb. Suppose I found a vector y such that
yAx
= yb then clearly the original system Ax = b could not have a solution.
Proof: First, we prove the not both part. Suppose that F
= . Choose any x F .
Then, for any y Rm , we have
yb = yAx = (yA)x = 0,
which contradicts the fact that yb
= 0 for some y.
If F
= , we are done. Suppose that F
= . Hence, b cannot be in the span of the

columns of A. Thus, the rank of C = [A, b], r , is one larger than the rank, r, of A. That

is, r = r + 1. Since C is a m (n + 1) matrix,
rank(C T ) + dim[ker(C T )] = m = rank(AT ) + dim[ker(AT )].
Using the fact that the rank of a matric and its transpose coincide, we have


r + dim[ker(C T )] = m = r + dim[ker(AT )],


i.e., dim[ker(C T )] = dim[ker(AT )] 1. Since the dimension of ker(C T ) is one smaller
than the dimension of ker(AT ), we can nd a y ker(AT ) that is not in ker(C T ). Hence,
yA = 0 but yb
= 0. 
46

4.8.3

Linear Inequalities

Now consider the following problem:


Given a b Rm , nd an x Rn such that Ax b or show that no such x exists.
The problem diers from the earlier one in that = has been replaced by .

4.8.4

Non-Negative Solutions

I focus on nding a non-negative x Rn such that Ax = b or show that no such x exists.


Observe that if b = 0, the problem is trivial, so I assume that b
= 0.
Denition 4.10 A set C of vectors is called a cone if x C whenever x C and
> 0.
Denition 4.11 The set of all non-negative linear combinations of the columns of A is
called the nite cone generated by the columns of A. It is denoted cone(A).
Note the dierence between span(A) and cone(A) below:
span(A) = {y Rm |y = Ax for some x Rn }
and


cone(A) = y Rm |y = Ax for some x Rn+
Theorem 4.13 (Farkas Lemma (1902)) Let A be an m n matrix, b Rm and
F = {x Rn |Ax = b, x 0}. Then, either F
= or there exists y Rm such that
yA 0 and y b < 0 but not both.
Take any linear combination of the equations in Ax = b to get yAx = yb. A nonnegative solution to the rst system is a solution to the second. If we can choose y so that
yA 0 and y b < 0, we nd that the left hand side of the single equation yAx = yb is
at least zero while the right hand side is negative, a contradiction. Thus, the st system
cannot have a non-negative solution.
Proof: First we prove that both statements cannot hold simultaneously. Suppose
not. Let x 0 be a solution to Ax = b and y a solution to yA 0 such that
y b < 0. Notice that x must be a solution to y Ax = y b. Thus, y Ax = y b. The
0 y Ax = y b < 0, which is a contradiction.
If b
/ span(A) (i.e., there is no x such that Ax = b), by the previous theorem
(Theorem ??), there is a y Rm such that yA = 0 and yb
= 0. If it so happens that the
given y has the property that yb < 0 we are done. If yb > 0, then negate y and again we
are done. So, we may suppose that b span(A) but b
/ cone(A), i.e., F = .

47

Let r be the rank of A. Note that n r. Since A contains r linearly independent


column vectors and b span(A), we can express b as a linear combination of
an r-subset
i
i
r
1
D of linearly independent columns of A. Let D = {a , . . . , a } and b = rt=1 it ait .
Note that D is linearly independent. Since b
/ cone(A), at least one of {it }t1 is
negative.
Now apply the following four step procedure repeatedly. Subsequently, we show that
the procedure must terminate.
1. Choose the smallest index h amongst {i1 , . . . , ir } with h < 0.
2. Choose y so that y a = 0 for all a D\ah and y ah
= 0. This can be done by the
previous theorem (Theorem ??) because ah
/ span(D\ah ). Normalize y so that
h
y a = 1. Observe that y b = h < 0.
3. If y aj 0 for all columns aj of A stop, and the proof is complete.
4. Otherwise, choose the smallest index w amongst {1, . . . , n} such that y aw < 0.
/ D\ah . Replace D by {D\ah } aw , i.e., exchange ah for aw .
Note that aw
To complete the proof, we must show that the procedure terminates. Let D k denote
the set D at the start of the kth iteration of the four step procedure described above. If
the procedure does not terminate, there is a pair (k,
) with k <
such that D k = D ,
i.e., the procedure cycles.
Let s be the largest index for which as has been removed from D at the end of one
of the iterations k, k + 1, . . . ,
1, say p. Since D = Dk , there is a q such that as is
inserted into D q at the end of iteration q, where k q <
. No assumption is made
about whether p < q or p > q. Notice that
Dp {as+1 , . . . , an } = Dq {as+1 , . . . , an }.


Let D p = {ai1 , . . . , air }, b = i1 ai1 + ir air and let y be the vector found in step two
of iteration q. Then:
!




0 > y b = y i1 ai1 + + ir air = y i1 ai1 + + y ir air > 0,
which is a contradiction. The rst inequality comes from the previous theorem (Theorem
??). To see why the last inequality must be true:
When ij < s, we have from Step 1 of iteration p that ij 0. From Step 4 of

iteration q, we have y aij 0.
When ij = s, we have from Step 1 of iteration p that ij < 0. From Step 4 of

iteration q we have y aij < 0.
When ij > s, we have from Dp {as+1 , . . . , an } = Dq {ar+1 , . . . , an } and Step 2

of iteration q that y aij = 0.
This complete the proof. 
48

4.8.5

The General Case

The problem of deciding whether the system {x Rn | Ax b} has a solution can be


reduced to the problem of deciding if Bz = b, z 0 has a solution for a suitable matrix
B.

First observe that any inequality of the form j aij xj bi can be turned into an
equation by the subtraction of a surplus variable, s. That is, dene a new variable si 0
such that

aij xj si = bi .
j


Similarly, an inequality of the form j aij xj bi can be converted into an equation by
the addition of a slack variable, si 0 as follows:

aij xj + si = bi .
j

A variable xj that is unrestricted in sign can be replaced by two non-negative variables




zj and zj by setting xj = zj zj . In this way any inequality system can be converted
into an equality system with non-negative variables. We will refer this as converting into
standard form.
As an example, we derive the Farkas alternative for the system {x|Ax b, x 0}.
Deciding solvability of Ax b for x 0 is equivalent to solvability of Ax + Is = b where
x, s 0. Set B = [A|I] and z = (x, s)T and we can write the system as Bz = b, z 0.
Now apply the Farkas lemma to this system:
yB 0, yb < 0.
Now 0 yB = y[A|I] implies yA 0 and y 0. So, the Farkas alternative is {y|yA
0, y 0, yb < 0}. The principle here is that by a judicious use of auxiliary variable,
one can convert almost anything into standard form.

4.9
4.9.1

Appendix 2: Linear Spaces


Number Fields

Linear algebra makes use of number systems (number elds). By a number eld I mean
any set K of objects, called numbers, which, when subjected to four arithmetic operations again give elements of K. More exactly, these operations have the following
properties F 1, F 2, and F 3 (eld axioms):
F1: To every pair of numbers and in K, there corresponds a (unique) number
+ in K, called the sum of and , where
1. + = + , K (addition is communicative);
49

2. ( + ) + = + ( + ) , , K (addition is associative);
3. There exists a number 0 (zero) in K such that 0 + = K;
4. For every K, there exists a number (negative element) K such that
+ = 0.
The solvability of the equation + = 0 allows us to carry out the operation of
subtraction, by dening the dierence as the sum of the number and the solution
of the equation + = 0.
F2: To every pair of numbers , K, there corresponds a (unique) number (or
) in K, called the product of and , where
1. = , K (multiplication is commutative);
2. () = () , , K (multiplication is associative);
3. There exists a number 1 (
= 0) in K such that 1 = inK;
4. For every
= 0 K, there exists a number (reciprocal element) K such that
= 1.
F3: Multiplication is distributive over addition, i.e., for every , , K,
( + ) = + .
The solvability of the equation = 1 for every
= 0 allows us to carry out the
operation of division, by dening the quotient / as the product of the number and
the solution of the equation = 1.
The numbers 1, 1 + 1 = 2, 2 + 1 = 3, etc. are said to be natural; it is assumed
that none of these numbers is zero. The set of natural numbers is denoted as N. By
the integers in a eld K, we mean the set of all natural numbers together with their
negatives and the number zero. The set of integers is denoted as Z. By the rational
numbers in a eld K, we mean the set of all quotients p/q, where p and q are integers
and q
= 0. The set of rational numbers is denoted as Q.


Two eld K and K are said to be isomorphic if we can set up a one-to-one cor
respondence between K and K such that the number associated with every sum (or

product) of numbers in K is the sum (or product) of the corresponding numbers in K .
The number associated with every dierence (or quotient) of numbers in K will then be

the dierence (or quotient) of the corresponding numbers in K .
The most commonly encountered concrete examples of number elds are the following:

50

1. The eld of rational numbers, i.e., of quotients p/q where p and q


= 0 are the
ordinary integers subject to the ordinary operations of arithmetic. It should be
noted that the integers by themselves do not form a eld, since they do not satisfy
axiom F2-4. It follows that every eld K has a subset isomorphic to the eld of
rational numbers.
2. The eld of real numbers, having the set of all points of the real line as its geometric
counterpart. The set of real numbers is denoted as R. An axiomatic treatment of
the eld of real numbers is achieved by supplementing axioms F 1, F 2, F 3 with the
axioms of order and the least upper bound principle.
3. The eld of complex numbers of the form a + ib, where a and b are real numbers
(i is not a real number), equipped with the following operations of addition and
multiplication:
(a1 + ib1 ) + (a2 + ib2 ) = (a1 + a2 ) + i(b1 + b2 ),
(a1 + ib1 )(a2 + ib2 ) = (a1 a2 b1 b2 ) + i(a1 b2 + a2 b1 ).
The set of complex numbers is denoted as C. For numbers of the form a + i0, these
operations reduce to the corresponding operations for real numbers; briey I write
a + i0 = a and call complex numbers of this form real. Thus, it can be said that
the eld of complex numbers has a subset isomorphic to the eld of real numbers.
Complex numbers of the form 0 + ib are said to be (purely) imaginary and are
designated briey by ib. It follows from the multiplication rule that
i2 = i i = (0 + i1)(0 + i1) = 1.

4.9.2

Denitions

The concept of a linear space generalizes that of the set of all vectors. The generalization
consists rst in getting away from the concrete nature of the objects involved (directed
line segments) without changing the properties of the operations on the objects, and
secondly in getting away from the concrete nature of the admissible numerical factors
(real numbers). This leads the following denition.
Denition 4.12 A set V is called a linear (or ane) space over a eld K if
1. Given any two elements x, y V , there is a rule (the addition rule) leading to a
(unique) element x + y V , called the sum of x and y;
2. Given any element x V and any number V , there is a rule (the multiplication
by a number) leading to a (unique) element x V , called the product of the
element x and the number ;
3. These two rules obey the axioms listed below, VS1 and VS2.
VS 1: The addition rule has the following properties:
51

1. x + y = y + x for every x, y V ;
2. (x + y) + z = x + (y + z) for every x, y, z V ;
3. There exists an element 0 V (the zero vector ) such that x + 0 = x for every
xV;
4. For every x V , there exists an element y V (the negative element) such that
x + y = 0.
VS 2: The rule for multiplication by a number has the following properties:
1. 1 x = x for every x V ;
2. (x) = ()x for every x V and , K;
3. ( + )x = x + x for every x V and , K;
4. (x + y) = x + y for every x V and every K.

4.9.3

Bases, Components, Dimension

Denition 4.13 A system of linearly independent vectors e1 , e2 , . . . , en in a linear space


V over a eld K is called a basis for V if, given any x V , there exists an expansion
x = 1 e1 + 2 e2 + + n en ()
where j V for every j = 1, . . . , n.
It is easy to see that under these conditions, the coecients in the expansion () are
uniquely determined. In fact, we can write two expansions
x = 1 e1 + 2 e2 + + n en ,
x = 1 e1 + 2 e2 + + n en
for a vector x, then, subtracting them term by term, we obtain the relation
0 = (1 1 )e1 + (2 2 )e2 + + (n n )en ,
from which, by the assumption that the vectors e1 , e2 , . . . , en are linearly independent,
we nd that
1 = 1 , 2 = 2 , . . . , n = n .
The uniquely dened numbers 1 , . . . , n are called the components of the vector x with
respect to the basis e1 , . . . , en
The fundamental signicance of the concept of a basis for a linear space consists
in the fact that when a basis is specied, the originally abstract linear operations in
the space become ordinary linear operations with numbers, i.e., the components of the
vectors with respect to the given basis. In fact, we have the following.
52

Theorem 4.14 When two vectors of a linear space V are added, their components (with
respect to any basis) are added. When a vector is multiplied by a number , all its
components are multiplied by .
If, in a linear space V , we can nd n linearly independent vectors while every n + 1
vectors of the space are linearly dependent, then the number n is called the dimension
of the space V and the space V itself is called n-dimensional. A linear space in which
we can nd an arbitrarily large number of linearly independent vectors is called innitedimensional.
Theorem 4.15 In a space V of dimension n, there exists a basis consisting of n vectors.
Moreover, any set of n linearly independent vectors of the space V is a basis for the space.
Theorem 4.16 If there is a basis in the space V , then the dimension of V equals the
number of basis vectors.

