Chapter 2 - Optimal decisions using marginal analysis. This chapter introduces the analysis of managerial decision making that will occupy us for the remainder of the book. The chapter is devoted to two man topics. The first is a simple economic model of the private, profit-maximizing firm. | Chapter two Optimal Decisions Using Marginal Analysis Government and business leaders should pursue the path to new programs and policies the way a climber ascends a formidable mountain or the way a soldier makes his way through a mine field: with very small and very careful steps. ~Anonymous For Discussion Conflict in Fast-Food Franchising The rapid growth in franchising during the last three decades can be explained in large part by the mutual benefits the franchising partners receive. A Simple model of the firm A Microchip Manufacturer Revenue Cost Profit 4 Figure The demand curve for microchips Figure revenue from microchips Figure The cost of microchips Figure Profit from microchips Figure A close-up view of profit Figure Total profit and marginal profit Marginal revenue and marginal cost Marginal Revenue A Simplifying Fact: Given P = a – bQ, Then MR = a – 2bQ. Marginal Cost Profit Maximization Revisited Figure Marginal revenue and marginal cost | Chapter two Optimal Decisions Using Marginal Analysis Government and business leaders should pursue the path to new programs and policies the way a climber ascends a formidable mountain or the way a soldier makes his way through a mine field: with very small and very careful steps. ~Anonymous For Discussion Conflict in Fast-Food Franchising The rapid growth in franchising during the last three decades can be explained in large part by the mutual benefits the franchising partners receive. A Simple model of the firm A Microchip Manufacturer Revenue Cost Profit 4 Figure The demand curve for microchips Figure revenue from microchips Figure The cost of microchips Figure Profit from microchips Figure A close-up view of profit Figure Total profit and marginal profit Marginal revenue and marginal cost Marginal Revenue A Simplifying Fact: Given P = a – bQ, Then MR = a – 2bQ. Marginal Cost Profit Maximization Revisited Figure Marginal revenue and marginal cost Sensitivity analysis Asking What If Increased Overhead Increased Material Costs Increased Demand Responding to Exchange Rate Changes Figure Shifts in mr & Mc Appendix to Chapter 2 Calculus and Optimization Techniques Maximizing Profit Marginal Analysis Differential Calculus The Second Derivative MR and MC Figure The Firm’s Profit Function Figure A Second Profit Function Calculus and optimization techniques Maximizing Multivariable Functions Price and Advertising Constrained Optimization A Supply Commitment Profits from Multiple Markets The Method of Lagrange Multipliers Special Appendix to Chapter 2 Table Optimizing a Spreadsheet Table Optimizing a .
