Draft Concave and Quasi-Concave Functions

Microeconomics /Math Camp Lecture Supplements Department of Economics
Hajime Miyazaki, Professor OHIO STATE UNIVERSITY

Fall 93/94/95/Su 97/99/00
File Name: CONV-FNC.doc Miyazaki.1@osu.edu

8/3/2002 4:35:00 PM
Printed 08/23/99 11:46:26 PM
DRAFT
Concave and Quasi-Concave Functions

FUNCTIONS

The basic property of a function is that it associates an object (x) in a
given set with an object (y) in another set. The standard generic symbol
for a function is f or F, but other letters such as g or h are also
frequently used. When a function f associates x with y, we also say
that the function maps x into y, or that the function transforms x into y.
We thus use the term a map, mapping, transform, or transformation,
synonymously to mean a function.

To express that f associates x with y, we write x y a under f or
x y
f
. A more compact way is to express it f (x) = y.

A well-defined function must specify its domain, the source set from
which a mapping object x is taken, and also its range, the target set into
which x is mapped. A mapping object, which is by definition in the
domain of the function, is also called an argument. The transformed
object y, which by definition is in the range of the function, is called a
value of the function.

The space in which the domain of a function is contained is called the
domain space of a given function. Similarly, the range space of a
function designates the space in which its range is contained.
Mathematicians thus express a function f as f : (domain space)
(range space).

In economics, the domain space of a function is almost always an n-
dimensional real space R
n
. This means that a function takes an n-
dimensional real vector as its argument. The most basic, and in a sense
the most prevalent, range space in economics is a real line R. When the
range space of a function is R, the function is called real-valued. A
compact way to express a real-valued function, whose domain space is
R
n
, is to write it as f : R
n
R.

We will encounter many real-valued functions in this course. For
example, a simple production function takes an n-dimensional input
vector x = (x
1
, , x
n
) and produces a single output y. A utility function
is real-valued and its argument is an n-dimensional consumption vector.
OSU Math Camp & E804 Concave/Quasi-Concave Functions
Fall 93/94/95/Su 97/99/00 - 2 - Hajime Miyazaki
DRAFT

Printed 10/25/2004 11:55:21 PM CONV-FNC.DOC

A cost function, usually expressed as C(y, w), is real-valued. Its
argument is a vector (y, w) where y is an m-dimensional output vector
and w is an n-dimensional input price vector. C(y, w) is the minimum
cost of producing m different outputs in the amount expressed as an m-
dimensional output vector y = (y
1
, , y
m
) when prices for n different
kinds of inputs are given by an n-dimensional vector w = (w
1
, , w
n
).
Thus, the domain space is (m +n) dimensional R
m+n
. Since cost is
expressed in terms of dollars, a cost function is real-valued.

To emphasize that a real number is different from a vector, one sometimes
uses the term scalar and call a real-valued function a scalar-valued
function. Since the predominant cases in economics deal with
nonnegative numbers, we often must impose nonnegativity on vectors.
When we wish to underscore that an economic space under consideration
is a set of nonnegative vectors, we use the subscript + as in R
n
+
. Further,
many economically interesting cases entail prices and quantities that are
strictly positive. If we wish to emphasize strict positivity of a vector
space, we can use a double subscript ++ as in R
n
++
.

Concave and Convex Functions

Concave functions and convex functions can be defined in terms of
convex sets called hypographs and epigraphs respectively. Concave and
convex functions are real-valued functions meaning that their range space
must be a real line i.e., the set of real numbers. Their domain is usually an
n-dimensional vector space. In symbols, they are functions R R
n
.
Normally, concave and convex functions are defined directly in terms of
the relationship between the functional value of a convex combination of
arguments and the corresponding convex combination of functional
values. In this note we motivate the standard definitions by starting with
the notion of convex sets that are naturally associated with real-valued
functions.

DRAFT


CONCAVE FUNCTIONS

Definition: The hypograph Hyp(f ) of a real-valued function
f R R
n
: is the area below f. Namely, it is a set in R
n+1
given by

)} ( | ) , {( ) ( x f y y x f Hyp =

Definition: A function is said to be concave if its hypograph is a convex
set.
0
y
x
H( f )
f
0
DRAFT


The preceding definition of a concave function is equivalent to the
following definition.

To see that the two definitions are equivalent, let y f x = ( ) and
y f x ' ( ') = so that ( , ) x y and ( ', ') x y are both in Hyp(f ). If Hyp(f
) is a convex set, for any 0 t 1 the convex combination

( ( ) ', ( ) ') tx t x ty t y + + 1 1

is also in Hyp(f ). That is,

ty t y f tx t x + + ( ) ' ( ( ) ') 1 1 .

The LHS is equal to

tf x t f x ( ) ( ) ( ') + 1 .
Thus,
tf x t f x f tx t x ( ) ( ) ( ') ( ( ) ') + + 1 1 ,

demonstrating that the first definition implies the second definition.
Conversely, suppose that
tf (x) +(1t)f (x) f (tx +(1t)x).
Take y and y such that y f (x) and y f (x). Clearly, (x, y) and
(x, y) are in Hyp (f). Then,
ty tf (x) and (1t)y (1t)f (x)
for any 0 t 1. That is,
ty +(1t)y tf ( x) +(1t)f (x),
and the RHS of this inequality is assumed to be less than
f (tx +(1t)x). In other words,
Definition: A function is concave if for any x and x' in the domain of
f,

f tx t x tf x t f x ( ( ) ' ) ( ) ( ) ( ' ) + + 1 1

for any 0 t 1. Verbally stated, the functional valuation of a convex
combination exceeds a convex combination of functional values.
DRAFT


ty +(1t)y f (tx +(1t)x)
and thus (tx +(1t)x, ty +(1t)y)
is in Hyp(f ), demonstrating that Hyp(f ) is a convex set. Hence, the
second definition implies the first definition. This completes the
confirmation that the two definitions of a concave function are equivalent.

The definition of a concave function can be stated more generally by
using general convex combinations, known as J ensens Inequality in
statistics.

A strictly concave function is a concave function in which inequalities in
the definition hold with strict inequalities. A function is strictly concave
if for any x and x' in the domain of f,

1
More compactly expressed with the summation symbol, f ( t
i
x
i
) ( t
i

f(x
i
) whenever 1 = t
i
., and t
1
0, ..., t
k
0.
J ensens Inequality: A real-valued function f : R
n
R is concave if
and only if the function value of a convex combination is at least as large
as the convex combination of functional values.
1
Given any k vectors, x
1
,
..., x
k
in the domain, f (t
1
x
1
+ ... + t
k
x
k
) t
1
f(x
1
) + ... + t
k
f(x
k
)
whenever t
1
0, ..., t
k
0, and

1 = t
1
+ ... + t
k
.
f (x)

x tx + (1t)x x
f (tx +(1t)x)
tf (x) +(1t)f (x)
f (x)
0
DRAFT


) ' ( ) 1 ( ) ( ) ' ) 1 ( ( x f t x tf x t tx f + > +
for any 0 < t < 1. Verbally stated, the functional valuation of a convex
combination is strictly greater than a convex combination of functional
values. Equivalently, a function is a strictly concave function if its
hypograph is a strictly convex set.

Textbooks, especially economics textbooks, often depict concave
functions using an example from R to R. A typical example has a
curve first rising and then falling, taking on the so-called inverted U-
shape. Unconstrained optimization problems must frequently assume that
a maximand (the function to be maximized) is a concave function with an
inverted U-shape. Otherwise, it is not possible to obtain a global
maximum. Another class of illustrative example collects concave
functions that are monotone increasing. Economic analysis is full of this
type of concave functions. The most direct examples include utility
functions and production functions. A concave utility function embodies
the idea of risk aversion. In fact, the definition of risk aversion and
concavity are mathematically identical. Less obvious, but important,
examples of monotone increasing concave functions are cost functions
and expenditure functions. A cost function is linear homogeneous,
nondecreasing and concave in input price vectors. Similarly, an
expenditure function is linear homogenous, nondecreasing and concave in
commodity price vectors. Generally speaking, the so-called value
function of a constrained minimization program turns out to be concave in
those parameters over which the minimand is concave. (A minimand is a
function that is being minimized.) But, it is quite possible for a concave
function to be monotone declining everywhere. For example, a demand
function, which is negatively related to demand prices, is sometimes
assumed to be concave in demand prices.

Concave functions can be combined in a number of ways to produce more
concave functions.

Let f and g be both concave functions on a convex subset of R
n
.
Then, their summation f + g is again a concave function. Moreover,
if at least one of them is a strictly concave function, then the summed
function is strictly concave.
Let f be a [strictly] concave fucntion on a convex subset of R
n
, and
let t be a positive scalar. Then, t f is a [strictly] concave function.
An affine combination of concave functions is again a concave
function: if f and g be both concave functions on a convex subset of
R
n
, f + g where 0 and 0 is again a concave function.
DRAFT


Let f be a [strictly] concave function on a convex subset of R
n
, and
g be a strictly increasing concave function defined on the range of f
in R. Then, the composite function g o f is a [strictly] concave
function.
Let f and g be both concave functions on a convex subset of R
n
,
and bounded from below. Then, the pointwise infinimum fucntion,
Min {f(x), g(x)} is a concave function.

Theorem: Let f be a concave function defined on a convex subset of R
n
.
Let S be a subset of the domain space. Then, f is continuous on the
interior of S. (A point of discontinuity can possibly occur only on the
boundary of S.)

Theorem: Let f be a function defined on a convex set in R
n
. Then, f is
concave if and only if its restriction to every chord in the convex domain
set is a concave function
2
.

Every upper contour (or upper level, or better than) set of a concave
function is always a convex set. But the converse of this assertion is false.
All quasi-concave functions produce convex upper contour sets, but not
every quasi-concave function is a concave function. (All concave
functions are all quasi-concave.)

Theorem: Let : f : R
n
R be given by f(x) = p x. Consider the
problem to minimize p x by choosing x subject to the condition that x
belongs to a constraint set G. Then, the minimum value function C(p) =
Min { p x | x in G} is a linear homogeneous and concave function of
p.

2
Geometrically, a function is concave if and only if its hypograph is a convex set. A
hypograph is convex if every hyperplane intersecting it produces a slice that is a convex
set. This theorem essentially states of a convex slice that a vertical hyperplane cuts out
of the hypograph.

DRAFT


CONVEX FUNCTIONS

Definition: The epigraph Epi(f) of a real-valued function f R R
n
:
is the area above f. Namely, it is a set in R
n+1
given by

)} ( | ) , {( ) ( x f y y x f Epi =

Definition: A function is said to be a convex function if its epigraph is a
convex set.

0
f
x
E(f )
f
0
DRAFT


The above definition is equivalent to the following definition.

Definition: A function is said to be convex if for any x and x in the
domain of f ,

f tx t x tf x t f x ( ( ) ') ( ) ( ) ( ') + + 1 1

for 0 t 1. Verbally stated, a convex combination of functional
values exceeds the functional value of the convex combination.

In a manner that is completely analogous to that for a concave function,
we can confirm that the two definitions are equivalent. This verification
will be left to readers.

The definition of a convex function can be stated more generally by using
general convex combinations, known as J ensens Inequality in statistics.

f(x)
f(x)
0 x tx +(1t)x x

tf (x) +(1t)f (x)

f (tx +(1t) x)
DRAFT


A strictly convex function is a convex function in which inequalities in the
definition hold with strict inequalities. A function is strictly convex if for
any x and x' in the domain of f,

) ' ( ) 1 ( ) ( ) ' ) 1 ( ( x f t x tf x t tx f + < +
for any 0 < t < 1. Verbally stated, the functional valuation of a convex
combination is strictly smaller than a convex combination of functional
values. Equivalently, a function is a strictly convex function if its
epigraph is a strictly convex set.

Textbooks often illustrate an example of a convex function that first
declines and then rises, conforming to a proverbial U-shape. Such a
shape is necessary (at least over the relevant restricted domain) if a
function is to be minimized. But, a convex function need not be a
proverbial U-shaped function. A convex function can be either monotone
increasing or decreasing. The diagram above illustrates a monotone
increasing convex function. It is quite possible for a convex function to
be monotone declining everywhere. For example, in the industrial
organization literature, a natural monopoly is often depicted as having an
everywhere declining convex average cost curve. Also a demand
function, which is negatively related to demand prices, is sometimes
drawn to be convex in demand prices.

The most direct examples of convex functions include utility functions
and production functions. In the context of a utility function, the notion of
convexity is mathematically equivalent to a risk-loving or risk-seeking
plunger. Convexity of a function negates the notion of diminishing
marginal returns. In the context of production, a convex production
function essentially implies increasing returns. Note, however, the
converse is not correct. That is, increasing returns does not necessarily
imply a convex production function. To be precise, a correct general

3
More compactly expressed with the summation symbol, f ( t
i
x
i
) ( t
i

f(x
i
) whenever 1 = t
i
., and t
1
0, ..., t
k
0.
J ensens Inequality: A real-valued function f : R
n
R is convex if and
only if the function value of a convex combination is no larger than the
convex combination of functional values.
3
Given any k vectors, x
1
, ..., x
k

in the domain, f (t
1
x
1
+ ... + t
k
x
k
) t
1
f(x
1
) + ... + t
k
f(x
k
) whenever
t
1
0, ..., t
k
0, and

1 = t
1
+ ... + t
k
.
DRAFT


statement is that increasing returns imply a nonconcave production
function
4
.

Less obvious, but important, examples of convex functions are revenue
functions and profit functions. A revenue function is linear homogeneous,
nondecreasing and convex in output price vectors. Similarly, a profit
function is linear homogenous, and convex in input-output price vectors.
Generally speaking, the so-called value function of a constrained
maximization program turns out to be convex in those parameters over
which the maximand is convex. (A maximand is a function that is being
maximized.)

Convex functions can be combined in a number of ways to produce more
convex functions. It will be very helpful to remember the following
definitional fact.

A function f is convex if and only if f is concave.

The results obtained for concave functions can be translated into results
for convex functions by noting this (1) multiplication.

Let f and g be both convex functions on a convex subset of R
n
.
Then, their summation f + g is again a convex function. Moreover,
if at least one of them is a strictly convex function, then the summed
function is strictly convex.
Let f be a [strictly] convex fucntion on a convex subset of R
n
, and let
t be a positive scalar. Then, t f is a [strictly] convex function.
An affine combination of convex functions is again a convex function:
if f and g be both convex functions on a convex subset of R
n
, f +
g where 0 and 0 is again a convex function.
Let f be a [strictly] convex function on a convex subset of R
n
, and g
be a strictly increasing convex function defined on the range of f in
R. Then, the composite function g o f is a [strictly] convex function.
Let f and g be both convex functions on a convex subset of R
n
, and
bounded from above. Then, the pointwise supremum fucntion, Max
{f(x), g(x) } is a convex function.

Theorem: Let f be a convex function defined on a convex subset of R
n
.
Let S be a subset of the domain space. Then, f is continuous on the

4
In the context of a production set, a correct terminology is nonconvexity of a
production set to mean the same thing as a nonconcave production function.
DRAFT


interior of S. (A point of discontinuity can possibly occur only on the
boundary of S.)

Theorem: Let f be a function defined on a convex set in R
n
. Then, f is
convex if and only if its restriction to every chord in the convex domain
set is a convex function
5
.

Every lower contour (or lower level, or worse than) set of a convex
function is always a convex set. But the converse of this assertion is false.
All quasi-convex functions produce convex lower contour sets, but not
every quasi-convex function is a convex function. (All convex functions
are all quasi-convex.)

Theorem: Let : f : R
n
R be given by f(x) = p x. Let us maximize
p x by choosing x subject to x belonging to a constraint set G. Then,
the maximum value function
C(p) = Max { p x | x in G}
is a convex and linear homogeneous function of p.

