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Ch 2 - Optimization Techniques

Ch 2 - Optimization Techniques - CHAPTER 2 OPTIMIZATION...

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CHAPTER 2: OPTIMIZATION TECHNIQUES Functional Relationships – relationship expressed between 2 or more economic variables is expressed as: table, graph or equation Q = f (P) - Q = dependent variable = # of units sold - P = independent variables = price - # of units sold is a function of price Marginal Value: - marginal value in dependent variable is the change in this dependent variable (Q) associated with 1 unit change in a particular independent variable (P) - dependent variable is maximized when its marginal value shifts from + to - = what managers are looking for - Marginal Profit (MP) - change in total profit associated with 1 unit change in output - Marginal Cost (MC) - change in total cost associated with 1 unit change in output??? Positive & Negative Relationships: - Positive Relationship = Upward Slope X inc = Y inc X dec = Y dec - Negative Relationship = Downward Slop = negative relationship X inc = Y dec X dec = Y inc Strength of Relationship: - Flat curve = changes in X have SMALL influence on Y - Steep curve = changes in X have LARGE influence on Y Marginal Profit = Slope of Tangent on TP Curve
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Average Profit: Total Profit/ Output
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