Concavity, Convexity, Quasiconcavity, Quasiconvexity

In our description of some specific functions we used the terms “convexity” and
“concavity”. Visually the meaning should be clear, but we now present a formal
definition. Figure 2.29 shows how we proceed in the case of a concave function.
First we must assume that the domain of the function is a convex set, because
we want convex combinations of points in the domain to be in the domain. Take
any two points 𝑥’ and 𝑥” in the domain of the function and the corresponding
function values 𝑓(𝑥’) and 𝑓(𝑥”). The key characteristic of a concave function is
that it “arches above” the line joining these two function values. That is, the
value of the function at an 𝑥 between 𝑥’ and 𝑥” is higher than the point on the
line immediately above that 𝑥 value. Thus we have

𝑥̅ = 𝑥’ + (1 – )𝑥”,   [0, 1]

Since the point on a line joining 𝑥’ and 𝑥” has the 𝑦-coordinate value

𝑓 ̅ = 𝑓(𝑥’) + (1 – )𝑓(𝑥”),   [0, 1]

at 𝑥̅ , strict concavity can be expressed as the property 𝑓(𝑥̅ ) > 𝑓 . This is

apparent from figure 2.29 and is summarized in

Definition 2.28

The function f is concave if

𝑓(𝑥̅ )  𝑓(𝑥’) + (1 − )𝑓(𝑥”)

where 𝑥̅ = 𝑥’ + (1 – )𝑥” and   [0, 1]. It is strictly concave if the strict inequality holds when
  (0, 1).

Note that the curve in figure 2.29 is strictly concave while the linear function is concave but not strictly
concave.

By a similar argument we obtain

Definition 2.29

The function 𝑓 is convex if

𝑓(𝑥̅ )  𝑓(𝑥’) + (1 – )𝑓(𝑥”)

where 𝑥̅ = 𝑥’ + (1 – )𝑥” and   [0, 1] . It is strictly convex if the strict inequality holds when
  (0, 1).
A convex function “bends below” a line joining any two funtion values. This is illustrated in figure 2.30.
clearly, 𝑓 is (strictly) convex if −𝑓 is (strictly) concave. From these definitions it follows that a linear
function is both convex and concave but strictly neither.

Example 2.17

The point 𝑥̅ in definitions 2.28 and 2.29 is a convex combination of the two points 𝑥’ and 𝑥”. Suppose that
the function is 𝑓(𝑥) = 𝑥 2 . Then, if we choose  = 0.4, 𝑥′ = 2, and 𝑥” = 5, we have

𝑥̅ = (0.4)2 + (0.6)5 = 3.8

so

𝑓(𝑥̅ ) = 𝑓(3.8) = (3.8)2 = 14.44

is the height of the function at the point 𝑥̅ . This is shown in figure 2.31. Now, from the convex
combination, we can obtain a straight line connnecting the two function values 𝑓(𝑥’) and 𝑓(𝑥”):

𝑓(𝑥’) + (1 – )𝑓(𝑥”)

or

0.4(22 ) + 0.6(52 ) = 16.6

which is the height of a straight line connectiong the points (2, 4) and (5, 25) at 𝑥 = 3.8 in figure 2.31.
Clearly, 𝑓(𝑥) = 𝑥 2 is strictly convex between these two points.
To show generally that 𝑓(𝑥) = 𝑥 2 is strictly convex, we need to show that

𝑓(𝑥̅ ) < 𝑓(𝑥’) + (1 – )𝑓(𝑥”)

for any pair of 𝑥’ and 𝑥” with 𝑥̅ = 𝑥’ + (1 – )𝑥” and   (0, 1). The left-hand side of the inequality is

𝑓(𝑥) = [𝑥’ + (1 − )𝑥”]2 = 2 (𝑥’)2 + 2(1 − )𝑥’𝑥” + (1 − )2 (𝑥”)2

The right-hand side of the inequality is

(𝑥’)2 + (1 − )(𝑥”)2

Hence we have

2 (𝑥’)2 + 2(1 − )𝑥’𝑥” + (1 − )2 (𝑥”)2 < (𝑥’)2 + (1 − )(𝑥”)2

(2 − )(𝑥’)2 + 2(1 − )𝑥’𝑥” + [(1 − )2 − (1 − )](𝑥”)2 < 0

−(1 − )(𝑥’)2 + 2(1 − )𝑥’𝑥” − (1 − )(𝑥”)2 < 0

(𝑥’)2 − 2𝑥’𝑥” + (𝑥”)2 = (𝑥’ − 𝑥”)2 > 0

To develop the idea of quasiconcavity, we first define the notion of a level set of a function of 𝑛
variables.

Definition 2.30

A level set of the function 𝑦 = 𝑓(𝑥1 , 𝑥2 , . . . , 𝑥𝑛 ) is the set

𝐿 = {(𝑥1 , . . . , 𝑥𝑛 ) R𝑛 ∶ 𝑓(𝑥1 , 𝑥2 , . . . , 𝑥𝑛 ) = 𝑐}

for some given number 𝑐  R.

