Managerial Economics in a
Global Economy, 5th Edition
by
Dominick Salvatore
Chapter 2
Optimization Techniques
and New Management Tools
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 1
Expressing Economic
Relationships
Equations:
Tables:
TR = 100Q - 10Q2
Q
TR
0
0
1
90
2
3
4
5
6
160 210 240 250 240
TR
300
250
Graphs:
200
150
100
50
0
0
1
2
3
4
5
6
7
Q
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 2
Total, Average, and
Marginal Cost
AC = TC/Q
MC = TC/Q
Prepared by Robert F. Brooker, Ph.D.
Q
0
1
2
3
4
5
TC AC MC
20 140 140 120
160 80 20
180 60 20
240 60 60
480 96 240
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 3
Total, Average, and
Marginal Cost
T C ($ )
240
180
120
60
0
0
1
2
3
4
Q
MC
A C , M C ($ )
AC
120
60
0
0
Prepared by Robert F. Brooker, Ph.D.
1
2
3
4
Q
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 4
Profit Maximization
Q
0
1
2
3
4
5
Prepared by Robert F. Brooker, Ph.D.
TR
0
90
160
210
240
250
TC Profit
20
-20
140
-50
160
0
180
30
240
0
480 -230
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 5
Profit Maximization
($) 300
TC
240
TR
180
MC
120
60
MR
0
60
Q
0
1
2
3
4
5
30
0
-30
Profit
-60
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 6
Concept of the Derivative
The derivative of Y with respect to X is
equal to the limit of the ratio Y/X as
X approaches zero.
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 7
Rules of Differentiation
Constant Function Rule: The derivative
of a constant, Y = f(X) = a, is zero for all
values of a (the constant).
Y  f (X )  a
dY
0
dX
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 8
Rules of Differentiation
Power Function Rule: The derivative of
a power function, where a and b are
constants, is defined as follows.
Y  f (X )  aX b
dY
 b  a X b 1
dX
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 9
Rules of Differentiation
Sum-and-Differences Rule: The derivative
of the sum or difference of two functions
U and V, is defined as follows.
U  g( X )
V  h( X )
Y  U V
dY dU dV


dX dX dX
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 10
Rules of Differentiation
Product Rule: The derivative of the
product of two functions U and V, is
defined as follows.
U  g( X )
V  h( X )
Y  U V
dY
dV
dU
U
V
dX
dX
dX
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 11
Rules of Differentiation
Quotient Rule: The derivative of the
ratio of two functions U and V, is
defined as follows.
U  g( X )
dY

dX
Prepared by Robert F. Brooker, Ph.D.
V  h( X )

V dU
dX
 
 U dV
V
U
Y
V
dX

2
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 12
Rules of Differentiation
Chain Rule: The derivative of a function
that is a function of X is defined as follows.
Y  f (U )
U  g( X )
dY dY dU


dX dU dX
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 13
Optimization With Calculus
Find X such that dY/dX = 0
Second derivative rules:
If d2Y/dX2 > 0, then X is a minimum.
If d2Y/dX2 < 0, then X is a maximum.
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 14
New Management Tools
•
•
•
•
Benchmarking
Total Quality Management
Reengineering
The Learning Organization
Prepared by Robert F. Brooker, Ph.D.
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 15
Other Management Tools
•
•
•
•
•
•
•
Prepared by Robert F. Brooker, Ph.D.
Broadbanding
Direct Business Model
Networking
Pricing Power
Small-World Model
Virtual Integration
Virtual Management
Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.
Slide 16