Lecture 1

Section 13.1 from

Fundamental methods of Mathematical Economics, McGraw Hill 2005, 4th Edition.
By A. C. Chiang & Kevin Wainwright is covered.
Problem:

Maximize = (1 , 2 ) subject to 1 , 2 0, 1 , 2 0 . The Lagrangian function

is = 1 , 2 + (1 , 2 )
The Kuhn-Tucker conditions, which are necessary (but not sufficient), for a point to be a
maximum are:

0 1 0 1 =0
1 1

0 2 0 2 =0
2 2

0 0 =0

So for each choice variable we have three set of equations which must be met; similarly
for each constraint (hence ), we have three conditions which must be met.
Each point that is a solution to this system of equations is a possible candidate for the
maximum.

The conditions in column three are known as complementary-slackness conditions.

Example 1: Maximize 1 , 2 = 41 + 32 subject to 21 + 2 10 and

1 , 2 0.
(a) Write the Lagrangian function.
(b) Write Kuhn-Tucker conditions.
(c) Find solution when 1 = 0, 2 > 0, > 0 and check Kuh-Tucker conditions are
satisfied or not.

Solution: (a) The constraint can be rewritten as 10 21 2 0. We first form the

Lagrangian:
= 41 + 32 + (10 21 2 )
(b) The necessary conditions for a point to be maximum are

= 4 2 0 1 1 0 1 1 4 2 = 0(1)
1

= 3 0 2 2 0 (2) 2 (3 ) = 0(2)
2

1

= 10 21 2 0 3 0 3 (10 21 2 ) = 0 (3)

(c) From (1c)
1 = 0 (4)
As 2 > 0 from (2c)
3 = 0 (5)
> 0, (3c) yields
10 21 2 = 0 (6)
Soving equations 4 , 5 and 6 for 1 , 2 , , we have
= 3, 1 = 0, 2 = 10

Yes solution values satisfy all conditions, they are acceptable as the final solution.

Example 2: Maximize 1 , 2 = 21 + 32 subject to 1 2 + 2 2 2 and

1 , 2 0.
(a) Write the Lagrangian function.
(b) Write Kuhn-Tucker conditions.
(c) Find solution when 1 > 0, 2 > 0, > 0 and check Kuh-Tucker conditions are
satisfied or not.
Solution:
(a) The constraint can be rewritten as 2 1 2 2 2 0. We first form the Lagrangian:
= 21 + 32 + (2 1 2 2 2 )
(b) Tthe necessary conditions for a point to be maximum are

= 2 21 0 1 1 0 1 1 2 21 = 0(1)
1

= 3 22 0 2 2 0 (2) 2 (3 22 ) = 0(2)
2

= 2 1 2 2 2 0 3 0 3 (2 1 2 2 2 ) = 0 (3)

(c) As 1 > 0, 2 > 0, > 0 so (1c), (2c) and (3c) yield

2 21 = 0 (4)

3 22 = 0 (5)

2 1 2 2 2 = 0 (6)

From equations 4 and 5 , we have

1 3
1 = , 2 = 2 (7)

Substituting (7) in (6), we get

2
 1 9 13 13 8 18
2 2 4 2 = 0 = as > 0, we must have = , hence1 = , 2 = .
8 8 13 13

Since solution values satisfy all conditions, they are acceptable as the final solution.

Example 3: Maximize profits

= 64 2 2 + 96 4 2 13

Subject to production constraint + 20.

(a) Write the Lagrangian function.

(b) Write Kuhn-Tucker conditions.
(c) Find solution when > 0, > 0, = 0 and check Kuh-Tucker conditions are
satisfied or not.
(d) Find solution when > 0, > 0, > 0 and check Kuh-Tucker conditions are
satisfied or not.

Solution:

(a) The constraint can be rewritten as 20 0. We first form the Lagrangian:

= 64 2 2 + 96 4 2 13 + (20 )
(b) The Kuhn-Tucker conditions for a point to be maximum are

= 64 4 0 1 0 1 64 4 = 0(1)


= 96 8 0 2 0 (2) (96 8 ) = 0(2)


= 20 0 3 0 3 (20 ) = 0 (3)

(c) As > 0, (1c) implies

64 4 = 0 (4)
As > 0, (2c) implies
96 8 = 0 (5)
= 0 (6)
Solution of equations 4 6 is
= 16, = 12, =0 7

But this violates the equation (3a) and is not the optimal solution.
(d) As 1 > 0, 2 > 0, > 0 so (1c), (2c) and (3c) yield

3
 20 = 0 (8)

64 4 = 0 (9)

96 8 = 0 (10)

Solving (8)-(10) simultaneously, we have

= 10.67, = 9.33, = 21.33

Since solution values satisfy all conditions, they are acceptable as the final solution

Note:

To Minimize = ( , ) subject to , , , . You need to maximize

= ( , ) subject to , , , .

Example 4: Minimize cost = 5 2 80 + 2 32 subject to + 30.

(a) Write the Lagrangian function.

(b) Write Kuhn-Tucker conditions.
(c) Find solution when > 0, > 0, = 0 and check Kuh-Tucker conditions are
satisfied or not.
(d) Find solution when > 0, > 0, > 0 and check Kuh-Tucker conditions are
satisfied or not.
Solution:

(a) To attempt this minimization problem you need to maximize = 5 2 + 80 2 +

32 subject to + 30.
The constraint can be rewritten as + 30 0. We first form the Lagrangian:
= 5 2 + 80 2 + 32 + ( + 30)
(b) The Kuhn-Tucker for a point to be maximum are

= 10 + 80 + 0 1 0 1 10 + 80 + = 0(1)


= 2 + 32 + 0 2 0 (2) (2 + 32 + ) = 0(2)


= + 30 0 3 0 3 ( + 30) = 0 (3)

(c) As > 0, (1c) implies
10 + 80 + = 0 (4)
As > 0, (2c) implies
2 + 32 + = 0 (5)

4
 = 0 (6)
Solution of equations 4 6 is
= 8, = 16, =0 7

But this violates the equation (3a) and is not the optimal solution.
(d) As 1 > 0, 2 > 0, > 0 so (1c), (2c) and (3c) yield

+ 30 = 0 (8)

10 + 80 + = 0 (9)

2 + 32 + = 0 (10)

Which yields

= 9, = 21, = 10

Since solution values satisfy all conditions, they are acceptable as the final solution.