Beruflich Dokumente
Kultur Dokumente
S2/2016
Mathematical Economics
Assignment 8 - Solutions
Due Date: 17 October, 2016 - Beginning of Week 12 Lecture
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name. You can submit a scanned copy of your handwritten solutions.
Assignment Questions
1. Given
min C = F (x)
subject to Gi (x) ri
x 0
(i = 1, 2, ..., m)
(a) Convert it into a maximization problem
Answer:
max C 0 = F (x)
subject to Gi (x) ri
x 0
i = 1, 2, ..., m
(with Gi (x) g i (x))
(b) Given the Kuhn-Tucker sufficiency theorem, what concavity-convexity conditions
should be places on the F and Gi functions to make the sufficient conditions for a
maximum applicable here.
Answer:
i. We require f (x), i.e. F (x), to be concave. Equivalently, we require F (x) to
be convex.
1
subject to x1 x2 4
x 1 , x2 0
The objective function is concave (is the sum of concave functions). The constraint is
a linear function and thus convex. Therefore, the Kuhn-Tucker sufficiency Theorem
is applicable.
3. Consider the following problem:
max = x1
subject to x21 + x22 1
x1 , x 2 0
Solve the problem graphically and check whether the optimal solution point satisfies the
Kuhn-Tucker conditions.
Answer: The constraint border is a circle with radius 1 and with centre at point (0, 0).
2
(1)
Ly = 3xy 2 21 y 2 = 0
(2)
(3)
(4)
x = 20 y
2
200 x y = 0
Substitute them into (3) we have 1 = 50, which violates 1 0.
So this case, where both the environmental constraint and the capacity
constraint bind, is not a solution.
B. Assume the capacity constraint is not binding. Then L1 = 200x2 y 2 > 0
and 1 = 0. From (3), we have y 3 = 3xy 2 = y = 3x. Substitute this into
(4) and we have x = 20 3x = x = 5, y = 3x = 15. But this violates the
capacity constraint, 200 x2 y 2 = 200 52 152 < 0.
So this case, where the environmental constraint binds but the capacity
constraint does not bind, is not a solution.
ii. Lets assume that the environmental constraint is not binding. Then
L2 = 20 x y > 0 and 2 = 0
(5)
L = y 3 2 x = 0
x
1
L = 3xy 2 2 y = 0
y
y 3 = 2 x
1
=
3xy 2 = 2 y
1
21 x
y3
=
= y 2 = 3x2
2
3xy
21 y
(6)
Note here we have x > 0 and y > 0, and therefore 1 > 0, so we can apply the
division as above.
4
Since we have 1 > 0, the capacity constraint has to be binding. That is,
L1 = 200 x2 y 2 = 0 and 1 > 0. From (6), we have 200 x2 3x2 =
Therefore: the optimal values for x and y are: x = 50, y = 150. The
capacity constraint (production possibility frontier) is binding, whereas the environmental constraint is not binding.