Intuitive Mathematical Economics Series. Constrained Maximization and the Method of Lagrange Multipliers

Serie Documentos de Trabajo - Nro. 680

17 Pages Posted: 4 Mar 2019

Date Written: December 26, 2018

Abstract

A fundamental assumption in most of economic modeling is that people maximize their utility subject to a budget constraint. This, as well as many other economic problems, mathematically translate into problems of maximization with constraints. A powerful and widely used method to tackle some of these problems is the method of Lagrange multipliers. Yet, the exposition of such method in standard textbooks is rather formal and utilitarian. In this paper we try to present it emphasising the fundamental intuitions behind the method.

Keywords: maximization with constraints, Lagrange multipliers

Suggested Citation

Pernice, Sergio, Intuitive Mathematical Economics Series. Constrained Maximization and the Method of Lagrange Multipliers (December 26, 2018). Serie Documentos de Trabajo - Nro. 680, Available at SSRN: https://ssrn.com/abstract=3333448 or http://dx.doi.org/10.2139/ssrn.3333448

Sergio Pernice (Contact Author)

University of CEMA ( email )

Department of Finance Cordoba 637 - Piso 3
1054 Buenos Aires
Argentina
4314-1304 (Phone)
4314-1654 (Fax)

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