Constrained Extrema

Abstract

It is not long before the student of economics or business studies realises that there are many situations where complete freedom of action is not possible. We, as consumers, may all wish to maximise our utility functions, but we are usually restricted by our bank balance (or credit card limit). Producers may want to produce as much as possible but they have only so much labour, equipment and capital available. In this chapter, we consider the area of constrained optimisation for problems involving one equality constraint. Also, only second-order conditions for functions involving two variables will be considered.