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    Problem Set - Unit 1 - 2024

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    namanjain092005
    Constraint optimisation

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    Problem Set - Unit 1 - 2024

    Uploaded by

    namanjain092005
    2 views2 pages
    Constraint optimisation

    Original Title

    Problem set_Unit 1_2024

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    © © All Rights Reserved

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    DOCX, PDF, TXT or read online from Scribd

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    Constraint optimisation

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    2 views2 pages

    Problem Set - Unit 1 - 2024

    Uploaded by

    namanjain092005
    Constraint optimisation

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Problem Set

    Advanced Mathematical Methods for Economics

    Unit 1(Sections 18.1 to 18.2)


    1.A farmer has 1000 acres of land which he wants to allocate between two crops 1 and 2.
    Suppose he uses L1 acres of land for crop 1 and the remaining land, L2 for crop 2. The
    unit prices of crop 1 and crop 2 are Rs. 10 and Rs. 8 respectively, and the production
    functions are y 1=L0.6
    1 and y 2=L0.8
    2 . Determine optimal land allocation using the

    Lagrangean function and the corresponding second order sufficient condition to maximize
    the value of total output.

    2. Consider a firm’s production function f ( K , L)=5 L0.3 K 0.3 where K and L are capital
    and labour inputs respectively. Let the price of labour be Re. 1 per unit and that of
    capital Rs. 2 per unit. The firm wants to find the combination of the two inputs that
    minimizes the cost of producing 20 units of output.
    i) Write down the Lagrangean function of the above problem and examine the
    curvature of the Lagrangean function.
    ii) Find the levels of K and L that minimize the cost.
    iii) Draw the level curves of the cost function, along with the graph of the given
    constraint and locate the optimal point of the given problem.

    3. Consider an individual consuming two goods x∧ y with utility function


    a 1−a
    U ( x , y)=x y and budget constraint px+ qy=m , where p and q are the prices of
    goods x and y respectively and m is the income of the consumer. Suppose the
    consumer wants to maximize his utility subject to his budget constraint. Assuming
    0< a<1 find the values of x and y that maximize the utility using Lagrangean
    function. Also represent the results geometrically. What is the economic meaning
    attached to λ (Lagrangean multiplier)?
    4. Suppose that the production function of a firm is defined by
    −2 −2 −0.5
    f ( L , K )=(0.4 L + K )
    If the firm pays Rs.10 per unit to labor input (L) and Rs.8 per unit to capital input
    (K), find the cost minimizing levels of inputs in order to produce one unit of
    output.

    5. For the following problem of constrained optimization of the function f (x , y )=x + y


    subject to the function g( x , y)= x1 /2 + y=1, answer the following questions:

    i) Write down the Lagrangean function of the above problem and find the first
    order necessary conditions of optimization.
    ii) Using the sufficient conditions, prove that you have found the optimal values of
    x and y. Represent the result geometrically.

    6. Consider the problem of minimizingwL+rK subject to the CES production


    function
    ρ 1/ρ
    f ( L , K ) ¿[(α 1 L)¿¿ ρ+(α 2 K ) ] =Q ¿
    i) Write down the Lagrangean function for the above problem and derive the first
    order conditions.
    ii) Find out the input combinations to solve the problem.
    iii) What is the economic interpretation of the Lagrangean multiplier λ?

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