Managerial Economics (Econ 4140/5140) Professor Michael Nieswiadomy

Ch. 2. Optimization Techniques

1. Introduction

2. Functional Relationships

Table 2.1
Relationship between Price and Quantity Sold,
Cherry Corporation

Price per unit No. of units sold/day

$10 150
$20 100
$30 50
$40 0

Managerial Economics Econ 4140/5140 Ch. 2 Optimization Techniques Dr. Nieswiadomy 1

 Fig. 2.1: No. of units sold/day

$45
$40
$35
Price ($/unt)

$30
$25
$20
$15
$10
$5
$0
0 50 100 150 200
Quantity/day

3. Marginal Analysis

Table 2.2 Relationship between Output and Profit, Roland Corporation

1 2 3 4
No. of units of Total Marginal
output/day Profit Profit Average Profit
0 0
1 $100.0 $100.0 $100.0
2 $250.0 $150.0 $125.0
3 $600.0 $350.0 $200.0
4 $1,000.0 $400.0 $250.0
5 $1,350.0 $350.0 $270.0
6 $1,500.0 $150.0 $250.0
7 $1,550.0 $50.0 $221.4
8 $1,500.0 -$50.0 $187.5
9 $1,400.0 -$100.0 $155.6
10 $1,200.0 -$200.0 $120.0

Managerial Economics Econ 4140/5140 Ch. 2 Optimization Techniques Dr. Nieswiadomy 2

 4. Relationships between Total, Marginal, and Average Values

Fig. 2.2 Total Profit, Average Profit, and Marginal Profit,

Roland Corporation

1800
1600
1400
1200
1000
Total Profit
800
Marginal Profit
600
400 Average Profit
200
0
-200 0 2 4 6 8 10 12
-400

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 5. The Concept of a Derivative

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 6. How to Find a Derivative

a. Derivatives of Constants

Y=a

b. Derivatives of Power Functions

Y = aXb

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 c. Derivatives of Sums and Differences

U = g(X) W = h(X)

Y=U+W

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 Y=U-W

d. Derivatives of Products

Y = UW

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 e. Derivatives of Quotients

f. Derivatives of a Function of a Function (Chain Rule)

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 7. Using Derivatives to Solve Maximization and Minimization Problems

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 8. Marginal Cost Equals Marginal Revenue and the Calculus of Optimization

9. Partial Differentiation and the Maximizations of Multivariable Functions

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 10. Constrained Optimization

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 11. Lagrangian Multipliers

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 12. Comparing Incremental Costs with Incremental Revenues

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