Economic Optimization
Review
Chapter 1
Optimization Conditions
Profit Maximization
M=d/dQ=0 and d2/dQ2<0
or MR=MC and d2/dQ2<0
Total Revenue Maximization
MR=dTR/dQ=0 and d2TR/dQ2<0
Total Cost Minimization
MC=dTC/dQ=0 and d2TC/dQ2>0
Average Cost Minimizati
Market Insight
Disclaimer:
All logos, photos, etc. used in this presentation are the property of their respective
copyright owners and are used here for educational purposes only
Stephan Sorger 2013. www.StephanSorger.com; Marketing Analytics: Market In
Supply Curve Analysis. A review of industry-wide data for the frozen grape juice
manufacturing industry suggests the following industry supply function:
QS = -3,000,000 + 500,000P - 800,000P L - 1,000,000PK + 300,000W
where Q is cases of frozen grape juic
Economic Optimization
Review
Chapter 1
Optimization Conditions
Profit Maximization
M=d/dQ=0 and d2/dQ2<0
or MR=MC and d2/dQ2<0
Total Revenue Maximization
MR=dTR/dQ=0 and d2TR/dQ2<0
Total Cost Minimization
MC=dTC/dQ=0 and d2TC/dQ2>0
Average Cost Minimizati
Example: Demand Function & Curve, Profit Max, Consumer Surplus
Demand Curve Analysis. Papa Pizzeria provides delivery and carryout service to the city of South
Bend, Indiana. An analysis of the daily demand for pizzas has revealed the following demand
rel
Chapter 1
The Fundamentals of Managerial Economics
What is Managerial Economics?
Goals of the Firm
1
Managerial Decision Making Model
ManagementDecision
Problems
EconomicConcepts
DecisionScienceTools
ManagerialEconomics
2
Example of Managerial Decision
Ma
Rules for Differentiating Functions
Constant Rule
The derivative of a constant is zero.
y=a
dy/dx = 0
Example:
y=2
dy/dx = 0
Power Rule
The derivative of a power function such as,
y = axb, where a and b are constants is dy/dx = b a x(b-1)
Example:
y = 2x3
Demand Estimation
The HPs marketing department estimated their firms demand function, the result being
Q = -104 - 2.1P + 3.2Y + 1.5A + 1.6PD
(12.5) (0.13)
2
(0.75)
(0.25)
(0.08)
R = 0.89
Standard Error of Estimate = 108
n=19
Where:
Q = quantity demanded f
Managerial Economics
What is market?
Mechanism through which buyers and sellers interact
What is free market?
Free market can be referred to as a market without government intervention
What is competitive market?
Competitive markets can be referred to as
Managerial Economics Formula Sheet
Total Revenue :
TR = PQ
Marginal Revenue:
MR = TR /Q
1 E
E
1
MR = 1
e p
MR =
Price :
P = f(Q)
P = TR/Q
MC
P* = 1 1
ep
Total Cost:
Optimal Price
Short- run: TC = a +bQ
Long-run: TC = bQ
where: a = TFC, b = variable