Maximize $p_1p_2$ subject to constraints

non-convex-optimizationoptimizationquadratic programming

Given $x_2 \geq x_1 \geq 0$, solve the following optimization problem in $p_1$ and $p_2$.

$$\max p_1p_2$$

subject to:

$$p_1 x_1 + p_2 (x_2 – x_1) = 1 $$
$$0\leq p_2 \leq p_1$$

Best Answer

Let $p_2=t$, $x_2-x_1=y\geq 0$ and $x_1=x$, then $$p_1 = {1-ty\over x}$$ so $$p_1p_2 = t{1-ty\over x} = -{y\over x}t^2+{1\over x}t$$

If $y\neq 0$ then this quadratic equation achieves maximum at $t= {1\over 2y}$ and that maximum is $${1\over 4xy}={1\over 4x_1(x_2-x_1)}$$

If $y=0$ we get $$p_1p_2 = {1\over x}t\leq {1\over x}$$

so in this case maximum is $1/x$

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