ECON 2009 Chapter Notes - Chapter 18: Differential Calculus, Constrained Optimization, Marginalism
28 Dec 2015
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Differentiation tells us what changes will occur in one variable (the dependent variable) when a small (marginal) change is made in another variable (the independent variable) When managers want to maximize profit, such maximization or minimization is often subjects to constraints (such as producing a certain output to adhere to a contract or utilizing a certain amount of labor in a union agreement) Relationships between economic variables are represented by a table or graph. Another way to express them is through equations. Marginal value the change in the dependent variable associated with a one-unit change in a particular independent variable. Marginal profit the change in total profit associated with one-unit change in output. Average profit the total profit divided by output. If managers want to maximize profit, they should choose the output level at which marginal profit shifts from positive to negative (729-730) We use q0 and q1 for output and 0 for profit level.
