Econ 415/615 Mathematics for Economists Lau

Problem Set VI Fall 2021

Quadratic forms, n variables unconstrained optimization

1) Determine the definiteness of the following matrices:

 1 1 −0.5   −1 3 4  3 1 3 
     
a)  1 4 3  b) 3 0 2.5  c)  1 0 2.5 
 −0.5 3 8   4 2.5 0   3 2.5 1 
    

2) Suppose the production function of a perfect competitive firm is

1 1 1
Q = f ( X ,Y , Z ) = X Y Z where X , Y , Z are inputs.
4 4 4

Let PQ = $3, PX = $2, PY = $1, and PZ = $4 .

a) Calculate the profit-maximizing inputs and output.
b) Check the second order conditions.

1 1 1
3) Suppose the production function of a perfect competitive firm is Q = f ( X , Y , Z ) = X 2 + Y 2 + Z 2
where X , Y , Z are inputs.
Let Pi , i = X ,Y , Z be the price of input i and PQ be the price of the output.
a) Solve the first order conditions for profit maximization, and find the input demand
functions X *( PX , PY , PZ , PQ ), Y *( PX , PY , PZ , PQ ) and Z *( PX , PY , PZ , PQ ) .
b) Check the second order condition.
X *
c) Find , i = X ,Y , Z , Q .
Pi
d) Find the supply function Q *( PX , PY , PZ , PQ ) for this firm.
e) Find the profit function  *( PX , PY , PZ , PQ ) .

4) Find the determinant of the matrix:

−1 1 3 0
0 2 0 7
5 5 6 0
9 0 2 3

1
Econ 415/615 Mathematical Economics I Lau
Problem Set VI: Solution

 1 1 −0.5 
 
1a)  1 4 3 
 −0.5 3 8 

1 1 −0.5
1 1
A1 = 1 = 1  0 A2 = =30 A3 = 1 4 3 = 11  0  positive definite
1 4
−0.5 3 8

 −1 3 4 
 
1b) 3 0 2.5 
 4 2.5 0 
 
−1 3 4
−1 3
A1 = −1 = −1  0 A2 = = −9  0 A3 = 3 0 2.5 = 66.25  0  non-definite
3 0
4 2.5 0

3 1 3 
 
1c)  1 0 2.5 
 3 2.5 1 
 
3 1 3
3 1
A1 = 3 = 3  0 A2 = = −1  0 A3 = 1 0 2.5 = −3.75  0  non-definite
1 0
3 2.5 1

2
 1 1 1
2) max  = 3 X 4 Y 4 Z 4 − 2 X − Y − 4Z
X ,Y , Z

FONC:
3 1 1 3 1 1
3 −4 4 4 3 −4 4 4
X = X Y Z − 2 = 0  X Y Z = 2 (1)
4 4
1 3 1 1 3 1
3 − 3 −
Y = X 4Y 4 Z 4 − 1 = 0  X 4Y 4 Z 4 = 1 (2)
4 4
1 1 3 1 1 3
3 4 4 −4 3 4 4 −4
Z = X Y Z − 4 = 0  X Y Z = 4 (3)
4 4
3 1 1
3 −4 4 4
X Y Z
(1) 2 Y
 4 1 3 1 =  = 2  Y = 2X (4)
(2) 3 4 −4 4 1 X
X Y Z
4
3 1 1
3 −4 4 4
X Y Z
(1) 4 2 Z 1 X
= 1 1 3
=  = Z= (5)
(3) 3 4 4 − 4 4 X 2 2
X Y Z
4
3 1 1 3 1 1
3 − 3 − X
(4) and (5) → (1): X 4 Y 4 Z 4 − 2 = 0  X 4 (2 X ) 4 ( ) 4 − 2 = 0
4 4 2
1 1 1
3 − − 8 − 8 81
 X 4 = 2  X 4 =  ( X 4 ) −4 = ( ) −4  X * =
4 3 3 4096
81
 Y* = 2X =
2048
X 81
 Z* = =
2 8192
SOSC:
7 1 1 3 3 1 3 1 3
9 −4 4 4 3 −4 −4 4 3 −4 4 −4
− X Y Z X Y Z X Y Z
16 16 16
 XX  XY  XZ 3 3 1 1 7 1 1 3 3
3 −4 −4 4 9 − 3 4 −4 −4
H =  YX  YY  YZ = X Y Z − X 4Y 4 Z 4 X Y Z
16 16 16
 ZX  ZY  ZZ 3 1 3 1 3 3 1 1 7
3 −4 4 −4 3 4 −4 −4 9 −
X Y Z X Y Z − X 4Y 4 Z 4
16 16 16
7 1 1
9 −
H1 = − X 4 Y 4 Z 4  0
16
7 1 1 3 3 1
9 − 3 −4 −4 4
− X 4Y 4 Z 4 X Y Z 6 6 2 6 6 2 6 6 2
16 16 81 − 4 − 4 4 9 − − 72 − 4 − 4 4
H2 = 3 3 1 1 7 1
= X Y Z − X 4
Y 4
Z 4
= X Y Z 0
3 −4 −4 4 9 4 −4 4 256 256 256
X Y Z − X Y Z
16 16

