Suppose now that we are interested as to how the value y of the problem depends on the exogenous variables of the problem, a or b.

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Suppose now that we are interested as to how the value y of the problem depends on the exogenous variables of the problem, a or b.

Comparative Statics. Consider the same function (0.4) and constraint (0.5) as in (5). The value of the function f at the optimal solution x is given by y = f (x ). Suppose now that we are interested as to how the value y of the problem depends on the exogenous variables of the problem, a or b. For concreteness, let us focus on b and we could like to know how y (b) varies with b, in other words we are interested in dy (b) db . For the problem given by (0.4) and constraint (0.5), compute dy (b) =db and relate your result to the implicit function theorem and the envelope theorem. 7. Co

 

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