Profit Maximization and Level Curves:

1
Profit Maximization and Level Curves

• Applying Excel Data Tables, Conditional
  Formatting, and the Solver
• by
• J. M. Pogodzinski
• Department of Economics
• San Jose State University

2
Three Tools

• Excel Built-in Solver
• Data Tables
• Conditional Formatting
• (Illustrated using profit maximization)

3
Profit Maximization Framework

• Production Technology QF(X1,X2,,Xn)
• Prices Assumptions about market structure
• Total Revenue (TR), Total Cost (TC), and Profit
  (p)

4
Closed-Form Solution of the One-Input
Profit-Maximization Problem

• Assume one input (labor) in production - QAL?
• Profit maximization
• maxL p(L) PAL? - wL
• First- and second-order conditions yield optimal
  labor input
• L (w/PA?)(1/(?-1))

5
Profit Maximization Illustrated
6
Changes in the Optimal Solution
7
Using the Built-In Excel Solver Set Up
8
Using the Built-In Excel Solver - Launching
9
Using the Built-In Excel Solver Implementation
10
Using the Built-In Excel Solver Convergence
11
Data Tables Set Up
12
Data Tables Launching
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Data Tables - Implementation
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Data Table Completed
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Conditional Formatting - Launching
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Conditional Formatting Setting Parameter Values
1
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Conditional Formatting Setting Parameter Values
2
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Conditional Formatting Completed
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Conditional Formatting Level Curves the Levels
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Conditional Formatting Level Curves - Details
21
Conditional Formatting Level Curves -
Illustrated
22
Excel Books

• Pogodzinski, J. M., Using Microsoft Excel in
  Introductory Macroeconomics, Pearson
  Prentice-Hall, 2005 (accompanying Excel files can
  be downloaded from http//www.prenhall.com/pogodz
  inski/)
• Pogodzinski, J. M., Using Microsoft Excel in
  Introductory Microeconomics, Pearson
  Prentice-Hall, 2005 (accompanying Excel files can
  be downloaded from http//www.prenhall.com/pogodz
  inski/)

23
Comments or Questions

• J. M. Pogodzinski
• Department of Economics (0114)
• San Jose State University
• 1 Washington Square
• San Jose, CA 95192-0114
• USA
• jmp_at_pogodzinski.net
• excelbook_at_pogodzinski.com
• paper and related materials available at
  http//www.pogodzinski.net/MAA_AMS/maa_amsindex.ht
  ml
• (www.pogodzinski.net click on MAA-AMS)