1 / 16

Topic 9

Topic 9. Constrained Optimization Jacques 5.5 and 5.6. The behaviour of economic actors is often constrained by the economic resources they have at their disposal. Examples: –Individuals maximising utility will be subject to a budget constraint

kevinsilva
Télécharger la présentation

Topic 9

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Topic 9 Constrained Optimization Jacques 5.5 and 5.6

  2. The behaviour of economic actors is often constrained by the economic resources they have at their disposal • Examples: • –Individuals maximising utility will be subject to a budget constraint • –Firms maximising output will be subject to a cost constraint • The function we want to maximise is called the objective function • The restriction is called the constraint

  3. Method 1: By Substitution

  4. Method 2: By The Lagrange Multiplier

  5. Example 1 • Question • A consumers preferences can be represented by the Utility Function, U(x,y)=x.y. How much will the utility maximising consumer demand of goods x and y if they have an income of €100, the price of good x is €5 and the price of good y is €1?

  6. Solution • Solution: (x*,y*) = (10,50) and U = 500

  7. Lagrangean Method:

  8. Lagrangean Method:

More Related