[PDF] constrained optimization in managerial economics

How can a constrained optimization problem be solved?

When the objective function is a function of two variables, and there is only one equality constraint, the constrained optimization problem can also be solved using the geometric approach discussed earlier given that the optimum point is an interior optimum.

Can marginal analysis solve optimization problems?

Regardless of whether the optimization involves maximization or minimization, or constrained or unconstrained choice variables, all optimization problems are solved by using marginal analysis. No other tool in managerial economics is more powerful than the ability to attack problems by using the logic of marginal analysis.

How to solve a constrained optimization problem using Lagrange multiplier?

The commonly used mathematical technique of constrained optimizations involves the use of Lagrange multiplier and Lagrange function to solve these problems followed by checking the second order conditions using the Bordered Hessian.

How can unconstrained maximization problems be solved?

Unconstrained maximization problems can be solved by following this simple rule: To maximize net benefit, increase or decrease the level of activity until the marginal benefit from the activity equals the marginal cost of the activity: