Chapter 2 - Optimal decisions using marginal analysis. This chapter introduces the analysis of managerial decision making that will occupy us for the remainder of the book. The chapter is devoted to two man topics. The first is a simple economic model of the private, profit-maximizing firm.
Managerial Economics, 8e William F. Samuelson ● Stephen G. Marks Chapter two Optimal Decisions Using Marginal Analysis Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Government and business leaders should pursue the path to new programs and policies the way a climber ascends a formidable mountain or the way a soldier makes his way through a mine field: with very small and very careful steps ~Anonymous Copyright © 2015 John Wiley & Sons, Inc. All rights reserved For Discussion Conflict in FastFood Franchising The rapid growth in franchising during the last three decades can be explained in large part by the mutual benefits the franchising partners receive Copyright © 2015 John Wiley & Sons, Inc. All rights reserved A Simple model of the firm A Microchip Manufacturer Revenue Cost Profit Copyright © 2015 John Wiley & Sons, Inc. All rights reserved 1.3 Figure 2.1 The demand curve for microchips Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 2.2 revenue from microchips Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 2.3 The cost of microchips Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 2.4 Profit from microchips Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 2.5 A closeup view of profit Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 2.6 Total profit and marginal profit Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Marginal revenue and marginal cost Marginal Revenue A Simplifying Fact: Given P = a – bQ, Then MR = a – 2bQ. Marginal Cost Profit Maximization Revisited Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 2.7 Marginal revenue and marginal cost Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Sensitivity analysis Asking What If Increased Overhead Increased Material Costs Increased Demand Responding to Exchange Rate Changes Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 2.8 Shifts in mr & Mc Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Appendix to Chapter 2 Calculus and Optimization Techniques Maximizing Profit Marginal Analysis Differential Calculus The Second Derivative MR and MC Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 2A.1 The Firm’s Profit Function Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Figure 2A.2 A Second Profit Function Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Calculus and optimization techniques Maximizing Multivariable Functions Price and Advertising Constrained Optimization A Supply Commitment Profits from Multiple Markets The Method of Lagrange Multipliers Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Special Appendix to Chapter 2 Table 2A.1 Optimizing a Spreadsheet Copyright © 2015 John Wiley & Sons, Inc. All rights reserved Table 2A.2 Optimizing a spreadsheet Copyright © 2015 John Wiley & Sons, Inc. All rights reserved ... Copyright © 20 15 John Wiley & Sons, Inc. All rights reserved Special Appendix to Chapter 2 Table 2A.1 Optimizing a Spreadsheet Copyright © 20 15 John Wiley & Sons, Inc. All rights reserved Table 2A .2. .. Changes Copyright © 20 15 John Wiley & Sons, Inc. All rights reserved Figure 2. 8 Shifts in mr & Mc Copyright © 20 15 John Wiley & Sons, Inc. All rights reserved Appendix to Chapter 2 Calculus and Optimization Techniques... MR and MC Copyright © 20 15 John Wiley & Sons, Inc. All rights reserved Figure 2A.1 The Firm’s Profit Function Copyright © 20 15 John Wiley & Sons, Inc. All rights reserved Figure 2A .2 A Second Profit Function