ch02 (2) Unlocked
ch02 (2) Unlocked
1
Chapter 2 (2/2)
Mathematics for Microeconomics
2 Constrained Maximization
subject to a constraint
First-Order Conditions
, and
Interpretation of
11 the Lagrangian multiplier
Another interpretation of the
Lagrangian multiplier
indicates additional loss (gain)
of the area ( ) when the length of
fence ( ) decreases (increases) by
an extra meter
Because and therefore
, one unit decrease of
fence reduces the area by
Interpretation of
12 the Lagrangian multiplier
Minimize
subject to
14 Duality
Setting up the Lagrangian:
First-order conditions:
15 Duality
Solving, we get
/
/
subject to
17 Inequality Constraints
One way to solve this problem is to
introduce a new variable ( ) that
convert the inequalities into equalities
,
The square mark (2 in the superscript) is
to ensure their values are non-negative
( )
18 Inequality Constraints
If ( and ),
21 Inequality Constraints
These results are called Kuhn-Tucker
conditions
Kuhn-Tucker conditions are usually
expressed as
Because
higher−order terms
Since
Proof:
SOCs and Its Meaning:
33 - Unconstrained Problems
- Functions of Two Variables
Proof (cont.):
SOCs and Its Meaning:
34 - Unconstrained Problems
- Functions of Two Variables
Proof (cont.):
Therefore, if ,
for any and
Thus,
SOCs and Its Meaning:
35 - Constrained Problems
- Functions of Two Variables
Suppose we want to choose and
to maximize
FOCs: ( )
SOCs: and
(strictly) concave function
Constrained problems: maximizing
FOCs: ( )&
SOCs:
(strictly) quasi-concave function
42 SOCs and Its Meaning:
- Functions of K Variables
A function is said to be
homogeneous of degree if
If a function is homogeneous of
degree , the partial derivatives of the
function will be homogeneous of
degree
, ,⋯, # , ,⋯, # $
$ $ $
%
* , ,⋯, #
RHS ) ) + · -% . , . , ⋯ , .
$
/
% %
51 Integration (Anti-derivative)
We denote an integral as
52 Integration (Anti-derivative)
Example: if , then
is an arbitrary constant of
integration
How to calculate anti-derivative
There is no explicit formula/rule
By guesswork, using differentiation
to check your answer
53 Definite Integrals
01
01
55 Differentiating
a Definite Integral
1
57 Differentiating
a Definite Integral
Suppose we want to integrate
with respect to ( 1 )
How will this be affected by
changes in ?
1