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Lecture 3, 2020

The document provides examples and solutions for applying the Kuhn-Tucker method to optimization problems with inequality constraints. Example 1 maximizes a utility function subject to budget and quantity constraints. The solution is found to be x=40, y=60, λ1=40, λ2=20. Example 2 similarly maximizes a utility function but with different constraints. The optimal solution is x=20, y=80, λ2=3200. Example 3 deals with a consumer on an island producing and consuming two goods subject to production and environmental constraints. The optimal solution is found to be x=7.07, y=12.25, λ1=130.005, λ2=

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21 views

Lecture 3, 2020

The document provides examples and solutions for applying the Kuhn-Tucker method to optimization problems with inequality constraints. Example 1 maximizes a utility function subject to budget and quantity constraints. The solution is found to be x=40, y=60, λ1=40, λ2=20. Example 2 similarly maximizes a utility function but with different constraints. The optimal solution is x=20, y=80, λ2=3200. Example 3 deals with a consumer on an island producing and consuming two goods subject to production and environmental constraints. The optimal solution is found to be x=7.07, y=12.25, λ1=130.005, λ2=

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tech damn
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© © All Rights Reserved
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Lecture 3

Section 13.3 from


Fundamental methods of Mathematical Economics, McGraw Hill 2005, 4th Edition.
By A. C. Chiang & Kevin Wainwright is covered. Please read theory from book. Some
examples are solved in detail for better understanding of Kuhn-Tucker method.

Example 1: Maximize 𝑈 = 𝑥𝑦
Subject to budget constraint 𝑥 + 𝑦 ≤ 100
ration constraint 𝑥 ≤ 40
and 𝑥, 𝑦 ≥ 0

1
(a) Write the Lagrangian function.
(b) Write Kuhn-Tucker conditions.
(c) Find solution when 𝑥 > 0, 𝑦 > 0, 𝜆1 > 0, 𝜆2 = 0 and check Kuh-Tucker conditions
are satisfied or not.
(d) Find solution when 𝑥 > 0, 𝑦 > 0, 𝜆1 > 0, 𝜆2 > 0 and check Kuh-Tucker conditions
are satisfied or not.

Solution:
(a) The Lagrangian is 𝑍 = 𝑥𝑦 + 𝜆1 (100 − 𝑥 − 𝑦) + 𝜆2 (40 − 𝑥)
(b) The Kuhn-Tucker conditions are
𝑍𝑥 = 𝑦 − 𝜆1 − 𝜆2 ≤ 0 (1𝑎) 𝑥 ≥ 0 (1𝑏) 𝑥𝑍𝑥 = 𝑥(𝑦 − 𝜆1 − 𝜆2 ) = 0 (1𝑐)
𝑍𝑦 = 𝑥 − 𝜆1 ≤ 0(2𝑎) 𝑦 ≥ 0 (2𝑏) 𝑦𝑍𝑦 = 𝑦(𝑥 − 𝜆1 ) = 0 (2𝑐)
𝑍𝜆1 = 100 − 𝑥 − 𝑦 ≥ 0 (3𝑎) 𝜆1 ≥ 0(3𝑏) 𝜆1 𝑍𝜆1 = 𝜆1 (100 − 𝑥 − 𝑦) = 0 (3𝑐)
𝑍𝜆2 = 40 − 𝑥 ≥ 0 (4𝑎) 𝜆2 ≥ 0 (4𝑏) 𝜆2 𝑍𝜆2 = 𝜆2 (40 − 𝑥) = 0 (4𝑐)

(c) As x , y, 𝜆1 >0 and from (1c), (2c), (3c) we will obtain


𝑦 − 𝜆1 − 𝜆2 = 0 (5)
𝑥 − 𝜆1 = 0 (6)
100 − 𝑥 − 𝑦 = 0 (7)
And for (4c) 𝜆2 = 0.
Solving (5), (6) and (7) simultaneously, we get
𝑥 = 𝑦 = 𝜆1 = 50
But (4a) is not satisfied for this solution and and is not the optimal solution.
(d) As 𝑥, 𝑦, 𝜆1 , 𝜆2 > 0 and thus we will get four equations (5), (6), (7)

And (4c) gives

40 − 𝑥 = 0 (8)

Now solving simultaneously, we will get


𝑥 = 40, 𝑦 = 60, 𝜆1 = 40, 𝜆2 = 20.
The solution
𝑥 = 40, 𝑦 = 60, 𝜆1 = 40, 𝜆2 = 20.
satisfies all Kuhn-Tucker conditions and hence is the optimal solution.

