Constrained Optimization

Economics 214
Lecture 41
2
nd
Order Conditions Constrained
Optimization
Sufficient conditions in optimization problems require determining
The sign of the second total differential. The sign of the second
Total differential of a Lagrangian function

( ) ( ) ( ) ( )
( ) c x x g
c x x g x x f x x L
n
n n n
=
=
, , constraint the subject to
, , , , , ,
1
1 1 1

Depends on the sign of the determinant of the bordered
Hessian of the Lagrangian function.
Bordered Hessian for Bivariate
Function
The Bordered Hessian for the Lagrangian function

( ) ( ) ( ) ( )
(
(
(

=
=
22 22 21 21 2
12 12 11 11 1
2 1
2 1 2 1 2 1
0
, , ,
g f g f g
g f g f g
g g
H
is c x x g x x f x x L

Determinant Bordered Hessian

( ) ( ) ( ) ( )
22 22
2
1 11 11
2
2 12 12 1 2 21 21 2 1
22 22 21 21 2
12 12 11 11 1
2 1
0
g f g g f g g f g g g f g g
g f g f g
g f g f g
g g
H



+ =

=
2
nd
Order Conditions for Maximum
Sufficient Condition for a Maximum
in the Bivariate Case with one
Constraint: A Lagrangian function is
negative definite at a stationary
point if the determinant of its
bordered Hessian is positive when
evaluated at that point. In this case
the stationary point identified by
the Lagrange multiplier method is a
maximum.
2
nd
Order Condition for Minimum
Sufficient Condition for a minimum
in the Bivariate Case with one
Constraint: A Lagrangian function is
positive definite at a stationary
point if the determinant of its
bordered Hessian is negative when
evaluated at that point. In this case
the stationary point identified by
the Lagrange multiplier method is a
minimum.
Utility Maximization Example
( )
( )
0 4
0
0 2
: Conditions Order - First
4 100 )
is function Lagrangian Our
exercise. and movies watch to available are day per hours Four
100
function by the described is
(M) movies watching and (X) exercise from derived utility The
2
2
2
= + =
= =
= =
+ =
=

M X L
e L
e L
M X e e L(X,M,
e e X,M U

M
M
X
X
M X
M X

Utility Max example continued

3
) 2 ln( 8
3
4 ) 2 ln(
X
4 ln(2) 3X or X -4 2X - ln(2) 0 2e
get we ng, substituti and for (3) Solving 0 2
get we (1), into ng Substituti . get that we (2) From
0 4 , 0 , 0 2
: Conditions Order - First
* *
) 4 ( 2X -
2
2

=
+
=
+ = + = =
=
=
= + = = = = =

M and
e
X e e
e
M X L e L e L
X
M X -
-M

M
M
X
X
2
nd
Order Conditions
.
0 4
0 1
0 4 1
1 1 0
0 4 1 , 1
are Hessian bordered our for terms The
2 2
2
Max
e e
e
e H
L e L e L g g
M X
M
X
XM
M
MM
X
XX M X

> + =

=
= = = = =

2
nd
Utility Maximization Example
( )
0 24
0 32
0 16
are conditions order - first The 24 16
is function Lagrangian Our . 16 as
R and L of in terms function utility our rewrite can We
. 24 and leisure of hours where 4
is function utility The . 4 example our
For labor. of hours and rate wage where is
income s One' leisure. and income from utility derives One
2
2
2
2
= + =
= =
= =
+ =
=
= + = =
=
= = =
R L H
LR H
R H
R L LR H
LR U
R L R IR U
$ w
L w wL I
R
L

2
nd
Example Continued
( )
8 , 16
0 16 3 0 3 48 0 24 2
get we in, (3) ng substituti now , 0 2 0 16 32
(2) into ng Substituti . 16R get that we 1, equation From
is solution Our
0 24
0 32
0 16
are conditions order - first The
* *
2 2
2 2
2
2
= =
= = =
= =
=
= + =
= =
= =
L R
R R or R R or -R)R-R (
R LR or R LR-
R L H
LR H
R H
R
L

2
nd
Order Conditions
.
0 768 256 1024 ) 8 ( 32 ) 16 ( 64
32 32 32
32 32 1
32 0 1
1 1 0
32 , 32 , 0 , 1 , 1 g
: Hessian bordered our for needed Terms
L
Maximum
L R R
L R
R H
L H R H H g
RR RL LL R

> = = =
+ = =
= = = = =