Econ 415/615 Mathematics for Economists Lau

Problem Set XI Fall 2021

Optimization with Inequality and Non-negativity Constraints: Kuhn-Tucker Conditions

1) For each of the following utility function, using the Kuhn-Tucker conditions,
a) find the Marshallian demand functions,
b) find the Hicksian demand function.

i) U ( X , Y ) = X + ln Y
ii) U ( X , Y ) = 3X + 2Y

2) Let U = ( X + 10)Y
a) Find the Marshallian demand functions.
b) Find the Hicksian demand functions.

3) Let U = ( X − 5)Y
a) Find the Marshallian demand functions.
b) Find the Hicksian demand functions.

4) a) max XY
s.t. i) 40  X + Y
ii) 30  2X + Y
iii) X  0, Y  0

b) Re-do a) by adding another constraint

iii’) 50  X + Y

c) Re-do a) by adding an alternative constraint

iii”) 50  X + 3Y

5) a) max X + ln Y
s.t. i) 40  X + Y
ii) 30  2X + Y
iii) X  0, Y  0

b) Re-do a) by adding another constraint

iv) X  14

c) Re-do a) by adding an alternative constraint

iv') X  20

1
6) a) max XY
s.t. i) 60  4 X + 3Y
ii) 40  2 X + 6Y
iii) X  0, Y  0

b) Re-do a) by adding another constraint [i.e. constraints i), ii) and iii)]
iii) 15  X + Y

c) Re-do a) by adding an alternative constraint [i.e. constraints i), ii) and iii')]
iii') 9  X +Y

d) Re-do c) by adding one more constraint [i.e. constraints i), ii), iii') and iv)]
iv) X 5

7) a) max XY
s.t. i) 18  2 X + 2Y
ii) 40  X + 8Y
iii) X  0, Y  0

b) Re-do a) by adding another constraint [i.e. constraints i), ii) and iii)]
iv) 15  X + Y

8) Find the Marshallian demand function for the following utility function:
U ( X , Y ) = ( X + 5)(Y + 10)

9) max e X + ln Y
s.t. i) 40  X + Y
ii) 2 X + 2Y  82
iii) X  0, Y  0

2
Econ 415/615 Mathematics for Economists Lau
Problem Set XI : Solution

1(i) Marshallian demand functions

max U ( X , Y ) = X + ln Y  Y is always positive
X ,Y

s.t. i) M − PX X − PY Y = 0
ii) X  0, Y  0

L = X + ln Y + [ M − PX X − PY Y ]
Kuhn-Tucker conditions
L = M − PX X − PY Y = 0 (1)
LX = 1 −  PX  0, X  0, [1 −  PX ] X = 0 (2)
1
LY = −  PY = 0 (3)
Y
Case 1: X 0
(2) : X  0  1 −  PX = 0 (2')
1 1 P
(2’) and (3)  = =  Y* = X
PY Y PX PY
P M − PX
→ M − PX X − PY ( X ) = 0  M − PX X − PX = 0  X * =
PY PX
condition for interior solution: M  PX

Case 2: X =0
1 1
(2) and (3)   = (4)
PX PY Y
M
X = 0 → (1)  Y =
PY
1 1 1
→ (4)   =  PX  M
PX M M
PY
PY
condition for corner solution: PX  M

3
1(i) Hicksian demand functions:
min PX X + PY Y
X ,Y

s.t. U = X + ln Y  Note that Y is always positive

X  0, Y  0
L = PX X + PY Y + [U − X − ln Y ]

Kuhn-Tucker condition:
L = U − X − ln Y = 0 (1)
LX = PX −   0, X  0, [PX −  ] X = 0 (2)

LY = PY − =0 (3)
Y

Case 1: Xh  0
(2) : X  0  PX = 
h
(2')
PX
(2’) and (3)  PX =  = PY Y  Y h =
PY
PX P
→ (1) : U − X − ln( ) = 0  X h = U − ln( X )
PY PY
P
condition for interior solution: U  ln( X )
PY

Case 2: Xh = 0
(2) and (3) PX   = PY Y (4)
X = 0 → (1)  U − ln Y = 0  Y = e
h h U

P P
→ (4)  PX  PY eU  X  eU  ln( X )  U
PY PY
P
condition for corner solution: ln( X )  U
PY

