246 (iv)

Solution: (0) T= 60- 12x + 2x?

dTC --12 + 4X
dx
aTC
=0
First order condition for min TC, dx
- 12 + 4X = 0
X= 4
Second order condition

d'TC
= 4
dx?
.. X= 4is the level of output at which TC is minimum
TC 60
(i) AC= - 12 + 2x
X X

d (AC) 60
x?+2
X

For AC to be minimum, d(AC) =0

dx
-60
+2 = 0

X2 = 30
X = t 30

Rejecting the negative value of x (output cannot be negative)

X= /30

Again,
d'AC 120
dy?
d'AC 120
At x =J30 = 0.737 >0
dy2 (V30)3
Thus, ACis minimum when X= J30
(ii) Now, we verify that at X= J30, AC = MC
60 60
AC =
- 12 + 2X = lon- 12 + 230 -
X
12+2./30 =- 12+4430
dTC
MC =
dx =- 12 + 4X = - 12 + 430
Hence proved
 247
Maximisation of Output :
(3) have the production
Suppose we
Where Q
representstotal production
and L
function :Q=f(L)
Conditionsfor Output Maximisation represents labour
dQ
=0
dL

<0

Example : The production function of a commodity is given by:

F
Q= 40 F+3F2
3
Where Q is the total output and F depicts the units of inputs.
i Find the number of units of input required to give
Find the maximum value of marginal product.
maximum output.
) Verify that when the average product is maximum, it is equal to
marginal product.
Solution : () Q= 40F + 3F2
3
dQ
= 40 + 6F - F2
dF
First order condition
dQ
For maximum output; =0
dF
40 +6F - F2 =0
- F2 + 6F + 40 = 0
F2- 6F - 40 =0
(F+ 4) (F - 10) =
F=-4or 10, (Rejectingthe negative value)
Second order condition

dF? =6-2F

AtF =10 =6-2(10) = -14 <0

dE2
Thus, Ouput is maximum when 10 units of inputs are
used

() MP = da = 40 + 6F - F? d (MP) =6- 2F
dF dF

ror MP. to be d(MP) =0

maximum. dF
6-2F = 0 or F =3
d (MP) d
gain, dF?
(6-2F)= -2 <0
dF
248
when F3
Thus, MP is maximum 2F
d (AP)
(iii) AP= F
= 40 +3F = 3 dF 3- 3
(AP) = 0
For AP. to be maximum, dF
2F 9
3 0or F=
3 2

d' (AP) <0

Again,

AP is max. when F=,

Now, we verify that as F= 9, AP = MP.
F2 81 187
AP = 40 + 3F - = 40+ 3 (9) = 46.75
At F= 3 2 12 4

81 187
At F= MP = 40 + 6F - F2 = 40 + 27 = 46.75
2 4 4
Hence proved
(4) Maximisation of Profts : The technique of maxima and minima can be used to dete
mine the levelof output at which the profit of a firm is maximum. Profit means difference between
total revenue (R) and total cost (C) i.e.
Conditions for Profit Maximisation : The following two conditions must be fulfiled to
maximise the profits :
dP dR dc
() =0 =0 ’ MR= MC
d dq dg
d'R d'c d'R dc a²c a'R
(i)
dq do? <0 ’ dg? dq?
Derivation of the Conditions for Profit dq dq
Let us denote Revenue by R, Cost by C Maximisation
P=R-C and profit by P. Profit may be defied as:
dP dR dc
dq dq dq

First order condition : For dP

max. profit, da 0
dR dC
=0
dq dq
dR dC
dg dg ie. MR = MC
 Second order condition :This 249

