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Unit ETC2044 Page 1/??

Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
1
S =
_
(−1)
n
_
1 +
1
n
_
, n ∈ N
_
S = {−2, 1.5, −1.
˙
3, 1.25, −1.2 · · · }
Max(S) = 1.5
Sup(S) does not exist, as N has a closed upper bound.
Min(S) = -2
Inf(S) does not exist as N has a closed lower bound.
Set of interior points of S does not exist as N is not dense
Set of boundary points of S is S as S is not a dense set
S is a closed set, because S

is an open set, all points in the set are equal to
their limits.
S is not an open set, because it is closed
S is a compact set, because it is closed and bounded
S is not a convex set because the line between -2 and 1.5 passes through the
point -0.25, and for S to containt the point -0.25, then n would not be an
integer, which is not in the set N
−2 + 1.5
2
= −0.25 = (−1)
n
_
1 +
1
n
_
−0.25
(−1)
n
= 1 +
1
n
−0.25
(−1)
n
−1 =
1
n
n =
1
−0.25
(−1)
n
−1
Which is encompassed by the following broader statement
n =
1
±0.25 −1
n =
−3
4
or
−5
4
Therefore n is not an integer, and thus the line between -2 and 1.5 does not containt
only points found in S, thus S is not a convex set.
Unit ETC2044 Page 2/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
2
2.1
< x
k
>=
k + 2
k
2
−4
, k ∈ N
To show that < x
k
> converges to zero first we must simplify the expression
We can say
k + 2
k
2
−4
=
k + 2
(k + 2)(k −2)
=
1
k −2
Which has the values as follows
k: 1 2 3 4 5 6 7 · · ·
x
k
: -1 ±∞ 1 0.5 0.
˙
3 0.25 0.2
1
k−2
It appears obvious that the sequence if it converges will converge to 0, so using the
definition and ensuring to start at values greater than 2, due to the sign shift and
possible infinities we get
|x
k
−0| ≤
Therefore, the sequence converges to 0 if and only if we can find a N() such that,
for any k ≥ N()
|x
k
−0| =
1
k −2

¸
¸
¸
¸
1
k −2
¸
¸
¸
¸

1
k −2
≤ , k > 2
k −2 ≥
1

k ≥
1

+ 2
And from this we can clearly see N() =
1

+ 2 which shows that < x
k
>→0 is true
2.2
< x
k
>=
k + 2
k
2
−3
, k ∈ N
To show that < x
k
> converges to zero first we must do a bit of mental gymnastics,
firstly we must recognise the following
Unit ETC2044 Page 3/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
k + 2
k
2
−3

k + 2
k
2
−4
, k > 2 ∈ N
And we know the following
< y
k
>→0 where < y
k
>=
k + 2
k
2
−4
, k ∈ N
Additionally where the appropriate boundary condition is placed on k we can show
< x
k
> is never negative
k
2
−3 ≥ 0
k ≥

3
k ≥ 2
So Given (< y
k
>→0) ∧(< x
k
>≤< y
k
>) ∧(< x
k
>≥ 0) ∀ k > 2, we can safely say
< x
k
>→0 is true due to Sandwich Theorem.
2.3
< x
k
>=
_
1
k
,
1
k
_
, k ∈ N
show that < x
k
>→0
We can see that the sequence looks like
k: 1 2 3 4 5 · · ·
x
k1
: 1 0.5 0.
˙
3 0.25 0.2
1
k
x
k2
: 1 0.5 0.
˙
3 0.25 0.2
1
k
Because this is a two dimensional sequence we will need to update our distance
metric
Using the Euclidian distance metric Definition 1.14
d(x, y) = ||x −y||
Which can be expanded to two dimensions
d(a, b) =
_
(a
x
−b
x
)
2
+ (a
y
−b
y
)
2
We can now show that < x
k
>→ 0 is true, if and only if we can find a N() such
that for any k ≥ N() by rewriting < x
k
> as
_
1
k
,
1
k
_
From which we can use
d(x
k
, x) ≤ ∀ k ≥ N() Definition 1.15
Unit ETC2044 Page 4/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
To say