4
1(ii) Marshallian demand functions:
max 3 X + 2Y
X ,Y

s.t. M = PX X + PY Y
X  0, Y  0

L = 3 X + 2Y + [ M − PX X − PY Y ]

Kuhn-Tucker condition:
L = M − PX X − PY Y = 0 (1)
LX = 3 −  PX  0, X  0, [3 −  PX ] X = 0 (2)
LY = 2 −  PY  0, Y  0, [2 −  PY ]Y = 0 (3)

Case 1: X *  0, Y *  0
(2) : X *  0  3 −  PX = 0 (2')
(3): Y *  0  2 −  PY = 0 (3')
3 2 P 2
(2’) and (3’) =  Y =
PX PY PX 3
P 2
condition for case 1): Y =
PX 3

Case 2: X *  0, Y * = 0
(2) : X *  0  3 −  PX = 0 (2')
3 2 P 2
(2’) and (3)  =  Y 
PX PY PX 3
PY 2
condition for case 2): 
PX 3

Case 3: X * = 0, Y *  0
(3): Y *  0  2 −  PY = 0 (3')
3 2 P 2
(2) and (3’)   =  Y 
PX PY PX 3
PY 2
condition for case 3): 
PX 3

5
1(ii) Hicksian demand functions
min PX X + PY Y
X ,Y

s.t. U = 3 X + 2Y
X  0, Y  0

L = PX X + PY Y + [U − 3X − 2Y ]

Kuhn-Tucker conditions:
L = U − 3 X − 2Y = 0 (1)
LX = PX − 3  0, X  0, [PX − 3 ] X = 0 (2)
LY = PY − 2  0, Y  0, [PY − 2 ]Y = 0 (3)

Case 1: X h  0, Y h  0
(2) : X h  0  PX − 3 = 0 (2')
(3) : Y h  0  PY − 2 = 0 (3')
P P P 2
(2’) and (3’)  X =  = Y  Y =
3 2 PX 3
PY 2
condition for case 1): =
PX 3

Case 2: X h  0, Y h = 0
(2) : X h  0  PX − 3 = 0 (2')
P P 2 P
(2’) and (3)  X =   Y   Y
3 2 3 PX
2 PY
condition for case 2): 
3 PX

Case 3: X h = 0, Y h  0
(3) : Y h  0  PY − 2 = 0 (3')
P P 2 P
(2) and (3’)  X   = Y   Y
3 2 3 PX
2 PY
condition for case 3): 
3 PX

6
2) Marshallian Demand

max U ( X , Y ) = ( X + 10)Y
s.t. M − PX X − PY Y = 0
X  0, Y  0
Note that X can be equal to 0 and Y cannot be equal to 0

L = XY + 10Y + [ M − PX X − PY Y ]

Kuhn-Tucker Conditions:
LX = Y −  PX  0 X 0 [Y −  PX ] X = 0 (1)
LY = X + 10 −  PY = 0 (2)
L = M − PX X − PY Y = 0 (3)

Case 1: X*  0
(1) : X  0  Y −  PX = 0 (1')
(2): X + 10 −  PY = 0
Y X + 10
(1') and (2)  = =  PX X + 10 PX = PY Y
PX PY
→ (3)  M − PX X − ( PX X + 10 PX ) = 0  M − 2 PX X − 10 PX = 0
M − 10 PX
 X* = (Condition for case 1: M − 10 PX  0 or M  10 PX )
2 PX
M − 10 PX M − 10 PX + 20 PX M + 10 PX M + 10 PX
 PY Y = PX X + 10 PX = + 10 PX = =  Y* =
2 2 2 2 PY

Case 2: X* = 0
M
X * = 0 → (3)  Y * =
PY
(1) : Y −  PX  0
(2): X + 10 −  PY = 0
M
Y X + 10 PY 0 + 10 M
(1) and (2)   =     10  M  10 PX (Condition for case 2)
PX PY PX PY PX

7
Hicksian Demand

min PX X + PY Y
s.t. U − XY − 10Y = 0
X  0, Y  0
Note that X can be equal to 0 and Y cannot be equal to 0

L = PX X + PY Y + [U − XY −10Y ]

Kuhn-Tucker Conditions:
LX = PX − Y  0 X 0 (PX − Y ) X = 0 (4)
LY = PY −  ( X + 10) = 0 (5)
L = U − XY − 10Y = 0 (6)