4.9.4

Subspaces

Denition 4.14 (Subspaces) Suppose that a set W of elements of a linear space V


has the following properties:
1. If x, y W , then x + y W ;
2. If x W and is an element of the eld K, then x W .
Then, every set W V with properties 1 and 2 above is called linear subspace (or
simply a subspace) of the space V .
Denition 4.15 (The Direct Sum) A linear space W is the direct sum of given
subspaces W1 , . . . , Wm W if the following two conditions are satised:
1. For every x W , there exists an expansion
x = x1 + + xm ,
where x1 W1 , . . . , xm Wm ;
2. This expansion is unique, i.e., if
x = x1 + + xm = y1 + + ym
where xj , yj Wj (j = 1, . . . , m), then
x1 = y1 , . . . , xm = ym .
Theorem 4.17 Let W1 be a xed subspace of an n-dimensional space Vn . Then, there
always exists a subspace W2 Vn such that the whole space Vn is the direct sum of W1
and W2 .
53

4.9.5

Morphisms of Linear Spaces

Denition 4.16 Let be a rule which assigns to every given vector x of linear space V

a vector x in a linear space. Then, is called morphism (or linear operator) if the
following two conditions hold:
1. (x + y) = (x) + (y) for every x, y V ;
2. (x) = (x) for every x V and every K.


A morphism mapping V onto all of V in a one-to-one fashion is called an isomor


phism, and the spaces V and V themselves are said to be isomorphic (more exactly,
K-isomorphic).


Theorem 4.18 Any two n-dimensional spaces V and V (over the same eld K) are
K-isomorphic.
Corollary 4.1 Every n-dimensional linear space over a eld K is K-isomorphic to the
space K n . In particular, every n-dimensional complex space is C-isomorphic to the space
Cn , and every n-dimensional real space is R-isomorphic to the space Rn .

54

Chapter 5

Calculus
5.1

Functions of a Single Variable

Roughly speaking, a function y = f (x) is dierentiable if it is both continuous and


smooth, with no breaks or kinks. The derivative of f is a function giving, at each
value of x, the slope of change in f (x). We sometimes write

dy
= f (x).
dx


to indicate that f (x) gives us the (instantaneous) amount, dy, by which y changes per
unit change, dx, in x. If the rst derivative is a dierentiable function, we can take its
derivative which gets the second derivative of the original function
d2 y

= f (x).
dx2




If a function possesses a continuous derivatives f , f , . . . , f n , it is called n-times continuously dierentiable, or a C n function. Some rules of dierentiation is provided below:
For constants, : d/dx() = 0.


For sums: d/dx[f (x) g(x)] = f (x) g (x).


Power rule: d/dx(xn ) = nxn1 .


Product rule: d/dx[f (x)g(x)] = f (x)g (x) + f (x)g(x)).




Quotient rule: d/dx[f (x)/g(x)] = (g(x)f (x) f (x)g (x))/[g(x)]2 .




Chain rule: d/dx[f (g(x))] = f (g(x))g (x).


Later in this note on multivariate calculus, we are going to discuss some of the above
properties in details from a more general perspective. Until then, just remember them
so that you can use them anytime.
55

5.2

Real-Valued Functions of Several Variables

f : D R is said to be a real-valued function if D is any set and R R. Dene


the following: x y if xi yi for every i = 1, . . . , n; and x  y if xi > yi for every
i = 1, . . . , n.
Denition 5.1 Let f : D R, where D is a subset of Rn . Then, f is nondecreasing
if f (x) f (y) whenever x y. If, in addition, the inequality is strict whenever x  y,
then we say that f is is increasing. If, instead, f (x) > f (y) whenever x y and x
= y,
then we say that f is strongly increasing.
Rather than having a single slope, a function of n variables can be thought to have
n partial slopes, each giving only the rate at which y would change if one xi , alone, were
to change. Each of these partial slopes is called partial derivative.
Denition 5.2 Let y = f (x1 , . . . , xn ). The partial derivative of f with respect to xi is
dened as
f (x1 , . . . , xi + h, . . . , xn ) f (x1 , . . . , xi , . . . , xn )
f (x)
lim
h0
xi
h
y/xi or fi (x) are used to denote partial derivatives.

5.3

Gradients

If z = F (x, y) and C is any number, we call the graph of the equation F (x, y) = C a
level curve for F . The slope of the level curve F (x, y) = C at a point (x, y) is given by
the formula


F (x, y) = C = y =

F (x, y)/x
F1 (x, y)
dy
=
=
dx
F (x, y)/y
F2 (x, y)

If (x0 , y0 ) is a particular point on the level curve F (x, y) = C, the slope at (x0 , y0 ) is
F1 (x0 , y0 )/F2 (x0 , y0 ). The equation for the tangent hyperplane T is
y y0 = [F1 (x0 , y0 )/F2 (x0 , y0 )] (x x0 )
or, rearranging
F1 (x0 , y0 )(x x0 ) + F2 (x0 , y0 )(y y0 ) = 0.
Recalling the inner product, the equation can be written as
(F1 (x0 , y0 ), F2 (x0 , y0 )) (x x0 , y y0 ) = 0
The vector (F1 (x0 , y0 ), F2 (x0 , y0 )) is said to be the gradient of F at (x0 , y0 ) is often
denoted by F (x0 , y0 ) (pronounced as nabla). The vector (x x0 , y y0 ) is a vector
56

on the tangent hyperplane T which implies that F (x0 , y0 ) is orthogonal to the tangent
hyperplane T at (x0 , y0 ).
Suppose more generally that F (x) = F (x1 , . . . , xn ) is a function of n variables dened
on an open set A in Rn , and let x0 = (x01 , . . . , x0n ) be a point in A. The gradient of F at
x0 is the vector


F (x0 )
F (x0 )
0
, ,
F (x ) =
x1
xn
of rst-order partial derivatives.

5.4

The Directional Derivative

Let z = f (x) be a function of n variables. The partial derivative f /xi measures


the rate of change of f (x) in the direction parallel to the i-th coordinate axis. Each
partial derivative says nothing about the behavior of f in other directions. We introduce
the concept of directional derivative in order to measure the rate of change of f in an
arbitrary direction.
Consider the vector x = (x1 , . . . , xn ) and let a = (a1 , . . . , an ) Rn \{0} be a given
vector. If we move a distance ha > 0 from x in the direction given by a, we arrive at
x + ha. The average rate of change of f from x to x + ha is then (f (x + ha) f (x))/h.
We dene the derivative of f along the vector a by


f (x + ha) f (x)
h0
h

fa (x) = lim
or, with components,


fa (x1 , . . . , xn ) = lim

h0

f (x1 + ha1 , . . . , xn + han ) f (x1 , . . . , xn )


h

We assume that x + ha lies in the domain of f for all suciently small h. This is one
reason why the domain is generally assumed to be open. In particular, with ai = 1 and
aj = 0 for all j
= i, this derivative is the partial derivative of f with respect to xi .
Suppose f is C 1 in a set A 1 , and let x be an interior point in A. For an arbitrary
vector a, dene the function g by
g(h) = f (x + ha) = f (x1 + ha1 , . . . , xn + han ).
1
A function f : n is continuously dierentiable (or C 1 ) on an open set A n if, for each i =
1, . . . , n, (f /xi )(x) exists for all x A and is continuous in x. f is k-times continuously dierentiable
or C k on A if all the derivatives of f of order less than or equal to k( 1) exist and are continuous on A.

57

Then, (g(h)g(0))/h
= (f (x+ha)f (x))/h.

 Letting h tend to 0, we have g (0) = fa (x).


Since g (h) = ni=1 fi (x + ha)ai , g (0) = ni=1 fi (x)ai . Hence,


fa (x) =

fi (x)ai = f (x) a.

i=1

This equation shows that the derivative of f along the vector a is equal to the inner

product of the gradient of f and a. If a = 1, the number fa (x) is called the directional
derivative of f at x, in the direction a.
Theorem 5.1 Suppose that f (x) = f (x1 , . . . , xn ) is C 1 in an open set A. Then, at
points x where f (x) Rn \{0}, the gradient f (x) = (f1 (x), . . . , fn (x)) satises:
1. f (x) is orthogonal to the level surface through x.
2. f (x) points in the direction of maximal increase of f .
3. f (x) measures how fast the function increases in the direction of maximal increase.
Proof of Theorem 5.1: By introducing as the angle between the vectors f (x)
and a, we have


fa (x) = f (x) a = f (x)a cos


Note that cos 1 for all and cos 0 = 1. So when a = 1, it follows that at points

where f (x)
= 0, the number fa (x) is largest when = 0, i.e., when a points in the

same direction as f (x), while fa (x) is smallest when = , that is, cos = 1, i.e.,
when a points in the opposite direction to f (x). Moreover, it follows that the length
of f (x) equals the magnitude of the maximum directional derivative. 
Theorem 5.2 (The Mean-Value Theorem) Suppose that f : Rn R is C 1 in an
open set containing [x, y]. Then there exists a point w (x, y) such that
f (x) f (y) = f (w) (x y).
Proof of the mean-value theorem: We assume that the mean-value theorem for
functions of one variable is correct. Dene () = f (x + (1 )y). Then, using the

chain rule which we will cover later, () = f (x + (1 )y) (x y). According to
the mean-value theorem for functions of one variable, there exists a number 0 (0, 1)

such that (1) (0) = (0 ). Putting w = 0 x + (1 0 )y, the theorem follows. 

5.5

Convex Sets

Convex sets are basic building blocks in virtually every area of microeconomic theory. Convexity is most often assumed to guarantee that the analysis is mathematically
tractable and that the results are clear-cut and well-behaved.
58

Denition 5.3 S Rn is a convex set if for all x, y S, we have


x + (1 )y S,
for all [0, 1]
We say that z is a convex combination of x and y if z = x + (1 )y for some
[0, 1]. We have a very simple and intuitive rule dening convex sets: A set is convex
if and only if we can connect any two points in the set by a straight line that lies entirely
within the set.
Exercise 5.1 Suppose that p  0 and y 0. Let B(p, y) = {x Rn+ |p x y} be the
budget set of the consumer. Show that B(p, y) is convex.
Theorem 5.3 Let S and T be convex sets in Rn . Then S T is a convex set.
Proof of Theorem 5.3: Let x and y be any two points in S T . Because x S T ,
we have x S and x T . Similarly, we have y S and y T . Let z = x + (1 )y
for some [0, 1] be any convex combination of x and y. z S because S is convex
and z T because T is convex. Thus, z S T . 
Exercise 5.2 Construct an example in which two sets S and T are convex but S T is
not convex.

5.5.1

Upper Contour Sets

Let u() : Rn R be a utility function. Dene U C(x0 ) = {x Rn+ |u(x) u(x0 )}. This
U C(x0 ) is called the upper contour set which consists of all commodity vectors x that
the individual values at least as good as x0 . In consumer theory, we usually assume that
U C(x0 ) is convex for every x0 Rn+ .

5.6

Concave and Convex Functions

A C 2 function of one variable y = f (x) is said to be concave (convex) on the interval I



if f (x) () 0 for all x I.
Denition 5.4 A function f (x) = f (x1 , . . . , xn ) dened on a convex set S is concave
(convex) on S if


f (x + (1 )x ) () f (x) + (1 )f (x )


for all x, x S and all [0, 1]


Denition 5.5 A function f (x) = f (x1 , . . . , xn ) dened on a convex set S is strictly
concave (convex) on S if


f (x + (1 )x ) > (<) f (x) + (1 )f (x )




for all x, x S with x


= x and all (0, 1)
59

5.7

Concavity/Convexity for C 2 Functions

Suppose that z = f (x) = f (x1 , . . . , xn ) is a C 2 function in an open convex set S in Rn .


The matrix
D 2 f (x) = (fij (x))nn
is called the Hessian (matrix) of f at x, and

 f11 (x) f12 (x)

 f21 (x) f22 (x)

2
|D(r)
f (x)| = 
..
..

.
.

 fr1 (x) fr2 (x)

the n determinants

f1r (x) 
f2r (x) 
 , r = 1, . . . , n
..
..

.
.

frr (x) 

are the leading principal minors of D 2 f (x) of order r. Here fij (x) = 2 f (x)/xi xj for
any i, j = 1, . . . , r.
Theorem 5.4 (Second-Order Characterization of Concave (Convex) Functions)
Suppose that f (x) = f (x1 , . . . , xn ) is a C 2 function dened on an open, convex set S
in Rn . Let 2(r) f (x) denote a generic principal minor of order r in the Hessian matrix.
Then
1. f is convex in S 2(r) f (x) 0 for all x S and all 2(r) f (x), r = 1, . . . , n.
2. f is concave in S (1)r 2(r) f (x) 0 for all x S and all 2r f (x), r =
1, . . . , n.
Proof of Theorem 5.4: (=) The proof relies on the knowledge on the chain
rule (Theorem 5.15) which we are going to cover in this course. Just take it for granted
until then. Take two points x, x0 S and let t [0, 1]. Dene
g(t) = f (x0 + t(x x0 )) = f (tx + (1 t)x0 ).
The chain rule for functions of several variables gives


0 T

g (t) = (x x )

"

n
#
fi (x0 + t(x x0 ))(xi x0i )
f (x + t(x x ) =
0

i=1

Using the chain rule again, we get


#
"

g (t) = (x x0 )T D2 f (x0 + t(x x0 )) (x x0 )
n
n

fij (x0 + t(x x0 ))(xi x0i )(xj x0j )
=
i=1 j=1


By our hypothesis with Theorem 4.6 on quadratic forms, g (t) 0 for any t [0, 1].
This shows that g() is convex. In particular, we have
g(t) = g (t 1 + (1 t) 0)) tg(1) + (1 t)g(0) = tf (x) + (1 t)f (x0 )
60

But this shows that f () is convex. The concavity of f easily follows by replacing f with
f . (=) Suppose f () is convex. According to Theorem 4.6 on quadratic forms, it
suces to show that for all x S and all h1 , . . . , hn , we have
Q=

n
n

fij (x)hi hj 0.

i=1 j=1

Now S is an open set, so if x S and h = (h1 , . . . , hn ) is an arbitrary vector, there


exists a positive number a such that x + th S for all t with |t| < a. Let I = (a, a).
Dene the function p on I by p(t) = f (x + th). Since p() is convex in I,


p (t) =

n
n

fij (x + th)hi hj 0

i=1 j=1


for all t I. Putting t = 0, it follows that f (x) 0. This completes the proof. 
Corollary 5.1 Let z = f (x, y) be a C 2 function dened on an open convex set S R2 .
Then,
1. f is convex f11 0, f22 0, and f11 f22 (f12 )2 0.
2. f is concave f11 0, f22 0, and f11 f22 (f12 )2 0.
Exercise 5.3 Let f (x, y) = 2x y x2 + 2xy y 2 for all (x, y) R2 . Check whether f
is concave, convex, or neither.
Exercise 5.4 The CES (Constant Elasticity of Substitution) function f dened for K >
0, L > 0 by
#1/
"
f (K, L) = A K + (1 )L
where A > 0,
= 0, and 0 1. Show that f is concave if 1 and convex if
1.
Theorem 5.5 (Second-Order (Partial) Characterization of Strict Concavity)
Suppose that f (x) = f (x1 , . . . , xn ) is a C 2 function dened on an open, convex set S in
2 f (x) be dened above. Then
Rn . Let D(r)
2 f (x) > 0 for all x S and all r = 1, . . . , n = f is strictly convex.
1. D(r)
2 f (x) > 0 for all x S and all r = 1, . . . , n = f is strictly concave.
2. (1)r D(r)

Proof of Theorem 5.5: Dene the function g() as in the proof of Theorem 5.4
above. If the specied conditions are satised, the Hessian matrix D2 f (x) is positive

denite by Theorem 4.6 on quadratic forms. So, for x
= x0 , g (t) > 0 for all t [0, 1].
It follows that g() is strictly convex. Then, we have
g(t) = g (t 1 + (1 t) 0)) > tg(1) + (1 t)g(0) = tf (x) + (1 t)f (x0 )
for all t (0, 1). The strict concavity of f is obtained by replacing f with f . 
61

Corollary 5.2 Let z = f (x, y) be a C 2 function dened on an open convex set S R2 .