OR

you can say since solution values for the four variables are all nonnegative and satisfy
both constraints, they are acceptable as the final solution.

Example 2: Maximize 𝑈 = 𝑥𝑦 2

2
Subject to budget constraint 𝑥 + 𝑦 ≤ 100
ration constraint 2𝑥 + 𝑦 ≤ 120
and 𝑥, 𝑦 ≥ 0
(a) Write the Lagrangian function.
(b) Write Kuhn-Tucker conditions.
(c) Find solution when 𝑥 > 0, 𝑦 > 0, 𝜆1 > 0, 𝜆2 = 0 and check Kuh-Tucker
conditions are satisfied or not.
(d) Find solution when 𝑥 > 0, 𝑦 > 0, 𝜆1 = 0, 𝜆2 > 0 and check Kuh-Tucker
conditions are satisfied or not.

Solution:
(a) The Lagrangian is 𝑍 = 𝑥𝑦 2 + 𝜆1 (100 − 𝑥 − 𝑦) + 𝜆2 (120 − 2𝑥 − 𝑦)
(b) The Kuhn-Tucker conditions are
𝑍𝑥 = 𝑦 2 − 𝜆1 − 2𝜆2 ≤ 0 (1𝑎) 𝑥 ≥ 0 (1𝑏) 𝑥𝑍𝑥 = 𝑥(𝑦 2 − 𝜆1 − 2𝜆2 ) = 0 (1𝑐)
𝑍𝑦 = 2𝑥𝑦 − 𝜆1 − 𝜆2 ≤ 0(2𝑎) 𝑦 ≥ 0 (2𝑏) 𝑦𝑍𝑦 = 𝑦(2𝑥𝑦 − 𝜆1 − 𝜆2 ) = 0 (2𝑐)
𝑍𝜆1 = 100 − 𝑥 − 𝑦 ≥ 0 (3𝑎) 𝜆1 ≥ 0(3𝑏) 𝜆1 𝑍𝜆1 = 𝜆1 (100 − 𝑥 − 𝑦) = 0 (3𝑐)
𝑍𝜆2 = 120 − 2𝑥 − 𝑦 ≥ 0 (4𝑎) 𝜆2 ≥ 0 (4𝑏) 𝜆2 𝑍𝜆2 = 𝜆2 (120 − 2𝑥 − 𝑦) = 0 (4𝑐)

(c) As x , y, 𝜆1 >0 and from (1c), (2c), (3c) we will obtain


𝑦 2 − 𝜆1 − 2𝜆2 = 0 (5)
2𝑥𝑦 − 𝜆1 − 𝜆2 = 0 (6)
100 − 𝑥 − 𝑦 = 0 (7)
And (4c) yields 𝜆2 = 0.
Now for this case we have set of equations (5), (6) and (7). Solving (5), (6) and (7)
simultaneously, we will get
𝑥 = 33 .33 , 𝑦 = 66 .33
However when we substitute these solutions into (4a), it is not satisfied.
This solution violates the coupon constraint, and must be rejected.
(d) As 𝑥, 𝑦, 𝜆2 > 0, 𝜆1 = 0 and thus we will get four equations (5), (6)

And (4c) gives

120 − 2𝑥 − 𝑦 = 0 (8)

Solving (5), (6) and (8) simultaneously, we get


𝑥 = 20, 𝑦 = 80, 𝜆2 = 3200.

