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Discuss the envelope theorem

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Reference no: EM131567254

Question: Define f (x, y, a) = ax2 - 2x + y2 - 4ay, where a is a parameter. For each fixed a ≠ 0, find the point (x∗(a), y∗(a)) that makes the function f stationary w.r.t. (x, y). Find also the value function f ∗(a) = f(x∗(a), y∗(a), a), and verify the envelope theorem in this case.

Reference no: EM131567254

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