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Mme 3

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Le addr aired fed wafer) Lye’ AU seudanadé tart ak FOREVER 2% VLEDGI BREAKING NEWS Avail the FREE COURSE of M.A. { ECO } Entrance with RBI DEPR+ NET ECO- UPSC IES FEATURES :- APPROX 160 CLASSES RECORDING ACCESS. LIVE CLASSES MONDAY TO SATURDAY . SYLLABUS TO BE END BY DEC END 2023 SPECIAL SERIES ON NUMERICALS & MCQ STRATEGY APPROACH HARD COPY RESOURCE BANK & DRIVE ACCESS SAMDISH D SHARMA [B.A ECO (H) ,M.A ECO, Academician, TIMELY UPDATE ON Budding Economist, CEO & FOUNDER UNIVERSITY OF ECONOMICS FOREVER, Media Person, Dethi University Alumini, Youth TO UNIVERSITY PLACEMENT Speaker, Polltical-Election- Budget &SEM EXAM INFO Analyst, Politiclan-BJP4Bharat] For Further Assistance Contact No. - +91- 9811042456, 7669007733 1 anal finite value at (Xo, Yo) ‘of the function must be equal to value of the fu jn the one variable case, we can state the followir ncton of two (or 1) variables, constructed by adding s - functional composing of continuous functions, is a eg eet partial derivatives is applicable to functions: of more ths ,. ee ion x and y ie. 2 = ft y), then the partial derivative of "defined as its instantaneous rate of change or its derivative w.r.t, x, ative is denoted by & (pronounced as del z by del x). ‘Similarly = denotes partial derivative of z w.r.t y, keeping x constant. ‘Using symbols, these partial derivatives are defined as Be jpg LEH) SOY) ang ox 40 Ax = ip, Ley 4y)- fly ER tai ey 4-0 Ay “Where 4x and Ay denote arbitrary increments in x and y respectively. ‘The partial derivative of a function can be denoted in various POSS y sy? sry? (yi Fa 420 + yet f(x,y) = xe" uae (vii) =e x-y (viii) z= x y (x) 2= 2e+3y=10 xy & zftayf F = fy =2Aby Iya tye fyaxtet sf)! &-y)-(+y) “ -2y i) > alx-y (ey? | 2 yey [yw ay (x -¥ ey Very ey) ie ped. x fee Gy? | GP ery & _-3 a ys 2xy-yl2x+3y-10) _10- nea a = 6h +y°), = ‘Bample 2 oy z= fl? -y2), Show that ye ek Solution, __ Letu=x?~y?, then we can write z= /(u) ore " rie aN é = Ss &. ey x % = & & Es & wtogx+ xe ® stogx+* oy 2, az 1,9 Thus eyox * first and second order partial derivatives of z=xlogy-x7e¥ funtion is said to be homogeneous of degree one or ax? + Qhxy+by* my Sakti £-— ‘Example 11. " Determine the degree of homogeneity of each of the foll arnt Goats teary ey! ASA Gt a= far eahay (i) 2=2ax+ty)—(e? +y?) Gy) z= Axey? Solution. Es A goeyray! vara () Webave /(:.y)= =" ¥*F Replacing by randy by ay, wege x+y fax, 4y)= (at + oe +(y)* as [ +202y? “| a x+y =F fy) Hence, the function is homogeneous of degree 3. fi) Wehave f(x, y)= 2lax-+by)? -(e? +) Replacing x by Ax and y by Ay, we get sx, ay) = lars +bay)? [any +} = #blox-+by)? (2 +y')]= Pf) Hence, the degree of homogeneity is two. Gi) fu, y)= fox? Ding plex ay) = feany? + canea) oles) = 440 » Hence, the degree of homogeneity is one. (itl) f(e, y)= Axty” 2 fs, ig)= (aay (yl 0) = Alayx+byy)* (eq + bey) * = de function is linearly homogeneous. ify Euler's theorem we find alas + Dy)" (ax + boy) + a,a(a,x + by)?" (aax +ba9)™ Max + boy axtby i gx +boy)" 2: 2. ad) (1) by x and (2) by y and adding we get axengeo 2b) aio) (222 al Say of seen) = ax+by ie ‘ mm (ay yet ya Oma hgrteya iplyi tion (1. : ae a a Z ) by x and (2) by yand aay: Be ay aqayxyor Hagar ym adage +(e baxtiyoas tle =p + ayx% yioas Hence Euler's theorem is verified. ‘632 Properties of a Function Homogeneous of Degreer Si Ifz=f{x, y) is a homogeneous function of degree r, ther. the following, rir 1 zer'gt ; x ‘Proof: Since z= f(x, v) is homogeneous of degree r fx, ty) =a" f(x, y)= 22 Replacing = Wwe get z= vd where {2)- fd) Similarly, on substituting 4 = 1 we can show that z= (2) ¥ =z, Since we can write = = x’ 42) and 2= ri, this property ¥ x y Y, tlthe function is homogeneous of degree r- 1. a & and 5 are homogeneous of degree (r=1). Proof: Wehave 24° az x ara Ox ction function F(K, L)= Akita) 7 and F, and verify whether Bul ‘K iD at, pa # {ax +K 4] “eS ApMED aKa? + a KLE + BOL? —ak*1P| + AVAKeLPe®) = (a+ BFK, L) pis FL>0 only it £ <2. 4 zelog?x?-y) dil) ga2e?-Bxy+y? (iv) z=e"-¥ 1 2) a ‘ a-pa "pa yale ~2ydy) de = Fe + dy a _(& =e Ge + ae ee ey) (<-y? a _ (yy +(e? ey?) x? bony? - ey @-yP =) ; dz= ey ~2xy-y? fixe? +2xy-yyyl dz = (4x - 3y\dx + (2y-3x)dy : de=e" ¥ d(x? —y2) =e" ¥ [pede —2yady] (i) Find total derivative of z w.r.t. x, where z= 2x7 y+ 3xy Gi) z= 4x9 + 3x2y_ 2,2, x=-t and y=5+t find 4 i Gi tz= f(x, y, #), where x =a + bt and y= a+ ft, find & o dz = (Ary + 3y +y?)tx + (2x? +3x+2xy)}ty dy = 2dx de = (Ay -+3y + y2)ix + 22x? + 3x + 2xybde de PY + By ty? +42? + 6x4 dry = 43? +6 4 Bxy43y +y? t= (120? 