¸
_
1
k
−0
_
2
+
_
1
k
−0
_
2

_
1
k
2
+
1
k
2


2
k

2

≤ k
From this we can see that N() =

2

and that < x
k
>→0 is true.
2.4
< x
k
>= (−1)
k
_
1 +
1
k
_
, k ∈ N
We can see that the sequence looks like
k: 1 2 3 4 5
x
k
: -2 1.5 −1.
˙
3 1.25 -1.2 (−1)
k
(1 +
1
k
)
This does not look as though it is a convergent series, as the negatives and positives
appear to be trending to -1 and 1 respectively, which would make the sequence
divergent, to show this is the case Definition 1.15 shall be used in conjunction with
Theorem 1.11 which states
Given < ¯ x
k
>⊆< x
k
> then < x
k
>→x ⇐⇒< ¯ x
k
>→x Theorem 1.11
Looking at the subset comprised of only even indices
< ¯ x
k
>=< x
k
> ∀ mod (k, 2) = 0
We see
k: 2 4 6 8 10 (original indices used for convenience)
¯ x
k
: 1.5 1.25 1.1
˙
6 1.125 1.1 (1 +
1
k
)
Which we can then see converges to 1 using Definition 1.15
d(¯ x
k
, x) ≤ ∀ k ≥ N
1
() Definition 1.15
|¯ x
k
−1| ≤
¸
¸
¸
¸
1 +
1
k
−1
¸
¸
¸
¸

¸
¸
¸
¸
1
k
¸
¸
¸
¸

Unit ETC2044 Page 5/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
1
k

k ≥
1

From this we can see that N
1
() =
1

and that < ¯ x
k
>→1 is true.
So now we’ll look at the subset comprised of only odd indices
< ˆ x
k
>=< x
k
> ∀ mod (k, 2) = 1
We see
k: 1 3 5 7 9 (original indices used for convenience)
ˆ x
k
: -2 −1.
˙
3 −1.2 1.142857 1.
˙
1 −(1 +
1
k
)
Which we can then see converges to -1 using Definition 1.15
d(ˆ x
k
, x) ≤ ∀ k ≥ N
2
() Definition 1.15
|ˆ x
k
+ 1| ≤
¸
¸
¸
¸
−1 −
1
k
+ 1
¸
¸
¸
¸

¸
¸
¸
¸

1
k
¸
¸
¸
¸

1
k

k ≥
1

From this we can see that N
2
() =
1

and that < ˆ x
k
>→−1 is true. So now we have
the following
< ¯ x
k
>→1
And
< ˆ x
k
>→−1
Where
< x
k
>⊇< ˆ x
k
> ∪ < ¯ x
k
>
Which clearly does not satisfy Theorem 1.11, therefore we can safely say that < x
k
>
is a non-convergent sequence.
Unit ETC2044 Page 6/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
3
f : D = [−5, 5] →R
is defined by
f(x) = x
2
3.1
In order to show that f is continuous at x
0
∈ D Definition 2.3 must be used, which
states
A function
f : S ⊂ R
n
→R
is continuous at x
0
∈ S if, for every > 0 there exists a δ > 0 such that
d(f(x), f(x
0
)) < if d(x, x
0
) < δ
If f is continuous at every point in S, we say that f is continuous on S, thus
|x
2
−x
2
0
| < if |x −x
0
| < δ
However we must acknowledge
|x
0
| < 5
With that in mind we can say
|x −x
0
||x + x
0
| <
0 < |x −x
0
| < δ
Let δ ≤ 1 which forces
0 < |x −x
0
| < 1
|x + x
0
| < 2|x
0
| + 1
And now we can say
|x −x
0
||x + x
0
| < |x −x
0
|(2|x
0
| + 1) <
|x −x
0
| =