Case 1: X*  0
(4) : X  0  PX − Y = 0 (4')
(5) : PY −  ( X + 10) = 0
PX PY P ( X + 10)
(4') and (5)  = = Y = X
Y X + 10 PY
PX ( X + 10) PX ( X + 10) 2 UP
→ (6) : U − ( X + 10)Y = 0  U − ( X + 10) =0  U =  ( X + 10) 2 = Y 
PY PY PX
UPY UPY UP
X *= − 10 (Condition for case 1: − 10  0  Y  100)
PX PX PX

Case 2: X* = 0
U
X = 0 → (6)  Y * =
10
(4) : PX − Y  0
(5) : PY −  ( X + 10) = 0
PX PY P P 10 PX PY UP
(4) and (5)   =  X  Y    100  Y (Condition for case 2)
Y X + 10 U 0 + 10 U 10 PX
10

8
3a) max U = ( X − 5)Y  in order to have positive utility, we must have X  5, Y  0
X ,Y

s.t. M − PX X − PY Y = 0
X ,Y  0

L = ( X − 5)Y + [M − PX X − PY Y ]

FOC:
L = M − PX X − PY Y = 0 (1)
LX = Y −  PX = 0 (2)
LY = X − 5 −  PY = 0 (3)

Y X −5
(2) and (3)  = =  PX ( X − 5) = PY Y
PX PY
M + 5PX
→ (1) : M − PX X − PX ( X − 5) = 0  M − 2PX X + 5PX = 0  X * =  always positive
2 PX
PX ( X − 5) PX M + 5PX P M − 5PX M − 5PX
Y* = = [ − 5] = X [ }=  this is positive only if M  5PX
PY PY 2PX PY 2PX 2PY
M
or 5
PX

M
If  5 , even if all money is spent on X , ( X − 5) is less than 0. In this case, there is no way the
PX
individual can have positive utility (given than X , Y  0 ), hence no solution!!

X
5

9
3b) Hicksian demand functions:
min PX X + PY Y
X ,Y

s.t. U = ( X − 5)Y  X, Y must be positive

X  0, Y  0

L = PX X + PY Y + [U − ( X − 5)Y ]

FOC:
L = U − ( X − 5)Y = 0 (1)
LX = PX − Y = 0 PX P P ( X − 5)
 =  = Y Y = X
LY = PY −  ( X − 5) = 0 Y X −5 PY
PX ( X − 5) UP UPY
→ (1)  U − ( X − 5) = 0  ( X − 5)2 = Y  X h = +5 0
PY PX PX
PX ( X − 5) PX UPY UPX
Y = = = 0
PY PY PX PY

Unlike the previous problem, since utility is given in this problem, we do not have to worry about
whether utility is positive or not.

10
4a) max XY
s.t. i) 40  X + Y
ii) 30  2X + Y
iii) X  0, Y  0

L = XY + 1[40 − X − Y ] + 2 [30 − 2 X − Y ]

Kuhn-Tucker conditions:
LX = Y − 1 − 22 = 0 (1)  Note that X * and Y * must be positive.
LY = X − 1 − 2 = 0 (2)
L1 = 40 − X − Y  0, 1  0, [40 − X − Y ]1 = 0 (3)
L2 = 30 − 2 X − Y  0, 2  0, [30 − 2 X − Y ]2 = 0 (4)

Case 1: 1  0, 2  0
1  0  40 − X − Y = 0 (3')
2  0  30 − 2 X − Y = 0 (4 ')
(3’) and (4’)  Y * = 50 and X * = −10 (impossible)

Case 2: 1  0, 2 = 0
1  0  40 − X − Y = 0 (3')
2 = 0 → (1)  Y − 1 = 0 (5)
2 = 0 → (2)  X − 1 = 0 (6)

(5) and (6)  X = Y

→ (3')  X * = Y * = 20 (inconsistent with constraint ii)

Case 3: 1 = 0, 2  0
2  0  30 − 2 X − Y = 0 (4')
1 = 0 → (1)  Y − 22 = 0 (7)
1 = 0 → (2)  X − 2 = 0 (8)

Y
(7) and (8)  = 2 = X
2
Y
→ (1)  30 − 2( ) − Y = 0  Y * = 15  X * = 7.5 (consistent with the constraints)
2

b) Add one more constraint [ 50  X + Y ]

The optimal solution we got in part a) is consistent with this additional constraint, hence we have the
same solution.