Then,
1. f11 > 0 and f11 f22 (f12 )2 > 0 = f is strictly convex.
2. f11 < 0 and f11 f22 (f12 )2 > 0 = f is strictly concave.
Theorem 5.6 (First-Order Characterization of Concavity) Suppose that f () is
a C 1 function dened on an open, convex set S in Rn . Then
1. f is concave in S if and only if
f (x) f (x0 ) f (x0 ) (x x0 ) =

n

f (x0 )
i=1

xi

(xi x0i )

for all x, x0 S.
2. f () is strictly concave i the above inequality is always strict when x
= x0 .
3. The corresponding result for convex (strictly convex) functions is obtained by changing to (< to >) in the above inequality.
Proof of Theorem 5.6: (1) (=) Let x, x0 S. Since f is concave,
f (x) + (1 )f (x0 ) f (x + (1 )x0 )
for all (0, 1). Rearranging the above inequality, for all (0, 1), we obtain
f (x) f (x0 )

f (x0 + (x x0 )) f (x0 )
()

Let 0. The right hand side of () then approaches f (x0 ) (x x0 ). (=) Let
x, x0 S and (0, 1). Dene z = x + (1 )x0 . Notice that z S because S is
convex. By our hypothesis, we have
f (x) f (z) f (z) (x z) (i)
f (x0 ) f (z) f (z) (x0 z) (ii)
Multiplying the inequality in (i) by > 0 and the inequality in (ii) by 1 > 0, we
obtain
!
"
#
(f (x) f (z)) + (1 ) f (x0 ) f (z) f (z) (x z) + (1 )(x0 z) (iii)
Here (x z) + (1 )(x0 z) = x + (1 )x0 z = 0, so the right hand side of (iii)
is 0. Thus, rearranging (iii) gives
f (x) + (1 )f (x0 ) f (z) = f (x + (1 )x0 )

62

because z = x + (1 )x0 . This shows that f is concave. (2) (=) Suppose that
f is strictly concave in S. Then, inequality () is strict for x
= x0 . (=) With z =
x0 + (x x0 ), we have
f (x) f (x0 ) <

f (x0 ) (z x0 )
f (z) f (x0 )

= f (x0 ) (x x0 ).

where we used the inequality in (1), which we have already proved, and the fact that
z x0 = (x x0 ). This shows that the inequality in (1) holds with strict inequality.
(3) This part is trivial. Do you agree with me? 

5.7.1

Jensens Inequality

Theorem 5.7 (Jensens Inequality) A function f () is concave on a convex set S in


Rn if and only if
f (1 x1 + n xn ) 1 f (x1 ) + n f (xn )
holds for all x1 , . . . , xn S, and for all i 0 for all i = 1, . . . , n with

n

i=1 i

= 1.

Proof of Jensens Inequality: For any k 2, we propose the hypothesis H(k) as


follows.

 k
k


k xh
h f (xh )
H(k) : f
h=1

h=1

H(2) is true because it is indeed the denition of concavity of f . Now, we will show that
H(k) = H(k + 1). We execute a series of computations below.

 k
$ k
%

k+1



h
h xh
h
xh + k+1 xk+1
= f
f
k
h=1 h
h=1
h=1
h=1
  k

 k


h
h f
xh + k+1 f (xk+1 ) (because of H(2))

k
h=1 h
h=1
h=1
 k
 k


h
h
f (xh ) + k+1 f (xk+1 )

k

h
h=1
h=1
h=1
(because H(k) is true under the inductive hypothesis.)
=

k+1

h f (xh ). 

h=1

One can extend Jensens inequality to the continuum. Let X be a random variable
which takes values on the real line R. Dene g : R R to be a probability density
function. Then, continuous version of Jensens inequality is given:

63

Jensens Inequality (Continuum Version): A function f () is concave on R if


and only if
&

&
f (x)g(x)dx
f (x)g(x)dx
f

for any probability density function g().

5.8

Quasiconcave and Quasiconvex Functions

Denition 5.6 A function f , dened over a convex set S Rn , is quasiconcave if


the upper level set P = {x S|f (x) } is convex for each R. We say that
f is quasiconvex if f is quasiconcave. So, f is quasiconvex i the lower level set
P = {x S|f (x) } is convex for each R.
Proposition 5.1 If f () is concave, then it is quasiconcave. Similarly, if f () is convex,
then it is quasiconvex.
Exercise 5.5 Prove Proposition 5.1.
Theorem 5.8 Let f () be a function of n variables dened on a convex set S in Rn .
Then, f is quasiconcave if and only if either of the following conditions is satised for

all x, x S and all [0, 1],


1. f (x + (1 )x ) min{f (x), f (x )}


2. f (x ) f (x) = f (x + (1 )x ) f (x)


Proof of Theorem 5.8: (1) (=) Suppose that f () is quasiconcave. Let x, x S



and [0, 1], and dene a = min{f (x), f (x )}. Then,


x, x Pa = {x S|f (x) a}


Since Pa is convex by our hypothesis, x + (1 )x Pa for any [0, 1]. This implies


that f (x + (1 )x ) a = min{f (x), f (x )}. (=) Suppose that the inequality in (1)
is valid and let a be an arbitrary number. We must show that Pa is convex. Take any


arbitrary points x, x Pa . Then, f (x) a and f (x ) a. Also, for all (0, 1), the
inequality in (1) implies that
(
'


f x + (1 )x min{f (x), f (x )}


Thus, x + (1 )x Pa . This proves that Pa is convex. We leave the rest of the proof
as an exercise. 
Exercise 5.6 Prove the second part of Theorem 5.8.
A function : R R is said to be strictly increasing if F (x) > F (y) whenever x > y.
64

Theorem 5.9 (Quasiconcavity is preserved under positive monotone transformation)


Let f () be dened on a convex set S in Rn and let F be a function of one variable whose
domain includes f (S). If f () is quasiconcave (quasiconvex) and F is strictly increasing,
then F (f ()) is quasiconcave (quasiconvex).
Proof of Theorem 5.9: Suppose f () is quasiconcave. Using the previous theorem
(Theorem 5.8), we must have
(
'


f x + (1 )x min{f (x), f (x )}.
Since F () is strictly increasing,
(
((
'
' '



F min{f (x), f (x )} = min{F (f (x)), F (f (x ))}.
F f x + (1 )x
It follows that F f is quasiconcave. The argument in the quasiconvex case is entirely
similar, replacing with and min with max. 
Denition 5.7 A function f () dened on a convex set S Rn is said to be strictly
quasiconcave if


f (x + (1 )x ) > min{f (x), f (x )}




for all x, x S with x


= x and all (0, 1). The function f is strictly quasiconvex
if f is strictly quasiconcave.
n

Exercise 5.7 The Cobb-Douglas function f (x) = Ax1 1 xn , dened for x1 > 0, . . . , xn >
0, with A > 0 and i > 0 for all i = 1, . . . , n. Show the following.
1. f () is quasiconcave for all 1 , . . . , n .
2. f () is concave for 1 + + n 1.
3. f () is strictly concave for 1 + + n < 1.
Theorem 5.10 (First-Order Characterization of Quasiconcavity) Let f () be a
C 1 function of n variables dened on an open convex set S in Rn . Then f () is quasiconcave on S if and only if for all x, x0 S,
0

f (x) f (x ) = f (x ) (x x ) =

n

f (x0 )
i=1

xi

(xi x0i ) 0.

Proof of Theorem 5.10: (=) Suppose f () is quasiconcave. Let x, x0 S and


dene the function g() on [0, 1] by
!
!
g(t) = f (1 t)x0 + tx = f x0 + t(x x0 ) .
Then, using the chain rule (Theorem 5.15) which will be shown later, we have


g (t) = f (x0 + t(x x0 )) (x x0 ).


65

Suppose f (x) f (x0 ). By Theorem 5.8, g(t) g(0) for all t [0, 1]. For any t (0, 1],
we have
g(t) g(0)
0.
t
Letting t 0, we obtain
lim

t0

g(t) g(0)

= g (0) 0.
t

This implies


g (0) = f (x0 ) (x x0 ) 0
(=) We will be satised with the gure for this part. 
The content of Theorem 5.10 is that for any quasiconcave function f () and any pair
of points x and x0 with f (x) f (x0 ), the gradient vector f (x0 ) and the vector (x x0 )
must form an acute angle.
Theorem 5.11 (Second-Order Characterization of Quasiconcavity) Let f () be
a C 2 function dened on an open, convex set S in Rn . Then, f () is quasiconcave if
and only if, for every x S, the Hessian matrix D 2 f (x) is negative semidenite in the
subspace {z Rn |f (x) z = 0}, that is,
z T D2 f (x)z 0 whenever f (x) z = 0
for every x S. If the Hessian matrix D2 f (x) is negative denite in the subspace
{z Rn |f (x) z = 0} for every x S, then f () is strictly quasiconcave.
Proof of Theorem 5.11: (=) Suppose f () is quasiconcave. Let x S. Choose



x S such that f (x) (x x) = 0. Since f () is quasiconcave, f (x ) f (x). To see
this, draw the gure. Then,


f (x ) f (x) f (x) (x x) = 0


By Theorem 5.6, f () is concave in the subspace for which f (x) (x x) = 0. With


Theorem 5.4 and Theorem 4.6, concavity of f () is equivalent to negative semideniteness
of the Hessian matrix. Then, the conclusion follows. (=) This proof is based on A
Characterization of Quasi-Concave Functions, by Kiyoshi Otani in Journal of Economic


Theory, vol 31, (1983), 194-196. Let x, x S such that f (x ) f (x). This choice entails
no loss of generality. For [0, 1], dene


g() = f (x + (x x)).


Note that g(0) = f (x), g(1) = f (x ), and g(1) g(0) because f (x ) f (x) by our
hypothesis. What we want to show is that g() g(0) for any [0, 1]. By the

mean-value theorem (Theorem 5.2), there exists 0 (0, 1) such that g (0 ) = 0. Let
66

x0 = 0 x+ (1 0 )x . Then, g (0 ) = 0 f (x0 )(x x) = 0. Assume that f (x)


= 0
for any x S. This strikes us as being innocuous. Let p denote f (x0 ) for notational
simplicity.
By pT p > 0, there exists a C 2 function : R R for suciently small || > 0 such
that
(0) = 0 and
(
= f (x0 ) for any small
f ()p + (x x) + x0
'

Again, for notional simplicity, we denote ()p + (x x) + x0 by z(). By dierentiating f (z()) = f (x0 ), we have
) 
*

f (z()) ()p + (x x) = 0 ()
and by further dierentiating, we have
*T
) 
*
) 



()p + (x x) D2 f (z()) ()p + (x x) + f (z()) ()p = 0. ()


Since pT (x x) = 0 and f (z(0))p Rn \{0}, () implies (0) = 0. Moreover, our


hypothesis requires
*T
) 
*
) 


()p + (x x) D2 f (z()) ()p + (x x) 0.


Then, we must have ()f (z())p 0. When is suciently close to zero, z() is

very close to x0 and so f (z())p > 0 because p Rn \{0}. Then, () 0 for with
|| suciently small.
For suciently small | 0 |, we have
(
'

f (t t0 )(x x) + x0 p > 0


because f (x0 )T p > 0 and (tt0 )(x x)+x0 is very close to x0 . Hence, for suciently
close to 0 , we have
'
(


g() = f (x + (x x)) = f ( 0 )(x x) + x0
(
'

f ( 0 )p + ( 0 )(x x0 ) + x0 = f (x0 ) = g(0 )
because ( 0 ) 0 for suciently close to 0 . Accordingly, g(0 ) does not have an
interior minimum in [0, 1], unless it is constant. Hence, g() g(0) for any [0, 1].
The last step is based on Corollary 4.3 in Nine Kinds of Quasiconcavity and Concavity,
by Diewert, Avriel, and Zang in Journal of Economic Theory, vol 25, (1981), 397-420.
Corollary 4.3 (Diewert, Avriel, and Zang (1981)): A dierentiable function f
dened over an open S is quasiconcave if and only if, for any x0 S and any v R with
v T v = 1,
67

v T f (x0 ) = 0 implies g(t) f (x0 + tv) does not attain a (semistrict) local minimum at
t = 0.
This completes the proof. 
Theorem 5.12 (A Characterization through Bordered Hessian) Let f be a C 2
function dened in an open, convex set S in Rn . Dene the bordered Hessian determinants Br (x) as follows: for each r = 1, . . . , n,


 0
f1 (x) fr (x) 

 f1 (x) f11 (x) f1r (x) 


Br (x) =  .
.
..
..
..

