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Chapter no.2
Economic optimization
• Tables
• Spreadsheets
• Statistical application
• Graphs
• equations.
Adverstitsing
Economic Functional relation
Easiest way to examine basic economic
concepts. Functional relations are defined
between economic variables.
TR = f (Q)
TR = R * Q
TR = $1.50 * Q
$1.50 1
3.00 2
4.50 3
6.00 4
7.50 5
9.00 6
TR = $1.50 * Q
Revenue per
9
time period ($)
8
0 1 2 3 4 5 6 7 8 9
Output per time period (units)
Total, average and marginal
cost and profit relation
Total revenue is the total income earned
against total no. of units sold.
Average revenue per unit is derived by
diving total revenue by total no. of units
sold.
Marginal revenue change in total revenue
associated with a one-unit change in
output.
$ per time
period Total cost
(TC)
Total
revenue (TR)
Marginal
cost (MC)
Marginal
revenue (MR)
QA QB
Marginal As a Derivative of the
Function
Derivative a powerful technique of
differential calculus can be used to locate
minimum or maximum values of the
object.
Marginal value is the change in dependent
variable associated with one-unit change
in independent variable.
Marginal Y = ∆Y/∆X
Marginal analysis in decision
making
Finding minimums or maximums
Distinguishing minimums from maximums
Break-even point
Revenue maximization
Average cost minimizing
Graphic Presentation of
Managerial
$ per time Analysis
period
TC
$500
MRat Q = 15
400 Upper breakeven point
Lower
breakeven TR
300 point
0 6 12 15 18 24 30