3
 5 5 5 5 5 5 5 5 5
729 − 4 − 4 − 4 27 − − − 27 − − −
H3 = − X Y Z + X 4Y 4 Z 4 + X 4Y 4 Z 4
4096 4096 4096
5 5 5 5 5 5 5 5 5 5 5 5
81 − − − 81 − − − 81 − − − 432 − 4 − 4 − 4
−( − X Y Z ) − (−
4 4 4
X Y Z ) − (−
4 4 4
X Y Z )=−
4 4 4
X Y Z 0
4096 4096 4096 4096

1 1 1
3) max  = PQ ( X 2 + Y 2 + Z 2 ) − PX X − PY Y − PZ Z
X ,Y , Z

FONC:
1 1
1 − − 2P PQ 2
 X = PQ X 2 − PX = 0  X 2 = X  X * = ( )  input demand function
2 PQ 2 PX
1 1
1 − − 2P PQ 2
 Y = PQ Y − PY = 0  Y 2 = Y  Y * = (
2
)  input demand function
2 PQ 2 PY
1 1
1 − − 2P PQ 2
Z = PQ Z 2 − PZ = 0  Z 2 = Z  Z * = ( )  input demand function
2 PQ 2 PZ
SOSC:
3
1 −
− PQ X 2 0 0
4
 XX  XY  XZ 3
1 −
H =  YX  YY  YZ = 0 − PQ Y 2 0
4
 ZX  ZY  ZZ 3
1 −
0 0 − PQ Z 2
4
3
1 −
H1 = − PQ X 2  0,
4
3
1 −
− PQ X 2 0 3 3
1 −2 −2
H2 = 4 3
= X Y  0,
1 − 16
0 − PQ Y 2
4
3 3 3
1 − − −
H3 = − X 2Y 2 Z 2  0
64
2
X * PQ X * PQ X * X *
c) = , =− , = =0
PQ 2 PX
2
PX 2 PX
3
PY PZ
1 1 1 2 1 2 1 2 1
PQ PQ PQ
d) supply fucntion: Q * ( PX , PY , PZ , PQ ) = ( X *) + (Y *) + ( Z *) = ( 2 2 2
2
) +(
2
2
) +(
2
2
)2
4 PX 4 PY 4 PZ
PQ PQ PQ
= + +
2 PX 2 PY 2 PZ

4
 1 1 1
e) profit function:  * = PQ [( X *) 2 + (Y *) 2 + ( Z *) 2 ] − PX X * − PY Y * − PZ Z *
2 1 2 1 2 1 2 2 2
PQ PQ PQ PQ PQ PQ
= PQ [( 2
) +(2
2
) +(
2
2
) ] − PX (
2
2
) − PY ( 2
) − PZ ( 2
)
4 PX 4 PY 4 PZ 4 PX 4 PY 4 PZ
2 2 2 2 2 2 2 2 2
PQ PQ PQ PQ PQ PQ PQ PQ PQ
= + + − − − = + +
2 PX 2 PY 2 PZ 4 PX 4 PY 4 PZ 4 PX 4 PY 4 PZ

4)
−1 1 3 0
−1 3 0 −1 1 3
0 2 0 7 2+ 2 2+ 4
= (−1) (2) 5 6 0 + (−1) (7) 5 5 6 = ( +1)(2)( −63) + ( +1)(7)( −101) = −833
5 5 6 0
9 2 3 9 0 2
9 0 2 3