Mathematical Methods @ MSE

Problems – Constrained Optimzation

1. A student is preparing for exams in two subjects. She estimates that the grades she will
obtain in each subject as a function of amount of time spent working on them are: g1 =
20+20(t11/2) and g2 = -80+3t2, where g1 and g2 are grades in each subject and t1 and t2
are the number of hours per week spent in studying the subjects. She wishes to
maximize her grade average (g1+g2)/2. She can not spend in total more than 60 hours
studying in the week. Formulate the problem as a constrained optimization problem and
find the optimal values of t1, t2 and the Lagrange multiplier. Interpret the Lagrange
multiplier.
Ans: t1* = 11.11; t2* = 48.89
2. Maximize Y = x10.25x20.75, subject to 100 – 2x1 -4x2 = 0. Check the relevant second order
sufficiency condition.
Ans: x1* = 100/8; x2* = 300/16
3. Suppose that a firm’s production function is given by Q = KL2 and the costs are given
by C = wL + rK, where K is capital, L is labor and r and w are their per unit costs,
respectively.
a) Suppose that w = Rs. 40 and r = Rs. 10 and that the firm desires to produce 2000
units of output. How much capital and labor should be optimally used, if the firm
wants to produce the desired output at minimum cost?
b) Suppose now that instead of having the objective of producing 2000 units, the firm
decides to produce with a budget of Rs. 1800. How much capital and labor should
be used to maximize output? Check whether the appropriate second order condition
is satisfied or not.
Ans: (a) L* = 10; K* = 20; (b) L* = 30; K* = 60
4. Suppose we have a refinery that must ship finished goods to some storage tanks.
Suppose further that there are two pipelines, A and B, to do the shipping. The cost of
shipping x units on A is ax2; the cost of shipping x units on B is bx2, where a > 0 and b
> 0 are given. How can we ship Q units while minimizing cost? Check appropriate
second order conditions also. What happens to the cost if Q increases by r%.
Ans: x* = bQ/(a+b); y* = aQ/(a+b); λ* = 2abQ/(a+b)

5. Maximize (x3 – 3x), subject to x ≤ 2

Ans: Two solutions; x = -1 and x = 2
6. Minimize (x – 2)2 + 2(y – 1)2, subject to x + 4y ≤ 3 and x ≥ y
Ans: x = 5/3 and y = 1/3

7. Consider the case of a two-good world where both goods x and y are rationed. Let the
consumer’s utility function be U(x, y) = x.y2. Let the consumer’s budget be 100, and let
the prices of goods be 1 each (i.e., px = 1 and py = 1). Assume that the consumer has an
allotment of 120 coupons which can be used to purchase both x and y at a coupon price
of cx = 2 and cy = 1. Thus the consumer would need both sufficient funds and sufficient
coupons in order to buy a unit of the rationed goods.
i) Write the Lagrangian function and the Kuhn-Tucker necessary condtions.
ii) Do you need to specifically consider non-negativity constraints? Explain
 iii) Consider two cases: 1 > 0 and 2 = 0; 2 > 0 and 1 = 0 – where 1 and 2 are the
Lagrange multipliers associated with the constraints. Which of these two cases yield
valid result?
Ans: x = 20; y = 80
8. Suppose that we can buy a chemical for Rs. 10 per ounce. There are only 17.25 oz
available. We can transform this chemical into two products: A and B. Transforming to
A costs Rs. 3 per oz, while transforming to B costs Rs. 5 per oz. If x 1 oz of A are
produced, the price we command for A is Rs. 30 –x1; if x2 oz of B are produced, the
price we get for B is Rs. 50 – x2. How much chemical we should buy to maximize
profits and what should we transform it to?

Ans: x1 = 8.5; x2 = 8.75; x3 = 17.25

9. Suppose that an individual’s utility function is: U = 1log(x1) + 2log(x2), over the amount (x1,
x2) of two courses to serve at dinner, where 1, 2 > 0 and 1+2 = 1. Each course requires the
same two ingredients, A and B, but in different amounts. Each unit of course 1 requires 3 units
of ingredient A and 2 units of ingredient B. Each unit of course 2 requires 2 units of ingredient
A and 3 units of ingredient B. Suppose that the individual has 30 units of each ingredient to
use for the dinner. The individual’s problem is to optimally choose the two courses to
maximize her utility.
i) State the constrained optimization problem of the individual.
ii) Write the complete set of Kuhn-Tucker conditions for the problem.
iii) Explain why you will need to consider only three relevant cases, viz., (a) Lagrange
variable corresponding to first constraint is equal to zero and the second constraint is
held as an equality; (b) both the constraints are held as equalities; (c) first constraint
is held as an equality and the Lagrange variable corresponding to the second
constraint is equal to zero.
iv) Find the solution and show that it depends on the ratio of 1 and 2.

The solution for x1 and x2 is:

(151, 102) if 1/2  2/3
(6, 6) if 2/3  1/2  3/2
(101, 152) if 1/2  3/2