6ryhirs (x? -6y7)y dr= dt and dy =at or peepee g hhh : n of inputs x and y, ely y. ge “ay andy =h(?)- Obtain expressions for 77 and “> int write, pe it = fis fy Oo +tol 3) )-s0(@) + Mi) (2) 2) «1 23)-0f a a = fale OF +2faLs W)C] + fH OF + ls] FOOL Manunknown scalar, and write z= f(u,2). of ‘Sutput Wart. scale (or elasticity of +2. De i Deduce Euler's theorem from this relation if x = (KE Whatis the degree of homogeneity? Mathematics for Economics and | 78 Example 6, A monopolist produces two types of chocolates, X1 and X2, at a consta Re2 and Re 3 per kilogram respectively. If p, and py are prices (charged in seve" the market demand for the two types are x; = 5(p,~ 7) and x» = 32+ 5p, Pees Perky Jilograms per week. Find the values of p, and p, such that the joint mon oP: ' maximised. Also find the equilibrium quantities. POLY Profits srg Solution. Here it will be convenient to keep total revenue and total costs as functions f Of Py aoe a Pee TR = py¥, + P2%2 = 5PiPs — 5Pt + 32p2 + Spip2 ~ 10p3 Op;r2 —5pi ~ 10p3 + 32p2 t=a2x, 3xp = 2x5(p2 -—p:)+3(82+ 5p, -10p2) =10p,-1"", +96+ 15p; ~ 30p, = 5p, ~20p, +96 x 99 5p} —10p3 +32p2 — 5p + 20p2 - 96 =), 5p -10p3 - 5p, +52p2 - 96 For Max. #, we should have én i SF —10p, -10p, -5=0, we and Bp Pa + 8-0 | These equations can be written as i =10p, +10p, =5 10p, - 20p; = -52 Using Cramer's rule, we get Bu 40 L105 52 -20| 420 10 -52|_ 470 52 = 20) 420 _ 42 and p; =" = = = 47 fami) 0 100 100 10 -20 Also, the equilibrium quantities are: 4; =5%0.5=25 or 2500 kg ard x, = 32+ 21.0- 47 =6 or 6000 kg, Second order conditions: 2 2 2 sine 2 -19<9, 2*=-29<0,9* -10 Ft pi OpiePo ; Sp Se He i e, tis maximum. * 2828 | hence, xis maximui Oi op \op:ep2 Example 7. ia 4 AA manufacturer ean produce a commodity at two locations. The selling price Fe a 0c given by p=200-0.8r, where x= 1x,+x,. The cost functions at the two © =03x} +607, +5000 and C, =0.5r3 + 30x, +8000 respectively. Find *, and 72 profits are maximum. - ‘of Functions of more than One Variable ore [200- 0.8(%1 + ¥2)] (1 +2) = 200(x; +-,)~ 0.8(e) #23)? TR Cy = 03x} + 60x, + 5000+ 0.5? +30x, +8000 aC re oles +2) 0.85 + ¥2)* ~ 034? ~ 60x, ~000 profit # * -0.5x} -30x, - 8000 &@ _ 200-1.6(%; + ¥2)-0.6x, -60=0 } O# _ 290-1.6(x, +x2)-1.0x, -30=0 and tions can be written as These equa 2.2%, +1.6x, = 140 1.6x; +2.6x, = 170 Using Cramer's rule, we get 140 | lie 140 170 26] 92 16 170] 150 Be eee ao, x, - LS TOT 150 _ gp, “"132 16] 316 "2 one| aie 16 26 16 26 Itcan be shown that the second order conditions for maximum. profit are also satisfied. 4 eet since (7, >m)= p1 p, =50 on OP =0=> p, = 100 “ond order conditions: on Re 7 04<0, on 140) ey ia opi apsoP2 t hsb stinary point is a maxima, =p, ist sells its outpe vo and x3 = 140 — 2pz. The cost function of| ; write the profit of the monopolist as n=(100-x,)s, 4(0- $s} = 90 -6(x; +xp) 1 2 94x, — x7 + 64x, -—77 -90 2 ‘Differentiating partially w.r.t. x1, we get ® 94~2x, = Vor 11 = 47. Also pi = 100-47 =53 Bice differentiating x partially w.r.t. xz, we get Z-u-x 20 or 1 = 64. Also pr = 70-32 = 38, on pas ay an if ‘Since 0, —-<0 and ——.—, f ax ox? a? ‘the second order condition is satisfied. (ii) When the goods can be transported from one market to another at at , Pi=p2=8 (note that 71 > p» under discrimintation). a b-s)-[- ‘| 1 8 or 22-x,+—x, =0 2 ‘of Functions of more than One Variable ad. an 5 2.82 =-6<0 Beet this case Pi = P2 : bon (n-tao ce x2 = 2x1 -60 (5) Solving equations (4) and (5) simultaneously we get, m=57, 22 = 54 and p= 43 shat the second order condition remains the same, le 15. Find the maxima of f(x, y,z)= xyz subject to x +2y +2z=60. oe Ok Functions of more than One Variable Vyy =9/Vye =x=20, V,, =0, 0 8 8y o 12 iile|s Ye V,,|=]1 0 10]=40>0 sy Vy Yw 210 0 0 8 By & do 2a # Vex Vay Vez | _]k © 10 10 and [PBI ay Vy Yy Ve] [2 10 9 : g: Va Vy: Vn| [2 10 20 0 stationary point is maxima (see the Remarks given below). =~1200<0 ence, the Given the objective function 2= f(x,Xz0a,) and the constraint (133 -.