11
c) Add one more constraint [ 50  X + 3Y ]

The solution we got in part a) is inconsistent with this additional constraint, hence we have to re-do the
problem.

L = XY + 1[40 − X − Y ] + 2 [30 − 2 X − Y ] + 3 [50 − X − 3Y ]

Kuhn-Tucker conditions:
LX = Y − 1 − 22 − 3 = 0 (9)
LY = X − 1 − 2 − 33 = 0 (10)
L1 = 40 − X − Y  0, 1  0, [40 − X − Y ]1 = 0 (3)
L2 = 30 − 2 X − Y  0, 2  0, [30 − 2 X − Y ]2 = 0 (4)
L3 = 50 − X − 3Y  0, 3  0, [50 − X − 3Y ]3 = 0 (11)

Case 1: 1  0, 2  0, 3  0
1  0  40 − X − Y = 0 (3')
2  0  30 − 2 X − Y = 0 (4 ')
3  0  50 − X − 3Y = 0 (11')
3 equations and 2 unknown: impossible

Case 2: 1  0, 2  0, 3 = 0
1  0  40 − X − Y = 0 (3')
2  0  30 − 2 X − Y = 0 (4 ')

(3’) and (4’)  Y * = 50 and X * = −10 (impossible)

Case 3: 1  0, 2 = 0, 3  0
1  0  40 − X − Y = 0 (3')
3  0  50 − X − 3Y = 0 (11')

(3) and (11)  X * = 35, Y * = 5 (inconsistent with constraint ii)

Case 4: 1  0, 2 = 0, 3 = 0
1  0  40 − X − Y = 0 (3')
2 = 3 = 0 → (9)  Y − 1 = 0 (12)
2 = 3 = 0 → (10)  X − 1 = 0 (13)

(12) and (13)  X = 1 = Y

→ (3')  X * = Y * = 20 (inconsistent with constraint ii)

12
Case 5: 1 = 0, 2  0, 3  0
2  0  30 − 2 X − Y = 0 (4')
3  0  50 − X − 3Y = 0 (11')

(4’) and (11’)  X * = 8, Y * = 14

1 = 0 → (9)  Y − 22 − 3 = 0 (14)

1 = 0 → (10)  X − 2 − 33 = 0 (15)

X * = 8, Y * = 14 → (14)  14 − 22 − 3 = 0 (16)

X * = 8, Y * = 14 → (15)  8 − 2 − 33 = 0 (17)
(16) and (17)  2 * = 6.8, 3 * = 0.4
This is consistent with constraint i), solution  X * = 8, Y * = 14
Case 6: 1 = 0, 2  0, 3 = 0
2  0  30 − 2 X − Y = 0 (4')
1 = 3 = 0 → (9)  Y − 22 = 0 (18)
1 = 3 = 0 → (10)  X − 2 = 0 (19)

Y
(18) and (19)  = 2 = X
2
Y
→ (4')  30 − 2( ) − Y = 0  Y * = 15  X * = 7.5 (inconsistent with the constraint iii)
2

Case 7: 1 = 0, 2 = 0, 3  0
3  0  50 − X − 3Y = 0 (11')
1 = 2 = 0 → (9)  Y − 3 = 0 (20)
1 = 2 = 0 → (10)  X − 33 = 0 (21)

X
(20) and (21)  = 3 = Y  X = 3Y
3
25
→ (11')  X * = 25, Y * = (inconsistent with constraint ii)
3

13
5a) max X + ln Y
s.t. i) 40  X + Y
ii) 30  2X + Y
iii) X  0, Y  0

Note that Y * is always positive .

L = X + ln Y + 1[40 − X − Y ] + 2 [30 − 2 X − Y ]

Kuhn-Tucker conditions:
LX = 1 − 1 − 22  0, X  0, [1 − 1 − 22 ] X = 0 (1)
1
LY = − 1 − 2 = 0 (2)
Y
L1 = 40 − X − Y  0, 1  0, [40 − X − Y ]1 = 0 (3)
L2 = 30 − 2 X − Y  0, 2  0, [30 − 2 X − Y ]2 = 0 (4)

Case 1: X  0, 1  0, 2  0
X  0 → (1)  1 − 1 − 22 = 0 (1')
1  0 → (3)  40 − X − Y = 0 (3')
2  0 → (4)  30 − 2 X − Y = 0 (4')

