Learning objectives

• Distinguish between constrained and unconstrained optimization
• Understand and use the method of Lagrange multipliers to find an optimum
• Work with Cobb-Douglass functions with linear constraint
• Interpret the lagrange multiplier lambda

Resources

• Textbook  15.3

In class

• Mathematica notebook – Cobb-Douglas example
• Exercises from the textbook
• Shadow prices and an interpretation of the Lagrangian function
• The envelope theorem and more details