 ..
.
.
.


 fr (x) fr1 (x) frr (x) 
Then,
1. A necessary condition for f to be quasiconcave is that (1)r Br (x) 0 for all x S
and all r = 1, . . . , n.
2. A sucient condition for f to be strictly quasiconcave is that (1)r Br (x) > 0 for
all x S and all r = 1, . . . , n.

5.9

Total Dierentiation

Consider functions that map points (vectors) in Rn to points (vectors) in Rm . Such


functions are often called transformations (operators). A transformation f : Rn Rm
is said to be linear if
f (x1 + x2 ) = f (x1 ) + f (x2 ) and f (x1 ) = f (x1 )
for all x1 , x2 Rn and all scalars R. Our knowledge on linear algebra tells us that
for every linear transformation f : Rn Rm , there is a unique m n matrix A such
that f (x) = Ax for all x Rn .

(1)
f (x)
a11 a12 a1n
x1
..

..
..
.. x2
..
.

.
.
.
.

f (j)(x) = aj1 aj2 ajn ...


..

..
.. ..
..
..

.
.
.
.
.
.
(m)
am1 am2 amn
xn
f (x)
In particular,
f (j)(x) = aj1 x1 + aj2 x2 + ajn xn =

n

i=1

68

aji xi .

5.9.1

Linear Approximations and Dierentiability

If a one variable function f is dierentiable at a point x0 , then the linear approximation


to f around x0 is given by


f (x0 + h) f (x0 ) + f (x0 )h,


for small values of h. Here stands for approximation. This is useful because the
approximation error is dened by


O(h) = true value - approximate value = f (x0 + h) f (x0 ) f (x0 )h


becomes negligible for suciently small h. Namely O(h) 0 as h 0. More importantly, however, O(h) also becomes small in comparison with h - that is,

O(h)

f (x0 + h) f (x0 )
0
= lim
f (x ) = 0.
lim
h0 h
h0
h
Moreover, f () is dierentiable at x0 if and only if there exists a number c R such that
f (x0 + h) f (x0 ) ch
= 0.
h0
h
lim

If such a number c R exists, it is unique and c = f (x0 ). These arguments can be generalized straightforwardly to higher dimensional spaces. In particular, a transformation
f () is dierentiable at a point x0 if it admits a linear transformation around x0 :
Denition 5.8 If f : A Rm is a transformation dened on a subset A of Rn and
x0 is an interior point of A, then f is said to be dierentiable at x0 if there exists an
m n matrix C such that
lim
h0n

f (x0 + h) f (x0 ) Ch


=0
h

If such a matrix C exists, it is called the total derivative of f () at x0 , and is denoted


by Df (x0 ).
If I restrict attention to real-valued functions, the following theorem establishes an
equivalence between directional derivative along every vector and total dierentiation.
Theorem 5.13 If f : A R is dened on a subset A of Rn and f is dierentiable

at an interior point x A, then f has a derivative fa (x) along every n-vector a, and

fa (x) = f (x) a.
Proof of Theorem 5.12: The derivative along a is

f (x + ha) f (x) f (x) ah



+ f (x) a = 0 + f (x) a
fa (x) = lim
h0
h
69


In particular, if ej = (0, . . . , 1 , . . . , 0) is the jth standard unit vector in Rn , then
f (x) ej is the partial derivative f (x)/xj = fj (x) with respect to the jth variable.
On the other hand, f (x) ej is the jth component of f (x). Hence, f (x) is the row
vector


f (x) = (f (x) e1 , . . . , f (x) en ) = (f1 (x), . . . , fn (x)) .


Suppose that I am interested in checking if a given transformation f : Rn Rm is
dierentiable. Then, the next theorem shows that it suces to check if each component
real-valued function f j : Rn R is dierentiable (j = 1, . . . , m). 2
Theorem 5.14 A transformation f = (f 1 , . . . , f m ) from a subset A of Rn into Rm is
dierentiable at an interior point x A if and only if each component function f j : A
R, j = 1, . . . , m, is dierentiable at x. Moreover,

f 1

f 1
f 1
(x)
(x)

(x)
f (1) (x)
x1
x2
xn

f 2
f 2
f 2
f (2) (x)

(x)
(x)

x1

x2
xn (x)
Df (x) =
=
..
.
.
.

..
..
..
..
.

f m
f m
f m
f (m) (x)
x1 (x)
x2 (x)
xn (x)
This is called the Jacobian matrix of f () at x. Its rows are the gradients of the
component functions of f ().
Proof of Theorem 5.13: Let C be an m n matrix and let O(h) = f (x + h)
f (x) Ch where h Rn .

(1)

f (x + h) f (1) (x)
c11 c12 c1n
h1
O1 (h)
O2 (h) f (2) (x + h) f (2) (x) c21 c22 c2n h2

..
=

..
.. .. .
..
..
..

.
.
.
.
.
.
.
(m)
(m)
cm1 cm2 cmn
hn
Om (h)
f (x + h) f (x)
The j-th component of O(h), j = 1, . . . , m, is Oj (h) f (j) (x + h) f (j) (x) Cj h, where
Cj is the j-th row of C. For each j,
|Oj (h)| O(h) |O1 (h)| + |Om (h)|
It follows that
O(h)
|Oi (h)|
= 0 lim
= 0 for all i = 1, . . . , m
h0 h
h0 h
lim

Hence, f () is dierentiable at x if and only if each f (j) is dierentiable at x. Also, the


j-th row of the matrix C = Df (x) is the derivative of f (j), that is, Cj = f (j) (x). 
The next theorem conrms our intuition about dierentiation: If a transformation
(or function) is dierentiable, it is more than continuous.
See the similar argument in Theorem 3.14 in which we show that a function f : n
continuous if and only if each component function f j : n is continuous (j = 1, . . . , m).
2

70

is

Theorem 5.15 (Dierentiability = Continuity) If a transformation f from A


Rn into Rm is dierentiable at an interior point x0 A, then f is continuous.
Proof of Theorem 5.14: Let C = Df (x). Then, for small but nonzero h Rn , the
triangle inequality yields
f (x0 + h) f (x0 ) = f (x0 + h) f (x0 ) + Ch Ch
f (x0 + h) f (x0 ) + Ch + Ch ( Minkowski inequality)

f (x0 + h) f (x0 ) + Ch


+ Ch
= h
h
Since f is dierentiable at x0 ,
f (x0 + h) f (x0 ) + Ch
0 as h 0
h
Ch 0 as h 0
Hence, f (x0 + h) f (x0 ) as h 0. 
The next theorem shows that the order of two operations do not matter for the nal
product: (1) Construct a composite mapping and dierentiate it; and (2) Dierentiate
each mapping and constructs a composite of two derivatives.
Theorem 5.16 (The Chain Rule) Suppose f : A Rm and g : B Rp are dened
on A Rn and B Rm , with f (A) B, and suppose that f and g are dierentiable at
x and f (x), respectively. Then, the composite transformation g f : A Rp dened by
(g f )(x) = g(f (x)) is dierentiable at x, and
D(g f )(x) = Dg(f (x)) Df (x)

      

pn

pm

mn

Proof of the Chain Rule: Dene


k(h) = f (x + h) f (x) = Df (x)h + ef (h), where

ef (h)
0 as h 0
h

g(f (x + h)) g(f (x)) = Dg(f (x))k + eg (k), where

eg (k)
0 as k 0
k

Also,

Note that there exits some xed constant K such that k(h) Kh for all small h.
Otherwise, f and g are not dierentiable. Note also that for all > 0, eg (k) < k
for k small because g is dierentiable. Thus, when h is small, we can summarize
eg (k(h)) < k(h) Kh

71

Hence,
eg (k(h))
0 as h 0
h
Then, we execute a series of computation below.
e(h) = g (f (x) + k(h)) g(f (x)) Dg(f (x))Df (x)h
= D(g f )(x)k(h) + eg (k(h)) Dg(f (x))Df (x)h
= D(g f )(x) (k(h) Df (x)h) + eg (k(h))
= D(g f )(x)ef (h) + eg (k(h)) ( h(k) = Df (x)h + ef (h))
And, moreover,
e(h)
h

1
D(g f )(x)ef (h) + eg (k(h))
h
D(g f )(x)ef (h) eg (k(h))
+
( triangle inequality)

h
h
ef (h) eg (k(h))
+
( Cauchy-Schwartz inequality)
D(g f )(x)
h
h
=

Since ef (h)/h 0 and eg (k(h))/h 0 as h 0, we conclude that e(h)/h


0 as h 0. 

5.10

The Inverse of a Transformation

Consider a transformation f : A B where A Rn and B Rm . Suppose the range of




f is the whole of B, i.e., f (A) = B. Recall that f is one-to-one if f (x) = f (x ) = x = x .
In sum, f is bijective. In this case, for each point y B there is exactly one point x A
such that f (x) = y, and the inverse of f is the transformation f 1 : B A which maps
each y B to precisely that point x A for which f (x) = y.
If f : U V and g : V U are dierentiable and mutually inverse transformations
between open sets U and V in Rn , then g f is the identity transformation on U , and
therefore D(g f )(x) = In for all x U . The chain rule then gives Dg(f (x))Df (x) = In .
This means that the Jacobian matrix Df (x) must be nonsingular, so |Df (x)|
= 0. Also,
Dg(f (x)) is the inverse matrix Df (x)1 .
Theorem 5.17 (Inverse Function Theorem) Consider a transformation f = (f1 , . . . , fn )
from A Rn into Rn and assume that f is C k (k 1) in an open set containing
x0 = (x01 , . . . , x0n ). Furthermore, suppose that |Df (x)|
= 0 for x = x0 . Let y 0 = f (x0 ).
Then, there exists an open set U around x0 such that f maps U one-to-one onto an open
set V around y 0 , and there is an inverse mapping g = f 1 : V U which is also C k .
Moreover, for all y V , we have
Dg(y) = Df (x)1 , where x = g(y) U.
72

Sketch of the Proof of Inverse Function Theorem: The proof consists of


5 steps. However, the proof of each step will be either briey sketched or completely
skipped due to its technical diculty. For simplicity, we assume that x0 = 0 and f (x0 ) =
y0 = 0.
Step 1: There is no loss of generality to assume that Df (x) = In
Proof of Step 1: Let Df (0) = A. Since A is non-singular, A1 exists. Let g : Rn
be a linear mapping associated with A1 . That is, g(x) = A1 x for any x Rm .
Note that g(0) = 0 and Dg(0) = A1 .
The Jacobian matrix of f g : Rn Rn is given as D(f g)(0) = Df (0)Dg(0) =
1
AA = In . If we can show that f g is C r , so is f . This is because g is a linear map
associated with A1 and so is C k . Therefore, we can rather talk about f g instead of
f so that Df (0) = In can be assumed with no loss of generality. 
Rn

Step 2: There exists an open set U containing 0 such that f |U : U Rn is one to


one.
Proof of Step 2:
Step 3: There exists an open set V such that f |U : U V is onto. That is, for any
0 V , there exists 0 U such that f (0) = 0.
Step 4: f 1 |V : V U is one-to-one and onto.
Step 5: f 1 |V : V U is C k . 

5.11

Implicit Function Theorems


f1 (x1 , x2 , . . . , xn , y1 , y2 , . . . , ym ) = 0
f (x, y) = 0
fm (x1 , x2 , . . . , xn , y1 , y2 , . . . , ym ) = 0


with f = (f1 , . . . , fm ) , x = (x1 , . . . , xn ), and y = (y1 , . . . , ym ).

f1 /x1

..
..
Dx f (x, y) =
.
.
fm /x1

f1 /xn

..
.
.
fm /xn

Theorem 5.18 (Implicit Function Theorem) Suppose f = (f 1 , . . . , f m ) is C 1 in


an open set A Rn+m , and consider the vector equation f (x, y) = 0, where x Rn
and y Rm . Let (x0 , y 0 ) be an interior point of A satisfying f (x, y) = 0. Suppose that
73

the Jacobian determinant of f with respect to y is dierent from 0 at (x0 , y 0 ) i.e.,


|Dy f (x, y)|
= 0 at (x, y) = (x0 , y 0 ). Then, there exist open balls B1 and B2 around x0
and y 0 , respectively, with B1 B2 A, such that |Dy f (x, y)|
= 0 in B1 B2 , and such
that for each x B1 , there is a unique y B2 with f (x, y) = 0. In this way, y is dened
on B1 as a C 1 function g() of x. The Jacobian matrix Dg(x) can be found by implicit
dierentiation of f (x, y) = 0, and

y1 /x1 y1 /x2 y1 /xn

dy
y2 /x1 y2 /x2 y2 /xn
=
= Dg(x) = [Dy f (x, y)]1 Dx f (x, y)
..
..
.
.
..
..

dx
.
.
ym /x1 ym /x2 ym /xn
Proof of Implicit Function Theorem: We dene the norm of vectors in Rn as
follows.
x max |xi |
1in

This is the norm we discuss for the implicit function theorem. The proof relies on the
following three lemmas (Lemmas 5.1, 5.2, and 5.3). We will not provide their proofs
here.
Lemma 5.1 Let K be a compact set in Rn . Let {hk (x)}K
k=1 be a sequence of continuous
m
functions K R . Suppose that for any > 0, there exists a number N N such that
max hm (x) hn (x) <
xK

for all m, n > N . Then, there exists a unique continuous function h : K Rm such that
+

lim max hk (x) h(x) = 0
k

xK

With Weierstrasss Theorem (Theorem 3.19) and the concept of Cauchy sequence in
Rn (Denition 3.6), the above lemma should be easy to be established. For the next
lemma, dene the following.



