London School of Economics Dr Francesco Nava

Department of Economics LIF 3.20 (Extension 6353)

EC400 2013/2014
Math for Microeconomics
September Course, Part II
Problem Set 1
1. Show that the general quadratic form:
a
11
x
2
1
+ a
12
x
1
x
2
+ a
22
x
2
2
can be written as
_
x
1
x
2
_
_
a
11
a
12
0 a
22
__
x
1
x
2
_
.
2. List all the principal minors of a general (3 3) matrix and denote which are the three
leading principal submatrices.
3. Determine the deniteness of the following symmetric matrices:
(a)
_
0 0
0 c
_
; (b)
_
2 1
1 1
_
; (c)
_
3 4
4 6
_
; (d)
_
_
1 2 0
2 4 5
0 5 6
_
_
4. Approximate e
x
at x = 0 with a Taylor polynomial of order three and four. Then compute
the values of these approximation at h = 0:2 and at h = 1 and compare with the actual
values.
London School of Economics Dr Francesco Nava
Department of Economics LIF 3.20 (Extension 6353)
EC400 2013/2014
Math for Microeconomics
September Course, Part II
Problem Set 2
1. For each of the following functions; nd the critical points and classify these as local max,
local min, or cant tell:
(a) x
4
+ x
2
6xy + 3y
2
(b) x
2
6xy + 2y
2
+ 10x + 2y 5
(c) xy
2
+ x
3
y xy
2. Let S R
n
be an open set and f : S R be a twice continuously dierentiable function.
Suppose that df(x

) = 0. State the weakest sucient conditions that Hessian at the

critical pints must satisfy for:
(i) x

to be a local max;
(ii) x

to be a strict local min.

3. Which of the critical points found in exercise 1 are also global maxima or global minima?
4. Check whether f(x; y) = x
4
+ x
2
y
2
+ y
4
3x 8y is concave or convex by using the
Hessian.
2
London School of Economics Dr Francesco Nava
Department of Economics LIF 3.20 (Extension 6353)
EC400 2013/2014
Math for Microeconomics
September Course, Part II
Problem Set 3
1. A commonly used production or utility function is f(x; y) = xy. Check whether it is
concave or convex using its Hessian.
2. Prove that the sum of two concave functions is a concave function as well.
3. Let f be a function dened on a convex set U in R
n
. Prove that the following statements
are equivalent:
(i) f is a quasiconcave function on U;
(ii) For all x; y U and t [0; 1]:
f(x) _ f(y) =f(tx + (1 t)y) _ f(y)
(iii) For all x; y U and t [0; 1]:
f(tx + (1 t)y) _ minf(x); f(y)
4. State the corresponding theorem for quasiconvex functions.
5. For each of the following functions on R, determine whether they are quasiconcave, qua-
siconvex, both, or neither:
(a) e
x
; (b) ln x; (c) x
3
x
3
London School of Economics Dr Francesco Nava
Department of Economics LIF 3.20 (Extension 6353)
EC400 2013/2014
Math for Microeconomics
September Course, Part II
Problem Set 4
1. Find the optimal solution for the following program:
min
x
f(x) = x subject to (x
2
) _ 0
2. Solve the following problem:
max
x
1
;x
2
f(x
1
; x
2
) = x
2
1
x
2
subject to 2x
2
1
+ x
2
2
= 3
3. Solve the following problem:
max
x;y0
x
2
+ y
2
subject to ax + y = 1
when a [
1
2
;
3
2
].
4. Consider the following problem:
max
x2X
f(x) subject to g(x) _ a
Let X be a convex subset of R
n
, f : X R a concave function, g : X R
m
a convex
function, a is a vector in R
m
. What is the Largrangian for this problem? Prove that the
Largangian is a concave function of the choice variable x on X.
4
London School of Economics Dr Francesco Nava
Department of Economics LIF 3.20 (Extension 6353)
EC400 2013/2014
Math for Microeconomics
September Course, Part II
Problem Set 5
1. Assume that the utility function of a consumer satises:
u(x; y) = x +
_
y
The consumer has a positive income I > 0 and faces positive prices p
x
> 0; p
y
> 0. The
consumer cannot buy negative amounts of any of the goods.
(a) Use Kuhn-Tucker to solve the consumers problem.
(b) Show how the optimal value of u

, depends on I.
2. Solve the following problem:
max
x;y
_
minx; y x
2
y
2

5
London School of Economics Dr Francesco Nava
Department of Economics LIF 3.20 (Extension 6353)
EC400 2013/2014
Math for Microeconomics
September Course, Part II
Problem Set 6
1. Consider the problem of maximizing xyz subject to x + y + z _ 1, x _ 0, y _ 0, and
z _ 0. Obviously, the three latter constraints do not bind, and we can concentrate only
on the rst constraint, x + y + z _ 1. Find the solution and the Lagrange multiplier,
and show how the optimal value would change if instead the constraint was changed to
x + y + z _ 0:9.
2. Let a, x and y be non-negative. Consider the problem of maximizing xy subject to
x
2
+ ay
2
_ 1. What happens to the optimal value when a increases marginally?
3. Consider exercise 1 in Problem Set 5. For the case of an interior solution derive compar-
ative statics to nd how the endogenous variables change when I and p
x
change (one at
a time). That is, compute:
(i)
@x
@I
,
@y
@I
,
@
0
@I
;
(ii)
@x
@px
,
@y
@px
,
@
0
@px
.
6