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05 Lecture Multivariate Optimisation

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17 views13 pages

05 Lecture Multivariate Optimisation

Uploaded by

dailushi39
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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5.

Multivariate optimisation

Julia Wirtz

ECON10005 - Mathematics for Economics

5. Multivariate optimisation ECON10005 1 / 13


Multivariate optimisation
Multivariate optimisation
Single-variable optimisation

f (x)

5. Multivariate optimisation ECON10005 2 / 13


Multivariate optimisation

Maximisation problem
max f (x1 , · · · , xn )
(x1 ,··· ,xn )∈S

Choice variables: (x1 , · · · , xn ) ∈ S


Target function: f : S −→ R

Similar to single-variable optimisation except:


the set of actions is a multivariate set, for instance [0, 1] × [0, 1]

the tangent function is a function of several variables

5. Multivariate optimisation ECON10005 3 / 13


Stationary point

A stationary point should verify:


∂f
= 0,
∂x1
···
∂f
=0
∂xn
for all choice variables: (x1 , · · · , xn )

5. Multivariate optimisation ECON10005 4 / 13


Finding a maximum

1. We find the stationary points of f :



∂f
∂x1 = 0 



.. First-order conditions (FOCs)
. 

∂f 
∂xn = 0

2. We evaluate f at the boundaries of S (finite or limit at infinity).

3. Among these candidate solutions, the action (x1 , · · · , xn ) providing the highest
value is the maximum.

5. Multivariate optimisation ECON10005 5 / 13


Concavity

If f is concave over S,
a stationary point (if it exists!)
will always be a maximum over S.

5. Multivariate optimisation ECON10005 6 / 13


Convexity

If f is convex over S,
a stationary point (if it exists!)
will always be a minimum over S.

5. Multivariate optimisation ECON10005 7 / 13


Concavity with two variables
Concavity with one variable: f is concave over S if f ′′ (x) ≤ 0 for all x ∈ S
Concavity/ convexity is more difficult to establish with many variables

Concavity with two variables


f is concave over S if

∂2f
1. ≤0
∂x2
∂2f
2. ≤0
∂y 2
2
∂2f ∂2f ∂2f

3. − ≥0
∂x2 ∂y 2 ∂x∂y

5. Multivariate optimisation ECON10005 8 / 13


Convexity with two variables
Convexity with one variable: f is convex over S if f ′′ (x) ≥ 0 for all x ∈ S

Convexity with two variables


f is convex over S if

∂2f
1. ≥0
∂x2
∂2f
2. ≥0
∂y 2
2
∂2f ∂2f ∂2f

3. − ≥0
∂x2 ∂y 2 ∂x∂y

5. Multivariate optimisation ECON10005 9 / 13


Why do we need condition 3?
Example
f (x, y) = x2 + y 2 − 3xy

5. Multivariate optimisation ECON10005 10 / 13


Why do we need condition 3?

f (x, y) = x2 + y 2 − 3xy

5. Multivariate optimisation ECON10005 11 / 13


Economic Example: Profit maximisation

Consider an entrepreneur (Tobacco Yoko) producing tobacco with inputs labour L


and capital K:
1 1
Y = F (K, L) = K 2 L 4
We assume that markets are competitive: the entrepreneur takes the factor prices
r = 1.2 and w = 0.6 as given.
The unit price of tobacco is P = 12

5. Multivariate optimisation ECON10005 12 / 13


Reading

Sydsaeter et al. (2016). Essential mathematics for economic analysis, ch. 13.

5. Multivariate optimisation ECON10005 13 / 13

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