Mathematics for Economic Analysis, 4ECON007C Semester 1, 2017-2018

Tutorial 6 Unconstrained Optimization

Key terms Notes Key terms Notes

Intervals of and Critical point
Concave/convex Inflection point
Stationary points Saddle point
Local (relative) Optimization
maximum
Local (relative) Budget constraint
minimum
Section Mathematics
1H) For each of the functions y = 1 2x and y = x2 + 2x, find:
a) the intervals of increase and decrease.
b) the intervals where the function is concave or convex.

2) Find the intervals of increase/decrease and concavity/convexity of the following functions:

a) f (x) = x3 3x bH) f (x) = 2x3 19x2/2 + 10x + 2
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c) () = 3 + 3 2 3 dh) () = 3 + 6 2 + 9 + 2 eh) () = 3 3 2 2 + 5 + 3

3) Find and classify the stationary points of the following functions:

a) y = x2 20x + 105 bH) y = x x2 + 2 cH) y = x2ex
3
d) () = 2 3 5 2 4 eh) () = 2 3 + 3 2 12 + 5 fh) () = 2 4 + 4 3 24 2 + 20

4) Find and classify the stationary points of the following functions:

a) z = x2 + 2y2 6x 4y bH) f (x, y) = 5x2 + 2y2 4xy 36x c) f (x, y) = x3 + 3xy2 3x2 3y2 + 10

Section Economics
5) ah) Given the non-linear inverse demand function P = 750 0.1Q2, what output will maximize the
sales revenue?
b) The daily cost of producing x high-performance wheels for racing bicycles is given by:
() = 0.01 3 1.5 2 + 175
and no more than 100 wheels can be produced each day. What production level will give the lowest
average cost per wheel? What is the minimum average cost?
ch) The monthly cost of producing x thousands ultimate flying discs is given by
() = 9750 0.04
and at most 30000 discs can be produced in a month. What production level will give the lowest
average cost per disc? What is the min average cost?

6H) A monopolist produces two goods, x and y. The demand function for each good is given as Px =
36 3x and Py = 56 4y. Determine the quantities of each good, which must be sold so that total
revenue is maximized. What is the maximum revenue?

7H) An electronic components firm launches a new product on January 1, 2016. During the following
year a rough estimate of the number of orders, N, received d days after the launch is given by the
equation N = 2d2 0.005d3
a) What is the maximum number of orders received on any one day of the year? After how many days
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Mathematics for Economic Analysis, 4ECON007C Semester 1, 2017-2018

does the firm achieve that level? Round your answers to the nearest whole number.
b) After how many days does the firm experience the greatest increase in orders?

8) If a firms fixed costs are 15 and variable costs are 2Q per unit, find the value of Q, which
minimizes its average cost. Verify that AC = MC at this point.

9H) The fixed costs of a manufacturing firm are 9 and the variable costs are Q + 1 per unit.
a) Calculate the values of average cost when Q = 1, 2, 3, 4, 5, 6 and hence graph AC against Q.
b) Use your graph to determine the minimum average cost.
c) Use differentiation to confirm your estimate obtained in part (b).

10) Demand and total cost functions of a good are 4P + Q 16 = 0 and TC = 4 + 2Q 3Q2/10 + Q3/20.
a) Determine the value of Q, which maximizes the profit.
b) Calculate MR and MC at this value of Q. What do you observe?

11H) A shop which sells T-shirts has a demand function and a total cost function given by the
equations P + 10Q = 240 and TC = 120 + 8Q.
a) Calculate the number of T-shirts, which must be sold to maximize profit. Find the maximum profit.
b) Graph MR and MC on the same diagram. What is the significance of the point of intersection of
these two graphs?

12) Assume that the relationship between the profit and output Q of a car manufacturing company is
given by equation = 150 + 120Q 0.5Q2. The manager of the company has also discovered the
relationship between the companys output Q and the size of the companys labor force L as Q = 8L0.5.
How many units of labor should the company employ to maximize its profit?

13H) A firm is a perfectly competitive producer and sells two goods G1 and G2 at $54 and $52 each,
respectively. The total cost of producing these goods is given by TC = 3Q12 + 3Q1Q2 + 2Q22 100
where Q1 and Q2 denote the output levels of G1 and G2. Find the maximum profit and the values of Q1
and Q2 at which the maximum profit is achieved.

14) Demand functions for a firms domestic and foreign markets are P1 = 50 5Q1 and P2 = 30 4Q2
and the total cost function is TC = 10 + 10Q where Q = Q1 + Q2. Determine the prices needed to
maximize profit and calculate the value of the maximum profit.

15) A firms production function is given by Q = 2L1/2 + 3K1/2 where Q, L and K denote the number of
units of output, labor and capital, respectively. Labor costs are $2 per unit, capital costs are $1 per unit
and output sells at $8 per unit.
a) Prove that the profit function is =16L1/2 +24K1/2 2L K.
b) Find the maximum profit and the values of L and K at which it is achieved.

16H) A manufacturer of goods x and y has profit function = 527 + 20x + 20y 2x2 2xy 3y2. Find
the profit maximizing values of (x, y) and confirm that the second order conditions for a maximum are
satisfied.

17H) An individuals utility function is given by U = 260x + 310y + 5xy 10x2 y2 where x is the
amount of leisure measured in hours per week and y is earned income measured in dollars per week.

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Mathematics for Economic Analysis, 4ECON007C Semester 1, 2017-2018

a) Find the values of x and y which maximize U.

b) What is the corresponding hourly rate of pay?

18) The price of Toyota Co., Ltd., stock over the 12-week period at the beginning of 2012 can be
approximated by the function
f(x) = 30.2x0.1
where x=1 designates the beginning of week 1.
a) When is the stock increasing in price?
b) At what rate is the stock increasing at the beginning of the 2nd week?
c) At what rate is the stock increasing at the beginning of the 12th week

19H) The male employment-population ratio (the percent of all men who are employed) can be
approximated by
f(x) = 0.086x3 2.22x2 + 17.5x + 29
where x=4 corresponds to the year 2004. Determine in what years the percent of employed men was at
a local maximum or minimum.

20H) A company is developing a new soft drink. The cost in dollars to produce a batch of the drink is
approximated by
C(x,y) = 2200 + 27x3 72xy + 8y2
where x is the number of kilograms of sugar per batch and y is the number of grams of flavoring per
batch. Find the sugar and flavoring that result in a local minimum cost for a batch. And what is the
minimum cost?

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