(3’) and (4’)  Y * = 50, X * = −10 (impossible)

Case 2: X  0, 1  0, 2 = 0
X  0 → (1)  1 − 1 − 22 = 0 (1')
1  0 → (3)  40 − X − Y = 0 (3')
2 = 0 → (1')  1 − 1 = 0  1 = 1
1
2 = 0 → (2)  − 1 = 0 (5)
Y
1 = 1 → (5)  Y * = 1
→ (3')  X * = 39
X * = 39 and Y * = 1 are inconsistent with constraint ii)

Case 3: X  0, 1 = 0, 2  0
X  0 → (1)  1 − 1 − 22 = 0 (1')
2  0 → (4)  30 − 2 X − Y = 0 (4')
1 = 0 → (1')  1 − 22 = 0  2 = 0.5 (consistent)
1 1
1 = 0 and 2 = 0.5  − = 0  Y * = 2
Y 2
→ (4')  30 − 2 X − (2) = 0  X * = 14 (consistent)

14
b) Add another constraint: iv) X  14

The solution we obtained in part a) is consistent with the new constraint. Hence solution:
X * = 14, Y * = 2

c) This new constraint X  20 is inconsistent with constraint ii), hence no solution.

15
6a) max XY
s.t. i) 60  4 X + 3Y
ii) 40  2 X + 6Y
iii) X  0, Y  0

L = XY + 1[60 − 4 X − 3Y ] + 2 [40 − 2 X − 6Y ]

Kuhn-Tucker conditions:
L1 = 60 − 4 X − 3Y  0, 1  0, [60 − 4 X − 3Y ]1 = 0 (1)
L2 = 40 − 2 X − 6Y  0, 2  0, [40 − 2 X − 6Y ]2 = 0 (2)
LX = Y − 41 − 22 = 0 (3)
LY = X − 31 − 62 = 0 (4)

Case 1: 1  0, 2  0
1  0 → (1)  60 − 4 X − 3Y = 0 (1')
2  0 → (2)  40 − 2 X − 6Y = 0 (2')
20 40
(1’) and (2’)  Y = , X =
9 3
20
→ (3)  = 41 + 22 (5)
9
40
→ (4)  = 31 + 62 (6)
3
20
2
9
 20  40 40
  6 −
 4 2   1  9 3 3 = − 20
     =    1 = 4 2 = (inconsistent)
 3 6  2   40  18 27
 
 3  3 6

Case 2: 1  0, 2 = 0
1  0 → (1)  60 − 4 X − 3Y = 0 (1')
2 = 0 → (3)  Y − 41 = 0 (7)
2 = 0 → (4)  X − 31 = 0 (8)

Y X
(7) and (8)  = 1 =  4 X = 3Y
4 3
→ (1')  60 − 4 X − (4 X ) = 0  X * = 7.5, Y * = 10
This solution is inconsistent with constraint ii)

16
Case 3: 1 = 0, 2  0
2  0 → (2)  40 − 2 X − 6Y = 0 (2')
1 = 0 → (3)  Y − 22 = 0 (9)
1 = 0 → (4)  X − 62 = 0 (10)

Y X
(9) and (10) = 2 =  2 X = 6Y
2 6
10
→ (2')  40 − 2 X − (2 X ) = 0  X = 10  Y =
3

The solution is consistent with constraint i) (non-binding, hence 1 = 0 )

The solution is consistent with constraint ii) (binding, 2  0 )

b) Add another constraint iii): 15  X + Y

10
Since the solution we got in part a) fulfills the new constraint, hence the solution is X * = 10, Y * =
3

c) Adding an alternative constraint iii')]: 9  X +Y

L = XY + 1[60 − 4 X − 3Y ] + 2 [40 − 2 X − 6Y ] + 3 [9 − X − Y ]

Kuhn-Tucker conditions:
L1 = 60 − 4 X − 3Y  0, 1  0, [60 − 4 X − 3Y ]1 = 0 (1)
L2 = 40 − 2 X − 6Y  0, 2  0, [40 − 2 X − 6Y ]2 = 0 (2)
L3 = 9 − X − Y  0, 2  0, [9 − X − Y ]3 = 0 (11)
LX = Y − 41 − 22 − 3 = 0 (12)
LY = X − 31 − 62 − 3 = 0 (13)

