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Math For Economists.
Math For Economists.
(3)
(4)
Of course, we could try to solve equation (4) for y in terms of x, or for x in terms of y,
then substitute the result into equation (3), and use methods for functions of a single variable.
But what if equation (4) is more complicated than equation (2), and solving for one variable in
terms of the other is either very difficult or impossible? In the method of Lagrange multipliers,
we will work with g ( x, y ) directly and avoid solving equation (4) for one variable in terms of
the other. In addition, the method generalizes to functions of arbitrary many variables subject to
one or more constraints.
Now to the method: We form a new function F, using functions f and g in equations (3)
and (4), as follows:
F ( x, y , ) f ( x , y ) g ( x, y ) .
(5)
Here is called a Lagrange multiplier. Theorem 1 gives the basis for the method.
Theorem 1 (Method of Lagrange Multipliers for Functions of Two Variables). Any local
maxima or minima of the function z f ( x, y ) subject to the constraint g ( x, y ) 0 will be
among those points ( x0 , y 0 ) for which ( x0 , y0 , 0 ) is a solution of the system
Fx ( x, y, ) 0
Fy ( x, y, ) 0 ,
F ( x, y , ) 0
We now use the method of Lagrange multipliers to solve the fence problem. Formulate
the problem in the form of equations (3) and (4):
Maximize f ( x, y ) xy ,
subject to g ( x, y ) 3 x y 720 0 .
Form the function F, introducing the Lagrange multiplier :
F ( x, y, ) f ( x, y ) g ( x, y ) xy (3x y 720) .
Fx y 3 0
,
Fy x 0
F 3x y 720 0
x 120
y 360 .
120
So, ( x0 , y0 , 0 ) (120,360, 120) is the only critical point of F. According to Theorem 1, if the
function f ( x, y ) , subject to the constraint g ( x, y ) 0 , has a local maximum or minimum, that
maximum or minimum must occur at x 120, y 360 . We simply assume that the maximum
value of f ( x, y ) must occur for x 120, y 360 .
Max f ( x, y ) f (120,360) 120 360 43, 200 square feet.
F ( x, y , ) f ( x , y ) g ( x, y ) .
Step 3. Find the critical points of F, that is, solve the system
Fx ( x, y, ) 0
Fy ( x, y, ) 0 .
F ( x, y , ) 0
Step 4. If ( x0 , y0 , 0 ) is the only critical point of F, we assume that ( x0 , y0 ) will always produce
the solution to the problems we consider. If F has more than one critical point, we evaluate
z f ( x, y ) at ( x0 , y0 ) for each critical point ( x0 , y0 , 0 ) of F. For the problems we consider, we
assume that the largest of these values is the maximum value of f ( x, y ) , subject to the constraint
g ( x, y ) 0 , and the smallest is the minimum value of f ( x, y ) , subject to the constraint
g ( x, y ) 0 .
Example (Productivity). The Cobb-Douglas production function for a new product is given by
N ( x, y ) 16 x 0.25 y 0.75 ,
where x is the number of units of labor and y is the number of units of capital required to produce
N ( x, y ) units of the product. Each unit of labor costs $ 50 and each unit of capital costs $ 100. If
$ 500,000 has been budgeted for the production of this product, how should that amount be
allocated between labor and capital in order to maximize production? What is the maximum
number of units that can be produced?
Solution. The total cost of using x units of labor and y units of capital is 50 x 100 y . Thus, the
constraint imposed by the $ 500,000 budget is
50 x 100 y 500,000 .
Then our problem is
Maximize N ( x, y ) 16 x 0.25 y 0.75 ,
subject to g ( x, y ) 50 x 100 y 500, 000 0 .
Form the function F, introducing the Lagrange multiplier :
F ( x, y, ) 16 x 0.25 y 0.75 (50 x 100 y 500,00) .
Solve the system:
Fx 4 x 0.75 y 0.75 50 0
0.25 0.25
100 0 ,
Fy 12 x y
F 50 x 100 y 500, 000 0
x 2,500
y 3, 750 .
0.1084
The only critical point of F is (2500,3750, 0.1084) . Since F has only one critical point, we
conclude that maximum productivity occurs when 2,500 units of labor and 3,750 units of capital
are used.
Max N ( x, y ) N (2500,3750) 16 25000.25 37500.75 54, 216 units.
The negative of the value of the Lagrange multiplier is called the marginal productivity
of money and gives the approximate increase in production for each additional dollar spent on
production. In the above example, increasing the production budget from $ 500,000 to $ 600,000
would result in an approximate increase in production of
0.1084 100, 000 10,840 units.
Note that simplifying the constraint equation
50 x 100 y 500,000 0
to
x 2 y 10,000 0
before forming the function F ( x, y, ) would make it difficult to interpret correctly. In
marginal productivity problems, the constraint equation should not be simplified.
Theorem 2 (Method of Lagrange Multipliers for Functions of Three Variables). Any local
maxima or minima of the function w f ( x, y, z ) , subject to the constraint g ( x, y, z ) 0 , will be
among the set of points ( x0 , y0 , z0 ) for which ( x0 , y0 , z0 , 0 ) is a solution of the system
Fx ( x, y, z , ) 0
F ( x, y , z , ) 0
y
,
Fz ( x, y, z , ) 0
F ( x, y, z , ) 0
where F ( x, y, z , ) f ( x, y, z ) g ( x, y, z ) , provided that all the partial derivatives exist.
Example (Package Design). A rectangular box with an open top and one partition is to be
constructed from 162 square inches of cardboard. Find the dimensions that result in a box with
the largest possible volume.
Solution. We must maximize
V ( x, y, z ) xyz ,
subject to the constraint that the amount of material used is 162 square inches. So x, y, and z
must satisfy
xy 2 xz 3 yz 162 .
Then our problem is
Maximize V ( x, y, z ) xyz ,
subject to g ( x, y, z ) xy 2 xz 3 yz 162 0 .
Form the function F:
F ( x, y, z , ) xyz ( xy 2 xz 3 yz 162) .
Solve the system:
Fx yz y 2 z 0
x9
F xz x 3 z 0
y6
y
,
.
Fz xy 2 x 3 y 0
z 3
1.5
F xy 2 xz 2 yz 162 0
The only critical point of F with x, y, and z all positive is (9,6,3, 1.5) . Thus the box with the
maximum volume has dimensions 9 inches by 6 inches by 3 inches.