5
Geometrically, a function is convex if and only if its epigraph is a convex set.
An epigraph is convex if every hyperplane intersecting it produces a convex
shaped slice. This theorem essentially states of a convex slice that a vertical
hyperplane cuts out of the epigraph.
DRAFT


QUASI-CONCAVE AND QUASI-CONVEX FUNCTIONS

In most economic maximization (resp. minimization) problems, we need
not require objective functions, sometimes called maximand (resp.
minimand) functions, to be concave (resp. convex), but only to be quasi-
concave (resp. quasi-convex). Quasi-concavefunctions can also
characterize a constraint set that is convex. Similarly, in many
optimizations, quasi-convex functions often define a convex constraint
set. It turns out that a quasi-concave (resp. a quasi-convex) function is
always a concave (resp. a convex) function. But, the converse need not
hold. Namely, there are quasi-concave (resp. quasi-convex) functions that
are not concave (resp. convex) functions. J ust as in the case of concave
and convex functions, it is intuitive and basic to define quasi-concavity
and quasi-convexity in terms of convex sets that these functions define. It
is also useful to remember that quasi-concavity and quasi-convexity will
be essentially symmetric by the relationship that a function f : R
n
R is
[strictly] quasi-convex if and only if f is [strictly] quasi-concave.

QUASI-CONCAVE FUNCTIONS

Upper contour sets frequently appear in the course of discussing a
consumers utility maximization and a firms cost minimization. For
example, an input requirement in the context of a production function
corresponds to an upper contour set
V(y) U(y | f ) = {x | f (x) y},
where y denotes an output level, x an input vector, and f a single-
output production function. Similarly, in the context of utility
maximization, the set of all consumption bundles (x) that are preferable
to a given consumption bundle x* constitute an upper contour set. In that
case, the upper contour set is
A(x) U(x | u) = {x | u(x ) u(x)}
where u is a utility function.

Definition: Let f R R
n
: be a real-valued function. Then the upper
contour set of f at y is given by

U y f x f x y ( ) { ( ) } = .
DEFINITION: f is said to be quasi-concave if and only if U y f ( ) is a
convex set for every y in the range set of f.
DRAFT


In the following diagrams, an arrow indicates the direction in which f (x)
increases

In the context of a single-output production function, convex input
requirement sets V(y) are tautologically equivalent to stating that y = f
(x) is a quasi-concave function. It is well known that convex V(y) need
not imply a convex production set. In the context of a utility function,
economists routinely assume that the better-than set of consumption
bundles is convex. This is equivalent to assuming that a utility function is
quasi-concave
6
.

We now give an alternative definition of quasi-concavity.

To illustrate this definition, see the diagram below, wherein f (x) < f (x).

6
Quasi-concavity is a weaker assumption than concavity. That is, while every
concave function is quasi-concave, the converse is false. But, economist
sometimes need more than quasi-concavity. For example, a quasi-concave
function does not imply risk aversion, but a concave utility function does. (In the
von Neumann Morgenstern tradition, if the expected utility is quasi-concave,
then it is concave.)
Definition: A real-valued function f R R
n
: is quasi-concave if
and only if for all x and x', f tx t x f x f x ( ( ) ') min[ ( ), ( ')] + 1
for all 0 t 1.
f x y ( )
f x y ( ) =
x
2

x
1

DRAFT


Remarks:
A function f is strictly quasi-convex if and only if f is
strictly quasi-concave.
A strictly concave function is strictly quasi-concave.

Theorem
8
: Let f be an upper semicontinuous function on a convex set S
in R
n
. If f is strictly quasi-concave on S, then f is actually quasi-
concave on S.

7
This definition differs from the quasi-concavity only by strict inequalities
everywhere. It is not correct to define strict quasi-concavity by saying that upper
contour sets are strictly convex. This is because an upper contour set can be
strictly convex even when the function has flat spots.
8
Thus, strict quasi-concavity and upper semicontinuity imply quasi-concavity.
But, the converse is not true.
Definition
7
: A real-valued function f R R
n
: is strictly quasi-
concave if and only if for all x and x'
)] ' ( ), ( min[ ) ' ) 1 ( ( x f x f x t tx f > +
for all 0 < t < 1.
0
x
2

x
1

x
y = f (x)

y = f (x)
x
DRAFT


Theorem: Let f be a strictly quasi-concave function on a convex set S
in R
n
. If x* is a local maximizer of f on S, then x* is actually a
global maximizer of f on S.

