Ch2 solutions - Chapter 2 ECONOMIC OPTIMIZATION QUESTIONS...

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Chapter 2 ECONOMIC OPTIMIZATION Q2.1 In 2007, Chrysler Group said it would cut 13,000 jobs, close a major assembly plant and reduce production at other plants as part of a restructuring effort designed to restore profitability at the auto maker by 2008. Its German parent, DaimlerChrysler said it is looking into further strategic options with partners to optimize and accelerate the plan as it seeks the best solutions for its struggling U.S. unit. Does this decision reflect an application of the global or partial optimization concept? Explain. Q2.1 ANSWER Chrysler’s decision to scale back employment at four assembly plants is a reflection of partial optimization because its decision alternatives were constrained by past decisions. The complexity of a completely integrated decision analysis approach--or global optimization--sometimes confines its use to major planning decisions. For many day-to-day 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 “The personal computer is a calculating device and a communicating device. Spreadsheets incorporate the best of both characteristics by allowing managers to determine and communicate the optimal course of action.” Discuss this statement and explain why computer spreadsheets are a popular means for expressing and analyzing economic relations. Q2.2 ANSWER
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13 Chapter 2 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
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Ch2 solutions - Chapter 2 ECONOMIC OPTIMIZATION QUESTIONS...

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