-%q)=0, the second order conditions are: (ui Fi [Fs|-—|H|<0, then the stationary point is a minima, 0 Ss a| |e l=. Vis Vic|, (Fs|-|8 2 9), and'soon Ge Vy Vex Se Va Vous \ — > Va Var Vas y DS ga Re _ |g Ya Vie Vin [al= 82 Var Var > Von on, Let (x, y) be a point on the given line. The distance of this point from the origin is P'+y". Since minima of (x7 +y" will occur at the same point where its square, ie Poy) 5 ; “a is minimum, therefore, for sake of simplicity, we shall minimise x* + y? subject to ~3y +25. . Forming the Lagrange function, =x? +y? + a(ax—3y +25) } 8 Vm Vue Van | Bample 16. Find the smallest distance between the origin and a point on the line 4x~3y+25=0. First order conditions: | a (1) Set 2x+4a=0 av oe oy ae 2 y -34=0 av aq 48-39 + 25=0 5 From (1 ee 3z (and @) wehave 2y=-% or ya | qf Functions of more than One Variable = ds Bas, thd BAG, hey) fat in de fa tha (using first order conditions) Es (x,y and A are kept constant), ~ Oe oot 7 the effect of an increase in the value of a on the optimum value of the function . whether y has a maxima or minima. Taking “getermine the nature of optima i. Beet derivatives of y w-r.t. x, we get a Boax-a=0 or x=7 rst jean dy i 2 ¥~4>0 -. yis minimum when x= a 4 value of y be denoted by y*. Then by envelope theorem, we ean write uit _&. ~-x+2= —4+20=78(aix=2) da Ga 4 4 pethe minimum at 4 Ja ; Thus yf increases by “units as a increases. ‘Thus above result can also be verified ina direct manner. We can write Ta* y= 2, Pe . y = a* Ja da 4 Eample 29, let = fai, x2) be the utility function of a consumer and M = 2p + azpa be his budget Crstraint, where M, p1, p2 are parameters. Determine the rate of change of optimal utility Mil each of the three parameters. Solution, We can write the Lagrange function as. ek 42) + IM ~ xap1 — 2p] Ee rtoes maximum utility, then according to envelope theorem Qt” 3g = > u* increases by 2 units with increase in M dus & => u* decreases by Ao units with increase in Pr ae eg => wt decreases by Ax2 units with increase in pa: h ternate method Merry? Noted that the envelope theorem provides an alternate ad ©f the Lagrange multiplier _ 4, Find the area bounded by the axis, the cury, i 4 find the area under the curye Y= 4x x2 § Find the area of the region bounded by the Parabola 6 find the area under the curve ys(x-1) and 1 FE ears of the region bo tnded by the lin and y=5, ¥=10, x-yag and y=9, 86 Economic Applications ‘861 Total Revenue fr We know that di function can be obtai TR=|MRax +o, wi that TR=0 when x = oO. amy Mike matginal revenue function is MR_=—6 way 2 find total revenue. fedemand function, Solution, = f_60 = [0 Sq oe e Baap tb feet piety ma Ts ct “, we make use of the fact that TR = 0 when x =0. Thus, 0 = 60 =20 +, TR=-—80__ 9x49 0 3 7¢ orc=20 , TR &+3) & TR = 20x (+3) as TR_ 205. Mere demand anton ingen by p= ec és Mathematics for ‘ set function of a firm is given by MR = function. At what level of output is to TR= fles0-4x)ix = 2402-22? +e Since TR = 0 when x=0, >c=0 Thus, the total revenue function is TR = 240x - 2x? Also, the demand function is p = 240- 2x We know that MR = 0 at a level of output where TR is maximum, 240-4x =0>%x=60 Thus, total revenue is maximum at 60 units of output, 0 ‘The maximum total revenue =_{~ (240- 4x)dx = [ea0x — 2x?|"" = Rs7;200 Example 17, Fginal revenue of a firm is given by MR firm at 12 units of output. Solution. = 30-10x + x?, find total Tevene ofthe Total revenue at 12 units of output is given by the following definite TR= [60-105 xix = = 360-720 + 576 = Rs 216. integral; 30x — 5x? 8.6.2 Demand Function from Elasticity of Demand We know that elasticity of demand is given by = 2 ip ecm Paty” Talegrating both sides, we get =p fax =f a-by ae Sa log(a— bx) = logy +loga or ~ =. log(a~ bx) logap (where log Ais a constant of integration) Be BPs tn) « $+ 26-m)-(2-ay grating both sides, we get -f@= f2-. e Pp jn > ~l0gx = alogp— tp +c or —logx=logp" +loge-tr) or log = og lm] “4 Taking anti-log we can write Le pt elm) x 468 Total Cost from Marginal Cost We know that the derivative of total cost is 1 i h é equal to marginal cost. | fain can be obtained by integrating the margin Te ee TC = |MCdx + k, where kis the constant or_x= pr" ell) of integration. S Example 20. Marginal cost function of a firm is MC =. +30x?, where x is the number of units of aput and cost is measiyed iin rupees Fed the firm's total cost function given that fixed coats are Rs 500 1s Solution. Total Cost C= f(a + 6x-+30x2)ix = 4r43x? H10e" +k We know that the cost of producing zero unitsis fixed cost. C(0)=0 +k = 500 (given) or k=500. MD te Hence, Total Cost C = 10x° +3x? + 4x +500 marks: a , When a total cost (or a marginal cost) function is ree es by a polynomial function, the constant of integration represents the fixed cost of prodi ple 21, The marginal cost function of a fi Sutput, Find () Total cost C, if COV= i) Average cost AC. Gi) Evaluate TC for 500 units of output Solution, 4) Total cost