Lagrange Multipliers

A brief introduction to Lagrange Multipliers and its Business Application

Primary Source: Larson, R., Edwards B. H., Hostetler, R. P., (2005). Multivariable Calculus . Cengage Learning, 8, 889,968-971.

What are Lagrange Multipliers

Lagrange multipliers are a method used for

multivariable calculus
It combines the use of Derivatives and the

techniques used to solve Linear Programming

Think Linear Programming

Like Linear Programming Lagrange

Multipliers are used to solve optimization problems that have multiple variables.
The same principles apply; an objective

function is used with constraints to determine an optimal solution.

But Lagrange Multipliers expand on these

principles

Whats so special about Lagrange Multipliers?

Lagrange Multipliers can solve more complex

problems.
Linear Programming deals with exclusively linear

objective functions, linear equality and linear inequality.

Lagrange multipliers can be used in linear and non-

linear problems. (Which is nice because real life situations are often not linear)
Derivatives are used to solve these Lagrange

Multipliers

Note and
Before getting into the nitty griddy of Lagrange

Multipliers note that there are symbols that must be introduced and explained and those are the gradient and Lambda. -gradient represents what would normally be represented f1 in a single variable derivative example.
- just a number Now keep that in mind as we now move into the

math

Lagranges Theorem
Let f and g have continuous first partial derivatives such that f has an extremum at a point (x0, y0) on the smooth constraint curve g(x,y)=c. If g(x0, y0) 0, then there is a real number such that f (x0, y0)= g(x0, y0).

Methods of Lagrange Multipliers

Let f and g satisfy Lagranges Theorem, and f

will have a minimum or maximum subject to the constraint g(x,y)=c.

To find the minimum or maximum of f while

satisfying the constraint, use the following steps

Steps to Solve Lagrange Multipliers

Solve the system of equations fx(x,y)=gx(x,y) fy(x,y)=gy(x,y) f (x,y)= the objective function g(x,y)=constraint

Note: Evaluate f at each solution point, the largest value yields the maximum of f subject to the constraint g(x,y)=c, and the smallest value yields the minimum of f subject to the same constraint.

Ok..Ok.. An Example Already!

A Basic Lagrange Multiplier Example

An Example
Objective function: f (x,y)=5xy Constraint: g(x,y)= x+y=100 *Remember the goal here is to maximize f(x,y) and still satisfy x+y=100 *Keep in mind that when a finding a derivative the second variable is
always treated like a number

The Lagrange Theorem States we need to solve:

fx=gx fy=gy g=c *Keep in mind that like linear programming you must have as many equations as variables. The are variables are x,y, and .

Example continued
First you take the gradient of the objective function and the constraint f (x)= 5y, f (y)=1, g(x) =1, g(y)=1 Now solve the system of equations fx=gx fy=gy g= constraint

5y= 5x= x+y=100

But we are not done yet

So if 5y= and 5x= Then x = y Now use constraint: x+y= 100, Solve for x and y then x = 50, y=50

Finishing Our Example

So far we have found two of the 3 variables that we are looking for: x=50 y=50 but what about ? If 5y= , substitute 50 for y... 5(50)=250.. So =250.

Now we have to put our x and y variables back into the objective function maximization to find our optimum (which was f(x,y)=5xy).
So 5(50)(50)=12,500, which is the maximum value of f(x,y) where we still satisfy the constraint of x+y=100

The Cobb Douglass Production Function

Lagrange Multipliers Business application

Practical Application
Already knowing that like Linear Programming,

Lagrange Multipliers calculate optimization, we can begin to see its practical uses.
There is a production function that is particularly

useful in Business and Economics called the CobbDouglas production function.

We are using Lagrange multipliers to analyze the

Cobb-Douglas production function.

The Cobb-Douglas production function

This is useful in business and economics

because it is a function of two variables

Variables are labor and capital, which are

used to calculate total production: f (x,y)=Cxay1-a Where C and a constants 0<a<1.

Word Problem Example as given in the book Multivariable Calculus p.971

Objective Function: f (x,y)= 100x3/4y1/4
Where x represents the units of labor (at $150 per unit) and y represents the units of capital (at $250 per unit). The total cost of labor and capital is limited to $50,000. Find the maximum production level for this manufacturer.

So to set this up. the variables are x, y,

Example continued
First you take the gradient of the objective function

and the constraint

f x= f y= gx= gy=

Then solve the linear equations:

1. f x=gx 2. f y=gy 3. g= constraint

1. fx= 75x-1/4y1/4= 150 2. fy=25x y-3/4= 250 3. 150x+250y= 50,000

Now Solve
1. 75x-1/4 y1/4 = 150 2. 25x 3/4 y-3/4 = 250 = 75x-1/4y1/4 = 25x3/4y-3/4 150 250 x-1/4y1/4 = x3/4y-3/4 (Multiply both sides by 10) 2 10

Continue Solving
From last page: x-1/4y1/4 = x3/4y-3/4 (Multiply both sides by 10)= 2 10 5x-1/4y1/4 = x3/4y-3/4 (multiply both sides by x 1/4y 3/4) = 5y=x So if 5y=x and we apply that to the constraint which is 150x +250y =50,000 then x=250, y=50. Now that we have x and y we plug them back into the objective function to find our maximum production level: f (250,50)= 100(250)3/4(50)1/4 =16,719. *So we should use 250 units of labor and 50 units of capitol

Lets Change it up
How would the maximization change if the manufacturer weighted labor and capital differently? Example, instead of 100x1/4y3/4 lets weigh capital and labor equally as 100x1/2y1/2 Then if we followed the Lagrange method we would find that x=166.667, y=100. This would make our new maximum production level 12,900.

Conclusions
We have now completed our introduction to

Lagrange Multipliers and its business application (the Cobb-Douglas production function)
Dont be deceived today we just went over

the basics of both of these applications.

So much more
There is so much more that we did not

investigate today.
Such as the fact that the Lagrange Theorem

can be used for functions of multiple variables where today we only looked at a 2 variable scenario.

Today was about the Introduction

Even though there is so much more to Lagrange multipliers today was meant as an introduction. You can now take this knowledge and use it as you wish. Thank you!