D = x Rn x x0 



D = y Rm y y 0 
Let (x, y) be a continuous mapping from D D to R with the property that
= 0. Notice that D D is a compact set by construction.

(x0 , y 0 )

Lemma 5.2 (Lipschitz Continuity) There exists a number K (0, 1) such that, for

all y, y D ,


(x, y) (x, y ) < Ky y .


74

We argue that Lemma 5.2 enables us to construct a sequence of continuous functions


needed for Lemma 5.1. Again, we take Lemma 5.2 for granted. Let y0 (x) = y 0 . Dene
yk+1 (x) = y0 + (x, yk (x)) for k 0. Since (x0 , y 0 ) = 0, we have
|(x, y 0 )| = (1 K)
for x D with > 0 suciently small. We execute a series of computations below.
|yk+1 (x) y 0 | = |(x, yk (x))|
= |(x, yk (x)) (x, y 0 ) + (x, y 0 )|
|(x, yk (x)) (x, y 0 )| + |(x, y 0 )|
< K|yk (x) y 0 | + (1 K)
Fix m N.
yk+m (x) yk (x) = (x, yk+m1 (x)) (x, yk1 (x))
Kyk+m1 (x) yk1 (x)
K k+1 ym (x) y 0  0 as k
This means that maxxD ym (x) yn (x) 0 as m, n .
Lemma 5.3 Let (x, y) be a continuous mapping from D D to Rm with the property
that (x0 , y 0 ) = 0. Furthermore, There exists a number K (0, 1) such that, for all

y, y D ,


(x, y) (x, y ) < Ky y .


Then, there exists a unique continuous mapping : D Rm for which
(x) y 0 = (x, (x))
for x D with > 0 suciently small.
With the help of all three lemmas above, we will complete the proof of Implicit
Function Theorem.
Dene a function g(x, y) : D D Rm satisfying the following equation.
m1

  
f (x, y) = Dy f (x0 , y 0 ) (y y 0 ) + g(x, y)
  
   


m1

m1

mm

Since |Dy f (x0 , y 0 )|


= 0, we have
"
#1
g(x, y)
y y 0 = Dy f (x0 , y 0 )
75

By construction of g, we have g(x0 , y 0 ) = 0 and |Dy g(x0 , y 0 )|


= 0. Dene
#1
"
g(x, y)
(x, y) = Dy f (x0 , y 0 )
Note also that (x0 , y 0 ) = 0. By the mean-value theorem (Theorem 5.2),
"
#1


[Dy g(x, y)](y y )
(x, y) (x, y ) = Dy f (x0 , y 0 )
"
#1 "
#

= Dy f (x0 , y 0 )
Dy f (x, y) Dy f (x0 , y 0 ) (y y )


= Im [Dy f (x0 , y 0 )]1 Dy f (x, y) (y y 0 )
If we choose > 0 small enough so that x is very close to x0 , i.e., x D , there exists
K (0, 1) such that


(x, y) (x, y ) < KIm (y y 0 )


= Ky y 0 
Now, we can take two open sets B1 and B2 small enough so that B1 D and B2 D
needed for the theorem. Then, we can use Lemma 5.3 which completes the proof. 
Corollary 5.3 (A Version of Implicit Function Theorem) Suppose f : R2 R is
C 1 in an open set A containing (x0 , y0 ), with f (x0 , y0 ) = 0 and f (x0 , y0 )/y
= 0. Then,
there exists an interval Ix = (x0 , x0 + ) and an interval Iy = (y0 , y0 + ) (with
> 0 and > 0) such that Ix Iy A and:
1. for every x Ix , the equation f (x, y) = 0 has a unique solution in Iy which denes
y as a function y = (x) in Iy ;
2. is C 1 in Ix = (x0 , x0 + ), with derivative
f (x, (x))/x

dy
= (x) =
dx
f (x, (x))/y
Exercise 5.8 The point P = (x, y, z, u, v, w) = (1, 1, 0, 1, 0, 1) satises all the equations
y 2 z + u v w3 = 1
2x + y z 2 + u + v 3 w = 3
x2 + z u v + w 3 = 3
Using the implicit function theorem, nd du/dx, dv/dx, and dw/dx at P .

76

Chapter 6

Static Optimization
6.1
6.1.1

Unconstrained Optimization
Extreme Points

Let f () be a real-valued function of n variables x1 , . . . , xn dened on a set S in Rn .


Suppose that the point x = (x1 , . . . , xn ) belongs to S and that the value of f at x is
greater than or equal to the values attained by f at all other points x = (x1 , . . . , xn ) S.
Thus,
f (x ) f (x) for all x S ()
Here x is called a (global) maximal point for f in S and f (x ) is called the maximum
value. If the inequality () is strict for all x
= x , then x is a strict maximum point
for f () in S. We dene (strict) minimum point and minimum value by reversing the
inequality sign in (). As collective names, we use extreme points and extreme values to
indicate both maxima or minima.
Theorem 6.1 Let f () be dened on a set S in Rn and let x = (x1 , . . . , xn ) be an
interior point in S at which f () has partial derivatives. A necessary condition for x to
be an extreme point for f is that x is a stationary point for f () that is, it satises
the equations
f (x) = 0

f (x)
= 0, for i = 1, . . . , n
xi

Proof of Theorem 6.1: Suppose, on the contrary, that x is a maximum point but
not a stationary point for f (). Then, there is no loss of generality to assume that there
exists at least i such that fi (x) > 0. Dene x = (x1 , . . . , xi + , . . . , xn ). Since x is an
interior point in S, one can make sure that x S by choosing > 0 suciently small.
Then,
, 0, . . . , 0) > f (x ).
f (x ) f (x ) + f (x) (0, . . . , 0, 
i

77

However, this contradicts the hypothesis that x is a maximum point for f (). 
The next theorem claries under what conditions, the converse of the previous theorem (Theorem 6.1) is established.
Theorem 6.2 Suppose that the function f () is dened in a convex set S Rn and let
x be an interior point of S. Assume that f () is C 1 in a ball around x .
1. If f () is concave in S, then x is a (global) maximum point for f () in S if and
only if x is a stationary point for f ().
2. f () is convex in S, then x is a (global) minimum point for f () in S if and only
if x is a stationary point for f ().
Proof of Theorem 6.2: We focus on the rst part of the theorem. The second part
follows once we take into account that f is concave. (=) This follows from Theorem
6.1 above. (=) Suppose that x is a stationary point for f () and that f () is concave.
Recall the inequality in Theorem 5.6 (First-order characterization of concave functions).
For any x S,
f (x) f (x ) f (x ) (x x ) = 0 ( f (x ) = 0)
Thus, we have f (x) f (x ) for any x S as desired. 

6.1.2

Envelope Theorems for Unconstrained Maxima

Consider an objective function with a parameter vector r of the form f (x, r) =


f (x1 , . . . , xn , r1 , . . . , rk ), where x S Rn and r Rk . For each xed r, suppose we
have found the maximum of f (x, r) when x varies in S. The maximum value of f (x, r)
usually depends on r. We denote this value by f (r) and call f the value function.
Thus,
f (r) = max f (x, r)
xS

The vector x that maximizes f (x, r) depends on r and is therefore denoted by x (r).
Then, f (r) = f (x (r), r).
Theorem 6.3 (Envelope Theorem) In the maximization problem maxxS f (x, r), where
S Rn and r Rk , suppose that there is a maximum point x (r) S for every
r B (r ) with some > 0. Furthermore, assume that the mappings r  f (x (r ), r)
and r  f (r) are dierentiable at r . Then

f (x, r)/r1
f (x, r)/r2

r f (r ) =

..

.
f (x, r)/rk
78

x=x (r ),r=r

There are two eects of r on the value function f through both directly and indirectly
The Envelope theorem says that we can ignore the indirect eects.

x (r).

Proof of Envelope Theorem: Dene the function


(r) = f (x (r ), r) f (r).
Because x (r ) is a maximum point of f (x, r) when r = r , one has (r ) = 0 and
(r) 0 for all r B (r ). Since (r ) is a maximum, the following rst order condition
is satised (because of Theorem 6.1).


(r) 

= 0 j = 1, . . . , k
r (r) r=r = 0
rj r=r
That is,


f (x (r ), r) 
f (r) 
(r)
=
 rj  = 0 j = 1, . . . , k 
rj
rj
r=r
r=r

6.1.3

Local Extreme Points

The point x is a local maximum point of f () in S if there exists an > 0 such that
f (x) f (x ) for all x B (x ) S. If x is the unique local maximum point for f (),
then it is a strict local maximum point for f () in S. A (strict) local minimum point is
dened in the obvious way, and it should be clear what we mean by local maximum and
minimum values, local extreme points, and local extreme values. A stationary point x of
f () that is neither a local maximum point nor a local minimum point is called a saddle
point of f ().
Before stating the next result, recall the
matrix D 2 f (x):

 f11 (x) f12 (x)

 f21 (x) f22 (x)

2
f (x)| = 
|D(k)
..
..

.
.

 fk1 (x) fk2 (x)

n leading principal minors of the Hessian

..
.






 , k = 1, . . . , n


fkk (x) 

f1k (x)
f2n (x)
..
.

Theorem 6.4 (Sucient Conditions for Local Extreme Points) Suppose that f (x) =
f (x1 , . . . , xn ) is dened on a set S Rn and that x is an interior stationary point. Assume also that f () is C 2 in an open ball around x . Then,
1. D 2 f (x ) is positive denite = x is a local minimum point.
2. D 2 f (x ) is negative denite = x is a local maximum point.

79

Proof of Theorem 6.4: We only focus on the rst part of the theorem. We should
be able to prove the second part of the proof by replacing f () with f (). Since each
fij (x) is continuous in x (because f () is C 2 ), the determinant is a continuous function
2 f (x )| > 0 for all k, it is possible to nd a ball B (x ) with > 0
of x. Therefore, if |D(k)

2 f (x)| > 0 for all x B (x ) and all k = 1, . . . , n. By Theorem 4.6,


so small that |D(k)

the corresponding quadratic form is positive denite for all x B (x ). It follows from
Theorem 5.5 that f () is strictly convex in B (x ). Then, Theorem 6.2 shows that the
stationary point x is a maximum point for f in B (x ). Hence, x is a local minimum
point for f (). 
Lemma 6.1 If x is an interior stationary point of f () such that |D2 f (x )|
= 0 and
D 2 f (x ) is neither positive denite nor negative denite, then x is a saddle point.

6.1.4

Necessary Conditions for Local Extreme Points

To study the behavior of f () in an arbitrary xed vector in Rn with length 1, so h = 1.


The function g() describes the behavior of f () along the straight line through x parallel
to the vector h Rn .
g(t) = f (x + th) = f (x1 + th1 , . . . , xn + thn )
We have the following characterization of local extreme points.
Theorem 6.5 (Necessary Conditions for Local Extreme Points) Suppose that f (x) =
f (x1 , . . . , xn ) is dened on a set S Rn , and x is an interior stationary point in S.
Assume that f is C 2 in a ball around x . Then,
1. x is a local minimum point = D2 f (x ) is positive semidenite.
2. x is a local maximum point = D2 f (x ) is negative semidenite.
Proof of Theorem 6.5: Suppose that x is an interior local maximum point for
f (). Then, if > 0 is small enough, B (x ) S, and f (x) f (x ) for all x B (x ).
If t (, ), then x + th B (x ) because (x + th) x  = th = |t| < . Then,
for all t (, ), we have
f (x + th) f (x ) g(t) g(0).
Thus, the function g() has an interior maximum at t = 0. Using the chain rule, we
obtain


g (t) =

fi (x + th)hi

i=1


g (t) =

n
n

i=1 j=1

80

fij (x + th)hi hj



The condition g (0) 0 yields


n
n

fij (x + th)hi hj 0 h = (h1 , . . . , hn ) with h = 1

i=1 j=1

This implies that the Hessian matrix D 2 f (x ) is negative semidenite. Theorem 4.6
shows that this is equivalent to checking all principal minors. The same argument can
be used to establish the necessary condition for x to be a local minimum point for f ().

Exercise 6.1 Find the local extreme values and classify the stationary points as maxima,
minima, or neither.
1. f (x1 , x2 ) = 2x1 x21 x22 .
2. f (x1 , x2 ) = x21 + 2x22 4x2 .
3. f (x1 , x2 ) = x31 x22 + 2x2 .
4. f (x1 , x2 ) = 4x1 + 2x2 x21 + x1 x2 x22 .
5. f (x1 , x2 ) = x31 6x1 x2 + x32

6.2
6.2.1

Constrained Optimization
Equality Constraints: The Lagrange Problem

A general maximization problem with equality constraints is of the form


max

x=(x1 ,... ,xn )

f (x1 , . . . , xn ) subject to gj (x) = 0 j = 1, . . . , m (m < n) ()

Dene the Lagrangian,


L(x) = f (x) 1 g1 (x) m gm (x)
where 1 , . . . , m are called Lagrange multipliers. The necessary rst-order conditions
for optimality are then:
m

f (x) gj (x)
L(x)
=

j
= 0, i = 1, . . . , n ()
L(x) = f (x) Dg(x) = 0
xi
xi
xi
j=1

Theorem 6.6 (N&S Conditions for Extreme Points with Equality Constraints)
The following establishes the necessary and sucient conditions for the Lagrangian method

81

1. (Necessity) Suppose that the functions f and g1 , . . . , gm are dened on a set S


in Rn and x = (x1 , . . . , xn ) is an interior point of S that solves the maximization
problem (). Assume further that f and g1 , . . . , gm are C 1 in a ball around x , and
that the Jacobian matrix,

g 1 (x )
g 1 (x )

xn
x. 1

..
..

