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ECON0006/0010:
Introduction to Mathematics for
Economics
2024/2025 Sample Exam III

Problem Set II

Instructions
Exam Instructions
Exam:
You are expected to attempt all the questions in sections A and B.

◼ Keep your answers inside of the boxes. Solve the questions separately on scrap paper, only then
decide which of the workings you are going to include in the boxes of the exam paper.

◼ Workings presented outside of the boxes will not be considered for marking.

◼ Each of the 5 questions carry 20 marks. Sub-questions within a question carry equal weight
within that question.
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Section A: Calculational questions

1] Matrix Algebra
◼ a] Given the vectors a 1 = {1, 1, 1}, 
a 2 = {2, -2, -2}, 
a 3 = {1, -2, 1}, and 
a 4 = {2, 0, 2}, calculate
   
the matrices A = a 1 ⊗ a 2 and B = a 3 ⊗ a 4 , and their commutator C = A.B - B.A.

Answers :
The matrix A is given by :
... ... ...
A = ... ... ... .
... ... ...
Workings :

The matrix B is given by :

... ... ...
B = ... ... ... .
... ... ...
Workings :

The commutator C is given by

... ... ...
C = ... ... ... .
... ... ...
Workings :

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◼ b] Find the characteristic equation and the eigenvalues for the matrix A + B.

Answers :
The characteristic equation is :
The Eigenvalues are : { ... , ... , ...}.
Workings :

◼ c] Find the eigenvectors of the matrix A + B.

Answer :
{ ..., ..., ...} of eigenvalue ...,
The eigenvectors are : { ..., ..., ...} of eigenvalue ..., and
{ ..., ..., ...} of eigenvalue ... .
Workings :
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2] Optimization problems
x ] = 14 x (1 - x ) y (5 - y ), give the first-order conditions and find all the local optima.
◼ a] For f [

Answer :
=0
The first - order conditions are :
=0
Workings :

◼ b] Determine the nature of all the local optima.

Answer and workings :

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Continued from 2 b) :

◼ c] Sketch a few isoquants of this function that highlight the local optima.

Sketch :

Comments :
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3] Difference equations
A firm is using 2 resources with quantities x1 and x2 , a uses a technology that gives them a produc-
tion function F [
x ] = 10 x1 x2 . The resources come at a unit cost p1 = 12 , p2 = 32 while one unit of
3

output generates a revenue of 1.

◼ a] Calculate the difference equation describing how the firm might ‘learn’ its optimal levels of
inputs using gradient-learning, and comment on any unknown parameters left in the equation.

Answer :
The difference equation : 
x [ t + 1] - 
x [t ] =
Workings :

Comments :

◼ b] Find all the stationary states.

Answer :
The Stationary states are :
Workings :

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◼ c] Use an approximation to find a linear difference equation for small deviations δx[t] from the
stationary state, find a solution for δx[0] = {1, -1}, and sketch the gradient-flow close to the
stationary state(s).

Answer :
The linearised equation is : δx[t + 1] - δx[t] =
The solution for δx[0] = {1, -1} is :
Sketch :

Workings :
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Section B: Exploratory questions

4] Matrix algebra exploration:

Consider a matrix A and its transpose AT ≠ A.

◼ a] How do we know that S =  A . AT + AT . A must have real-valued eigenvalues and eigenvectors

that form an orthonormal basis?

Answer :

Now it is given that this matrix A has the following two properties:


i) C A, AT  ≡ A . AT - AT . A =  and that ii) A . e1 = 0 , where e1 = {1, 0, 0, 0, ...}.


and we define the vectors ϕn =  AT n . e1 .
  
◼ b] Show that A . ϕ1 = e1 , and that ϕ1 . ϕ1 = 1.

Workings :

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   
◼ c] Show that A . ϕn = n ϕn-1 and that this implies ϕn . ϕn = n ! for n = 2, 3, ... .

Workings :

 
◼ d] Show that S . ϕn = f [n] ϕ n , determine the eigenvalue f [n].

Workings :
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  = 1 
We now normalise these ϕn vectors by ϕ n ϕn.
n!

◼ e] Give an argument without calculations why we can assume that ϕ  .ϕ = 0 if m ≠ n and show
n m
 the matrix A has the matrix-elements
that in the orthonormal basis of the ϕ n

k j = k - 1, and
Ajk = .
0 otherwise

Answer :
Argument :

Workings :

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5] Minimizing production cost

Consider a firm which uses two inputs for its production process in quantities x1 and x2 . The
production technology they use gives them a production function given by F [
x ] = 16 x1 x2 . The
cost of these resources is, using the price vector  x] = 
p = {4, 2}, simply C[ p.
x . The revenue the firm
gets from selling a single unit of output is 1. The firm management decides that they need to
achieve an output Q and they seek a set of inputs  x that will do so at minimum cost.

◼ a] Write down a Lagrangian for this constrained minimization problem and explain your answer.

Answer :
Lagrangian :
Comment :

◼ b] Give the first-order conditions and find a solution for Q = 36.

Answer :
The first - order conditions are :
The solution is :
Workings :
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◼ c] Calculate the bordered Hessian at the local optimum.

Answer :
The Bordered Hessian is :

At the local optimum it takes the value :

Workings :

◼ d] Find the normalised gradient of the constraint, at the optimum, calculate the projected,
bordered Hessian, determine its eigenvalues and check whether it is a minimum.

Answer :
The normalised gradient at at the optimum is :

The projected, bordered Hessian is :

The nature of the local optimum is :

Workings :

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◼ e] Sketch cost and output isoquants close to the optimum, and include vectors representing the
cost and output gradients at the optimum as well as the eigenvectors on the projected, ordered
Hessian. Comment on your sketch.

Sketch :

Comments :

End of Exam!