University of the Philippines

School of Economics
Economics 206
Mathematical Economics
Midterm Examination

J. Abrenica 29 September 2019

Answer all.

1. (15 pts) Let A = [-1, 0) and B = (0, 1]. Examine whether each of the following
statements is true or false, and briefly explain your answer.
(a) A ∪ B is compact.
(b) A + B = {x + y ⏐x ∈ A, y ∈ B} is compact.
(c) A ∩ B is compact.

2. (10 pts) Use the Farkas lemma to decide if the following system has a non-
negative solution:
⎡ x ⎤
⎡ 4 1 −2 ⎤⎢ 1 ⎥ ⎡ −2 ⎤
⎢ ⎥⎢ x2 ⎥ = ⎢ ⎥.
⎣ 1 0 5 ⎦⎢ ⎥ ⎣ 3 ⎦
⎢⎣ x3 ⎥⎦

3. (20 pts) Let there be 15 voters, where an alternative that obtains the plurality
vote wins. When there are three alternatives, there are three pairs of alternatives and 23
= 8 possible aggregate pairwise rankings. Present concrete profiles that yield each of
the eight aggregate pairwise rankings so that in each of the pairs, the electorate prefers
the selected one.

4. (20 pts.) Use the Weierstrass Theorem to show that a solution exists to the
expenditure minimization problem, i.e.,

Minimize px subject to x ∈ X(u0 ),

where X(u0 ) = {x ∈ ℜ+n u(x) ≥ u0 },

as long as (i) the utility function u is continuous on ℜ+n and (ii) the price vector p satisfies
p >> 0. What if one of these conditions fails?

5. (20 pts.) Let f : ℜ+ × ℜ be defined by

f (a, x) = (x −1) − (x − a)2 , (a, x) ∈ ℜ+2 .
Define the correspondence D : ℜ+ → P(ℜ+ ) by
D(a) = { y ∈ ℜ+ y ≤ a}, a ∈ ℜ+.
Let

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 f * (a) = max { f (a, x) x ∈ D(a)}.
Let D*(a) be the set of maximizers of f on D(a). Do the hypotheses of the Maximum
Theorem hold for this problem? Verify, through direct calculation, whether the
conclusions of the Maximum Theorem hold.

6. (15 pts) Consider the following optimization problem:

Maximize / Minimize f (t) + log(1+ t) such that 0 ≤ t ≤ 2,

where
⎧2 if 0 ≤ t < 1
f (t) = ⎨t − 2t,
⎩2t − t , if 1 ≤ t ≤ 2
2

(i) Can you use the Weierstrass Theorem to determine the maximum and minimum
solution? Briefly explain.
(ii) Can you use the Generalized Weierstrass Theorem to determine the existence of a
maximum and minimum solution? Briefly explain.
(iii) Does a solution to the problem exist? Briefly explain.

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