C= {(6+3e* ir = 5x +e" +k To find k, we put x = 0 in above equation x= 3, is given by Po = 20- -9=5 3| dx= x2) dx—5x3 = pox =15 = Rs 27. lo Fr caropslats demand function is x =210-3p, where p is price and x the quan demanded, If the total cost function of the monopolist is x” +6x+10, find the surplus at the equilibrium. consumer's Solution. a First we determine the equilibrium output and price. ‘The demand function can be written as p= 70-2 i, ATR) _oy_2 TR=70x—5x" and MR="7 = =70- 33. Hes we Masons | We have MR = MC (under equilibrium) j o W-Zx= 2146 ” y= 23-4 units 4 Price at x = 24 is Po =70-1424 = Rs 62 Thus, piqy = 62x24 = Rs 1,488 | and CS= {{{ro- bs) ac—sass = x = 1680-96 -1488 = Rs.96 Alternatively, the consumer's surplus can be obtained as 2t0p - P| CS= (eo- 3p)p = ; 2 =14,700~7,350- 13,020+5,766 = Rs 96. lus Iris es between actual amount of money that a tice the minimum amount at which he is willing to 7 uantity of output. Gags ee the supply (or the marginal cost) function and Po is i tg a Units of commodity are traded, then the Siven by the Fig. 8.13. Using i ee an be written as ; meee BS Area AOWB- AreaCODB 3p?” wnte- [At «Pay ey MCdx is equal to the tota) + 's surplus as PS = Total Reven eoltSspply finction is given ve" ae We =, =O) tne male [er where Py is the price at which = . oe : 25. a Oe oly as ofa commodity is P=V94y and Producers supe ig geproducer's surplus. Can you also find the consumer's, the quantity sold is 7 de i ‘urplus? If yes find it Wot, why? Price when x =7is py = 947 4 F Producer's Surplus PS = 4.7 _ [ora 2x (9+.x)9/2/7 = 20 PaOosy| = 23-128, 54_ 9, 10 35 ee lo Altemative Method: Wehave p, = V9 =3, when x=0. Also, p?=94x or x=p?_g 3 4 =f b?-o)p-\2 9 clean 10 ed fb ohiy a ear dal Since demand function is not given, therefore it is not possible to find the consumer's surplus Eample 26, ize Find the consumer's surplus and the producer's cae under pure competition for femand function p = 82 and the supply function p= (+3), where pis price and ris x41 quantity, lution, : i the demand and supply Fist of all we find the equilibrium quantity and price. Equating functions, we have 8-2 = 1 (v3) eel oe ee © 16~4(x +1) =(x+3Xx+1) or 16-4¥-4= ‘ slorxs~ o x? 48x-9=0 or (x-1Nx+9)=0 37 a Further, p=2 when x= 1. "negative output is not possible, we take = 1+ if 8 —2\ix-2 Now Consumer's Surplus CS= ia =a 2} 8.26 Mathematics for Economic, te, = Slogixe + 1)—2x|) -2 = Blog?-2-Blog 1-2 = 8log2-4 =Rs 1.55 And the Producer's Surplus : B( x. a] gle Ay “4 : Rs0.25. 2- x + Sax a— [>t eS al Propensity to Consume (< Save) 6.19, __ddiven Q = 400 — BP + O.05Y, where P = 15 and Y= 12000. Find (@) the it J demand and (6) the growth potential of the product, it income ig etna iy. Tae Z pos (¢) Comment on the growth potential of the product, ae (2) Q = 400 — 8115) + 0.012000) ~ 880 and OQ/aY = 005. Thus, «28 (F-00222) <0 > #40. oo. ay ) ee Rearranging terms and substituting the known parameters, a ay = = cy [ = 0680.05) = 0.034 oy = 058005) The demand for the good will increase by 34 percent (0) Since 0< cy < 1, it can be expected that demand for the good will inerease with national income, but the increase will [Link] than proportionate. Thus, while demand grows absolutely, the relative matket share of the good will dectine in an expanding economy. If ey > 1, the demand for the product wouk grow faster than the rate of expansion in the economy, and increase its relative market share. And if % <0. demand for the good would decline as income increases, fH Q, = 100 — P, +0.75P; ~0.25P, + 00075Y. At P, = 10, P; ¥ = 10000, Q, = 170. Find the different cross elasticities of demand. = 20 (@) S 072) 0.088 6.20, 2 OP NO; 40, (Ps) 40 «a (2). oa 9) 0059 50 —4P, ~ 3P, + 2P; + 0.001Y At P, = 5, P, = 7, P; = 3, and ¥ = 11000,Q, = 621. Given Q, cross elasticities t¢_determine the relationship between good 1 and the other wo 26. (a) Us t goods. (b) Determine the effect on Q, of a 10 percent price increase for each of the other goods individually. {a) * —A) = O81 4%) = 0.23 ease in P, will lead to a decrease in Q,, With <,, negative, goods I and 2 are complements. Ar With ¢,, positive, goods 1 and 3 are substitutes, Am increase in P., will inetease Q, (4) Guidi Po Rearranging terms and substituting the known parameters, ra ee = 0,81(0.10) = — 0.08! Qs Py If P; increases by 10 percent, 0, decreases by 8.1 percent. 