# Managerial Economics & Business Strategy - PowerPoint 2

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```					Chapter One Homework
due tomorrow in lab

Numbers 10, 12 and 17
Managerial Economics &
Chapter 1
The Fundamentals of Managerial
Economics
Net Benefits
• Net Benefits = Total Benefits - Total Costs
• Profits = Revenue - Costs
Marginal Benefit (MB)
• Change in total benefits arising from a change
in the control variable, Q:
B
MB 
Q
• Slope (first derivative) of the total benefit
curve.
Marginal Cost (MC)
• Change in total costs arising from a change in
the control variable, Q:
C
MC 
Q
• Slope (first derivative) of the total cost curve
Marginal Principle
• To maximize net benefits MB = MC.
• MB > MC means the last unit of the control
variable increased benefits more than it
increased costs.
• MB < MC means the last unit of the control
variable increased costs more than it
increased benefits.
variable that can only be used in WHOLE
units (discrete)
Control     Total     Total     Net      Marginal Marginal   Marginal
Variable   Benefits   Costs   Benefits   Benefits  Costs       Net
Benefits
Q         B(Q)      C(Q)    N(Q)       MB(Q)    MC(Q) MNB(Q)
0          0        0
1         90        10
2         170       30
3         240       60
4         300      100
5         350      150
6         390      210
7         420      280
8         440      360
9         450      450
10         450      550
Control     Total     Total     Net      Marginal Marginal   Marginal
Variable   Benefits   Costs   Benefits   Benefits  Costs       Net
Benefits
Q         B(Q)      C(Q)    N(Q)       MB(Q)    MC(Q) MNB(Q)
0          0        0         0
1         90        10       80
2         170       30       140
3         240       60       180
4         300      100       200
5         350      150       200
6         390      210       180
7         420      280       140
8         440      360       80
9         450      450        0
10         450      550      -100
Control     Total     Total     Net      Marginal Marginal   Marginal
Variable   Benefits   Costs   Benefits   Benefits  Costs       Net
Benefits
Q         B(Q)      C(Q)    N(Q)       MB(Q)    MC(Q) MNB(Q)
0          0        0         0         ---
1         90        10       80         90
2         170       30       140        80
3         240       60       180        70
4         300      100       200        60
5         350      150       200        50
6         390      210       180        40
7         420      280       140        30
8         440      360       80         20
9         450      450        0         10
10         450      550      -100         0
Control     Total     Total     Net      Marginal Marginal   Marginal
Variable   Benefits   Costs   Benefits   Benefits  Costs       Net
Benefits
Q         B(Q)      C(Q)    N(Q)       MB(Q)    MC(Q) MNB(Q)
0          0        0         0         ---       ---
1         90        10       80         90        10
2         170       30       140        80        20
3         240       60       180        70        30
4         300      100       200        60        40
5         350      150       200        50        50
6         390      210       180        40        60
7         420      280       140        30        70
8         440      360       80         20        80
9         450      450        0         10        90
10         450      550      -100         0       100
Control     Total     Total     Net      Marginal Marginal   Marginal
Variable   Benefits   Costs   Benefits   Benefits  Costs       Net
Benefits
Q         B(Q)      C(Q)    N(Q)       MB(Q)    MC(Q) MNB(Q)
0          0        0         0         ---       ---       ---
1         90        10       80         90        10        80
2         170       30       140        80        20        60
3         240       60       180        70        30        40
4         300      100       200        60        40        20
5         350      150       200        50        50         0
6         390      210       180        40        60        -20
7         420      280       140        30        70        -40
8         440      360       80         20        80        -60
9         450      450        0         10        90        -80
10         450      550      -100         0       100        -100
What if we can use fractional parts of
the control variable?
Total Benefits               Costs
& Total Costs
Benefits
Slope =MB

B
Slope = MC
C

Q*               Q
Let’s talk calculus…
• What is the MB?
   300-12Y
B(Y )  300Y  6Y   2

• What is the MC?
   8Y                          C (Y )  4Y   2

• What is the profit max level of Y?
   300-12Y = 8Y
   300=20Y
   Y=15
• What are the Net Benefits at this level
of Y?
   NB = ((300*15)-(6*15^2))-(4*15^2)
   NB = 2250
One more check….Is it a
maximum point??
• Second derivative of the Net Benefit
equation must be negative
• N(Y) = B(Y)-C(Y)
• First derivative
   (300-12Y)-8Y                      B (Y )  300Y  6Y 2
• Second derivative                      C (Y )  4Y 2
   -12-8= -20
   Negative  Maximum
• Shows
   N(Y) is concave
   Slope of MB curve < slope of MC curve

```
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 views: 10 posted: 8/8/2012 language: English pages: 14
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