dp d'R dc
condition requires that
<0 d'R C
dq dq? dq? dq' dq'
d'R
dq? dq dq dq?
ie.the rate of change in MC exceeds MR Itimplies that MC
curve must cut MR Curve from
below.
Thus. necessary and sufficient condition for profit maximisation of a firm
are:
MC = MR and (ii) MC curve must cut MR curve from below.
Iinder Perfect Competition : Under perfect completition; MR = AR = p therefore the first
is
order condition for max. profit P
MC = p
d (MR) d'R
MR = p= Consistand, =0 =0
dq dq?
The second order condition for max. profit is
dC d²R dc
dq? dq dq
i.e. MC curve must be rising at the point of equilibrium point.hh4
Under Monopoly :The profit P of the monopolist willbe max. when
d²c
() MC= MR (0) do? i.e. MC curve cukMR curve from. below.
dq
demand and cost functions:
Example 21. A monoplist has the following
P=100 - 5q
C=q²+ 4q +5
and the maximum profit.
Findthe level of profit maximising output
Solution: R= pg= (100-5q)q = 100q - 5q
C =q' + 4q + 5
P =Total Profit =R-C -5
100q -5q- (g² - 4q + 5) = 100q - 5q²- q'- 4q
=
P =-6g2 + 96q-5
Diff. w.r.t. q
dP
=- 12g + 96
dq
First order condition
dP 0
=-12g + 96 =
dq
=0
or- 12g + 96
250

or q 8
S9cond order conditlon

d--120
d¢
+90)
-12 < 0
do
<0, q = 8glves the
max. proft.
As

Profit = -60 +96q -5 = -6(8) + 96 x 8-5

At q = 8, Max.
=-384 + 768 -5= 379
Max. Profit = Rs. 379
cost and demand function
Example 22. A firm was the following total
C=e-7 +111q+ 50, q=100 -p
Find profit maximising output and the maximum profit.
Solution: Given: g= 100-p ’p=100 - q
R= pq = (100-q) q =100q - q
-7g + 111q + 50
P = otal Profit = R-C
=
1003 g-+7¢' -111q - 60
: P=-¢+ 6¢ -11q -50
dg =-+ 12q -11
First order condition
dP = -
dq +12q - 11 =0
- + 12q - 11 =0
or -12q + 11 = 0(Factorise it)
(q-1) (q-11) = 0
:. q=11, 1
 251
order condition

dle-20 +12

Alq=1, -2X 1+ 12 =10 > 0

do
.: q=1s the level of output where profit Is minimum and ls therefore rejected.

Aq=11,:
- -2X 11 + 12= -2+ 12 =-10 <0

the level of output where proft is maximum.

Maximum profit = -o+- 1q-50
:-1+ 6(11)-11(11) - 50 =111.33
Erample 23. Acompany inds that it can sell its product at Rs. 2 per unit where its cost
incion is Rs. [1000 + (q/50) ]. Find the profit maximising output and the maximum
profit.
Solution: R= pq = 2q
2 1
=1000+
C=1000 + 50
= 1000 +
2 2500
P= Total Profit = R-C
1
P = 2q - 1000 5000
dP 2 2 g
d 5000

First order condition

dP
dg =0
2g =0
2 5000

or 2 2q
5000
i. q=5000
Second onder condition
P 2 -1
<0
do? 5000 2500
maximum profit.
q= 5000 gives the
 252

Maximum profit 2q - 1000 5000

5000 x 5000
2X5000 --1000
5000
10,000- 1000-5000 4000
Maximum Profit = Rs. 4000.

Example 24. A radio manufacturer produces x sets per week at a total cost nf
Rs. +3x + 100. He is a monopolist and the demand for his market is x =75 - 3p
25
where pis the price in rupees per set. Show that the maximumn net
revenue (i.e.
obtained when about 30 sets are produced per week. What is the monopoly price?proit) s
1
Solution: Given: X= 75 -3p 3p = 75 -X or p= 25 - X
3

X = 25X -
.: R=px =

C= +3x + 100
25
P= Profit = R-C

P= 25r-3 25
- 3x - 100

dP
dx -25-x-26Ex-3
dP 56
= 22 - X
dx 75
First order coition
dP
dx =22 - 75
X=0
’ 22 = 56
75
22 x 75
56 = 29.46 30 sets.
Second order condition
56

.. X= 30 gives the
max. profit.
At x =30, p = 25 1
-X=25 - 10
3 = Rs. 15 per set
 253

EXample25. If the
total cost and
total revenue of a
0.0152and
R=3X, firm are given by
100 + where X is the units
C= and the maximum profit.
of
output produced,
find the profit Imaxirrising levei
Solution: Given: C= 100 + 0.015 x
R=3r