.
Dg(x ) =
.
.
.

  
m

g (x )
g (x )
mn

x1
xn
has rank m. Then, there exist unique numbers 1 , . . . , m such that the rst-order
conditions () are valid.
2. (Suciency) If there exist numbers 1 , . . . , m and a feasible x which together
satisfy the rst-order conditions (), and if the Lagrangian L(x) is concave in x,
then x solves the maximization problem ().
Proof of Theorem 6.6: (Necessity) The proof for the necessity part consists of
three steps.
Step 1: Construction of the unconstrained maximization problem
Since m n matrix Dg(x ) is assumed to have rank m, there exists a invertible (nonsingular) m m submatrix. After renumbering the variables, if necessary, we can assume
that it consists of the rst m columns. By the implicit function theorem (Theorem 5.17),
= (xm+1 , . . . , xn )
the m constraints, g1 , . . . , gm dene x1 , . . . , xm as C 1 functions of x
in some open ball B around x , i.e., B (x ) with > 0 suciently small, so we can write
x), j = 1, . . . , m
xj = hj (xm+1 , . . . , xn ) = hj (
Then, f (x1 , . . . , xn ) reduces to a composite function
x), . . . , hm (
x), x
)
(
x) = f (h1 (
of x
only. Now, the maximization problem with equality constraints is translated into
the unconstrained maximization problem
x)
max (

x
B (x )

Since x is a local extreme point for f subject to the given constraints, must have an
unconstrained local extreme point at x
= (xm+1 , . . . , xn ). Hence, the partial derivatives
of with respect to xm+1 , . . . , xn must be 0:


f (x )
f (x ) h1
f (x ) hm
(x )
+
= 0 (1)
=
+ +
xk
x1 xk
xm xk
xk
  



direct eects
indirect eects
82

where k = m + 1, . . . , n.
Step 2: To express h1 /xk , . . . , hm /xk in terms of g j (x)

x), . . . , hm (
x), x) = 0, j = 1, . . . , m
gj (h1 (
for all x
B. Dierentiating this with respect to xk gives
m

gj hs
gj
+
= 0,
xs xk
xk
s=1

for k = m+1, . . . , n and j = 1, . . . , m. In particular, this is valid at x . Now, multiplying


each of the m equations above by a scalar j , then adding these equations over j, we
obtain
m

m
m

gj hs

gj
j
j
= 0, (2)
+
xs xk
xk
s=1
j=1

j=1

where k = m + 1, . . . , n. Next, subtract (2) from (1),

m
m
m

j


f (x ) gj
g hs
f (x )
j
+

j
=0
xs
xs xk
xk
xk
s=1

j=1

j=1

where k = m + 1, . . . , n. These equations are valid for all choices of 1 , . . . , m when


the partial derivatives are evaluated at x . Suppose that we can prove the existence of
numbers 1 , . . . , m such that
m

f (x ) gj

j
= 0, s = 1, . . . , m (3)
xs
xs
j=1

If (3) is satised, we also have


m

f (x ) gj

j
k = m + 1, . . . , n
xk
xk
j=1

Thus, the rst-order necessary conditions for the Lagrangian are also satised.
Step 3: Existence of 1 , . . . , m satisfying (3)

83

We rewrite the system (3) as


g1
1 +
x1
g1
1 +
x2

g2
gm
2
m
x1
x1
g2
gm
2
m
x2
x2

=
=

f
x1
f
Dg(x ) 
= f (x )
  
  
x1
mn


g2
gm
f
g1
1 +
2
m =
xm
xm
xm
xm

n1

m1

Here the coecient matrix above is invertible (nonsingular), it has a unique solution
1 , . . . , m . This completes the proof.
(Suciency) Suppose that the Lagrangian L(x) is concave. The rst-order necessary conditions imply that the Lagrangian is stationary at x . Then by Theorem 6.2
(suciency for global maximum),

L(x ) = f (x )

j g (x ) f (x)

j=1

j gj (x) = L(x) x S

j=1

But for all feasible x, we have gj (x) = 0 and of course, gj (x ) = 0 for all j = 1, . . . , m.
Hence, this implies that f (x ) f (x). Thus, x solves the maximization problem (). 

6.2.2

Lagrange Multipliers as Shadow Prices

The optimal values of x1 , . . . , xn in the maximization problem () will depend upon the
parameter vector r = (r1 , . . . , rk ) Rk , in general. If x (r) = (x1 (r), . . . , xn (r)) denotes
the vector of optimal values of the choice variables, then the corresponding value
f (r) = f (x1 (r), . . . , xn (r))
of f () is called the (optimal) value function for the maximization problem (). The values
of the Lagrange multipliers
depend on r; we write j = j (r) for j = 1, . . . , m.
 will also
j (x, r) be the Lagrangian. Under certain conditions, we

g
Let L(x, r) = f (x, r) m
j=1 j
have


L(x, r)
f (r)
=
, i = 1, . . . , k
ri
ri
x=x (r)

6.2.3

Tangent Hyperplane

A set of equality constraints in Rn


g1 (x) = 0
g2 (x) = 0
..
..
.
.
gm (x) = 0
84

denes a subset of Rn which is best viewed as a hypersurface. If, as I assume in this


section, the functions gj , j = 1, . . . , m belong to C 1 , the surface dened by them is said
to be smooth. We introduce the tangent hyperplane M below:
M = {y Rn |Dg(x )y = 0}
Note that the tangent hyperplane is a subspace of Rn .
Denition 6.1 A point x satisfying the constraint g(x ) = 0 is said to be a regular point of the constraint if the gradient vectors g 1 (x ), . . . , g m (x ) are linearly
independent. That is, Rank(Dg(x )) = m.

6.2.4

Local First-Order Necessary Conditions

Lemma 6.2 Let x be a regular point of the constraint g(x) = 0 and a local extreme
point of f () subject to these constraints. Then, for any y Rn ,
f (x )y = 0 whenever Dg(x )y = 0.
Proof of Lemma 6.2: Let y = (y1 , . . . , yn ) with y = 1. Let x(t) = x + ty be any
smooth curve on the constraint surface g(x(t)) = 0 passing through x with derivative

x (t)|t=0 = y at x(0) = x . There exists some > 0 such that g(x(t)) = 0 for any
t (, ).
Since x is a regular point, the tangent hyperplane is identical with the set of ys
satisfying g(x )y = 0. Then, since x is a constrained local extreme point of f (), we
have



d
f (x(t))
= 0 = f (x )x (0) = 0,
dt
t=0
equivalently, f (x )y = 0. 
The above lemma says that f (x ) is orthogonal to the tangent hyperplane.

6.2.5

Second-Order Necessary and Sucient Conditions for Local Extreme Points

Theorem 6.7 (Necessity for Local Maximum) Suppose that x is a local maximum
of f () subject to g(x) = 0 and that x is a regular point of these constraints. Then there
is a Rn such that
f (x ) Dg(x ) = 0.
If we denote by M the tangent hyperplane M = {h Rn |Dg(x )h = 0}, then, the matrix
D 2 L(x ) = D2 f (x ) D2 g(x )
is negative semidenite on M , that is,
hT D2 L(x )h 0 h M
85

Proof of Theorem 6.7: The rst part follows from Theorem 6.6. We only focus
on the second part. Let h = (h1 , . . . , hn ) M with h = 1. Let x(t) = x + th be
any smooth curve on the constant surface g(x(t)) = 0 passing through x with derivative

x (0) = h at x(0) = x . Suppose that x is an interior local maximum point for f subject
to g(x) = 0. Then, if > 0 is small enough,
L(x + th) L(x ) f (x + th) g(x + th) f (x ) g(x )
for all t (, ) because (x + th) x  = th = |t| < . Dene the function
(t) = L((x + th). Then, for all t (, ), we have
L(x + th) L(x ) (t) (0).
Thus, the function has an interior maximum at t = 0. Using the chain rule (Theorem
5.15), we obtain


(t) = L(x + th)h = f (x + th)h Dg(x + th)h




(0) = L(x )h = f (x )h Dg(x )h = 0


because h M so that f (x )h = 0 and Dg(x )h = 0. Furthermore,


(t) = hT D2 L(x + th)h




The hypothesis that has an interior local maximum at t = 0 means (0) 0. Thus,
hT D2 L(x )h 0

Lij (x )hi hj 0

i=1

This implies that the Hessian matrix D 2 L(x ) is negative semidenite on M . 


Theorem 6.8 (Suciency for Local Maximum) Suppose there is a point x Rn
satisfying g(x ) = 0, and a Rm such that

0

..

0 = . .
f (x ) Dg(x ) = 
n1
0
Suppose also that the matrix D 2 L(x ) = D2 f (x ) + D2 g(x ) is negative denite on
M = {y Rn |Dg(x )y = 0}, that is, for y M with y
= 0, y T D2 L(x )y < 0. Then, x
is a strict local maximum of f () subject to g(x) = 0.
Proof of Theorem 6.8: The rst part follows from Theorem 6.7. Dene the Lagrangian as follows.
L(x) = f (x) g(x)
Dierentiating this with respect to x, and evaluating it at x , we obtain
L(x ) = f (x ) Dg(x ) = 0
86

This implies that L(x )y = 0 for any y Rn . By our hypothesis, D2 L(x ) is negative
denite on M , and therefore, x is a local maximum point of L(x) from Theorem 6.4.
This implies that x is a local maximum of f () subject to g(x) = 0. 
Exercise 6.2 Solve the problem
max{x + 4y + z} subject to x2 + y 2 + z 2 = 216 and x + 2y + 3z = 0
Exercise 6.3 Consider the problem (assuming m 4).
max U (x1 , x2 ) =

1
1
ln(1 + x1 ) + ln(1 + x2 ) subject to 2x1 + 3x2 = m
2
4

Answer the following questions.


1. Let x1 (m) and x2 (m) denote the values of x1 and x2 that solve the above maximization problem. Find these functions and the corresponding Lagrangian multiplier.
2. The optimal value U of U (x1 , x2 ) is a function of m. Find an explicit expression
for U (m), and show that dU /dm = .

6.2.6

Envelope Result for Lagrange Problems

In economic optimization problems, the objective function as well as the constraint functions (such as the budget set) will often depend on parameters. These parameters are
held constant when optimizing (remember the price taking behavior assumption), but
can vary with the economic situation. We might want to know what happens to the
optimal value function when the parameter change.
Consider the following general Lagrange problem.
max f (x, r) subject to gj (x, r) = 0, j = 1, . . . , m.
xS

where r = (r1 , . . . , rk ) is a vector of parameters. The values of x1 , . . . , xn that solve


the maximization problem will be functions of r. If we denote them by x1 (r), . . . , xn (r),
then
f (r) = f (x1 (r), . . . , xn (r))
is called the value function. Suppose that i = i (r) for all i = 1, . . . , m are the Lagrange
multipliers in the rst-order conditions for the maximization problem and let
L(x, r) = f (x, r) + g(x, r)
be the Lagrangian. Here = (1 , . . . , m ) and g(x, r) = (g1 (x, r), . . . , gm (x, r)).

87

6.3

Inequality Constraints: Nonlinear Programming


1
g (x1 , . . . , xn ) 0

g2 (x1 , . . . , xn ) 0
max f (x) subject to
..

xS
.

m
g (x1 , . . . , xn ) 0

A vector x = (x1 , . . . , xn ) that satises all the constraints is called feasible. The
set of all feasible vectors is said to be the feasible set. We assume that f () and all the
gj functions are C 1 . In the case of equality constraint, the number of constraints were
assumed to be strictly less than the number of variables. This is not necessary for the
case of inequality constraints. An inequality constraint gj (x) 0 is said to be active
(binding) at x if gj (x) = 0 and inactive (non-binding) at x if gj (x) < 0.
Note that minimizing f (x) is equivalent to maximizing f (x). Moreover, an inequality constraint of the form gj (x) 0 can be rewritten as g j (x) 0. In this way, most
constrained optimization problem can be expressed as the above form.
We dene the Lagrangian exactly as before.
L(x) = f (x) g(x) = f (x)

j gj (x),

j=1

where = (1 , . . . , m ) Rm are the Lagrangian multipliers. Again the rst-order


partial derivatives of the Lagrangian are equated to 0:
m

L(x) = f (x) Dg(x) = 0

f (x) gj (x)
L(x)
=

j
= 0, i = 1, . . . , n ()
xi
xi
xi
j=1

In addition, we introduce the complementary slackness conditions. For all j = 1, . . . , m,


j 0 and j = 0 if gj (x) < 0 ()
An alternative formulation of this condition is that for any j = 1, . . . , m,
j 0 and j gj (x) = 0
In particular, if j > 0, we must have gj (x) = 0. However, it is perfectly possible to have
both j = 0 and gj (x) = 0.
Conditions () and () are often called the Kuhn-Tucker conditions. They are
(essentially but not quite) necessary conditions for a feasible vector to solve the maximization problem. In general, they are denitely not sucient on their own. Suppose
one can nd a point x at which f () is stationary and gj (x ) < 0 for all j = 1, . . . , m.
Then, the Kuhn-Tucker conditions will automatically be satised by x together with all
the Lagrangian multipliers j = 0 for all j = 1, . . . , m.
88

Theorem 6.9 (Suciency for the Kuhn-Tucker Conditions I) Consider the maximization problem and suppose that x is feasible and satises conditions () and ().
If the Lagrangian L(x) = f (x) g(x) (with the values obtained from the recipe) is
concave, then x is optimal.
Proof of Theorem 6.9: This is very much the same as the suciency part of
the Lagrangian problem in Theorem 6.6. Since L(x) is concave by assumption and
L(x ) = 0 from (), by Theorem 6.2, x is a global maximum point of L(x). Hence,
for all x S,
f (x )

j gj (x ) f (x)

j=1

j gj (x)

j=1

Rearranging gives the equivalent inequality


f (x ) f (x)

!
j gj (x ) gj (x) .

j=1

Thus, it suces to show


m

!
j gj (x ) gj (x) 0

j=1

for all feasible x, because this will imply that x solves the maximization problem. Suppose that gj (x ) < 0. Then () shows that j = 0. Suppose that gj (x ) = 0, we have
j
0 because
x is feasible, i.e., gj (x) 0 and j 0.
j (gj (x ) gj (x))
!
m = jjg (x)

j
Then, we have j=1 j g (x ) g (x) 0 as desired. 
Theorem 6.10 (Suciency for the Kuhn-Tucker Conditions II) Consider the maximization problem and suppose that x is feasible and satises conditions () and ().
If f () is concave and each j gj (x) (with the values obtained from the recipe) is quasiconvex, then x is optimal.
Proof of Theorem 6.10: We want to show that f (x) f (x ) 0 for all feasible
x. Since f () is concave, then according to Theorem 5.6 (First-order characterization of
concavity of f ()),
=
f (x) f (x ) f (x ) (x x ) 

j g j (x ) (x x )

() j=1

where we use the rst order condition (). It therefore suces to show that for all
j = 1, . . . , m, and all feasible x,
j g j (x ) (x x ) 0.
The above inequality is satised for those j such that gj (x ) < 0, because then j = 0
from the complementary slackness condition (). For those j such that gj (x ) = 0, we
89

have gj (x) gj (x ) (because x is feasible), and hence j gj (x) j gj (x ) because


j 0. Since the function j gj (x) is quasiconcave (because j gj (x) is quasiconvex),
it follows from Theorem 5.10 (a characterization of quasiconcavity) that (j gj (x ))
(x x ) 0, and thus, j g j (x ) (x x ) 0. 
Exercise 6.4 Reformulate the problem
min 4 ln(x2 + 2) + y 2 subject to x2 + y 2, x 1
as a standard Kuhn-Tucker maximization problem and write down the necessary KuhnTucker conditions. Moreover, nd the solution of the problem (Take it for granted that
there is a solution).

