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Lec41 (Constrained Optimization)

1) The document discusses sufficient conditions for a maximum or minimum in bivariate constrained optimization problems using the determinant of the bordered Hessian of the Lagrangian function. 2) It provides an example of utility maximization with constraints on hours of exercise and movies to illustrate the method. 3) The bordered Hessian is taken for the utility maximization example and the second order conditions are shown to hold, identifying a maximum.

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John Pinto
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129 views

Lec41 (Constrained Optimization)

1) The document discusses sufficient conditions for a maximum or minimum in bivariate constrained optimization problems using the determinant of the bordered Hessian of the Lagrangian function. 2) It provides an example of utility maximization with constraints on hours of exercise and movies to illustrate the method. 3) The bordered Hessian is taken for the utility maximization example and the second order conditions are shown to hold, identifying a maximum.

Uploaded by

John Pinto
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Constrained Optimization

Economics 214
Lecture 41
2
nd
Order Conditions Constrained
Optimization
Sufficient conditions in optimization problems require determining
The sign of the second total differential. The sign of the second
Total differential of a Lagrangian function

( ) ( ) ( ) ( )
( ) c x x g
c x x g x x f x x L
n
n n n
=
=
, , constraint the subject to
, , , , , ,
1
1 1 1


Depends on the sign of the determinant of the bordered
Hessian of the Lagrangian function.
Bordered Hessian for Bivariate
Function
The Bordered Hessian for the Lagrangian function

( ) ( ) ( ) ( )
(
(
(


=
=
22 22 21 21 2
12 12 11 11 1
2 1
2 1 2 1 2 1
0
, , ,
g f g f g
g f g f g
g g
H
is c x x g x x f x x L

Determinant Bordered Hessian


( ) ( ) ( ) ( )
22 22
2
1 11 11
2
2 12 12 1 2 21 21 2 1
22 22 21 21 2
12 12 11 11 1
2 1
0
g f g g f g g f g g g f g g
g f g f g
g f g f g
g g
H



+ =

=
2
nd
Order Conditions for Maximum
Sufficient Condition for a Maximum
in the Bivariate Case with one
Constraint: A Lagrangian function is
negative definite at a stationary
point if the determinant of its
bordered Hessian is positive when
evaluated at that point. In this case
the stationary point identified by
the Lagrange multiplier method is a
maximum.
2
nd
Order Condition for Minimum
Sufficient Condition for a minimum
in the Bivariate Case with one
Constraint: A Lagrangian function is
positive definite at a stationary
point if the determinant of its
bordered Hessian is negative when
evaluated at that point. In this case
the stationary point identified by
the Lagrange multiplier method is a
minimum.
Utility Maximization Example
( )
( )
0 4
0
0 2
: Conditions Order - First
4 100 )
is function Lagrangian Our
exercise. and movies watch to available are day per hours Four
100
function by the described is
(M) movies watching and (X) exercise from derived utility The
2
2
2
= + =
= =
= =
+ =
=



M X L
e L
e L
M X e e L(X,M,
e e X,M U

M
M
X
X
M X
M X

Utility Max example continued


3
) 2 ln( 8
3
4 ) 2 ln(
X
4 ln(2) 3X or X -4 2X - ln(2) 0 2e
get we ng, substituti and for (3) Solving 0 2
get we (1), into ng Substituti . get that we (2) From
0 4 , 0 , 0 2
: Conditions Order - First
* *
) 4 ( 2X -
2
2

=
+
=
+ = + = =
=
=
= + = = = = =


M and
e
X e e
e
M X L e L e L
X
M X -
-M

M
M
X
X
2
nd
Order Conditions
.
0 4
0 1
0 4 1
1 1 0
0 4 1 , 1
are Hessian bordered our for terms The
2 2
2
Max
e e
e
e H
L e L e L g g
M X
M
X
XM
M
MM
X
XX M X

> + =

=
= = = = =


2
nd
Utility Maximization Example
( )
0 24
0 32
0 16
are conditions order - first The 24 16
is function Lagrangian Our . 16 as
R and L of in terms function utility our rewrite can We
. 24 and leisure of hours where 4
is function utility The . 4 example our
For labor. of hours and rate wage where is
income s One' leisure. and income from utility derives One
2
2
2
2
= + =
= =
= =
+ =
=
= + = =
=
= = =
R L H
LR H
R H
R L LR H
LR U
R L R IR U
$ w
L w wL I
R
L

2
nd
Example Continued
( )
8 , 16
0 16 3 0 3 48 0 24 2
get we in, (3) ng substituti now , 0 2 0 16 32
(2) into ng Substituti . 16R get that we 1, equation From
is solution Our
0 24
0 32
0 16
are conditions order - first The
* *
2 2
2 2
2
2
= =
= = =
= =
=
= + =
= =
= =
L R
R R or R R or -R)R-R (
R LR or R LR-
R L H
LR H
R H
R
L

2
nd
Order Conditions
.
0 768 256 1024 ) 8 ( 32 ) 16 ( 64
32 32 32
32 32 1
32 0 1
1 1 0
32 , 32 , 0 , 1 , 1 g
: Hessian bordered our for needed Terms
L
Maximum
L R R
L R
R H
L H R H H g
RR RL LL R

> = = =
+ = =
= = = = =

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