In other words, the level set shows the set of points in the domain of the function that gives equal values
of the function. As special cases we take two functions of two variables, the linear function

𝑦 = 𝑎1 𝑥1 + 𝑎2 𝑥2 , (𝑥1 , 𝑥2 ) R2+ , 𝑎1, 𝑎2 > 0

and an example of a power function, called in economics the Cobb Douglas function,

y = 𝑥1𝑎 𝑥2𝑏 , (𝑥1 , 𝑥2 )  R2+ , 𝑎, 𝑏 > 0, 𝑎 + 𝑏 > 1

The three-dimensional graphs of these functions are shown in figures 2.32 and 2.33 for particular
parameter values.
Applying the definition of a level set gives

𝑐 𝑎
𝑎1 𝑥1 + 𝑎2 𝑥2 = 𝑐 or 𝑥2 = 𝑎 − (𝑎1 ) 𝑥1
2 2

and

𝑥1𝑎 𝑥 𝑏2 = 𝑐 or 𝑥2 = (𝑐𝑥1−𝑎 )1⁄𝑏

the level sets can be graphed in two dimensions, with each curve representing a different calue of 𝑐.
Examples from figures 2.32 and 2.33 are shown in figures 2.34 and 2.35. In economics, level sets are
encountered in consumer theory (where thet are indifference curve), producer theory (where they are
called isoquants), and a large range of other applications.

Quasiconcavity is essentially concerned with the shapes of the level sets of a function. First,
define the better set of a point 𝑥10 , 𝑥20 , … , 𝑥𝑛0 in the domain 𝑋  𝑅 𝑛 of the function 𝑓(𝑥1 , 𝑥2 , . . . , 𝑥𝑛 ).

Definition 2.31

The better set of the point (𝑥10 , 𝑥20 , … , 𝑥𝑛0 ) is

B(𝑥10 , 𝑥20 , … , 𝑥𝑛0 )

= {(𝑥1 , 𝑥2 , . . . , 𝑥𝑛 )  X : f(𝑥1 , 𝑥2 , . . . , 𝑥𝑛 )  f(𝑥10 , 𝑥20 , … , 𝑥𝑛0 )}

That is, the better set of a point is simply the set of points in the domain that yields at least as large a
funtion value. In figures 2.34 and 2.35 the better sets of the point 𝑥0 are shaded.

Definition 2.32

A function 𝑓 with domain X  Rn is quasiconcave if, for every point in X, the better set B of that point is
a convex set. It is strictly quasiconcave if B is strictly convex.

Thus we see that the linear function shown in figure 2.34 is quasiconcave but not strictly quasiconcave,
while the Cobb-Douglas function shown in figure 2.35 is strictly quasiconcave.
 The precise shapes of the level sets of cuasiconcave functions will depend on the direction in
which the function increases. In the examples shown in figures 2.34 and 2.35, the function are increasing
in both variables, so the level sets must have negative slopes and the convexity of the better sets implies
the shapes shown. However, if the function were increasing in one variable and decreasing in the other, or
decreasing in both variables, then quasiconcavity would imply quite different shapes for the level sets.
Exercise 10 of this section asks you to explore this situation further.

The terminology in use here may be confusing. Why the term quasiconcavity when the relevant
set must be convex? The reason becomes clear if we recall the definition of a concave function: 𝑓(𝑥) is
concave if, given 𝑥’ and 𝑥” in its (convex) domain we have

𝑓(𝑥) 𝑓(𝑥’) + (1 – )𝑓(𝑥”)

where x = x’ + (1 – )x” and   [0, 1]. Since this holds for any points x’ and x”, it must hold for a
point x”  B(x’). This implies that B(x’) is a convex set and therefore that any concave function is also
quasiconcave. The converse, however, is not true. For examples, the Cobb-Douglas function

𝑦 = 𝑥1𝑎 𝑥2𝑏 , 𝑎, 𝑏 > 0, 𝑎 + 𝑏 > 1

(see figure 2.33), is quasiconcave but not concave.

We can proceed in a similar way with the property of quasiconvexity. Given a function
𝑓(𝑥1 , 𝑥2 , . . . , 𝑥𝑛 ) with domain X  Rn, we can define the worse set of a point (𝑥10 , 𝑥20 , … , 𝑥𝑛0 ) in the
domain:

Definition 2.33

The worse set of the point (𝑥10 , 𝑥20 , … , 𝑥𝑛0 ) is

W(𝑥10 , 𝑥20 , … , 𝑥𝑛0 )

= {(𝑥1 , 𝑥2 , . . . , 𝑥𝑛 )  X : 𝑓(𝑥1 , 𝑥2 , . . . , 𝑥𝑛 )  𝑓(𝑥10 , 𝑥20 , … , 𝑥𝑛0 )}

Then we have

Definition 2.34
A function 𝑓(𝑥1 , 𝑥2 , . . . , 𝑥𝑛 ) with domain X  Rn is quasiconvex if, for every (𝑥10 , 𝑥20 , … , 𝑥𝑛0 )  X, the
worse set 𝑊(𝑥10 , 𝑥20 , … , 𝑥𝑛0 ) is a convex set. It is strictly quasiconvex if 𝑊 is strictly convex.

