{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

ajaz_204_2013_2014_HW_2

# Due to a small change in 4 university of toronto

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: t of Economics, ECO 204, 2013 - 20143 We know that which means that we can calculate change in applying the envelope theorem on: due to a small change in a parameter by [ ) ) (d) Derive an equation for ) in terms of the parameters. What does this equation tell us about the parameter From the FOCs we have: By the envelope theorem, we know this is: It tells us that as . For what value of is maximized? When: That is, with when unconstrained solution (i.e. convince yourself of what’s going on here. Question 3 Consider the function defined on (a) Solve the problem (a special case of Where the parameter [ from ). You should draw and ). Assume the parameters ) ) where ) ): . We solve inequality constrained problems by the “Kuhn-Tucker method”: [ [ 5 University of Toronto, Department of Economics, ECO 204, 2013 - 20143 Start with [ this will be true when either and/or . Case A: Suppose If this is the solution then we need to see if/when . From the FOC: Thus, so long as and the solution will be . Case B: Suppose If this is the solution then we need to see if/when Thus, so long as the solution will be (b) All else equal, what is the change in “case” separately. . From the FOC: and . due to a small change in Hint: You will have to consider each Case A: When You should think about the last result – why is it that a, suppose, one unit increase in also makes increase by 1 unit? Case B: Suppose 6 University of Toronto, Department of Economics, ECO 204, 2013 - 20143 (c) All else equal,...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online