20, be av, OTTain sey FO), P - 0.250.10) = 0023 2, P, If Py increases by 10 percent, Q, increases by 2.3 percent When sotved simultaneously, x = 20 and } = 20. Taking the second partials, a ee With both direct second partials negative, and rg, yy > (ay), is maximized at & = 5 = 20. © a= 2782 6.23 Redo Problem 6.22, given n = 25x — = xy—2y? + 30y— 2B, @) mn25—2-y-0 x,— -x— 440-0 Thus, % = [Link] j= 5. o @ me sells two products x and y for which the dentrmd functions are x=2-05P, (6.29) y=30-P, (6.30) and the combined cost function is . coax? + 2xy ty? +20 (631) Find (a) the profit-maximizing level of output for cach product, (b) the profit-maximizing price for each product, ard (c) the maximum profit. {a) Since x = TR, + TR, — TC, inthis case, nePx+Py—e (6.32) From (6.29) and (6.30), ma P,= 0 - 2x (6.33) Psy (6.34) Substituting in 6.22}, : = (50 ~ 2x)x + (30 ~ yy — (x? + 2xy + y? + 20) = SOx — 3c + 30y — 2y? = Ixy — 20 ‘The first-order condition for maximizing (6.35) is ,=50-6x-2y—e0 ,=30-4y—2e=0 Solving simulianeously, ¥=7 and j=4. Testing the second-order condition, m,, = —6, n,. = ‘and 2, = —2 With both dict partials negative and nur, > (n,)* is maximoed, (6.35) (0) Subang $= 7.5 = Ain Sew 21 1 nizing level of (a) output, ( and fi 26 Profit-maximizing of (a) output, (b) price, ax pod x= 50-O5P, y=16=P, and the total cost function c = 3x7 + Ixy + 2y? + 55. (2) Frova (6.36) and (6.37), P,=100~2e x P,~16-y +0 Tee: = , Substituting ine = P.x-+ Py —c, a = (100 — 2x) + (76 — y)y—Gx? + Dxy + 2y? + 55) = = 100x = 5x2 + 76y — 397 = Ixy ~ 55 en q Maximizing (6.40), > m= 100-f0r-2y=0 x, = %6—6y—2e=0 Thus, X= 8 and 7 = 10. Checking the second-order condition, tyy— —10, ty = —6, and x, = <2 Since n,,, 2,, <[Link] x, *,, > (4,,)°, 7 ig maximized at the critical values. ct (b) Substituting £ = 8, 5 = 10 in (6.38) and (6.39, P= 100-28) =84 P= 76-10 = 66 (0) From 64), x= 725. 626. Fi Profit-maximizing level of (a) output, (b) price, and (c) profit for the monopolistic pro ier with the demand functions ; a 2, = 494 - 4P, ~ an @,=36- $F, (642) and the joint cost function ¢ = Qj + 20,03 + Q} + 120. (a) From (641) and (6.42), sf P, = 74-150, - ne . Py = 12 =20, ‘(0s4) ‘Substituting in x = P,Q, + P,Q, —«, © n= (74 ~ 150,001 4 (72 ~ 20110, ~ (03 4 20,03 + Q24 120) = 74Q, — 2.50} + 720 — 303 — 20,0, — 120 ‘The first-order condition for maximizing (6.45) is 4-50, -20,=0 = 2-60, ~20, = 0 Thus, Q, = 11.54 and Q, = 8.15. Testing the second-order condition, x4 ~ —5, 3 = 2. Ths ray <5 May > (49), and x is maximized, o {b) Substituting the critical values in (6:43) and (6.44), 7 . ere oth Pym 41511158) = 5669 Py = 72 — B15) = 5570 ee = 60086 — 6.27. Fed the profit-maximPing level of (a) output, (6) price, and (c) profit when 2, = 5200 — 10P, (6:46) 0, = 8200 —20P, 647) and i c= 0.10} + 0.10,0, + 0.203 + 325 {a) From (6.46) and (6.47), ae srigaee (648) P, = 410 — 0.050; 64) Thos, x =(520-010,)0, + (410 ~ 0050,)0, — (og? + 010, 0, +0203 + 325) = 5200, — 0207 + 4100, — 02503 — 0.10.0, - 325 (6.50) Maximizing (6.50), m= 520-040, 019; =0 nz = 410 - 0.50, 0.40 Thus, Q, = 1152.63 and Q, = 589.47. Checking the second-order condition, a4, = and ny, = —O.1 = my, Since 43, Xj; <0 and myynzz > (Ra), n is maximized at Q, = 1152.63 and 0, = $89.47. (b) Substituting in (6.48) and (6.49), 04, t= —05, P, = 52001115263) = 40474 P, = 410 — 005(589.47) ~ 380.53 © 20 201.32 CONSTRAINED OPTIMIZATION IN ECONOMICS +58. (a) What combination of goods x and y should a firm produce to minimize costs when the joint function is c = 6x? + 10y? — xy + 30 and the firm has & production quota of x + y = 34? (b) imate the effect on costs if the production quota is reduced by 1 unit. (a) Form a new function by setting the constraint equal to zro, multiplying it by 4; and adding it to the ‘original or objective function. Thus, C= 6x? + 10)? —xy + 30+ AM xy) yao Solving simultaneously, ¥ = 21, j= 13, and discussed in Section 125. 39. Thus, € = 4093, Second-order conditions are (6) With 2 = 239, a decrease in the constant of the constraint (the production quota) will lead to a cost reduction of approximately 239. ($25. (a) What output mix should a profit-smaximizing firm produce when its total profit function is = 80x — 2x? — xy — 3y* + 100y and its maximum output capacity is x + y = 12? (b) Estimate the effect on profits ifouiput capacity is expanded by 1 unit, @ : Tl = 80x ~ 2x? — xy ~ 3)? + 100y + AL2— xy) 1, =80~4x-y-A=0 T= —x-6y + 100-2=0 M=12-x-y=0 ‘When solved simultaneously, X= 5, j= 7, and J = 53. Thus, x = 868, (0) With 4 ~ 53, on increase in output capacity should lead to increased polit of approximately 53, MT 110s ~ 307 — any = 292 + 140y 4 de Mh =10-6x—2y 4400 Mi, = -2x —4y + 140-2129 Th=x-ano Solving simoltanously,& = 20,5 = 10,1.