2|x
0
| + 1
Therefore
δ = min
_
1,

2|x
0
| + 1
_
Proof
|x
2
−x
2
0
| = |x + x
0
||x −x
0
| < (2|x
0
| + 1)|x −x
0
| <
(2|x
0
| + 1)
2|x
0
| + 1
=
Unit ETC2044 Page 7/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
Which shows that the limit exists for any x
0
defined by f on D, and hence, f(x) is
continuous on all of D
3.2
Let Definition 2.5
g : S ⊂ R
n
→R
We can say a function g is uniformly continous on S if, for every > 0, there exists
a δ > 0 such that for any x, y ∈ S
d(g(x), g(y)) < if d(x, y) < δ
Given this, and knowing what was shown in 3.2, we can say that f is uniformly
continous on D.
3.3
f is convex on D, this can be shown by a simple double differentiation test
f(x
0
) = x
2
0
f

(x
0
) = 2x
0
f

(x
0
) = 2
Given f

(x) > 0 the turning point is a minimum, which dictates that f(x) is convex
on all of D
4
A firm’s production function can be described as follows
y = f(x
1
, x
2
) = x
α
1
x
β
2
α, β ∈ R
++
4.1
The homogeneity of this function can be found Definition 3.7
f(λx
1
, λx
2
) = (λx
1
)
α
(λx
2
)
β
= αλ(x
1
)
α
βλ(x
2
)
β
= αβλ(x
α
1
x
β
2
)
= αβλf(x
1
, x
2
)
Unit ETC2044 Page 8/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
Therefore the degree of homogeneity of the firm’s production function is αβ
4.2
S =
_
(x
1
, x
2
) ∈ R
++
¸
¸
¸x
α
1
x
β
2
= y
0
_
4.2.1
Given
x
α
1
x
β
2
= y
0
Find
dx
2
dx
1
using implicit differentiation
d
dx
1
_
x
α
1
x
β
2
_
=
d
dx
1
_
y
0
_
= 0
=
d
dx
1
_
x
α
1
_
x
β
2
+
d
dx
1
_
x
β
2
_
x
α
1
Product Rule = αx
β
2
x
α−1
1
+ βx
α
1
x
β−1
2
d
dx
1
_
x
2
_
dx
2
dx
1
= −
αx
β
2
x
α−1
1
βx
α
1
x
β−1
2
dx
2
dx
1
= −
αx
2
βx
1
4.2.2
Given
dx
2
dx
1
= −
αx
2
βx
1
= 0
Find
d
2
x
2
dx
2
1
using implicit differentiation
d
2
x
2
dx
2
1
=
d
dx
1
_

αx
2
βx
1
_
= 0
=
d
dx
1
_
−αx
2
__
βx
1
_

d
dx
1
_
βx
1
__
−αx
2
_
(βx
1
)
2
=
−α
_
βx
1
_
d
dx
1
_
x
2
_
+ βαx
2
(βx
1
)
2
Unit ETC2044 Page 9/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
−βαx
2
= −αβx
1
d
dx
1
_
x
2
_
d
2
x
2
dx
2
1
=
x
2
x
1
4.2.3
The curvature of the isoquant is convex, as the second derivative is positive, The first
derivative is always negative, initially quite large, and then significantly reducing,
this indicates that the shape of the isoquant is something hyperbolic in nature.
4.3
4.3.1
Hessian Matrix
_
F
11
F
12
F
21
F
22
_
Where
F
11
=

2
f
∂x
2
1
F
12
=

2
f
∂x
1
∂x
2
F
21
=

2
f
∂x
2
∂x
1
F
22
=

2
f
∂x
2
2
Calculating F
nm
F
11
=

2
f
∂x
2
1
=

∂x
1

∂x
1
_
x
α
1
x
β
2
_
=

∂x
1
_
αx
β
2
x
α−1
1
_
= α(α −1)x
β
2
x
α−2
1
F
12
=

2
f
∂x
1
∂x
2
=

∂x
1

∂x
2
_
x
α
1
x
β
2
_
Unit ETC2044 Page 10/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
=