Remarks
A sum of two concave functions produces another concave function.
But, the sum of two quasi-concave functions do not necessarily
produce a quasi-concave function. Moreover, the sum of a concave
and a quasi concave function is not necessarily either a concave or
quasi-concave function.
Let f : R
n
R be a quasi-concave function, and let g: R R be a
nondecreasing function whose domain includes the range of f. Then,
the composite function gof : R
n
R is a quasi-concave function.

DRAFT


QUASI-CONVEX FUNCTIONS

Quasi-convexity can similarly be defined, but by using a lower, rather
than an upper, contour set.

Definition: For a real-valued function f R R
n
: , the lower contour
set at y is given by L y f x f x y ( ) { ( ) } .

Since we have already discussed quasi-concavity, it will be convenient to
utilize the relationship:

f is quasi-convex if and only if f is quasi-concave.

Most properties of quasi-convex functions therefore follow from
switching inequalities judiciously from those characterizing quasi-concave
functions.

The next two diagrams illustrates a quasi-convex function that happens to
increase in the northeast direction. For example, f (x
1
, x
2
) =
x x
1
2
2
2
+ is such a quasi-convex function.

Definition: A real-valued function is said to be quasi-convex if and only
if L y f ( ) is a convex set for every y in the range set.
f x y ( )
f x y ( ) =
x
2

x
1

DRAFT


An important example of a quasi-convex function that happens to
decrease in the northeast direction is an indirect utility function

v(p, m) Max {u(x) | px m}.

In v(p, m), p is the commodity price vector and m the money income of
a consumer. Provided that a utility function u is quasi-concave and
monotone in consumption bundles, v is monotone increasing in m and
decreasing in p, and quasi-convex in (p, m). Its gradient points to the
southwestern direction, and its lower contour set appears as in the
following diagram.

The quasi-convexity becomes an important technical condition that allows
the minimization p x on the lower contour set {p | v (p, m) v}. The
indirect utility function plays the key role in the duality approach to the
theory of consumption and demand.

We now give an alternative definition of quasi-convexity.

0
p
1

p
2

v(p, m) v
DRAFT


To illustrate this definition, the diagram below depicts a situation wherein
(x) < f (x).

Remarks:

9
This definition differs from the quasi-convexity only by strict inequalities
everywhere. It is not correct to define strict quasi-convexity by saying that lower
contour sets are strictly convex. This is because a lower contour set can be
strictly convex even when the function is merely convex having some flat spots.

Definition: A real-valued function f R R
n
: is quasi-convex if and
only if for all x and x', f tx t x f x f x ( ( ) ') max[ ( ), ( ')] + 1 for
all 0 t 1.
Definition
9
: A real-valued function f R R
n
: is strictly quasi-
convex if and only if for all x and x'

)] ' ( ), ( [ max ) ' ) 1 ( ( x f x f x t tx f < +

for all 0 < t < 1.
x
x
0

DRAFT


A function f is strictly quasi-convex if and only if f is
strictly quasi-concave.
A strictly convex function is strictly quasi-convex.

Theorem
10
: Let f be an lower semicontinuous function on a convex set S
in R
n
. If f is strictly quasi-convex on S, then f is actually quasi-convex
on S.

Theorem: Let f be a strictly quasi-convex function on a convex set S in
R
n
. If x* is a local minimizer of f on S, then x* is actually a global
minimizer of f on S.

Remarks
A sum of two convex functions produces another convex function.
But, the sum of two quasi-convex functions does not necessarily
produce a quasi-convex function. Moreover, the sum of a convex and
a quasi convex function is not necessarily either a convex or quasi-
convex function.
Let f : R
n
R be a quasi-convex function, and let g: R R be a
nondecreasing function whose domain includes the range of f. Then,
the composite function gof : R
n
R is a quasi-convex function.

10
Thus, strict quasi-convexity and lower semicontinuity imply quasi-convexity.
But, the converse is not true.

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Microeconomics /Math Camp Lecture Supplements Department of Economics

Hajime Miyazaki, Professor OHIO STATE UNIVERSITY

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