= 30, and x= 1800 631, (a) Minimize costs fo; a firm with the cost function ¢= 5x2 4 2xy4 3y* + 800 subject to the. Seeaucsion ucta x4 ¥ = 39, (b) Estimate sdditiore] costs if the producti i 2h ion Production quota is increased tay = C= S24 Qy + By? + 800 + 489 = x — yp C.= 10x 4 2y—A=0 When solved simultancously, % = 13, 9 = 26, A= 182, and C= 4349, (6) Since 4 = 182, an increased production quota will lead (0 additional costs Of approximately 182. 632 A monopolistic firm hus the following demand functions foreach ofits products x and y: ———— x=72~05P, (6.51) y=120-P, (6.52) 2? 435, and maximum Joint production is 40: vel of (a) output, (b) price, and (c) profit, The combined cost function is c= x? + xy + Thus, x + y= 40. Find the profit-maximizing le (a) From (6.51) and (6.52), Py =: 144 — 2x (6.53) P,=1200~y oe ee "Ths, w= (48 — 2018-4 (120-— yy — G2 + xy + y? +38) = 14dx — 3x3 — xy — 25? + 120 — 35, Incorporating the constraint, MI = 144x — 3x? — xy ~ 2y? + 120y — 354.440 — x~ yp Nl, = 144 — 6x —y~A=0 Thus, a T= —x~4y + 120-120 My =40—x-y=0 and, ¥ = 18, j= 22, and A= 14 pal Rad «- “ee . [ ‘thes P a bf industry salle thes ii i a ety ; i py 1 ‘the demand functions are ! x= 63-0257, 59) 4 ya W@— JP, (6.50) and costs are cmt tay 1 190 find the profit-maximizing level of (a) output, (}) price, and (e) profi (a) From (6.55) and (6.56), Pym 282 4e sn P, = 140 ~ 3y 6.58) he = 8D — Aah + (180 3yhy XE xy yA TN 29 Sey AO 190 = ay? Forming a new, constrained function, | Te 2825 ~ Sx? ay— ay!) May ~ 190-4 He I) Hence, 11,=252-0r~y+2-0 N= and $= 27,5 =9,andi = 27. (®) From (6:57) and (658, P, ~ V4 an P, = 183 if n= 4022 Sy 0 NO MO wed nd 634, Problem 4.22 dealt with the profit-maximiziny level of output for a firm producing single product that is sold in two distinet markets when it does and does not discriminate. The funce { tions given were | Q, =21-01P, (6.59) 0, = 50 - 04P, (660) ¢= 20004100 where 0= 0, +0, (661) | Use multivariable calculus to check your solution to Problem 422 r . From (6.59) (6.0), and (5.61), P, = 210 = 100, 652 Py = 125~250, © = 20004 109, +10, With discrimination P, # sine diferent pries are charged in diferent markets and therlore m= (210 ~ 100,)0, + (125 — 2.5Q,)0, — (2000 4 1 9, 10014 130, ~389f—3a (6.63) we rrPpPrprrrrhrere rng oe 2 oe 210 109, = 125~ 259, 250, - 100, = —85 _Rearranging this a a constraint and forming a new function, M= 2000, — 109 + 115, ~ 2.503 — 2000 + 485 — 100, + ‘ ‘Thus, 1, = 200-209,-104—0 1, = 1S 5Q, 425220 Mh, 85 ~ 100, +239, -0 and Q, = 134, 0; = 196, and J = —68. Substituting in (6.62) and (6.62, P, = 210~ 10134) = 76 P, = 125 ~ 25(19.6) =76 O= 1344196 =33 35. Check your answers to Problem 4.23, given 7 Q,=2%4-02P, Q, = 10-0057, ©=35+402 where Q=0,+0; From the information given, P, = 120-5, (6.64) Ps = 200-200, (6.65) e= 35-4 409, + 409, With price discrimination, : = (120~$,)0, + 200~ 200,)0; ~ (38 + 400, + 40,) = 800, ~ 50? + 1600, ~ 2092 = 38 . ‘Thus, m= 80-100,=0 x, ~ 160-409, <0 and 0, = 8,0, =4,P, = 90,and P, = 120, I there is no price discrimination, P, ~ P,. Substituting from (664) and (665), 12050, = 200 ~ 200, t 200, ~ 50, = #0 ; (6250) | Forming a new function with (666) as a constraint, - | 2 M1 = 800, ~ 5Q} + 1000, ~ 2003 ~ 35 + A804 50, ~200,) he Thus, 80-100,+54=0 11, ~160-40@,- 201-0 t1,= 80439, - 209,=0 and Q, = 644,0,7= 56,and {= ~32 Substituting in (6.64) and (65), - Pym 120 — 5668) = 88 P, = 200 ~ 2065.6) = 88 Q=64456= 12 636. (a) Maximize utility w= 0,0, when P, = 1, P, = 4, and one’s budget B = 120. (b) Estimate effect of a I-unit increase in the budget. ; a ie tos 6.37. (a) Maximize utility w= Q,0,, subject to P, = 10, P = 2, and B = 240, (b) Whal is the margin- ‘al utility of money’? {@)__ Form the Lagrangian function U = 0,0; + 4240 ~ 100, - 20,), U,=Q:-1M=0 U,=Q,-2%=0 U,=+240-109,-20,=0 S S This Q, = 12,0) = Gand i= 6 e < < ¢ § (0) The marginal ily of money at @, ~ 12 and Q, = 60 is approximately 6 \ a 638. Maximize utility u = 0,0; + Q, +203, subject to P, = 2, P; = S,and B = 51, Form the Lagrangian function U = 0,0, + 0, + 20, + 451 ~20, ~ 5). u, 241=2=0 U,=9,+2-Si=0 U,=51~20,~50,-0 ‘Thus, @, S,and T= 3, Maximize wility u = xj + 3x + y subject to P, = 8, P, = 12, and B= 212, ‘The Lagrangian function is U = xy + 3x + y+ 4(212 — 8x — 12y). U,=y 13-8 U, = 212-8 —12y=0 ‘Thus, ¥ = 15, 7 = 74, and 1 = 1}. Uy=x4 1-128 INEQUALITY CONSTRAINTS 640. Minimize r = 3x7 — xy + 2)? — 4x — Ty + 12 subject to the constraint x + y > 15, Assume