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Excel Session 3

# Excel Session 3 - ARE 155 Fall 1999 Richard Howitt Excel...

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ARE 155 Fall 1999 Excel Session #3 Richard Howitt Graphing in Excel with the Chart Wizard Last time we learned how to solve a linear program (like the one below) using Excel’s Solver. The problem stated below is a profit maximization problem that describes the production of chairs (x 1 ) and tables (x 2 ). Max ( z = 160 x 1 + 200 x 2 ) s . t . 2 x 1 + 4 x 2 40 ..... ( labor ) 18 x 1 + 18 x 2 216 ...... ( wood ) 24 x 1 + 12 x 2 240 ...... ( storage ) x 1 , x 2 0 One of the things we could investigate, is how the shadow value of a constraint changes as you change the RHS constant. This relationship is of particular economic interest, when dealing with a production problem, since it represents the demand for a production input. But instead, we’ll derive a supply response curve for chairs (x 1 ) by changing the objective function coefficient on x 1 and observing the change induced in the optimal solution. In this session, we will use a series of data points that we generate from repeated runs of our model, to plot a curve in Excel. To do this, we will use the Chart Wizard, which is a fairly straightforward and extremely useful analytical device. First of all we arrange the data points that I generated from Excel into columns, so that Excel can plot them easily. As you can see below, these points represent the different production values I got by changing the objective function coefficient on the variable x 1 in our model.

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ARE 155 Fall 1999 2 Excel Session #3 You can see that by increasing the price of chairs, I end up producing more of them, which is what we’d expect of a producer’s supply response from Microeconomic theory.
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