Chapter 2
ECONOMIC OPTIMIZATION
QUESTIONS & ANSWERS
Q2.1
What is the difference between global and partial optimization?
Q2.1
ANSWER
The complexity of a completely integrated decision analysis approach—or global
optimization—sometimes confines its use to major planning decisions.
For many
daytoday operating decisions, managers often employ much less complicated partial
optimization techniques.
Partial optimization abstracts from the complexity of a
completely integrated decision process by concentrating on more limited objectives
within the firm’s various operating departments.
For example, the marketing department
is usually required to determine the price and advertising policy that will achieve some
sales goal given the firm’s current product line and marketing budget.
Alternatively, a
production department might be expected to minimize the cost of a specified quantity
of output at a stated quality level.
In both instances, the fundamentals of economic
analysis provide the basis for optimal managerial decisions.
Q2.2
Why are computer spreadsheets a popular means for expressing economic relations?
Q2.2
ANSWER
When tables of economic data are displayed electronically in the format of an
accounting income statement or balance sheet, such tables are often referred to as
spreadsheets.
Microsoft Excel
and other spreadsheet software programs are popular
means for expressing economic relations because they incorporate methods for
manipulating and analyzing economic data.
When the underlying relation between
economic data is very simple, tables and spreadsheets by themselves may be sufficient
for analytical purposes.
In other instances, a simple graph or visual representation of
the data can provide valuable insight.
With spreadsheet software, creating graphs is
quick and easy.
When the complex nature of economic relations requires that more
sophisticated methods of expression be employed, spreadsheet formulas can be used to
generate equations, or analytical expressions of functional relationships, that offer a very
useful means for characterizing the connection among economic variables.
Equations
are frequently used to express both simple and complex economic relations.
When the
underlying relation among economic variables is uncomplicated, equations offer a useful
compact means for data description.
When underlying relations are complex, equations
are helpful because they permit the powerful tools of mathematical and statistical
analysis to be employed.
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Instructor’s Manual to accompany Managerial Economics, 10e
Q2.3
Describe the relation between totals and marginals, and explain why the total is
maximized when the marginal is set equal to zero.
Q2.3
ANSWER
A total reflects the sum or whole of an important economic variable.
The marginal is
the change in the total for a oneunit expansion in the activity level.
Just as there is this
simple arithmetic relation between totals and marginals, so too there is a corresponding
geometric relation.
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 Spring '10
 Jung
 Economics, Revenue

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