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What is Understanding the Envelope Theorem about?

The document discusses the envelope theorem, which states that when maximizing an objective function subject to constraints, only the direct effects of changes in exogenous variables need be considered. It provides an example of maximizing a function U of choice variables x and y subject to a constraint g. Taking the partial derivative of the indirect objective function V with respect to an exogenous parameter α yields the derivative of the Lagrangian with respect to α, showing only the direct effect is r

Author

sadatnfs

Language

EN