∂x
1
_
βx
α
1
x
β−1
2
_
= αβx
α−1
1
x
β−1
2
F
21
=

2
f
∂x
2
∂x
1
=

∂x
2

∂x
1
_
x
α
1
x
β
2
_
=

∂x
2
_
αx
β
2
x
α−1
1
_
= αβx
α−1
1
x
β−1
2
F
22
=

2
f
∂x
2
2
=

∂x
2

∂x
2
_
x
α
1
x
β
2
_
=

∂x
2
_
βx
α
1
x
β−1
2
_
= β(β −1)x
α
1
x
β−2
2
Therefore the Hessian Matrix is
_
α(α −1)x
β
2
x
α−2
1
αβx
α−1
1
x
β−1
2
αβx
α−1
1
x
β−1
2
β(β −1)x
α
1
x
β−2
2
_
4.3.2
Given the Hessian Matrix is
_
α(α −1)x
β
2
x
α−2
1
αβx
α−1
1
x
β−1
2
αβx
α−1
1
x
β−1
2
β(β −1)x
α
1
x
β−2
2
_
We can force the function to be strictly concave for values of α and β that satisfy
the following
|F
11
| < 0
and Theorem 4.10
Unit ETC2044 Page 11/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
¸
¸
¸
¸
¸
F
11
F
12
F
21
F
22
¸
¸
¸
¸
¸
> 0
Beggining with F
11
F
11
= α(α −1)x
β
2
x
α−2
1
α(α −1)x
β
2
x
α−2
1
< 0
(α −1)x
β
2
x
α−2
1
< 0
α −1 < 0
α < 1
And secondly
¸
¸
¸
¸
¸
F
11
F
12
F
21
F
22
¸
¸
¸
¸
¸
= (F
11
)(F
22
) −(F
12
)(F
21
)
0 <
_
α(α −1)x
β
2
x
α−2
1
__
β(β −1)x
α
1
x
β−2
2
_

_
αβx
α−1
1
x
β−1
2
_
2
0 < −
αβ
2
x
1

x
2

−αβx
1

x
2

+ α
2
βx
1

x
2

x
1
2
x
2
2
0 < −
αβx

1
x

2
(α + β −1)
x
2
1
x
2
2
0 < −α, βx
2α−2
1
x
2β−2
2
(α + β −1)
Which can be simplified further to
(α + β −1) < 0
α + β < 1
β < 1 −α
and from this we can clearly state that
_
α, β ∈ R
++
¸
¸
¸0 < α + β < 1
_
In order to ensure that the function is strictly concave
Unit ETC2044 Page 12/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
4.4
Given
(x
1
, x
2
) ∈ S

=
_
(x
1
, x
2
) ∈ R
++
¸
¸
¸x
α
1
x
β
2
≥ y
0
_
The set S

is convex if for any
(x
1
, x
2
), (y
1
, y
2
) ∈ S

the point
˜ z = λ˜ x + (1 −t)˜ y ∈ S

∀ λ ∈ [0, 1]
Where
˜ x = (x
1
, x
2
) and ˜ y = (y
1
, y
2
)
So letting
˜ x, ˜ y ∈ S

and λ ∈ [0, 1]
We can look back at z
˜ z = λ˜ x + (1 −λ)˜ y ∈ S

∀ λ ∈ [0, 1]
Which we can rewrite as
z
1
= λx
1
+ (1 −λy
1
)
z
2
= λx
2
+ (1 −λy
2
)
For ˜ z ∈ S

to be true the following must hold
z
α
1
z
β
2
≥ y
0
Which can be rewritten as
y
0
≤ (λx
1
+ (1 −λy
1
))
α
(λx
2
+ (1 −λy
2
))
β
And we can show the Geometric-Arithmetic mean inequality
0 ≤ (c −d)
2
= c
2
−2cd + d
2
⇐⇒ c = d
= c
2
+ 2cd + d
2
−4cd
= (c + d)
2
−4cd
(c + d)
2
≥ 4xy
c + d ≥ 2

cd
c + d
2


cd
Unit ETC2044 Page 13/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
Which we can make more relevant by recognising that 0 < λ < 1 and applied to the
problem in order to state
λ˜ x + (1 −λ)˜ y ≥ ˜ x
λ
˜ y
(1−λ)
Which can be applied now to show
y
0

