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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 1

Managerial Economics in a

Global Economy, 5th Editionby

Dominick Salvatore

Chapter 2

Optimization Techniquesand New Management Tools

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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 2

0

50

100

150

200

250

300

0 1 2 3 4 5 6 7

Q

TR

Expressing Economic

Relationships

Equations: TR = 100Q - 10Q2

Tables:

Graphs:

Q 0 1 2 3 4 5 6TR 0 90 160 210 240 250 240

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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 3

Total, Average, and

Marginal Cost

Q TC AC MC

0 20 - -

1 140 140 120

2 160 80 20

3 180 60 20

4 240 60 60

5 480 96 240

AC = TC/Q

MC =

TC/

Q

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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 4

Total, Average, and

Marginal Cost

0

6 0

1 2 0

1 8 0

2 4 0

0 1 2 3 4

Q

TC ($)

0

6 0

1 2 0

0 1 2 3 4 Q

AC, MC ($)AC

MC

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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 5

Profit Maximization

Q TR TC Profit

0 0 20 -20

1 90 140 -50

2 160 160 0

3 210 180 30

4 240 240 0

5 250 480 -230

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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 6

Profit Maximization

0

60

120

180

240

300

0 1 2 3 4 5

Q

($)

MC

MR

TC

TR

-60

-30

0

30

60

Profit

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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 7

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.

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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

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

0dY

dX

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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

Power Function Rule: The derivative of

a power function, where a and b are

constants, is defined as follows.

( ) bY f X aX

1bdY b aXdX

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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

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

dY dU dV

dX dX dX

Y U V

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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

Product Rule: The derivative of the

product of two functions U and V, is

defined as follows.

( )U g X ( )V h X

dY dV dU U V

dX dX dX

Y U V

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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 12

Rules of Differentiation

Quotient Rule: The derivative of the

ratio of two functions U and V, is

defined as follows.

( )U g X ( )V h X U

YV

2

dU dV V UdY dX dX

dX V

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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 13

Rules of Differentiation

Chain Rule: The derivative of a function

that is a function of X is defined as follows.

( )U g X( )Y f U

dY dY dU

dX dU dX

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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 14

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.

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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 15

New Management Tools

Benchmarking

Total Quality Management

Reengineering

The Learning Organization

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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 16

Other Management Tools

Broadbanding

Direct Business Model

Networking

Pricing Power

Small-World Model Virtual Integration

Virtual Management

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Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved. Slide 17