initially that x + 5 and optimize the Lagrangian {unetion, Thus, x = 6, From rule 111 in Section 67, when minimizing subject to glx, 5)20, if 12.0, the constraint is a limitation and the constrained minimum has been found. If there. ere no constraint, the function would be minimized at x — 1 and y — 2, as found in Problem $.10(a), where z = 3, 641. mize the function in Problem 6.40 subject to x + y > 2. Zn Bt xy + Dy? = 4x Ty + 12 42-5) Z=r-y-4-AeO 2,5 =x4 dy—-7-4=9 2,=2-x-y=0 Here § = 0.58, » = 1.42, d= —194,and 2 = 3.96. Mh, = 160 -6x-2y—h= 0H, = ~2x— 49+ 120 ‘Thus, X= 18.33, f= 1667, J = 16.67, and x = 2740.34. ‘When maximizing subject t0 (x, ¥) <0, if 1 > 0, the constraint is a limitation and the cor “maximum has been found. From Problem 6.22, unconstrained profits ate x = 2782 at x = 20 and > = 29, 643. Maximize the function in Problem 6.42 subject to x + y < 50. Form the Lagrangian function 1 = 160x — 3x* — 2xy —_2y? + 120y - 18 + A(50 — x ~ y). m M1, =160-6x—2y-4=0 T= —2x-4y+120-2=0 T= 50~x-y=0 La Thus, X = 23.33, j = 26.67, 4 = ~33.33, and x = 261533. With 1 <0, the constraint is not a limitation. Ignore the constraint and simply maximize the objective function. HOMOGENEITY AND_RETURNS TO SCALE, 6.44. Determine the level of homogeneity and returns to scale for euch of the following production functions: (a) Q= x7 + 6xy 47" iis homogencous of degree 2, and returns to scale are increasing because “lex, ky) = (hoe)? + (RS MRID 4 TERy)? = 2G? + Gey + 29) ay tay tary ind returns to seale are imereasing because. (6) Q=x° Qs homogencous of degree 3 “fx, ky) = Ux)? — (kathy)? 4 My)? + (kay) = RO" ay? a 3x? SF Q is homogeneous of degree 0, and returns to seale are decreasing because kai? CONSTRAINED OPTIMIZATION OF COBB-DOUGLAS FUNCTIONS Optimize the following Cobb-Douglas production functions subject to the given const (0) forming the Lagrange function and (2) finding the critical values as in Example 12. 6.45, ey (a) q=K12% — subject to 6K 4 2L = 384 a Q= KL 4 KA84 ~ 6K — 21) Q Oy = 03K-O7 — 620 0, = 05K 8 — 2=0 Q, = 384 - 6K -2L = 0 Substitute L = SK in (6.9). 384—6K—25K)—0 Ky =24 by = 120. ‘Second-order conditions are tested in Problem 12.31(b). @ = 10K°D", given P, = 28, P, = 10, and B= 4000 e iw Q= 10K*"E" + 144000 ~ 28K ~— 101) @ Qq.=7K-°910" — 28a = 0 (670) € Q, = 1K°7L- 9? — 102 =0 (6.72) Q, = 4000 — 28K — 10L = 0 6.72) < Divide (6.70) by (6.72) to climinate a. TRONS! 28d TK" = 28 L_28 Eo7 beak ‘ ‘Substituting in (6.72), Ky= 25 Ly 50 ‘See Problem 12.31(c} for the second-order conditions. 646, Maximize the following utility functions subject to the given budget constraints, using the same steps as above. (a) w= x°*y??%, given P, = 8, P, = 5,and B = 680 (1) U = 59%y95 + 2/680 ~ Bx — $y), io ‘ U, = 06x °4yP?? 82 <0 2h U, = 0.25x%* "9 — 54 = 0 (6.74) Uys 610 Bx—Sy0 eae Divide (6.73) by (6.74). PROOFS 657. Use the properties of homogeneity to show that a strict Cobb-Douglas production fuxction 9 = AK*H?, where a + f = 1, exhibits constant returns to scale. HEK, kL) = ARK (KL) = ARK = KONAK I) = Mg) As explained in Section 6.10, if « +#= 1, returns to scale are constant; if 2 + fP> 1, returns to scale are increasing; and if « + ff < 1, returns to scale are decreasing. ven the utility function w = Ax‘y’ subject (o the budget constraint P, x + P,y = B, prove that at the point of constrained utility maximization the ratio of prices P,/P, must equal the ratio of marginal utilities MU,/MU, U = Ax*y? +B — P.x ~ P,y) (683) 16.85) U, = aan ty _ U,=bAxty?? = AP, =0 U,=B=P,x— Py =0 MU, and in (6.86) bAx*y’~" = u, = MU, Atty’ _ MU, where in (6.85) aAx*~*y From (685), i Py Fy bAxty’* _ MU, From (6.60), doa pane U, MU, aul % Equating 2's, > =) > > > ; y Q= AK + AB Pek = P,L) Ox 2AK*4t— AP, 20 Q,= BAK — ap, <0 Q=8-P,K-P.L=0 From (6.87) and (6.88), BARE? Py 2 _ PAK Rearranging terms, ae where B* — 2/1 and 1/K*~ K_ ap, re QED. 6.60. Pr for a linearly homogeneous Cobb-Douglas production function Q = AK‘, @ = the tpat elasticity of capital feqx) and f= the output elasticity of labor (éq,)- From the definition of output elasticity, c= 2K oan _80/6L BGK BEG Since a + B= J, let B= 1 —aandlet k= K/L. Then - Q= AKL += 45) L= ARL ti Find the marginal functions, BOE ae) ig ARE wat 1p mea 2Y eat oe 4a aoe wn" AKL * = (1 »(F) = (1 — aan Find the average functions. oe K g = é Los ‘Then divide the marginal functions by their respective average functions to obtain ¢, SO/5K _ 2AKet Sox oe eT * QED. L(t cq SE NOM sag QED. Solved Problems ORDER AND DEGREE ISI. Specify the order and clegroe of the following differential equations: @y | (dy)? ) (a) =(2) = 12x 6 Page ax = dx? © \dx, ‘dPy\® ‘@y\? dty (2) pane e @ pe eee » ad {G) Second order, frst denree: () first order, first degree; (c) third order, fourth degrees (a) fourth order, first degree; (e) third order, first degiee. FIRST-ORDER FIRST-DEGREE LINEAR DIFFERENTIAL EQUATIONS 18.2, (a) Use the formula for a general solution to solve the following equation. (b) Check your answer. 