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Chapter 1: Sets and Spaces

This document contains exercises for chapters 1, 3, and 5 of a textbook on foundations of mathematical economics. The exercises cover topics like direct sums of linear spaces, orthogonal complements of subspaces, projection theorems, optimization problems involving concave and convex functions, Ramsey pricing, Pareto optimality, and Lagrange multipliers. Michael Carter holds the copyright.

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charles luis
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31 views3 pages

Chapter 1: Sets and Spaces

This document contains exercises for chapters 1, 3, and 5 of a textbook on foundations of mathematical economics. The exercises cover topics like direct sums of linear spaces, orthogonal complements of subspaces, projection theorems, optimization problems involving concave and convex functions, Ramsey pricing, Pareto optimality, and Lagrange multipliers. Michael Carter holds the copyright.

Uploaded by

charles luis
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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c 2001 Michael Carter

All rights reserved

Additional exercises for


Foundations of Mathematical Economics

Chapter 1: Sets and Spaces


Exercise 1.1 (Direct sum) A linear space is the direct sum of two subspaces 1
and 2 , denoted = 1 2 , if every x has a unique representation of the form
x = x1 + x2 where 1 1 and x2 2 . Show that
= 1 2 = 1 + 2 and 1 2 = {0}

Chapter 3: Linear Functions


Exercise 3.1 (Orthogonal complement) The orthogonal complement of any
subset in an inner product space is a subspace.
Exercise 3.2 (Projection theorem) Let be a closed subspace of a Hilbert space
and y a point outside . There exists a unique point x0 which is closest to y,
that is
x0 y x y for every x
Further, y x0 is orthogonal to , that is (y x0 ) x = 0 for every x .
[Hint: Use Exercise 3.73. ]
Exercise 3.3 A linear space is the direct sum of two subspaces 1 and 2 , denoted
= 1 2 , if every x has a unique representation of the form x = x1 + x2 where
1 1 and x2 2 . If is a closed subspace of a Hilbert space , then
=
[Hint: Use supplementary exercise 3.2. ]
Exercise 3.4 If is a subspace of a Euclidean space
dim = dim + dim
Exercise 3.5 Let be a normed linear space. Show that every x denes a
unique bounded linear functional on with
x ( ) = (x) for every
and norm
x = x

c 2001 Michael Carter

All rights reserved

Additional exercises for


Foundations of Mathematical Economics

Chapter 5: Optimization
Exercise 5.1 Conjecture: If : has a local maximum at which is not a strict
local maximum, then is constant in some neighbourhood of . Prove or provide a
counterexample. q
Exercise 5.2 Extend Corollary 5.1.2 to pseudoconcave.
Exercise 5.3 Suppose is pseudoconcave. Then, it is locally concave at every stationary point.
Exercise 5.4 (Ramsey pricing) Suppose a monopolist produces at constant marginal
cost , with a xed cost of . The monopolist sells in two distinct markets with
elasticities of demand 1 and 2 respectively.
1. Show that prot maximizing prices are characterized by the inverse elasticity rule
1

=

2. Suppose a regulator determines the prices in each market to maximize total surplus as measured by the area under the demand curve

( )
( ) =

while ensuring that the monopolist breaks even. That is, the regulators optimization problem is
max =
1 ,2

subject to

( )

=1

( ) ( ) = 0

=1

Show that optimal (Ramsey) prices are given by



1
=

where 0 < 1. Note that


( ) = ( )
Exercise 5.5 Solve the problem
max 41 + 21 2 + 22 221 222

1 ,2

subject to 1 + 22 2
22 1 1
2

c 2001 Michael Carter

All rights reserved

Additional exercises for


Foundations of Mathematical Economics

Exercise 5.6 Suppose that a rm has contracted with its union to hire at least
units of labour at rate 1 per unit. It can also hire non-union labour at 2 < 1 per
hour. Assume that labour is the only input. Union and non-union labour are equally
productive, with diminishing marginal product. Output is sold at a xed price .
1. Derive and interpret the rst-order conditions for maximizing prot.
2. Are these conditions necessary for a solution?
3. Are they sucient to identify a global optimum?
Exercise 5.7 (Pareto optimality) Given two agents, each of which has a utility
function (x) dened on some feasible set , suppose that we wish to identify the
Pareto optimal outcomes in . Bill claims that this can be done by maximizing a
weighted average of the individual utility functions, that is solving
max 1 (x) + (1 )2 (x)
x

for some (0, 1). Under what conditions (if any) is he correct? Justify your answer.
Exercise 5.8 (Lagrangean saddle point) Suppose that is concave and are
for which g(
convex and there exists an x
x) < 0. Show that x is an optimal
solution of
max (x)

subject to g(x) 0
if and only if there exist multipliers = (1 , 2 ,
. . . , ) 0 such that (x , ) is a
saddle point of the Lagrangean (x, ) = (x) (x), that is
(x, ) (x , ) (x , ) for every x and 0
[Hint: The second inequality implies that x is feasible and also that g(x ) = 0. ]

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