R-C = 3x - 100 -0.015

P= Profit =
15
3 - 100 -
P= 1000
30
dP3
dx 1000
X

First order conditiorn

30X
=0 3 =0
1000
30x
or 3=
1000
or X= 100
Second order condition
3 3
-0-0*)= 100
< 0

Since <0, .: X =100 gives max. profit

15
Maximurm profit = 3X - 100 - 1000

15
= 3 X 100 - 100
1000
(100)
= 50

Thus, maximum profit = 50

+ bx + cand if a
has the iotal cost furction
Liarripla 26. If the monopolist maximum net revenue i.e. profit) is
show that output for
Oemand law is p = B- ax
-a + Va +3a(B - b)
X=
3a
ar
Solution: R= px =F(B - at)x= fx-
C= ax + bX + C
P= Protit = R-C
P=Bx-e -a - bx - c
254

dP-=ß- 3ax-2ax-b

b)
dp
-3ax - 2ax + (ß -
First order condition

dP
=0 -3 ax-2ax+(ß - b) =0
dx
0
or 3ax + 2ax - (B- b) =
-28 t V4a + 12 a(B- b)
6a

-a t Va+3 a(ß - b)
3a

Rejecting -ve sign, we have

-Sa (ß- b)
3a

Second order condition

= -6aX-2a

-6a-a + Va +3a(- b) -2a

3a
= -2 Va +3a(B- b) + 2a - 2a
= -2 Va+3a(B-b) <0
Hence the output for maximum net
revenue is
-a + Va+3 a(ß- b)
3a

Exan.ple 27. Find the profit

where 0 = quantity, p = maxirnising
utput given Q = 200-- 1OP and AC= 10 +
price
Solution: Given demand function:andQ =AC200=-average cost.
.:. 10P = 200
--0
10P
P= 20 -
. R= PO = ¡20 -
10)Q=200 -
10
 255

10+ 9
Average Cost (AC) = 25

c- T0 =AC xQ=10+Q 100+ 25

1
e- Profit = R-C = 200--
10 100 - 25
Dif. w.rt. Q

dP =20 - 20 10 - 2Q
10 25

dP = 10

Frst order condition

dP-=0
7Q =0
10 25

or 10 =
25

7
Second order condition

P 7
25

: Q= 7
gives the maximum profit.
given by
under perfect competition, total cost function is
Example 28. For a fim the fim continue
C=5+ 100- 0.9 0 + 0.04 Q. Ifthe price is Rs. 4 per unit, wil
production?
Solution: R= PQ = 40
C=5+10Q-0.92+ 0.040
R-C = 40 - 5 - 100 + 0.90 - 0.04Q
P= Proft =
P=-5- 60 + 0.9 o - 0.04 Q
Dif. w.rt. Q
dP
= -¿+ 1.8Q - 0.120
dQ
First order condition
dP 1.8Q - 0.120*=0
do =0 > -6+
256

12 o=0
or -6+ 10 100
0
-600 + 1800 - 120=
or
or 120 -
1800 + 600 = 0
Q- 150Q + 50 = 0
or (Q- 10)(Q-5) 0
5
Either Q= 10 or Q
Second order condition

- 1.8- .240

+0.6 > 0
At Q=5 = 1.8 -- 24 x 5 =

firn is not getting max. profit.

.. Q=5 is the level of output where the

At Q= 10. = 1.8-.24 X 10 =-0.6 <0

dO?
.:. Q= i0 gives the maximum profit.
Maximum profit = -5-6 x 10 + 0.9 x 10 - 0.04 x 10
= -5- 60 + 90- 40 = -15
.
Maximum profit is a loss of Rs. 15. The fixed cost in this case is Rs. 5 and the loss
is more than the fixed cost. If the firm discontinuous production when p = Rs. 4, ts los
reduces to Rs. 5 (the fixed cost). Hence the firm will produce nothing it p = Rs. 4.
Efect of a Specific T a x 0
Example 29. Given the demand function p = (10- x and the cost function
C= 55x - &, find the maximum profit. What would be the effect of an imposition ot a
tax of Rs. 9 per unit quartity on price?
Solution: R= px = (10-x)x = (100 - 20x + x)= 100x 20 +x
C= 55x -&
P = Profits = R-C = 100x -
20x+x 55x + &y
P=-12 +45x
First order condition
dP
= 3-24x +45 0
dx