0 ees Fu Sy=0 8.20) {a) Here v = 5 und z = 0. Substituting in (73.1), y= eels + fase 3) Be tem stem 183. Redo Problem 182, given dy ay ¥O)=2 (18.22) (4) Rearranging to obtain the generat format, dy a Here » = —3 and 2 = 0. Substituting in (18./), name(s fosraa) Lay : : Substtating f— Ade —31, 0) = eMA+ JOH) = Ae” AL t= 0, =2, Thus, 2 Ae", 42 Substituting, Y 22 (129 (0) Taking the derivative of (829, dydt— 60% From (1829, dd = 3, Subang y rom 1823, dy/dt = 3(20%) = 18.4. Redo Problem 18.2, given eo (18.24) vo-eim (esse) where j [Link] = k, a constant, Substituting and secalling that eis also a constant, fs (4 + frsea) hs ‘ se MA + Iie!) Ae + It = 1b A 18.25) where A is an arbitrary constant equal to Ae™* or simply c, Whenever the derivative is equal to a constant, simply integrate as in Example 1. : (b) Taking the derivative of 18.25), dy/dt = 15, From (18.24), dy/dt = 15. (a) Here v= Gand 2 = 15. Thus, - 0) a et 185, Redo Problem 182, given ; eee WET a) VQ = OA = 36° m Ae 3 (H) Taking the derivative of (78.27, dy/dt = 6Ac*. From (18.26), dy/dt = 18 + 6y. Substituting y from (18.27) dy/dt = 18 + (Ae™ ~ 3) = 6de™. Redo Problem 18.2, given 2s ay=—20 (0) = 10 (18.28) (@) Here v= 4,2 = —20, and f 4 di = 41, Thus, oe +(4+ fae a) where f —20e" dr = —Se“. Substituting, (1) =e“ "(A — Se) = Ae“ — 5, At t= 0, y = 10. Thus, 10= Ae“ — 5, and A = 15. Substit me Wt) = Se“ — 5 = Se — 1) (829) i ey (0) The derivative of (18.29) is dy/dt = —60e~*', From (18.28), dy/di = -20—4y. Substituting from = (18.29) for y, dy/dt = —20 — 4 (1Se~*' — 5) = — 600-4", | c- , —— 18.7. Redo Problem 18.2, given oe ay: im — at ay = 6 (18.30) @ == 6, and {41 dt = 2. Thus, 2 = = ye ma + foe 4) (1832) — Using the substtuion method for the remaining imegral, let w = 21°, dufdt = de and dt = du/ét. Thus, &s di mie Se = 150" ~ foce 41 [oe e 1s ferdu= tse oe Substituting back in (78.31), ae a ye MAF LS Ae ES (832) : a (6) The derivative of (18.32) is dyidt = —dtAe *°. From (18.30), dyfdt = 61 ~ aly. Substituting froin t ~ (18.32), dy/dt = 6t — 4 Ac” + 1.5) = = 4tAe™**, i s q 188. (a) Solve the equation below using the formula for a general solution, (b) Check your answer. ES dy 2a y= oP 0) = =2.5 (18.33) (a) Dividing through by 2, dy/ds ~ ty = 4.512. Thus, v = = ing. 45, and f— 0 dt = — 40, Substitute sae fasrenm a) bee YU) = AMA ~ Ase) = Attn _ 45 Ate 0, 25 ~ A~ 45:4 = 2. Thus, ‘ Yi) 207 45 4) Taking the derivative of (18.35), dy/ai = 220” e450 URI5,dyde a5 BQ ag eget ESD, de fa pee 4 189. Redo Problem 188, given Do 2 ae (0) o=~2,2=e%and | ~ 21di-= —2,This, rur-e(us ferea)ae(es fora) where & ~ Land f 1 di = ¢. Substicutng back, YO SEA +) 837 (0) The derivative of (18.37), by the product rule, is dy/dt = 2te"(A + 1) + &'() =2Ae* +2" 4 BH From (18 36), dy/dt =e” + 21y. Substituting from (1837, 2 Hee UfelA dm =e 4 BAe” + De 18.10. Redo Problem 188, given om t Bayne yt 38) (@ 0=3,7=61,andf3d= vone{t+ fuera) i Using integration by parts for the remaining integral, lt f(e) = 61, then f'(0) = 6: let gt) =e%, then att) = fe dt ~ Le" Substituting in (16 i [ove a= 6h) ~ J $e dr wena |e dem di jer Substituting back in (18.3%, (0) = AF De — Fe) = Ae 4 2 | Ae ©) + 20) ~ 35.4 = 1. Thus, : yiQee 4 uF 18.40) 3e-% +2. From (18.38), dy/dt ~ 6¢~ 3y. Substituting +U- d= 342, Mr ib) Taking the derivative of (/8.40), dyldt 0 (pao directly above, dy/ds = 6 = He \. ar aR rep ta TTT | fiend aan aat oa yaa || Batch starts from 3rd July' 23 A CLASS PLANNER 4 via LIVE CLASSES f ¥ oe Course 1: WN 12:00PM-02:00PM ee uPSc NOM { pene — Monday to Saturday = [ Course 2: UPSCIES 06:00PM -08:00PM (Free Prep for RBIDEPR | Monday toSaturday ° B.A. ECOfH},M.A. ECO +NET JRF ECO) Academician — as FEATURES Founder,ECONOMICS * Lifetime Validity of Course FOREVER ¢ Online & Offline Modes Available . Media Person eae eS eee sii ° Answer Writing & Time Alumni Youth Speaker Management Practice * Exhaustive Test Series BHARAT == = —S*-:« Comprehensive Content as per UPSC Marking Scheme | By Rs 5000/* & Avail Heavy Discount 30th June or First 20 seats)

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