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    Ecn 303 - Analytical Preliminaries: Recall: You Need The Second Derivative To Show Maximum/minimum

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    This document provides 7 problems for students to solve related to analytical preliminaries in economics. It includes questions about [1] plotting demand and supply curves and finding equilibrium values, [2] determining linear relationships between variables, [3] calculating marginal and average profit, [4] taking derivatives of various functions, [5] using derivatives to find maximums and minimums, [6] analyzing the maximum/minimum of a profit function, and [7] taking partial derivatives and maximizing a multivariable profit function. It also provides two methods for solving an additional cost minimization problem involving two goods.

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    Ecn 303 - Analytical Preliminaries: Recall: You Need The Second Derivative To Show Maximum/minimum

    Uploaded by

    Samer
    29 views2 pages
    This document provides 7 problems for students to solve related to analytical preliminaries in economics. It includes questions about [1] plotting demand and supply curves and finding equilibrium values, [2] determining linear relationships between variables, [3] calculating marginal and average profit, [4] taking derivatives of various functions, [5] using derivatives to find maximums and minimums, [6] analyzing the maximum/minimum of a profit function, and [7] taking partial derivatives and maximizing a multivariable profit function. It also provides two methods for solving an additional cost minimization problem involving two goods.

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    Micro Economy

    Original Title

    Preliminaries

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    This document provides 7 problems for students to solve related to analytical preliminaries in economics. It includes questions about [1] plotting demand and supply curves and finding equilibrium values, [2] determining linear relationships between variables, [3] calculating marginal and average profit, [4] taking derivatives of various functions, [5] using derivatives to find maximums and minimums, [6] analyzing the maximum/minimum of a profit function, and [7] taking partial derivatives and maximizing a multivariable profit function. It also provides two methods for solving an additional cost minimization problem involving two goods.

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    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    29 views2 pages

    Ecn 303 - Analytical Preliminaries: Recall: You Need The Second Derivative To Show Maximum/minimum

    Uploaded by

    Samer
    This document provides 7 problems for students to solve related to analytical preliminaries in economics. It includes questions about [1] plotting demand and supply curves and finding equilibrium values, [2] determining linear relationships between variables, [3] calculating marginal and average profit, [4] taking derivatives of various functions, [5] using derivatives to find maximums and minimums, [6] analyzing the maximum/minimum of a profit function, and [7] taking partial derivatives and maximizing a multivariable profit function. It also provides two methods for solving an additional cost minimization problem involving two goods.

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    © All Rights Reserved
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    of 2

    ECN 303 - ANALYTICAL PRELIMINARIES

    Based on the prerequisite courses you have taken, you are coming to this class with the ability to solve problems
    like the ones included on this sheet. If some review is required, please be sure to do so ASAP.

    1. a) On graph paper, plot the demand and supply schedules


    Qd = 40 – 0.2P, and Qs = 5P
    and determine the equilibrium values of P and Q.

    2. Determine the linear relationship between these (P,Q) variables:


    a) P: 10 20 30 b) P: 0 40
    Q: 50 100 150 Q: 200 0

    3. Determine the marginal and average profit associated with the following data:
    OUTPUT: 0 1 2 3 4 5 6 7 8 9
    TOTAL PROFIT: 0 100 250 600 1000 1350 1500 1550 1500 1400

    4. DERIVATIVES: For Y = f(X), the derivative is the change in Y divided by the change in X, or the slope of the
    function at a particular value of X. What is the derivative in each of the following cases?
    i. Y = a (a constant).
    ii. Y = b Xa, Use as example Y = 3X2
    iii. Y = 6X(3-X2)
    iv. Y = (5x3)/(3-4X)
    v. Y = 4W+3W2, where W = 3X2

    5. USING DERIVATIVES TO SOLVE MAXIMIZATION AND MINIMIZATION PROBLEMS:


    Sketch the following curve and find its maximum Y value. Then use the principle of derivatives to show that the
    maximum exists.
    Y = -3.6+ 2Q - .1Q2
    Recall: you need the second derivative to show maximum/minimum.

    6. What can you say about the maximum/minimum value(s) in the profit function π = -1 + 9Q - 6Q2 + Q3?

    7. PARTIAL DIFFERENTIATION AND MAXIMIZATION OF MULTIVARIABLE FUNCTIONS:


    A company produces two goods X and Y. The relationship between its profit (in $'000) and its output of both goods
    (thousands) is
    π = - 20 + 100X + 80Y - 10X2 - 10Y2 - 5XY
    Find the partial derivative of π with respect to X, and then wrt Y.
    Then determine the values of the independent variables that maximize π.
    (ANS: X = 4.267, Y = 2.933, π = $311 (all in thousands).

    8. A company produces two products, and its total cost equals TC = 4X 2 + 5Y2 - XY, where X, Y are output per
    hour of each product. Because of its commitments to customers, the amount produced of both products must not be
    less than 30 per hour. The president wants to know what output levels of the two products will minimize the firm's
    costs, given that the output of the first product plus the output of the second sum to 30 per hour.

    Ans: Y = 13.5, X = 16.5. or 27 and 33 units every two hours respectively.

    Two methods to solve problem #8: (i) substitution, (ii) constrained optimization (use Lagrange multiplier).
    Minimize TC = 4X2 + 5Y2 - XY, subject to X + Y = 30.

    Method i. TC = 4(30 -Y)2 + 5Y2 - Y(30 - Y)

    = 4(900 - 60Y + Y2) + 5Y2 - 30Y +Y2

    = 3600 - 270Y + 10Y2

    Now apply the method of Unconstrained optimization. Differentiate.

    Method ii. Minimize L = 4X2 + 5Y2 - XY + λ(30 - X - Y)

    Differentiate partially with respect to X:


    i. δL/δX = 8X - Y - λ = 0

    Differentiate partially with respect to Y:


    ii. δL/δY = -X + 10Y -λ = 0

    and (optional) with respect to λ (alternatively, just rewrite the constraint equal to zero!):
    iii. δL/δλ = -X - Y + 30 = 0

    We have three variables in three equations. This should be solvable, either by eliminating one variable e.g. λ from i.,
    ii. and then solving for X and Y from the two remaining equations, or by setting up a 3x3 matrix system. The
    former might be preferable.

    This yields: 9X - 11Y = 0

    which may be solved simultaneously with iii., multiplied by 9:

    9X + 9Y = 270

    yielding 11Y + 9Y = 270 = 20Y, i.e. Y = 13.5 and X = 30 - 13.5 = 16.5.

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