> (
3 -8x + 15) =0
 257

x-8+ 15 = 0
X-3) = 0
or (*-5)
or X=5,3
Second order condition

op= 6x -24

o²Pey)eorpld a
For X= 5,
=6X 5 - 24 = 6(+ve)

For x =3, =6 x 3- 24 =-6(-ve)

Profit is maximum at x=3, the price at x=3 is (10 - 3) = 49

After Imposition of Tax
Cost after the levy of tax C= 55x - &+ 9x
Now, R = 100x - 20x + (given) kie

P = Profit = R-C = 100x - 20x +x-55x +8 - gx

P=x-12x +36x
First order condition

o3-24x +36 = 0
dx

> 3(- 8x +12) =0

> -8x +12 =0
or (x-6) (X-2) = 0
.. X= 6, X=2
Second order condition

=6X - 24
d

For x=6, = 6 x 6 - 24 = +12 (+ve)

For x=2, = 6 X 2- 24 = -6 (ve)

max. at x=2, price at x=2 is (10--2) = 64

Profit is
Increase in price = 64 - 49 = 15
258

EXERCISE 5.3

Revenue Maximisation
which revenue (R) is maximum.
1. If p=
8
-1, find the level of output at Also find the
q+2
maximum revenue.

The total revenue curve for a commodity xis TR= 12x+2

-1/3 e
2. (a)
Verify that at h
function, (0) the level of output at which AR function is highest, (i)
highest point of AR Curve, AR = MR
at which level of
(b) If the demand function is p = 600 - 2g, find output, the total
will be maximum and what will it be? revenue
Cost Minimisation

3. Given: TC = + 2X+ 1000

90

Find out the value of output at which AC is minimum. Also find the minimum AC
4. From the total variable cost:

C=*-6X +13x
Find the value of output for which average variable cost (AVC) is minimum.
5. The total cost function of a product x is:
TC = 60 - 12x + 2
Find AC and the level of output at which AC function is
at the minimum point of AC curve. minimum. Also verify that AC=MC
Profit Maximisation

6. A monopolist has the following demand cost

Find the level of profit maximising output and functions, p = 20-q, C = + 8q +5.
the maximum profit.
7. Aradio
manufacturer produces X sets per week at a total cost of Rs. + 3x + 100
He is a monopolist and the 5
demand for his market is X= 105 -3p, where p
rupees per set. Show that the
maximum net revenue is obtained when is the price
produced week. What is the monopoly
per about 30 sets are
8. If the total cost price?
and total revenue of a firm
are given by:
C= 100 + 0.02g and R=5g
Find the profit
9. For a firm maximising level of output and the
under perfect of maximum profit.
9 competition, total cost is given by
C=
:+ 10 10q + 12. If the price is Rs. 4
per unit, wll the firm
continue
 259

production?
10.Ifthedemand function of the monopolist is q = 400 - 20p and the average Cost is
2 where qis output and p, the price, find the profit maximising output and also the
50 profit,
maximum

Answers
Max. R=2 2. (l) 12 +5x-}*.x
1.g=2, (b) q =10, R= 4000
AC = 4. X=3
3.x=300, Min. 5. AC =
X
12 + 2X, X=30
P=13 8. q=125, Max.
6. g=3, Max.shuts down production at p=4
P=212.50
9. Thefirm 10. q=107 app. Max.P =803.57
SECTION II
Maxima and Minima of Functions of Two Variables
I# U= f(x,y) be afunction of two variables xand y, then the conditions for the occurence
follows:
of extreme values are as
(a) For Maxima: () k =0, fy =0
(ü) fox <0, fyy <0
d =(x.y - (y'] > 0
(b) For Minima: () k = 0, fy = 0
() fox >, fyy >0
A=(hx.fy- (y)] > 0
(c) For Saddle Point: fx =0. fy =0 and A= ba.y- (by) <0
(d) For No Information: x = 0, fy =0 and A= fox.fyy - (by) = 0
Working rule to find the maximum and minimum values of f(x, y)
in
1. Find and and equate each to zero. Solve these as simultaneous equations
X
xand y. Let (a, b), (c, d)..be the pairs of values.
2. Calculate the value of f= yy = y= for each pair of values.
ôxay