Again, it is possible to show that any cinvex function is quasiconvex, and not vice versa. This topic is
further explored in the exercises.

Exercises

1. Give equations and sketch graphs of the lines

(a) Passing through (0, 1) and having slope -2
(b) Passing through (-2, 2) and parallel to y = 2 – 5x
(c) Passing through (-1, 1) and parallel to
𝑥 𝑦
+ =1
−2 −3

2. In a class of 120 students, everyone would take two hamburgers if the price were zero, nad no one
would buy hamburgers if the price were $4 or more. Assume that the class demand curve for
hamburgers is linear and give its equation. Explain what this implies about the demand for
hamburgers when the price is $3.99.
3. Find the convex combinations of the following pairs of points and, where possible, show them
graphically:
(a) -2 and 4
(b) (-1, 1) and (3, 4)
(c) (-2, 0, 1) and (1, -2, 2)
4. Total revenue is price  quantity sold. Show that the total revenue curve corresponding to the
demand curve found in exercise 2 is a quadratic. Is it convex or concave? At what value of x does its
maximum or minimum occur?
5. A firm’s average-cost function is given by the quadratic
Y = x2 – 20x + 120
where y is average cost in dollars per unit of output. The output price is $10 per unit, and is the same
at all levels of outputs. Find the output levels at which the firm just breaks even (i.e., price =
average cost).
Sketch the average-cost function and show the solution. Over what range of prices does the firm
make a loss at all output levels?
6. Simplify the following expressions:
(a) √𝑎5 /a3
(b) 𝑎2 𝑏 3⁄𝑎2 𝑏
(c) 𝑏𝑥1𝑏−1 𝑥2𝑐 ⁄𝑐𝑥1𝑏 𝑥2𝑐−1
⁄
(d) (𝑥11 𝑏 𝑥2𝑐 )𝑏⁄𝑐
(e) 6𝑥 0.2 = 5𝑦 0.4 (solve for y in terms of x)
(f) 𝑥 = (2−1⁄2 )−1⁄2 (solve for x)
𝑏 𝑏 𝑏
(g) 𝑦 = 𝑎𝑥1 1 𝑥2 2 𝑥3 3 (What is log y?)
(h) log 𝑏 (𝑏 𝑥 )
(i) 𝑏 −log𝑏(1⁄𝑥)
 (j) log 𝑏 [𝑏(log 𝑎 𝑎2 )]
7. Sketch typical level sets of the following functions and state whether they are (strictly)
quasiconcave or (strictly) quasiconvex. Then say whether the functions are concave, convex, or
neither.
(a) 𝑦 = 2𝑥12 − 𝑥1 𝑥2 + 2𝑥22
(b) 𝑦 = (0.5𝑥12 + 0.5𝑥22 )1⁄2
⁄ ⁄2
(c) 𝑦 = 2𝑥11 2 2𝑥21
8.
(a) Given the strictly quasiconcave function 𝑦 = 𝑓(𝑥1 , 𝑥2 ), sketch a typical level set in each of the
following cases:
i. The function is increasing in 𝑥1 and decreasing 𝑥2 .
ii. The function is decreasing in 𝑥1 and increasing in 𝑥2 .
iii. The function is decreasing in both variables.
(Hint: First determine which way the curve of the level set must slope, then identify the
area that gives the better set, and then find how the curvature must look to make the better
set convex.)
(b) Repeat part (a), assuming that the function is strictly quasiconvex, and illustrate the level set in
each case.
9. Construct an example of a strictly quasiconcave function that is not a concave function.
10. Using the points 𝑥 ′ = 1, 𝑥 ′′ = 9, and  = 5⁄8, illustrate definition 2.28 for the concave function
𝑦 = 𝑥 1⁄2 , x > 0. Use a graph in your answer.
11. Show that the funtion 𝑦 = 𝑥 1⁄2 , x > 0, is strictly concave according to definition 2.28.
12. Show that the function 𝑓(𝑥1 , 𝑥2 ) = 𝑥12 + 𝑥22 , is strictly convex according to definition 2.29.
2.5 Proof, Necessary, and Sufficient Conditions*
Why should one person ever accept as true a statement made by someone else? The usual response would
be, “Prove it!”. If the statement is a purely factual one, for example, “prices have raisen,” then proof
would take the formof some factual evidence that substantiates the statement. Economics is more often
concerned, however, with deductive tatements such as:

If the money supply increases, then the price level will rise.

which is to say, increases in the money supply lead to inflation. A stronger statement is:

The price level rises if and only if the moner supply increases.

which is to say, only increases in the money supply lead to inflation. We are interested in how statements
of this type are proved.

It is useful to express such statements in a general symbolic notation. We introduce the symbol
“” for the relation “if then”, and the symbol “” for “if and only if”. We use capital letters such as P
and Q to stand for basic statements such as “the money supply increases” (P) or “prices rise” (Q). We
could then write the statements above as

   