Paper 3, Section II, 21H

Optimization | Part IB, 2018

State and prove the Lagrangian Sufficiency Theorem.

The manufacturers, AA and BB, of two competing soap powders must plan how to allocate their advertising resources ( XX and YY pounds respectively) among nn distinct geographical regions. If xi0x_{i} \geqslant 0 and yi0y_{i} \geqslant 0 denote, respectively, the resources allocated to area ii by AA and BB then the number of packets sold by AA and BB in area ii are

xiuixi+yi,yiuixi+yi\frac{x_{i} u_{i}}{x_{i}+y_{i}}, \quad \frac{y_{i} u_{i}}{x_{i}+y_{i}}

respectively, where uiu_{i} is the total market in area ii, and u1,u2,,unu_{1}, u_{2}, \ldots, u_{n} are known constants. The difference between the amount sold by AA and BB is then

i=1nxiyixi+yiui\sum_{i=1}^{n} \frac{x_{i}-y_{i}}{x_{i}+y_{i}} u_{i}

AA seeks to maximize this quantity, while BB seeks to minimize it.

(i) If AA knows BB 's allocation, how should AA choose x=(x1,x2,,xn)x=\left(x_{1}, x_{2}, \ldots, x_{n}\right) ?

(ii) Determine the best strategies for AA and BB if each assumes the other will know its strategy and react optimally.

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