is a max. value.
3. ) f fo.tyy - (bsy) > 0and fox < 0, fyy <0 at (a, b), f(a, b)
f(a, b) is a mini. value.
(0) If fox. yy - (by) >0and fa>0, fyy >0 at (a, b),
extreme value i.e. (a,b) is a saddle
() If fox .tyy - (by <0 at (a, b), f(a, b) is not an
point.
doubtful and needs further investigation.
(M) If ba. fyy -(bo) = 0 at (a, b), the case is
260
values of the function:
Example 30. Find the extreme
U=+y-3r - 27y+ 24
condition
Solution: () First order
U=+y-3r- 27y + 24
dU2-3=0 X=t1

3-27=0 y= +3
fy=
points (1, 3) (1, -3), (-1, 3), (-1, -3)
Thus, we get four
(i0) Second order condition
au
fx= = 6x, fyy=

fxy =
dy ox Oy (3x- 3) =0
At (1, 3), we have
fiox = 6(1) =6 > 0, fyy = 6(3) = 18 > 0
A=hx. fy - (ay) = (6) (18) - (0) =108 > 0
Thus, u is mini. at (1, 3) and mini. value is
= (1)° + (3j -3(1) - 27(3) + 24 = -32
At (1, -3)
fox =6(1) =6> 0, fyy = 6(-3) = -18 <0
A= fa.fy - (xy) = 6(-10) - (0) = -108 < 0
Thus we have a saddle point at (1, -3)
At (-1, 3)
fox =6(-1) = -6 fyy = 6(3) = 18
A=fox .tyy - (by)
=-6x 18- (0) =-108 <0
Thus, we have a saddle point at
(-1, 3)
At (-1, -3)
fox = 6(-1) = -6 < 0,
fyy = 6(-3) = -18 < 0
A =fa.fy-(y) =
(-6)
Thus u is max. at (-1, -3) (-18) - (0) = 108 > 0
and max. value is
=(-1' + (-3) -
3(-4) 27(-3) +24 = 80
 261
Example 31. Firnd the maximum and minimum
U= 2x- 2xy + y' + 5x- 3y
values of
Solution: First order condition
U= 2x²- 2xy + y' + 5x - 3y
fx =
= 4x - 2y + 5 = 0 ..()
=12x + 2y -3 0
ty = y
Adding() and (), we gett 2x +2=0 or X =-1
Puttingx=-1iin (), we obtain 4(-1)- 2y +5 =0 i.e. y = ½
Thus, we get the critical point (-1, V2)
Second order condition
Now fxx = 4 >0, tyy =2>0, fxy =-2
A= fxx.fyy - (xy)? =4 x2-(-2)° =8- 4=4>0
Thus, X=-1,y= gives the min. value.
Economic Applications of Maxima and Minima of Functions ofTwoVariables
Tvpe I: Maximisation of Profit Function
Example 32. The production function of a firm is given by :
16z = 65-2 (x- 5) - 4 (y - 4)2
and the unit price of the inputs x andy are 8 and 4 respectively while the unit price of the
outout z is 32. Determine the maximum profit.
Solution: Profit function = TR -TC
P= 32z - 8x 4y = 2 x 16 z - 8x - 4y
Putting the value of 16z, we have
P=130 - 4 (x 5) - 8(y - 4) -8x- 4y
First order condition :
Diff. w.r.t. x and y
OP
t, = =-8 (x-5) 8 =-8x + 32 = 0 ...()
OP
= =- 16 (y - 4) 4 =-16y + 60 ...(0)
ôy 15 15)
x = 4, y = i.e.4, 4
Solving () and (i), we get the critical point : 4

Second order condition:

Now, f, =-8, f =-16
=128 >0
A=f. f -(1)2 =(- 8) (- 16) - (0)
f <0and f.. <0 15
x=4, y =
So Profit has a maximum value at
- 8 (y - 4)- 8x - 4y
Max. Value of Profit = 130 --4(X- 5)? 15 157
(15 -8x4 - 4x
= 130 4 (4- 5) -8 4 4 2
262 Discriminating Monopoly
in demand function : p, =180 - 15x, and p, = 380 - 20x, in tu
Type Il:Application
Example 33. Given the
function is C= 150 +
total cost
discriminating monopolist
and his 120 (%,+ X). ng
markets of a for maximum profit.
and prices
optimal quantities
the 180x, - 15x?,
=p,x, = (180- 15x,) x, =
Solution:R,
(380 - 20x,) x,=380x, - 20x,
R, =P,x, =
Profit = P = R, + R, - C -150 120x, - 120x,
380x, 20x*
P= 180x, - 15x², +
-

60x,+ 260x, - 15x², - 20x² -150

P=
First order condition
OP =2
= 60- 30x, = 0 ’ X,
OP = 6.5
= 260 - 40x, =0 ’ X,
Thus, we have the point (2, 6.5)
Second order condition
8P
=- 30 < 0, TK,, = ax =- 40 < 0, TX,X,= Ôx, .ôx,
=0
Now fx,x, =?
2

=(-30) (- 40) - (0)2 >0

is
Hence the profit is maximum at (2, 6.5) and the maximum value of profit
=60x, +260x, - 15x, - 20x², - 150
=60 (2) + 260 (6.5) - 15 (2)- (6.5) - 150 = Rs. 755
P, =180 -5x, = 180 - 5 (2) = 170
P, = 380- 20x, = 38 - 20 (6.5)
EXERCISE 5.4

1. State the conditions for maxima and minima in case of functions of two variables.
2. (a) Examine the following functions for maximum and minimum values :
(0) u=x° +x-xy +y +4
(i) z=3x + y² -12x - 8y
-(ii) z =4x?- xy +y² - x³
(iv) z= 8x° + 2xy -3x² + y² +1
(v) u=f (x, y) = 1+ x* + y?
(b) The production function of a firm is
X=f(a, b) = 10- a-! - b-!
The prices are p, = 9, p, =1,p, = 4and the
profit amount
Find the amounts of the factors demanded, the functionofis the= product
9x - a-produced
40 andthe
amount of profits made by the firm:
 263
Giventhe demand functions :p, = 10 - q, and p, = 19 - 2a. in two markets of a
discriminating monopolist.andhis total cost function C= 6+3(a. + a.).
profit. Alsofind the optimal Findthe values of4;
for
q,
maximum prices.
and
Afirmproducestwo items x, and X,. The market prices are given by p, = 100- 2x, and
125 - 3x,. The cOst of production is C= 12x, + 11x,+ 4x, x, for producing x, and X;
items. Findthe values of x, and x, to have thhe joint profit maximurn.
Afirmis producingtwo products Xand yand has the following profit function :
5
P=64x - 2x² +
4xy - 4y² + 32y - 14.
Findthe profit maximising level of output for each of the two products.
Answers

(a) (0 Min. value = 4 at (0, O), Neither Max. nor Min. value at
2
(i) Min. value = - 28 at (2, 4)
(ii) Min. value =0 at (0, 0), Saddle point at

(iv) Min. at saddle point at (0, 0)

(v) Min. value = 1 at (0, 0) (b) a =3, b=3/2, x 9, p = 72
q 0 =3.5, g, = 4, Max. P = 38.25 P, = 6.5 P, = 11 4. x, = 9, x, = 13
1650
5. X= 40, y = 24, Max. P =
Section IlIl
Constrained Maxima and Minima with Two Variables
maxima and minima of functions of two
Now we shall explain the method of finding the
or minimum values of
variables under constraint i.e. to find the maximum
u=f(x, y)
where x and y are connected by the relation, say
(x, y) = 0
of functions subject to constraint is Lagrange
The method of obtaining maximaand minima
following steps :
undetermined multiplier, which is summarised in the
(1) We form a new function
F(x, y, 2) =o (x, y)
Multiplier)
Where is a constant (known as Lagrange's
OF OF OF
=0 =0, = (x, y)
(2) Obtain the equations y
(x, y)
(3) Solve the above equations together with o the constrained function.
The values of x and v so obtained will give the critical points of
(9)
These critical values must satisfy the constraints.
264 tested for maxima or minima of the function
points must be corresponds to a
(5) These critical maxima (or minima) it oy
determinent. The critical
points
the orer
Hessian

determinant A =
0 g, 9,
is positive (or
negative) signtht.
maxima and minima of the function
Example 34. Find the
subject to x+ 2y =24
z= 5x² + 6y² - xy [x + 2y - 241
y, ) = 5x' + 6y' - xy +
Solution: Write F (X,
First order condition