6.4

Properties of the Value Function

Consider the standard nonlinear programming problem below.


max f (x) subject to gj (x) bj j = 1, . . . , m
The optimal value of the objective f (x) obviously depends upon b Rm which is a
parameter vector in the constraint set. The function dened by



f (b) = max f (x)gj (x) bj , j = 1, . . . , m
assigns to each b = (b1 , . . . , bk ) the optimal value f (b) of f (). It is called the value
function for the problem. Let the optimal choice for x in the constrained optimization
problem be denoted by x (b), and assume that it is unique. Let j (b) for j = 1, . . . , m
be the corresponding Lagrange multipliers. Then, if f (b)/bj exists,
f (b)
= j (b) j = 1, . . . , m
bj
The value function f is not necessarily C 1 . The next proposition characterizes a geometric structure of the value function.
Proposition 6.1 If f (x) is concave and gj (x) is convex for each j = 1, . . . , m, then
f (b) is concave.




Proof of Proposition 6.1: Suppose that b and b are two arbitrary parame



ter vectors in the constraint set, and let f (b ) = f (x (b ), f (b ) = f (x (b ), with




gj (x (b )) bj , gj (x (b )) bj for j = 1, . . . , m. Let [0, 1]. Corresponding to the




vector b + (1 )b , there exists an optimal solution x (b + (1 )b ), and






f (b + (1 )b ) = f (x (b + (1 t)b ))




Dene x = x (b ) + (1 )x (b ). Then, convexity of gj for j = 1, . . . , m implies that








gj (x ) gj (x (b )) + (1 )gj (x (b )) bj + (1 )bj
90



Thus, x is feasible in the problem with parameter b + (1 )b , and in that problem,




x (b + (1 )b ) is optimal. It follows that






f (x ) f (x (b + (1 )b )) = f (b + (1 )b )
On the other hand, concavity of f implies that






f (x ) f (x (b )) + (1 )f (x (b )) = f (b ) + (1 )f (b )
In sum,






f (b + (1 )b ) f (b ) + (1 )f (b )
This shows that f (b) is concave. 

6.5

Constraint Qualications

Consider the maximization problem below.


max f (x) subject to gj (x) 0, j = 1, . . . , m
Denition 6.2 The constrained maximization problem satises the constraint qualication if the gradient vectors g j (x ) (1 j m) corresponding those constraints
that are active (binding) at x , are linearly independent.
An alternative formulation of this condition is: Delete all rows in the Jacobian matrix
Dg(x ) that correspond to constraints that are inactive (not binding) at x . Then, the
remaining matrix should have rank equal to the number of rows.
Theorem 6.11 (Kuhn-Tucker Necessary Conditions) Suppose that x = (x1 , . . . , xn )
solves the constrained maximization problem where f () and g1 (), . . . , gm () are C 1 functions. Suppose furthermore that the maximization problem satises the constraint qualication. Then, there exist unique numbers 1 , . . . , m such that the Kuhn-Tucker conditions () and () hold at x = x .
Proof of Kuhn-Tucker Necessary Conditions: We assume the following.
1. x Rn maximizes f on the constraint set gj (x) 0 for all j = 1, . . . , m
2. only g1 , . . . , gk are binding at x , where k m.
3. the k n Jacobian matrix Dgk (x ) has maximal rank k. That is,

g1 (x )/x1 g1 (x )/xn

..
..
..
k = Rank [Dgk (x )] = Rank
.
.
.
.
k

g (x )/x1 g (x )/xn

91

The proof consists of two steps.


Step 1: L(x, ) = 0 and g(x) = 0
Since each gj () is a continuous function, there is a open ball B (x ) such that gj (x) <
0 for all x B (x ) and for j = k + 1, . . . , m. We will work in the open ball B (x ) for
the rest of proof.
Note that x maximizes f () in B (x ) over the constraint set that gj (x) = 0 for
j = 1, . . . , k. By assumption, Theorem 6.7 (Necessity for Optimization with Equality
Constraints) applies and therefore, there exist 1 , . . . , k such that
, ) = 0 and gj (x ) = 0 j = 1, . . . , k
L(x
) f (x) k j gj (x) as the restricted Lagrangian.
where L(x,
j=1
Consider the usual Lagrangian
L(x, 1 , . . . , m ) f (x)

k gj (x).

j=1

Let i = i for i = 1, . . . , k and i = 0 for j = k + 1, . . . , m. Then, we see that (x , )


is a solution of the n + m equations in n + m unknowns:
L
(x , ) = 0 i = 1, . . . , n
xi
j gj (x ) = 0 j = 1, . . . , m
Step 2: j 0 for all j
There is a C 1 curve x(t) dened for t [0, ) such that x(0) = x and, for all t [0, ),
g1 (x(t)) = t and gj (x(t)) = 0 for j = 2, . . . , k
By the implicit function theorem (Theorem 5.17), we can still solve the constrained
optimization problem in B (x ) even if we slightly perturb the constraint set. Let h =

x (0). Using the chain rule (Theorem 5.15), we conclude that
nablag 1 (x )h = 1, g j (x )h = 0 j = 2, . . . , k
Since x(t) lies in the constraint set for all t and x maximizes f () in the constraint set,
f () must be nonincreasing along x(t). Therefore,


d
f (x(t))
= f (x )h 0
dt
t=0
92

By our rst-order conditions, we execute a series of computations.


0 = L(x )y
= f (x )h

j g j (x )y

j=1

= f (x )h 1 g 1 (x )h
= f (x )h + 1
Since f (x )h 0, we conclude that 1 0. A similar argument shows that j 0 for
j = 1, . . . , k. This completes the proof. 
Theorem 6.12 (Kuhn-Tucker N & S Conditions) Assume that a feasible vector x
and a set of multipliers 1 , . . . , m satisfy the Kuhn-Tucker necessary conditions () and
() for the constrained maximization problem. Dene J = {j|gj (x ) = 0}, the set
of active (binding) constraints, and assume that j > 0 for all j J Consider the
Lagrangian problem
max f (x) subject to gj (x) = 0 j J
Then, x satises
) = f (x )
L(x

j g j (x ) = 0

jJ

) is negative denite on M , then x is


for the given multipliers j for j J. If D2 L(x
a strict local maximum point for the original constrained maximization problem. Here



M = h Rn  g j (x )h = 0 j J
Proof of Kuhn-Tucker N & S Conditions: Suppose, on the contrary, that x
is not a local maximum point of the constrained optimization problem. Then, we can
consider {yk } as a sequence of feasible points converging to x such that f (yk ) f (x )
for each k. More specically, for each k, dene yk = x + k hk with hk  = 1 and k > 0.
We may assume that k 0 and hk h as k . Using the linear approximation
through dierentiability,
f (yk ) f (x ) + f (x ) (yk y ) = f (x ) + k f (x ) hk
for k large enough. Letting k , because of linearity of f (x )hk in hk (continuity
follows), we must have f (x )h 0 from f (yk ) f (x ). Also for each binding (active)
constraint gj , we have
gj (yk ) gj (x )
Again, using the linear approximation through dierentiability,
gj (yk ) gj (x ) + g j (x ) (yk x ) = gj (x ) + k g j (x ) hk
93

for k large enough. Then, we must have Dgj (x )h 0 because Dgj (x )hk is a linear
continuous in hk and gj (yk ) gj (y ) for each k.
If g j (x )h = 0 for all j J, then the proof goes through just as in Theorem 6.8.
Therefore, there must exists at least one j J such that g j (x )h < 0. Then, we
obtain

j Dgj (x )h > 0 because j > 0 for all j J
f (x )h
jJ

f (x )


j Dgj (x ) h > 0

jJ



=0

This, however, contradicts our fullled condition that f (x )


We complete the proof. 


jJ

j g j (x ) = 0.

Exercise 6.5 Consider the following constrained maximization problem.


max f (x, y) = x subject to g(x, y) = x3 + y 2 = 0.
Show that this problem does not satisfy the constraint qualication.

6.6

Nonnegativity Constraints

Consider the nonlinear programming problem with nonnegativity constraints:


max f (x) subject to gj (x) 0 j = 1, . . . , m and xi 0 for all i = 1, . . . , n
We introduce n new constraints in addition to the m original ones:
gm+1 (x) = x1 0
gm+2 (x) = x2 0
.. .. ..
. . .

gm+n (x) = xn 0
We introduce the Lagrangian multipliers 1 , . . . , n to go with the new constraints and
form the extended Lagrangian.
L1 (x) = f (x)

j g (x)

j=1

i (xi )

i=1

The necessary conditions for x to solve the problem are


m

f (x ) gj (x )

j
+ i = 0, i = 1, . . . , n
xi
xi
j=1

i 0 and j = 0 if gj (x ) < 0, j = 1, . . . , m
i 0 and i = 0 if xi > 0, i = 1, . . . , n
94

To reduce this collection of m + n constraints and m + n Lagrangian multipliers,


the necessary conditions for the optimization problem are sometime formulated slightly
dierently below.
m

f (x ) gj (x )

j
0 (= 0 if xi > 0), i = 1, . . . , n
xi
xi
j=1

This formulation follows from the rst order condition.


m
f (x ) gj (x )

j
= i , i = 1, . . . , n
xi
xi
j=1

Note also that i 0 and i = 0 if xi > 0

6.7

Concave Programming Problems

The constrained maximization problem is said to be a concave programming program in


the case when f () is concave and each gj is a convex function. In this case, the set of
feasible vectors satisfying the m constraints is convex. We write the concave program as
follows:
max f (x) subject to g(x) 0
where g(x) = (g1 (x), . . . , gm (x)) and 0 = (0, . . . , 0).
Denition 6.3 Let f () be concave on convex set S Rn , and let x0 be an interior
point in S. Then, there exists a vector p Rn such that for all x S,
f (x) f (x0 ) p (x x0 ).
A vector p that satises the above inequality is called a supergradient for f at x0 .
Denition 6.4 The nonlinear programming problem satises the Slater qualication
if there exists a vector z Rn such that g(z)  0, i.e., gj (z) < 0 for all j.
Theorem 6.13 (Necessary Conditions for Concave Programming) Suppose that
the nonlinear programming is a concave programming satisfying the Slater constraint
qualication. Then, the optimal value function f (c) is dened for (at least) all c g(z),
and has a super gradient at 0. Furthermore, if is any supergradient of f at 0, then
0, and any solution x of the concave programming problem is an unconstrained maximum point of the Lagrangian L(x, ) = f (x) g(x) which also satises g(x ) = 0
(the complementary slackness condition).
Proof of Necessity for Concave Programming: We consider only the special
but usual case where, for all c Rm , the feasible set of points x that satisfy g(x) c
is bounded, so compact because of the assumption that the functions gj are C 1 , i.e.,
continuous. (See Theorem 3.16). In this case, f (c) is dened as a maximum value
whenever there exists at least one x satisfying g(x) c, which is certainly true when
c g(z). Then, f is dened for all c g(z).
95

Theorem 6.14 (Sucient Conditions for Concave Programming) Consider the


nonlinear programming problem with f () concave and g() convex, and assume that there
exists a vector 0 and a feasible vector x which together have the property that x
maximizes f (x) g(x) among all x Rn , and g(x ) = 0. Then, x solves the
original concave problem and is a supergradient for f at 0.

6.8

Quasiconcave Programming

The following theorem is important for economists, because in many economic optimization problems, the objective function is assumed to be quasiconcave, rather than
concave.
Theorem 6.15 (Arrow and Enthoven (1961) in Econometrica ) (Sucient Conditions for Quasiconcave Programming): Consider the constrained optimization
problem where the objective function f () is C 1 and quasiconcave. Assume that there
exist numbers 1 , . . . , m and a vector x such that
1. x is feasible and satises the Kuhn-Tucker conditions.
2. f (x )
= 0.
3. j gj (x) is quasiconvex for each j = 1, . . . , m.
Then, x is optimal.