_
˜ x
λ
_
α
_
˜ y
1−λ
_
β
≤ (λx
1
+ (1 −λy
1
))
α
(λx
2
+ (1 −λy
2
))
β
Which demonstrates
(z
1
, z
2
) ∈ S

=
_
(z
1
, z
2
) ∈ R
++
¸
¸
¸z
α
1
z
β
2
≥ y
0
_
Where
˜ z = λ˜ x + (1 −t)˜ y ∈ S

∀ λ ∈ [0, 1]
Which shows that the upper contour set S

is convex.
5
Production function f of factors x
1
and x
2
is
y = f(x
1
, x
2
) = x
1/2
1
x
1/4
Exogenously given factor prices create total cost of production, TC
TC = w
1
x
1
+ w
2
x
2
| w
1
, w
2
∈ R
++
Resulting in an optimisation problem of
min
x
1
,x
2
(w
1
x
1
+ w
2
x
2
)
subject to
(x
1
, x
2
) ∈ S

=
_
(x
1
, x
2
) ∈ R
++
¸
¸
¸x
1/2
1
x
1/4
2
≥ y
_
5.1
5.1.1
TC = w
1
x
1
+ w
2
x
2
| w
1
, w
2
, x
1
, x
2
∈ R
++
(x
1
, x
2
) ∈ S

=
_
(x
1
, x
2
) ∈ R
++
¸
¸
¸x
1/2
1
x
1/4
2
≥ y
_
Theorem 2.9/4.1 (Wierstrass Theorem) States that if
f : D ⊂ R
n
→R
Unit ETC2044 Page 14/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
is continous on D, and D is a compact set, then f attains a global maximum and a
global minimum on D. However the Wierstrass theorem does not state satisfying it
is a requirement. However we are only looking for a global minimum, which exists if
the following is true.
f(x
0
) ≤ f(x) ∀ x ∈ D
5.1.2
Under the assumption that the correction missed altering this question to refer to
equation 5 instead of 4, I’ll proceed to answer whether 5 satisfies the condition.
Unfortunately the equation TC = w
1
x
1
+ w
2
x
2
is on an open domain, which does
not satisfy the Wierstrass Theorem, however it does appear that it may satisfy the
second condition, if sufficient restrictions are placed on x
1
and x
2
.
5.1.3
The statement (x
1
, x
2
) ∈ S

=
_
(x
1
, x
2
) ∈ R
++
¸
¸
¸x
1/2
1
x
1/4
2
≥ y
_
also does not satisfy
the Weirstrass Theorem, however it does appear that it will satisfy the second condi-
tion, by applying a strict equality to replace the inequality, this will provide a lower
bound, which may be enough to satisfy the second condition.
5.2
S
∗∗
=
_
(x
1
, x
2
) ∈ R
++
¸
¸
¸x
1/2
1
x
1/4
2
= y
_
5.2.1
The contraint qualification is satisfied for this problem, as we are able to create a
constraint function using the partially bounded set S
∗∗
. This in turn satisfies the
requirement for a minimum value, which provides the required restrictions to ensure
an optimum solution.
5.2.2
The lagrangean function is defined as
L(x
1
, x
2
, y, λ) = p(x
1
, x
2
) + λg(x
1
, x
2
, y)
= w
1
x
1
+ w
2
x
2
+ λ
_
x
1/2
1
x
1/4
2
−y
_
Unit ETC2044 Page 15/??
Job Assignment 2 Date 01/06/2014
Name XXXXXX Due Date 2/06/2014
Student ID XXXXXX Tutor Wen Shi
5.3
The first order conditions of this problem are
L
x
1
=
∂L
∂x
1
= w
1
+
λ
4

x
2
2

x
1
L
x
2
=
∂L
∂x
2
= w
2
+
λ

x
1
4
4
_
x
3
2
L
y
=
∂L
∂y
= −λ
L
λ
=
∂L
∂λ
=

x
1
4

x
2
−y
5.4