Optimization Techniques

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1WEB CHAPTERWEB CHAPTER PREVIEWNormativeeconomic decision analysis involves determiningthe action that best achieves a desired goal or objec-tive. This means finding the action that optimizes(that is, maximizes or minimizes) the value of anobjective function. For example, in a price-outputdecision-making problem, we may be interested indetermining the output level that maximizes a production problem, the goal may be to find thecombination of inputs (resources) that minimizesthe cost of producing a desired level of output. In acapital budgeting problem, the objective may be toselect those projects that maximize the net presentvalue of the investments chosen. There are manytechniques for solving Optimization problems suchas these. This chapter (and appendix) focuses on theuse of differential calculus to solve certain types ofoptimization problems. In Web Chapter B, linear-programming Techniques , used in solving con-strained Optimization problems, are Techniques are a powerful set of toolsthat are important in efficiently managing an enter-prise s resources and thereby maximizing share-holder TechniquesPHOTO ON PAGE 1 AND 2: DANIEL CHAPTER AOptimization TechniquesTYPES OFOPTIMIZATIONTECHNIQUESIn Chapter 1 we defined the general form of a problem that managerial economics at-tempts to analyze.

matical functions we deal with in this chapter and throughout the book are much simpler than those that confronted the origi-nal “flying wing” engineers. We introduce techniques that can be used to check whether a func-tion, such as profits or costs, is being minimized or maximized at a particular level of output.

  Technique, Matical