Chapter 2: Problem 6
Suppose that \(f(x, y)=x y .\) Find the maximum value for / if \(x\) and \(y\) are constrained to sum to \(1 .\) Solve this problem in two ways: by substitution and by using the Langrangian multiplier method.
Chapter 2: Problem 6
Suppose that \(f(x, y)=x y .\) Find the maximum value for / if \(x\) and \(y\) are constrained to sum to \(1 .\) Solve this problem in two ways: by substitution and by using the Langrangian multiplier method.
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Get started for freeShow that if/ \(\left(\mathrm{x}_{1} ; \mathrm{x}_{2}\right)\) is a concave function, it is also a quasi-concave function. Do this by comparing Equation 2.107 (defining quasi-concavity) to Equation 2.88 (denning concavity). Can you give an intuitive reason for this result? Is the converse of the statement true? Are quas?concave functions necessarily concave?
The height of a ball \(t\) seconds after it is thrown straight up is \(-^{1} A g t^{2}+401\) (where \(g\) is the acceleration due to gravity a. If \(g=32\) (as on the earth), when does the ball reach a maximum height? What is that height? b. If \(g=5.5\) (as on the moon), when does the ball reach a maximum height and what is that height? Can you explain the reasons for the difference between this answer and the answer for part (a)? c. In general, develop an expression for the change in maximum height for a unit change in \(g .\) Explain why this value depends implicitly on the value of \(g\) itself.
One of the most important functions we will encounter in this book is the Cobb-Douglas function: \\[ y=(x \\] where a and \(P\) are positive constants that are each less than one. a. Show that this function is quasi-concave using a "brute force" method by applying Equation 2.107 b. Show that the Cobb-Douglas function is quasi-concave by showing that the any contour line of the form \(y=c\) (where \(c\) is any positive constant) is convex and therefore that the set of points for which \(y>c\) is a convex set. c. Show that if \(a+y 8>1\) then the Cobb-Douglas function is not concave (thereby illus trating that not all quasi-concave functions are concave). (Note: The Cobb-Douglas function is discussed further in the Extensions to this chapter.)
Suppose a firm's total revenues depend on the amount produced ( \(q\) ) according to the function \\[ T R=70 q-q | \\] Total costs also depend on \(q\) \\[ T C=q^{2}+30 q+100 \\] a. What level of output should the firm produce in order to maximize profits \((77 ?-T C) ?\) What will profits be? b. Show that the second-order conditions for a maximum are satisfied at the output level found in part (a). c. Does the solution calculated here obey the "marginal revenue equals marginal cost" rule? Explain.
Another function we will encounter often in this book is the "power function" \\[ y=x^{5} \\] where \(0^{\wedge} 5^{\wedge} 1\) (at times we will also examine this function for cases where 5 can be negative too, in which case we will use the form \(y-x^{5} / 8\) to ensure that the derivatives have the proper sign) a. Show that this function is concave (and therefore also, by the result of problem 2.8 , quasi-concave). Notice that the \(8=1\) is a special case and that the function is "strictly" concave only for \(8<1\) b. Show that the multivariate form of the power function is also concave (and quasi-concave). Explain why, in this case, the fact that/ \(_{12}=f_{i}>i-0\) makes the determination of concavity especially simple. One way to incorporate "scale" effects into the function described in part b is to use the monotonic transformation \\[ \left.g i_{x l,} x_{2}\right)=y i=\left[(x,)^{s}+\left(x_{2}\right)^{s}\right] y \\] where \(y\) is a positive constant. Does this transformation preserve the concavity of the function? Is \(g\) quasi-concave?
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