Lecture 1Economics 2BOptimisation (1)(layout of lecture & figures)

References in textbookMicro Management EconomicsSection A Pages 2-13Workbook section

Concepts to be covered in lecture1) Unconstrained optimisation.2) Constrained optimisation.3) Linear programming. Primal problem. Shadow prices. Profit maximisation. Cost minimisation.

Corner Point Combination Costa 2.5A +0B 1250b 5/3A + 2/3B 1233c 0A + 4B 2400The lowest cost is 1233 and it requires 5/3 cases of type A and 2/3 cases of type B per production run to beproduced.Contribution per one unit of constraint (shadow prices)10 VHR + 20 VM + 10VC (HR = labour component, M = material, C = production capitaland V = shadow price)and 4VHR + 10VM + 5VC = 5005VHR + 5VM + 4VC = 600The slack variable is production capital4 VHR + 10VM = 500and 5 VHR + 5VM = 600Simultaneous solving for two unknowns result in:VHR = 116 2/3& VM = 3 1/3Every one additional HR input will add 116.66 to total cost and one additional unit of material will add3.33 to total cost.