BEE1024 –Mathematics for Economists Juliette Stephenson
Amr Algarhi
Class Exercises -Solutions Department of Economics
Week 3 University of Exeter
Exercise 1 For the function
z = xy
…nd the slope of the level curves at the points (1; 2) and (2; 2). (Slightly harder:)Find the
equations for the tangents.
@z @z
Solution 1 The partial derivatives are @x = y and @y
= x: The slope of the tangent is
therefore given by
dy @z @z y
= =
dx @x @y x
In particular
dy dy
= 2 = 1
dx jx=1;y=2 dx jx=2;y=2
We can infer the equation of the tangent from
y y0 dy
=
x x0 dx
So for (x0 ; y0 ) = (1; 2) we obtain
y 2
= 2 () y 2=2 2x () y = 4 2x
x 1
and for (x0 ; y0 ) = (2; 2)
y 2
= 1 () y 2=2 x () y = 4 x
x 2
1 2 x 3 4 5
Exercise 2 Suppose a consumer has the utility function u (x; y) = xy and her budget is
40. Given your knowledge of economics and the results from the previous question, what
will be her demand when the prices are a) px = py = 10 and b) px = 20, py = 10?
Solution 2 She will choose the commodity bundles a) (2; 2) and b) (2; 1). This is so
because the budget lines are the tangents calculated in the previous exercise and because
in the consumer optimum the budget line must be tangential to the indi¤erence curve.
Exercise 3 Find the critical point of the function
z = 20x2 37xy + 31x + 15y 2 16y 7
Solution 3 First order conditions determining a critical point
@z @z
= 40x 37y + 31 = 0 = 37x + 30y 16 = 0
@x @y
40x 37y + 31 = 0
37x + 30y 16 = 0
A critical point is hence a solution to
40x 37y + 31 = 0 j 37
37x + 30y 16 = 0 j 40
1480x 1369y + 1147 = 0
1480x + 1200y 640 = 0 j +
169y + 507 = 0
507
This yields y = 169
= 3 and so 40x = 111 31 = 80. The critical point is (x; y) = (2; 3).
Exercise 4 A T-shirt shop carries two competing shirts, one endorsed by Michael Jordan
and the other by Shaq O’Neal. The owner of the store can obtain both at a cost of $2 per
shirt and estimates that if Jordan shirts are sold for x dollars apiece and O’Neal shirts
for y dollars apiece, consumers will buy approximately 40 50x + 40y Jordan shirts and
20 + 60x 70y O’Neil shirts each day.
a) Express as functions of x and y: i) the revenue from selling Jordan shirts, ii) the
revenue from selling O’Neal shirts iii) the costs for shirts and iv) the overall pro…t.
b) Find the critical point of the pro…t function.
Solution 4 a) i) revenue from selling Jordan shirts (price times quantity sold):
(40 50x + 40y) x
ii) revenue from selling O’Neil shirts (price times quantity sold):
(20 + 60x 70y) y
iii) costs from buying both types of shirts (buying price times total quantity bought):
2 ((40 50x + 40y) + (20 + 60x 70y)) = 2 (60 + 10x 30y) = 120 + 20x 60y
2
iv) total pro…t
(x; y) = (40 50x + 40y) x + (20 + 60x 70y) y (120 + 20x 60y)
= (40 50x + 40y) x + (20 + 60x 70y) y 120 20x + 60y
b) I use the product rule and the multiplicative constant rule because it is faster. Those
enjoying calculations can …rst expand and then di¤erentiate.
@
0= = 50x + 40 50x + 40y + 60y 20 = 20 100x + 100y
@x
@
0= = 40x 70y + 20 + 60x 70y + 60 = 100x + 80 140y
@y
We must solve the simultaneous linear system of equations
100x 100y = 20
100x 140y = 80
Subtraction of the two equations yields
40y = 100
100 10
y = = = 2:5
40 4
The …rst equation yields therefore
100x 100 2:5 = 20
100x 250 = 20
100x = 270
x = 2:7
Thus Jordan T-shirts should be sold for $2.70 and O’Neal shirts for $2.50.
Exercise 5 Use Cramer’s rule to solve the system
3x 7y = 13
2x + 5y = 11
Solution 5
65 + 77 142 33 26 7
x= = y= =
15 + 14 29 29 29