OF ... )
= 10x - y + =0

OF .. (ü)
= 12y - X+ 22 = 0

F
= X+ 2y -24 = 0 ...(i)

Eliminatingà from () and ()

Dividing (i) by (i), we get
10x - y -1 10x - y 1
12y-x - 22 12y - x 2 ’ 20x- 2y = 12y - x
3
.:. 2/x= 14y ’ 3x = 2y or y = 7X
2
Putting the value of y in equation (ii), we get
3
X+2× 2 X-24 =0 X+ 3x- 24 =0orx = 6, Also y= x6=9
2
Thus, the critical point is (6, 9)
Secon.order condition
8F
X)
10, 1, = Ox. Oy =-1, f, =12
Taking derivative of the constraint g (x, y) = X+
2y - 24, we can write
(x +2y - 2y)=1, 9, = (x +
oy 2y - 24) = 2
The bordered
Hessian determinant is
1 2
1 10 -1|
=- 56 <0
2 -1 12
Thus the function has
minima at (6, 9) The
minimum value of the function = 612.
 265
do this
We can question directy without applying
Aliter:

1=5+6y ..(1)
Lagrange's method as follows:
r+2V=24 ..2)
(2)X= 24- 2y ..3)
Fom
Puttingthis value of xin (1), we get

J=5(24- 21) +6y-y(24 - 2y)

-2880 - 480y +20y -6/- 24y + 22
28/
=2880 - 504y +
For minimisation,

=0and >0
dy
dz = -504 + 56y
Now
dy
=0 gives -504 + 56y = 0
dy
504
or y= 56

Put y=9 in x= 24-2× 9=6

=56 > 0

Hence z is minimum at x=6 and y=9

Eample 35. Find the point where the utility function
U= 48-(x -5 -3( - 4)
x + 3y = 9
Wilhave maximum or minimum value i# it is subject to a budget constraint
Salution: Given: U=48 - a-5j-3 y- 4)
DUbject to g %.y) =x+ 3y 9 =0
Consider f(«, y, 1)= 48 -(x- 5)-3( -4) +1(*+ 3y - 9)
First order condition
OF
Ox -2 (x- 5) + d= 0 ..(1)
OF
oy -6(y- 4) + 3 =0 ..2)

o)X+3y -9= 0 ..3)

266

Eliminating à from (i) and (ii)

Dividing (0) by (), we get
X- y- 1 X=y +1
2(x-5) 6x -30 = 6y-24 -
6(y -4) 3A
in (ii), we get
Putting the value ofx=y- 1 2, Also X= 2+ 1 3
8=0 y
y+1 +3y -9 =0 4y -
point (3, 2)
Thus, we have the critical
Second order condition

,26
we have f = =-2.,y?
can write
Taking derivative of the constraint :g(x, y) = X+ 3y - 9, we

(x +3y - 9) = 19, =y (x + 3y - 9) = 3
The bordered Hessian determinant is :
lo 1 3
|1 0 1 -2
=1 -2 0=0-1|
A +3 =24>0
3 -6 3 0
3 0 6
.:.U will be maximum at x = 3 and y = 2
Maximum value of U = 48-(3- 5)2- 3 (2 - 4)² = 32
Example 35 A:Find the extreme values of the function U=3x + 6y subject tox² +5v=25
Solution:Construct a new function
F(x,y, 2) =3x +6y + (x? + 5y- 25) ... ()
First order condition
OF
=3+ 2x = 0 (0)
OF
a =6+102y =0 (i)
OF
Ôz = X' + 5y²- 25 = 0 (0)
Eliminating from () and (i)
Dividing (i) by (ii), we get
22x 3 2 x 3 1x
6
Oy 6 10 y 6 5y
 267

