# Chapter2 - Norton Media Library Chapter 2 Optimization...

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Chapter 2 Optimization Techniques Norton Media Library W. Bruce Allen Neil A. Doherty Keith Weigelt Edwin Mansfield

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• Functional relationships can be represented in  many ways  Y= a - b  * X Y= f(X)  Qd= a - b  P Qd= 200 – 5  *  P
Marginal Analysis The marginal value of a dependent variable is  defined as the change in the variable associated with  a one-unit change in a particular independent  variable.  Y = f(X) Marginal value of Y = Change in Y/Change in X                     =  ∆Y/∆X Marginal analysis  is the analysis of the relationships  between such changes in related economic variables

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Profit = П = f(Q)  Mg П = ∆ П/∆Q Average П = П/Q Total Cost = TC = f(Q) Mg Cost = ∆TC/∆Q Average Cost = TC/Q Total Revenue = TR = f(Q) Mg Revenue = ∆TR/∆Q Average Revenue = TR/Q
Rule: The dependent variable achieves a maximum when its  marginal value shifts from positive to negative In this case, Total Profit achieves a max when Marginal  Profit shifts from positive to negative Marginal Analysis and Optimization

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Chapter2 - Norton Media Library Chapter 2 Optimization...

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