6.9

Appendix: Linear Programming

96

Chapter 7

Dierential Equations
7.1

Introduction

What is a dierential equation? As the name suggests, it is an equation. Unlike ordinary


algebraic equations, in a dierential equation:
The unknown is a function, not a number.
The equation includes one or more of the derivatives of the function.
An ordinary dierential equation is one for which the unknown is a function of only
one variable. Partial dierential equations are equations where the unknown is a function
of two or more variables, and one or more the partial derivatives of the function are
included. In this chapter, I restrict attention to rst-order ordinary dierential equations
that is, equations where the rst-order derivatives of the unknown functions of one
variable are included.
Consider the following dierential equation:
dx
= ax
dt

x =

()

where x = x(t) is a real-valued function of t R and x = dx/dt is the rst-order


derivative of x(t). The above equation says that for any t R,


x (t) = ax(t),
where a is some constant. I propose here x(t) = Keat as a solution to the dierential
equation.

97

Chapter 8

Fixed Point Theorems


The xed point problem is
Given a set S Rn and a function f : S S, is there an x S such that
f (x) = x?
The problem of nding the zeros of a function, f (), and x S such that f (x) = 0,
can be converted into a xed point problem. To see this, observe that f (x) = 0 i
g(x) = x where g(x) = f (x) + x. The unconstrained optimization with concave objective
function is a special case of the xed point theorem. In this case, the optimal solution is
found by solving f (x) = 0.

8.1

Banach Fixed Point Theorem

Denition 8.1 A function f : S S is said to be a contraction mapping if d(f (x), f (y))


d(x, y) for all x, y S, where 0 < 1 is a xed constant.
Theorem 8.1 (Banach Fixed Point Theorem) Let S Rn be closed and f : S S
a contraction mapping. Then, there exists a unique x S such that f (x) = x.
Proof of Banach Fixed Point Theorem: We dene the norm of vectors in Rn as
follows.
x max |xi |
1n

We use this norm in the proof of the implicit function theorem (Theorem 5.17). Choose
any x0 S and let xk = f (xk1 ). If a sequence {xk } has a limit x , then x S because
S is closed, and f (x ) = x . Therefore, it suces to prove that {xk } has a limit. We use
the Cauchy criterion. Pick q > p. Then,
6
6
6 q1
6
q1

6
6
6
6
(xk+1 xk )6

xk+1 xk 
xq xp  = 6

6k=p
6
k=p
Minkowski inequality
98

But
xk+1 xk  = f (xk ) f (xk1 )| xk xk1 .
Repeated application of the above yields
xk+1 xk  k x1 x0 
Hence
xq xp 

q1

k x1 x0 

k=p

!
x1 x0  p + p+1 +
p
0 as p, q
= x1 x0 
1
Because p 0 as p due to < 1. 

8.2

Brouwer Fixed Point Theorem

Lemma 8.1 If f : [0, 1] [0, 1] is continuous, there exists x [0, 1] such that f (x) = x.
Proof of Lemma 8.1: Each x [0, 1] can be represented as a convex combination
of the end points of the interval:
x = (1 x) 0 + x 1
The same will be true for f (x). So we express each x [0, 1] as a pair of nonnegative
numbers (x1 , x2 ) = (1 x, x) that add to one. When expressing f (x) in this way, we will
write it as (f1 (x), f2 (x)) = (1 f (x), f (x)). Suppose for a contradiction, that f has no
xed point.
Since f : [0, 1] [0, 1] we can think of the function f () as moving each point x [0, 1]
either to the right (if f (x) > x) or to the left (if f (x) < x). The assumption that f ()
has no xed point eliminates the possibility that f () leaves the position of x unchanged.

Given any x [0, 1], we label it with a + if f1 (x) < x1 (move to the right) and
label it if f1 (x) > x1 (move to the left). The assumption of no xed point implies
f1 (x)
= 1 x for all x [0, 1]. Thus, the labeling scheme is well dened. Notice that
the point 0 will be labeled (+) and the point 1 will be labeled ().
Choose any nite partition, 0 , of the interval [0, 1] into smaller intervals.
Claim 8.1 The partition 0 must contain a subinterval [x0 , y 0 ] whose endpoints have
dierent labels.
99

Proof of Claim 8.1: Every endpoint of these subintervals is labeled either (+) or
(). The point 0, which must be the endpoint of the subinterval of 0 , has label (+).
The point 1 has label (). As we travel from 0 to 1 (left to right), we leave a point
labeled (+) and arrive at a point labeled (). At some point, we must pass through a
subintervals which has endpoints with dierent labels. 
Now take the partition 0 and form a new partition 1 , ner than the rst by taking
all the subintervals in 0 whose endpoints have dierent labels and cutting them in half.
In 1 , there must exist at least one subinterval, [x1 , y 1 ] with endpoints having dierent
labels. Repeat this procedure indenitely.
This produces an innite sequence of subintervals {(xk , y k )} shrinking in size with
dierent labels at the endpoints. Furthermore, we can choose a subsequence of them so
that the left hand endpoint, xk , is labeled (+) and the right hand endpoint y k is labeled
(). Since these intervals live in [0, 1], their lengths are bounded. Therefore, by BolzanoWeierstrass theorem (Theorem 3.13), there is a convergent subsequence of them, with
|xk y k | 0 as k . By continuity of f (), |f (xk ) f (y k )| 0 as k .
Let z be the limit point of {xk } and {y k }. By continuity, f (xk ) and f (y k ) both
converge to f (z). Since each xk is labeled (+) and each y k is labeled (), for each k, we
have f1 (xk ) < xk1 and in the limit f1 (z) z1 . For each k, we have f1 (y k ) > y1k and in
the limit f1 (z) z1 . Thus, f1 (z) z1 and f1 (z) z1 . This implies that f1 (z) = z, i.e.,
f (z) = z, a xed point. This is a contradiction. 
Denition 8.2 The n-simplex is the set n = {x Rn |
all i = 1, . . . , n}.

n

i=1 xi

= 1 and xi 0 for

From the denition, n is convex and compact. We also see that this is an (n 1)dimensional object.
Lemma 8.2 If f : n n is a continuous function, then there exists x n such
that f (x) = x.
We skip the proof of Lemma 8.2. We should note that Lemma 8.1 is a special case of
Lemma 8.2. Before showing Brouwer xed point theorem, we need some preliminaries.
Denition 8.3 A set A is topologically equivalent to a set B if there exists a continuous function g with continuous inverse such that g(A) = B and g1 (B) = A.
Observe that topological equivalence is a weaker requirement than that for the inverse
function theorem. Do you see why? The closed n-ball of center x0 in Rn is the set
{x Rn |d(x, x0 ) 1}. Note that a closed n-ball is of dimension n.
Theorem 8.2 A nonempty compact convex set S Rn of dimension m n is topologically equivalent to a closed ball in Rm .

100

We skip the proof of Theorem 8.2. Now, it is time to prove Brouwer xed point
theorem.
Theorem 8.3 (Brouwer Fixed Point Theorem (1912)) If S Rn is compact and
convex and f : S S is continuous, there exists x S such that f (x) = x.
Proof of Brouwer Fixed Point Theorem: Lemma 8.2 shows that a continuous
function f : n n must have a xed point. Then, it only remains to prove that there
is no loss of generality to assume that S = n as any compact convex set of dimension
n 1 in Rn . To do so, we make use of the topological equivalence of compact convex
sets.
If S is a compact convex set of dimension n 1, we know from Theorem 8.2 that
there is a g : S n and g1 : n S such that g and g1 are continuous. Dene
h : n n as follows:
!#
"
h(x) = g f g1 (x) .
Since
h() is !#
continuous, by Lemma 8.2, it has a xed point x . Therefore, h(x ) =
"
1

g f g (x ) = x . We have f (g1 (x )) = g1 (x ). So, g1 (x ) is a xed point for f .




101

Chapter 9

Topics on Convex Sets


9.1

Separation Theorems

If a is a nonzero vector in Rn and is a real number, then the set


H = {x Rn |a x = }
is a hyperplane in Rn , with a as its normal. Moreover, the hyperplane H separates Rn
into two closed half-spaces.
If S and T are subsets of Rn , then H is said to separate S and T if S is contained in
one of the closed half-spaces determined by H and T is contained in the other. In other
words, S and T can be separated by a hyperplane if there exists a vector a
= 0 and a
scalar such that for all x S and y T ,
ax ay
If both inequalities are strict, then the hyperplane H = {x Rn |a x = } strictly
separates S and T .
Theorem 9.1 (Strict Separation Theorem) Let S be a closed convex set in Rn , and
let y be a point in Rn that does not belong to S. Then there exists a nonzero vector
a Rn \{0} and a number R such that
ax< <ay
for all x S. For every such , the hyperplane H = {x Rn |a x = } strictly separates
S and y.
Proof of Theorem 9.1: Because S is a closed set, among all the points of S, there
is one w = (w1 , . . . , wn ) that is closest to y. For this we can suppose that there is no
such closest point. Then, closedness of S gives us a contradiction. You should ll the
gap in the above argument. Let a = y w. Since w S and y
/ S, it follows that a
= 0.
Note that a (y w) = a a > 0, and so a w < a y. Suppose we prove that
a x a w x S
102

()

Then, the theorem is true for every number (a w, a y). Now, it remains to show
(). Let x be any point in S. Since S is convex, x + (1 )w S for each [0, 1].
Now dene g() as the square of the distance from x + (1 )w to the point y:
g() = y (x + (1 )w)2 = y w + (w x)2


Using the chain rule, we obtain g () = 2 (y w + (w x)) (w x). Also g(0) = y


w2 , the square of the distance between y and w. But w is the point in S that is closest to

y, so g() g(0) for all [0, 1]. It follows that 0 g (0) = 2(yw)(wx) = a(wx),
which proves (). 
In the proof of the above theorem, it was essential that y did not belong to S. If S
is an arbitrary convex set (not necessarily closed), and if y is not an interior point of S,
then it seems plausible that y can still be separated from S by a hyperplane. If y is a
boundary point of S, such a hyperplane is called a supporting hyperplane to S at y.
Theorem 9.2 (Separating Hyperplane) Let S be a convex set in Rn and suppose
y = (y1 , . . . , yn ) is not an interior point of S. Then, there exists a nonzero vector
a Rn such that
axay

for every x S

Do
Proof of Theorem 9.2: Let S be the closure of S. Because S is convex, so is S.
you see why? Because y is not an interior point of S and S is convex, y is not an interior
Hence, there is a sequence {yk } of points for which yk
/ S for each k and
point of S.

/ S and S is closed and convex, so according to the previous


yk y as k . Now, yk
theorem (Theorem 8.4), for each k, there exists a vector ak
= 0 such that ak x < ak yk for
Without loss of generality, we can assume that ak  = 1 for each k. Then, {ak }
all x S.
is a sequence of vectors in {x Rn |x = 1} which is a compact set. Bolzano-Weierstrass
theorem (Theorem 3.13) shows that {ak } has a convergent subsequence {akj }
j=1 . Let
as
a = limj akj . Then, a x = limj akj x limj akj ykj = a y for every x S,
required. Here we make use of continuity of linear functions. Moreover, we can conrm
that a
= 0 because a = limj akj  = 1. 
Theorem 9.3 (Separating Hyperplane Theorem) Let S and T be two disjoint nonempty
convex sets in Rn . Then, there exists a nonzero vector a Rn and a scalar R such
that
ax ay

for all x S and all y T

Thus, S and T are separated by the hyperplane H = {z Rn |a z = }.


Proof of Separating Hyperplane Theorem: Let W = S T be the vector
dierence of the two convex sets S and T . Since S and T are disjoint, 0
/ W . First, I
claim that W is convex.
Claim 9.1 W is convex.
103

Proof of Claim 9.1: Let w, w W . By denition of W , there are s, s S and






t, t T such that w = s t and w = s t . Let [0, 1]. What we want to show is

that w + (1 )w W . We compute the convex combination below.
w + (1 )w

= s t + (1 )s (1 )t
)
* )
*


= s + (1 )s t + (1 )t


Since S and T are convex, s + (1 )s S and t + (1 )t T . This implies that



w + (1 )w S T = W . 
Hence, by the previous theorem (Theorem 8.5), there exists an a
= 0 such that
a w a 0 = 0 for all w W . Let x S and y T be any two points of these sets.
Then w = x y W by denition, so a (x y) 0. Hence
axay

for all x S and all y T

()

From () it follows that the set A = {a x|x S} is bounded above by a y for any
y T . By Fact 2.1 (Least Upper Bound Principle), A has a supremum . Since
is the least upper bound of A, it follows that a y for every y T . Therefore,
a x a y for all x S and all y T . Thus, S and T are separated by the
hyperplane {z Rn |a z = }. 
Theorem 9.4 Let S and T be two disjoint, nonempty, closed, convex sets in Rn with S
being bounded. Then, there exists a nonzero vector a Rn and a scalar R such that
ax> >ay

for all x S and all y T .

Lemma 9.1 Let A be an m n matrix, then cone(A) is a convex set.


Lemma 9.2 Let A be an m n matrix, then cone(A) is a closed set.
Theorem 9.5 (Farkas Lemma) Let A be an m n matrix, b Rm and F = {x
Rn | Ax = b, x 0}. Then either F
= or there exists y Rm such that yA 0 and
yb < 0 but not both.
Proof of Farkas Lemma:

9.2

Polyhedrons and Polytopes

Recall that a set C of vectors is called a cone if x C whenever x C and > 0.


Denition 9.1 A cone C Rn is polyhedral if there is a matrix A such that C = {x
Rn |Ax 0}.
Geometrically, a polyhedral cone is the intersection of a nite number of half-spaces
through the origin.
Theorem 9.6 (Farkas-Minkowski-Weyl) A cone C is polyhedral if and only if there
is a nite matrix A such that C = cone(A).
104

9.3

Dimension of a Set

9.4

Properties of Convex Sets

105