Scribd
Upload
11 views1 page

Constrained Maximization Explained

The document discusses two concepts: constrained maximization, which states that people have unlimited desires but cannot fulfill all of them due to constraints, and Lagrangian multipliers, which are algebraic terms that arise when solving optimization problems with constraints and can represent shadow prices in economic contexts. For example, a consumer aims to maximize utility from consumption but is constrained by their income, creating an optimization problem that can be solved using Lagrangian multipliers.

Uploaded by

Kambar Rind
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
11 views1 page

Constrained Maximization Explained

The document discusses two concepts: constrained maximization, which states that people have unlimited desires but cannot fulfill all of them due to constraints, and Lagrangian multipliers, which are algebraic terms that arise when solving optimization problems with constraints and can represent shadow prices in economic contexts. For example, a consumer aims to maximize utility from consumption but is constrained by their income, creating an optimization problem that can be solved using Lagrangian multipliers.

Uploaded by

Kambar Rind
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Constrained Maximization: It says that people have unlimited desires but they cannot fulfill all of them.

So there is a constrain in meeting your desire.

Lagrangian Multiplier Method: Definition of Lagrangian Multiplier / Lagrangian


Multipliers: A Lagrangian multiplier is an algebraic term that arises in the context of problems of mathematical optimization subject to constraints, which in economics contexts is sometimes called a shadow price. A long example: Suppose x represents a quantity of something that an individual might consume, u(x) is the utility (satisfaction) gained by that individual from the consumption of quantity x. We could model the individual's choice of x by supposing that the consumer chooses x to maximize u(x): x = arg maxx u(x) Suppose however that the good is not free, so the choice of x must be constrained by the consumer's income. That leads to a constrained optimization problem. (Econterms)

You might also like