Case 1: 1  0, 2  0, 3  0
1  0 → (1)  60 − 4 X − 3Y = 0 (1')
2  0 → (2)  40 − 2 X − 6Y = 0 (2')
3  0 → (11)  9 − X − Y = 0 (11')
3 equations, 2 unknown: impossible

17
Case 2: 1  0, 2  0, 3 = 0
1  0 → (1)  60 − 4 X − 3Y = 0 (1')
2  0 → (2)  40 − 2 X − 6Y = 0 (2')
20 40
(1’) and (2’)  Y = ,X =
9 3
3 = 0 → (12)  Y − 41 − 22 = 0 (14)
3 = 0 → (14)  X − 31 − 62 = 0 (15)
20 40 20
Y = ,X = → (3)  = 41 + 22 (16)
9 3 9
20 40 40
Y = ,X = → (4)  = 31 + 62 (17)
9 3 3
20
2
9
 20  40 40
  6 −
 4 2 
 1  9 3 3 = − 20 (inconsistent)
     =    1 = 4 2 =
 3 6  2   40  18 27
 
 3  3 6

Case 3: 1  0, 2 = 0, 3  0
1  0 → (1)  60 − 4 X − 3Y = 0 (1')
3  0 → (11)  9 − X − Y = 0 (11')

(1’) and (11’)  Y = −24 (impossible)

Case 4: 1  0, 2 = 0, 3 = 0
1  0 → (1)  60 − 4 X − 3Y = 0 (1')
2 = 3 = 0 → (12)  Y − 41 = 0 (18)
2 = 3 = 0 → (13)  X − 31 = 0 (19)

Y X
(18) and (19)  = 1 =  4 X = 3Y (20)
4 3
(20) → (1')  60 − 4 X − (4 X ) = 0  X = 7.5, Y = 10

18
Case 5: 1 = 0, 2  0, 3  0
2  0 → (2)  40 − 2 X − 6Y = 0 (2')
3  0 → (11)  9 − X − Y = 0 (11')

(2’) and (11’)  Y = 5.5, X = 3.5

X = 3.5, Y = 5.5, 1 = 0 → (12)  5.5 − 22 − 3 = 0 (21)

X = 3.5, Y = 5.5, 1 = 0 → (13) = 3.5 − 62 − 3 = 0 (22)

(21) and (22)  2 = −0.5 (inconsistent)

Case 6: 1 = 0, 2  0, 3 = 0
2  0 → (2)  40 − 2 X − 6Y = 0 (2')
1 = 3 = 0 → (12)  Y − 22 = 0 (23)
1 = 3 = 0 → (13)  X − 62 = 0 (24)

Y X
(23) and (24)  = 2 =  2 X = 6Y
2 6
10
→ (2')  40 − 2 X − (2 X ) = 0  X = 10, Y = (inconsistent with constraint i)
3

Case 7: 1 = 0, 2 = 0, 3  0
3  0 → (11)  9 − X − Y = 0 (11')
1 = 2 = 0 → (12)  Y − 3 = 0 (25)
1 = 2 = 0 → (12)  X − 3 = 0 (26)

(25) and (26)  Y = 3 = X

→ (11')  X = Y = 4.5

The solution is consistent with constraint i) (non-binding, 1 = 0 ).

The solution is consistent with constraint ii) (non-binding, 2 = 0 ).
The solution is consistent with constraint iii) (binding, 3  0 )

19
d) Adding one alternative constraint iv): X 5

L = XY + 1[60 − 4 X − 3Y ] + 2 [40 − 2 X − 6Y ] + 3 [9 − X − Y ] + 4 [ X − 5]

Kuhn-Tucker conditions:
L1 = 60 − 4 X − 3Y  0, 1  0, [60 − 4 X − 3Y ]1 = 0 (1)
L2 = 40 − 2 X − 6Y  0, 2  0, [40 − 2 X − 6Y ]2 = 0 (2)
L3 = 9 − X − Y  0, 2  0, [9 − X − Y ]3 = 0 (11)
L4 = X − 5  0, 5  0, [X − 5]4 = 0 (27)
LX = Y − 41 − 22 − 3 + 4 = 0 (28)
LY = X − 31 − 62 − 3 = 0 (13)

Case 1: 1 = 2 = 0, 3  0, 4  0
3  0 → (11)  9 − X − Y = 0 (11')
4  0 → (27)  X − 5 = 0 (27')
(11') and (27')  X = 5, Y = 4

1 = 2 = 0, X = 5, Y = 4 → (28)  4 − 3 + 4 = 0 (29)
1 = 2 = 0, X = 5, Y = 4 → (13)  5 − 3 = 0 (30)

(29) and (30)  3 = 5, 4 = 1

The solution is consistent with constraint i) (non-binding, 1 = 0 ).