3
The solution 𝑥 = 20, 𝑦 = 80, 𝜆1 = 0 , 𝜆2 = 3200 satisfies all Kuhn-Tucker conditions
and hence is the optimal solution.
Example 3: (Q2 from exercise set 13.3)
A consumer lives on an island where she produces two goods, x and y, according to the
production possibility frontier 𝑥 2 + 𝑦 2 ≤ 200, and she consumes all the goods herself.
Her utility function is 𝑈 = 𝑥𝑦 3 . The consumer also faces an environmental constraint on
her total output of both goods. The environmental constraint is given by 𝑥 + 𝑦 ≤ 20.
(a) Write out the Kuhn-Tucker first-order conditions.
(b) Find the consumer’s optimal x and y when 𝑥 > 0, 𝑦 > 0, 𝜆1 = 0, 𝜆2 > 0 and check
Kuh-Tucker conditions are satisfied or not.
(c) Find the consumer’s optimal x and y when 𝑥 > 0, 𝑦 > 0, 𝜆1 > 0, 𝜆2 = 0 and check
Kuh-Tucker conditions are satisfied or not.

Solution:
(a) The Lagrangian is 𝑍 = 𝑥𝑦 3 + 𝜆1 (200 − 𝑥 2 − 𝑦 2 ) + 𝜆2 (20 − 𝑥 − 𝑦)
and Kuhn-Tucker conditions are
𝑍𝑥 = 𝑦 3 − 2𝑥𝜆1 − 𝜆2 ≤ 0 (1𝑎) 𝑥 ≥ 0 (1𝑏) 𝑥𝑍𝑥 = 𝑥(𝑦 3 − 2𝑥𝜆1 − 𝜆2 ) = 0 (1𝑐)
𝑍𝑦 = 3𝑥𝑦 2 − 2𝑦𝜆1 − 𝜆2 ≤ 0(2𝑎) 𝑦 ≥ 0 (2𝑏) 𝑦𝑍𝑦 = 𝑦(3𝑥𝑦 2 − 2𝑦𝜆1 − 𝜆2 ) = 0 (2𝑐)
𝑍𝜆1 = 200 − 𝑥 2 − 𝑦 2 ≥ 0 (3𝑎) 𝜆1 ≥ 0(3𝑏) 𝜆1 𝑍𝜆1 = 𝜆1 (200 − 𝑥 2 − 𝑦 2 ) = 0 (3𝑐)
𝑍𝜆2 = 20 − 𝑥 − 𝑦 ≥ 0 (4𝑎) 𝜆2 ≥ 0 (4𝑏) 𝜆2 𝑍𝜆2 = 𝜆2 (20 − 𝑥 − 𝑦) = 0 (4𝑐)

(b) As x , y, 𝜆2 >0 , from (1c), (2c), (4c) we will obtain


𝑦 3 − 2𝑥𝜆1 − 𝜆2 = 0 (5)
3𝑥𝑦 2 − 2𝑦𝜆1 − 𝜆2 = 0 (6)
20 − 𝑥 − 𝑦 = 0 (7)
And (3c) gives 𝜆1 = 0. Solving (5), (6) and (7), we have
𝑥 = 5, 𝑦 = 15, 𝜆2 = 153
which violates (3a) or you can say first constraint is not satisfied for these values.

(e) As 𝑥, 𝑦, 𝜆1 > 0, 𝜆2 = 0 and thus we will get four equations (5), (6)

And (3c) gives

200 − 𝑥 2 − 𝑦 2 = 0 (8)
For 𝜆2 = 0 (5) becomes

3
𝑦3
𝑦 − 2𝑥𝜆1 = 0 ⇒ 𝜆1 =
2𝑥
𝑦3
Using 𝜆1 = 2𝑥 , 𝜆2 = 0 (6) becomes

4
𝑦3
3𝑥𝑦 − 2𝑦 ( ) = 0 ⇒ 𝑦 2 = 3𝑥 2
2
2𝑥
2 2 2
Using 𝑦 = 3𝑥 in (8) we will get 𝑥 = 50 𝑜𝑟 𝑥 = 7.07.
Since 𝑦 2 = 3𝑥 2 thus 𝑦 2 = 150 𝑜𝑟 𝑦 = 12.25 .
𝑦3
𝜆1 = 2𝑥 = 130.005.

The solution
𝑥 = 7.07, 𝑦 = 12.25, 𝜆1 = 130.005, 𝜆2 = 0.
satisfies all Kuhn-Tucker conditions and hence is the optimal solution.

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