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to be a local max;
(ii) x
, depends on I.
2. Solve the following problem:
max
x;y
_
minx; y x
2
y
2
5
London School of Economics Dr Francesco Nava
Department of Economics LIF 3.20 (Extension 6353)
EC400 2013/2014
Math for Microeconomics
September Course, Part II
Problem Set 6
1. Consider the problem of maximizing xyz subject to x + y + z _ 1, x _ 0, y _ 0, and
z _ 0. Obviously, the three latter constraints do not bind, and we can concentrate only
on the rst constraint, x + y + z _ 1. Find the solution and the Lagrange multiplier,
and show how the optimal value would change if instead the constraint was changed to
x + y + z _ 0:9.
2. Let a, x and y be non-negative. Consider the problem of maximizing xy subject to
x
2
+ ay
2
_ 1. What happens to the optimal value when a increases marginally?
3. Consider exercise 1 in Problem Set 5. For the case of an interior solution derive compar-
ative statics to nd how the endogenous variables change when I and p
x
change (one at
a time). That is, compute:
(i)
@x
@I
,
@y
@I
,
@
0
@I
;
(ii)
@x
@px
,
@y
@px
,
@
0
@px
.
6