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A brief introduction to Lagrange Multipliers and its Business Application

Primary Source: Larson, R., Edwards B. H., Hostetler, R. P., (2005). Multivariable Calculus . Cengage Learning, 8, 889,968-971.

**What are Lagrange Multipliers…
**

Lagrange multipliers are a method used for

multivariable calculus

It combines the use of Derivatives and the

techniques used to solve Linear Programming

But Lagrange Multipliers expand on these principles… . The same principles apply.Think Linear Programming … Like Linear Programming Lagrange Multipliers are used to solve optimization problems that have multiple variables. an objective function is used with constraints to determine an optimal solution.

Lagrange multipliers can be used in linear and non- linear problems. (Which is nice because real life situations are often not linear) Derivatives are used to solve these Lagrange Multipliers . Linear Programming deals with exclusively linear objective functions.What’s so special about Lagrange Multipliers? Lagrange Multipliers can solve more complex problems. linear equality and linear inequality.

-gradient represents what would normally be represented f1 in a single variable derivative example. λ.Note and λ Before getting into the nitty griddy of Lagrange Multipliers note that there are symbols that must be introduced and explained and those are the gradient and Lambda.just a number Now keep that in mind as we now move into the math…… .

y0)≠ 0.Lagrange’s Theorem Let f and g have continuous first partial derivatives such that f has an extremum at a point (x0. y0). y0)= λg(x0. y0) on the smooth constraint curve g(x. then there is a real number λ such that f (x0. . If g(x0.y)=c.

Methods of Lagrange Multipliers Let f and g satisfy Lagrange’s Theorem. To find the minimum or maximum of f while satisfying the constraint. use the following steps… .y)=c. and f will have a minimum or maximum subject to the constraint g(x.

y)=λgx(x.y) f (x.y)=constraint Note: Evaluate f at each solution point. the largest value yields the maximum of f subject to the constraint g(x.y) fy(x.y)=c.Steps to Solve Lagrange Multipliers Solve the system of equations fx(x. . and the smallest value yields the minimum of f subject to the same constraint.y)=λgy(x.y)= the objective function g(x.

.Ok.Ok.. An Example Already! A Basic Lagrange Multiplier Example .

y.y)=5xy Constraint: g(x.An Example Objective function: f (x.y)= x+y=100 *Remember the goal here is to maximize f(x. and λ. The are variables are x. .y) and still satisfy x+y=100 *Keep in mind that when a finding a derivative the second variable is always treated like a number The Lagrange Theorem States we need to solve: fx=λgx fy=λgy g=c *Keep in mind that like linear programming you must have as many equations as variables.

g(y)=1 Now solve the system of equations… fx=λgx fy=λgy g= constraint 5y=λ 5x=λ x+y=100 But we are not done yet…… So if… 5y=λ and 5x=λ Then… x = y Now use constraint: x+y= 100. f (y)=1. g(x) =1. y=50 . Solve for x and y then x = 50.Example continued… First you take the gradient of the objective function and the constraint… f (x)= 5y.

. So… 5(50)(50)=12. which is the maximum value of f(x.500.y) where we still satisfy the constraint of x+y=100 . substitute 50 for y...Finishing Our Example… So far we have found two of the 3 variables that we are looking for: x=50 y=50 but what about λ? If 5y= λ. Now we have to put our x and y variables back into the objective function maximization to find our optimum (which was f(x. 5(50)=250. So λ=250.y)=5xy).

The Cobb Douglass Production Function Lagrange Multipliers’ Business application .

. We are using Lagrange multipliers to analyze the Cobb-Douglas production function.Practical Application Already knowing that like Linear Programming. Lagrange Multipliers calculate optimization. we can begin to see its practical uses. There is a production function that is particularly useful in Business and Economics called the CobbDouglas production function.

.The Cobb-Douglas production function This is useful in business and economics because it is a function of two variables Variables are labor and capital.y)=Cxay1-a Where C and a constants 0<a<1. which are used to calculate total production: f (x.

λ . The total cost of labor and capital is limited to $50.Word Problem Example as given in the book Multivariable Calculus p. Find the maximum production level for this manufacturer. the variables are x.000.y)= 100x3/4y1/4 Where x represents the units of labor (at $150 per unit) and y represents the units of capital (at $250 per unit). So to set this up….971 Objective Function: f (x. y.

Example continued… First you take the gradient of the objective function and the constraint… f x= f y= gx= gy= Then solve the linear equations: 1. f x=λgx 2. g= constraint 1. 150x+250y= 50. fy=25x ¾ y-3/4= λ 250 3.000 . fx= 75x-1/4y1/4= λ 150 2. f y=λgy 3.

75x-1/4 y1/4 = λ 150 2.Now Solve… 1. 25x 3/4 y-3/4 = λ 250 λ= λ 75x-1/4y1/4 = 25x3/4y-3/4 150 250 x-1/4y1/4 = x3/4y-3/4 (Multiply both sides by 10) 2 10 .

y=50.Continue Solving… From last page: x-1/4y1/4 = x3/4y-3/4 (Multiply both sides by 10)= 2 10 5x-1/4y1/4 = x3/4y-3/4 (multiply both sides by x 1/4y 3/4) = 5y=x So if 5y=x and we apply that to the constraint which is 150x +250y =50.000 then x=250.719. *So we should use 250 units of labor and 50 units of capitol .50)= 100(250)3/4(50)1/4 =16. Now that we have x and y we plug them back into the objective function to find our maximum production level: f (250.

Let’s Change it up How would the maximization change if the manufacturer weighted labor and capital differently? Example. instead of 100x1/4y3/4 lets weigh capital and labor equally as 100x1/2y1/2 Then if we followed the Lagrange method we would find that x=166. . This would make our new maximum production level 12. y=100.667.900.

Conclusions… We have now completed our introduction to Lagrange Multipliers and its business application (the Cobb-Douglas production function) Don’t be deceived today we just went over the basics of both of these applications. .

. Such as the fact that the Lagrange Theorem can be used for functions of multiple variables where today we only looked at a 2 variable scenario.So much more… There is so much more that we did not investigate today.

Today was about the Introduction Even though there is so much more to Lagrange multipliers today was meant as an introduction. Thank you! . You can now take this knowledge and use it as you wish.

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