The solution is consistent with constraint ii) (non-binding, 2 = 0 ).
The solution is consistent with constraint iii) (binding, 3  0 ).
The solution is consistent with constraint iii) (binding, 4  0 ).

20
7a) max XY
s.t. i) 18  2 X + 2Y
ii) 40  X + 8Y
iii) X  0, Y  0

L = XY + 1[18 − 2 X − 2Y ] + 2 [40 − X − 8Y ]

Kuhn-Tucker conditions:

LX = Y − 21 − 2 = 0 (1)
LY = X − 21 − 82 = 0 (2)
L1 = 18 − 2 X − 2Y  0, 1  0, [18 − 2 X − 2Y ]1 = 0 (3)
L2 = 40 − X − 8Y  0, 2  0, [40 − X − 8Y ]2 = 0 (4)

Case 1: 1  0, 2  0
1  0 → (3)  18 − 2 X − 2Y = 0 (3')
2  0 → (4)  40 − X − 8Y = 0 (4')

32 31
(3’) and (4’)  X = ,Y=
7 7
31 32 108 1
→ (1), (2)  21 + 2 = and 21 + 82 =  1 = , 2 = (consistent)
7 7 49 49

b) Adding another constraint iv) 15  X + Y

The solution in part a) is consistent with the new constraint.

21
8) max U ( X , Y ) = ( X + 5)(Y + 10)
X ,Y

s.t. M − PX X − PY Y = 0
X  0, Y  0

L = ( X + 5)(Y + 10) + [ M − PX X − PY Y ] = XY + 10 X + 5Y + 50 + [ M − PX X − PY Y ]

Kuhn-Tucker conditions:
L = M − PX X − PY Y = 0 (1)
LX = Y + 10 −  PX  0, X  0, (Y + 10 −  PX ) X = 0 (2)
LY = X + 5 −  PY  0, Y  0, (X + 5 −  PY )Y = 0 (3)

Case 1: X  0, Y  0
X  0 → (2)  Y + 10 −  PX = 0 (2')
Y  0 → (3)  X + 5 −  PY = 0 (3')

Y + 10 X +5
(2’) and (3’)  = =  PY (Y + 10) = PX ( X + 5)  PY Y = PX X + 5PX − 10 PY
PX PY
→ (1)  M − PX X − ( PX X + 5 PX − 10 PY ) = 0
 2 PX X = M − 5PX + 10 PY
M − 5PX + 10 PY
 X* =
2 PX
M − 5PX + 10 PY M − 5PX + 10 PY
PX ( ) + 5PX − 10 PY + 5PX − 10 PY
PX X + 5PX − 10 PY 2 PX 2
 Y* = = =
PY PY PY
M + 5PX − 10 PY
=
2 PY
Condition for case 1): M − 5PX + 10 PY  0, M + 5PX − 10PY  0

22
Case 2: X  0, Y = 0
X  0 → (2)  Y + 10 −  PX = 0 (2')
M
Y = 0 → (1)  X =
PX
10
Y = 0 → (2 ')  = (4)
PX
10 X +5 10 X + 5
(3) and (4) =   (5)
PX PY PX PY
M
+5
M 10 PX 10 M + 5PX M + 5PX
X = → (5)      10 
PX PX PY PX PX PY PY
Condition for case 2): M + 5PX − 10 PY  0

Case 3: X = 0, Y  0
Y  0 → (3)  X + 5 −  PY = 0 (3')
M
X = 0 → (1)  Y =
PY
5
X = 0 → (3')  = (6)
PY
Y + 10 X +5 Y + 10 X + 5
(2) and (3’)   =   (8)
PX PY PX PY
M
+ 10
M PY 5 M + 10 PY 5 M + 10 PY
X = 0 and Y = → (8)      5
PY PX PY PY PX PY PX
Condition for case 3): M + 10 PY − 5PX  0

9) The 2 constraints are inconsistent with each other  no solution

23