2
X
.y= 5
2
kin (ii), we get
Put y = 5

x°+5.
x?-25 = 0
25

F X*=25

9x2 125 5/5

-=25 x=
5 9 3

125 5/5 2 5/5 2/5

When x =
9 3 3 3
From (ii), we get 3 +2 Ax =0’ 22x=3
3 3 9
2x
2x
5/5 105
3
Second order condition
-18 -9
(.-20.=2 10/5) 10/5 5/5
9
f
10-10
fX =0
Let the constraint be:g(x, y) = x + 5y² - 25
ôg
= 2x
ôg = 10y
gy =
ôx oy
5/5 5/5 10/5 2/5 9y=22/5 20/5
At x= gx = 2x At y = 3 3
3 3 3
The Bordered Hessian determinant is

10/5 205
3 3
10/5 -9 180 /5>0
3 5V5
20/5 -9
3 5/5
 5/5
and y 2/5
268
x=
has maximum vaiue at 3 3
Thus, the function

(5/5 2/5) - 5V5+4/5 -9/5

6
Max. value = 3 3
Example 35 B: If x and y are +ve, showthat maximum value of u ysubie

occur when x =y =
constraint x? 4 y? = a'
function
Solution:Construct a new
+y² - a)
F(x. y ) = xy +À(x°
First order condition
and à
Diff () partially w.r.t. x,y
OF =0 ()
àr y+2xÀ

(2y) = 0
=X+ À (i)

F
x+y'- a'= 0 (ii)

Eliminating . from (i) and (i)

Dividing (i) by (i)
Y_2x.
X -2y^.
Y_y
X
y' =x*
Put y² = x in (ii), we get
X+y' =a? x² + x² = a?

.. 2x² = a? x²=
a² a

2
a
When x=

Put x = a
and y = in (i)
y +2 xà =0
a
+ 2. =0

V2 a. A= 1
 271 (i)
=3.9, = =4
92
Thebordered Hessian determinant is:
4
3 1.677 6.70
4 6.70 0

3 6.70| 3 1.677
+ 4
4 |4 6.70|
= -3 (0 - 26.8) + 4 (20.1 - 6.708)
: 80.4 + 13.392 = 93.792 >0
Te the function has maximum value at q, = 20 and g, = 10

Eyample 37 B. Determine x and y which maximises the utility function: U= x subject to

= 10
the budget constraint x + 4y
Solution: Construct a new function:
F (x.y. à) =x'y°+a (10- x- 4y)
Fisrt order condition

¿F
= 2xy' + (-1) ...)

¿F
= 3x²y² + (-4) ....1)
y
OF
= 10- X- 4y =0 ..i)
Eliminating from (i) and (ii)
Dividing (i) by (ii), we get
2 xy 1 2 y 1

3x² y2 = 4 3 X 4

3
or
y 3 X
X 8
3
3 -X = 0
Put y = xin (ii), we get 10- x - 4X 8
5X
3 =0
10- X X=0 10 2
271 (1i)
X=4
3 3
3
(4) =
Also y= X=8
3
optimal values of x= 4 and y= 2
Thus, the
Second Order Condition
condition, we need to find the
In orderto check
upfor the second order value of
Hessian determinant.

27 27
=2y°=2x 8 4

3
= 144
fyy =6x'y= 6x 16 x 2

= 54
fxy =6xy²=6 x4 x 4

Constraint :g (x,y) =X +4y - 10

=4
gx = =1,
determinant is
The bordered Hessian
1 4 27
27 54
1 54 = -1 + 4 4
A = 4 4 144 4 54|
4 54 144
108 = 180 > 0
= -1(144-216) +4 (54 - 27) = 72 +

Thus, the function has maximum value at x= 4and y= 2

Example 37 C. Solve for consumer equilibrium if the utility function is U= xy, price of com
modity xX = Rs. 4 and price of commodity y = Rs. 10 and consumer's money income
=Rs. 200. (Use Largrange's Multiplier method)
Solution : Given the utility function : U= xy
and the budget constraint : 4x + 10y =200
Construct a new function
f(x,y, 2) = Xy + (200- 4x - 10y)
First order condition
OF
Ox Y+ (-4) = 0
OF
Oy =X+(- 10) = 0