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.