Economic

Optimization
BY :
ERISA APRILIA WICAKSARI, S.E., M.M.
Managerial Economics as the application of economic
theory and the science of decision-making to study how
an enterprise can achieve goals in an efficient manner
Company Goals: Maximizing profit or company value or
minimizing costs with certain constraints .

Providing the best alternative

solution (solution) to the problem Max profit with profit and
at hand
loss constraints
ECONOMIC OPTIMIZATION
Max benefits with minimal
Methods for maximizing or
facilities
minimizing the company's
objective function Min loss with high cost
Min production failure with
minimal infrastructure
 Economic
Optimization
The terminology of economic optimization is
output maximization and input minimization
The optimal choice is an efficient and effective solution
which is the final result of decision making.

Effective, when the level of production output reaches a

maximum level based on the level of use of predetermined
inputs.

Efficient, when the level of production output reaches a

maximum level and with minimal input use
 Function Equation
is a mathematical equation that expresses
the relationship between two things

Techniques in Table Method

economic is one method that expresses the
optimization relationship between two things by using
tables

Graphic method
is a method that expresses the relationship
between two things by using a graph

4
 Methods of Describing
Economic Relations

The relationship between total revenue (TR) and demand (Q) of

goods and services

TR = 200 Q
TR = 200 Q

Number of Total
units sold Revenue
25 5.000
30 6.000
35 7.000
40 8.000

5
 Economic optimization without
constraints
It is assumed that company managers will not face various
obstacles in optimizing decisions
 Relationship of total, average
and marginal values
One analysis that can be used for companies to be able to maximize
the company is the analysis of the relationship between total costs,
average costs and marginal costs

Total Cost (TC)

All production costs incurred by producers in producing output
TC = TFC + TVC

Average Cost (AC)

The average cost required to produce per unit of output

𝐴𝐶=
𝑇𝐶 𝐹𝐶 +𝑉𝐶
𝑄
=
𝑄 𝐴𝐶=𝐴𝐹𝐶+ 𝐴𝑉𝐶
Marginal Cost (MC)
Shows how much the total cost () issued if the amount of output
increases by one unit
 𝑇𝐶
𝑀𝐶 =7
𝑄
 Relationship of total, average
and marginal values
Q TFC TVC TC AFC AVC AC MC
0 120 0 120 + 0 = 120
1 120 60 120 + 60 = 180

2 120 80 120 + 80 = 200

3 120 90 120 + 90= 210

4 120 105 120 + 105 = 225

5 120 140 120 + 140 = 260

6 120 210 120 + 210 = 330

8
 Function
The notation for denoting a function is: Y = f(x)
Variables are important components that make up
a function. There are two types of variables,
namely:
Independent Dependent
Variable variable

• Linear Function, Y = 86 + 0,67

or it can be expressed by f(x) = 86 + 0,67 X

• Non Linear Function, Y = 10 + 5 +

or it can be expressed by f(x) = 10 + 5 +
9
 Determine
maximization and
minimization with
calculus
To maximize profits, companies try to maximize their
income and try to minimize their production costs
Example :
2
=−10 𝑄 + 95 𝑄 −200
• 0

Calculate the optimal

𝑄=5 unit
profit?
p = TR – TC

𝑇𝑅=¿−10 Q 2+ 120Q
2
−10 𝑄 +95 𝑄 − 200 =25
10
With the resulting output of 5 units, the maximum profit obtained is
25 units
11
 Determine maximization and
minimization with calculus

The relationship of more than two variables can be formulated as follows: = f(X,
Y). Interpretation of = f(X, Y) is the optimal profit influenced or dependent on
variable X and variable Y.

Example :

Calculate the optimal profit?

Partial derivative of Variable X  derivative of

=

Partial derivative of Variable Y  derivative of

=

12
 Determine maximization and
minimization with calculus
(2)
In order to maximize the profit function, we must make every partial
derivative (both X and Y) equal to zero
=

Next, multiply the first equation by -10 with the goal of the Y value being
zero, so the calculation will be as follows:
10 𝑌 +80 𝑋 − 1000=0 − 8 𝑋 −𝑌 +100=0
−10 Y − 𝑋 +120= 0 − 8(11) −𝑌 +100=0
− 88 −𝑌 +100=0
79 𝑋 − 880=0 12 −𝑌 =0
79 𝑋=880
𝑋=11 ,14 𝑌 =12 𝑢𝑛𝑖𝑡
𝑋=11𝑈𝑛𝑖𝑡
13
 Determine
maximization and
minimization with
calculus (3)
Based on previous calculations, it can be seen that the
company will obtain optimal profit when it sells 11 units of
product X and sells 12 units of product Y, so that the
optimal profit obtained is:
2 2
 =− 4 𝑋 −52 𝑌 − 𝑋𝑌2 +100 𝑋+120 𝑌
 =− 4 (11) −5 ( 12 ) − ( 11 ) (12)+100 (11)+120(12)
 =− 484 − 720 −132+1100+1440
 =1204

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 Economic optimization with
constraints
We need to pay attention to economic optimization with constraints
because in general company managers will face various obstacles in
optimizing decisions

Some of the obstacles faced by company managers in optimizing

decisions include: a) limited production capacity, b) limited raw
materials, c) limited human resources, d) legal constraints
 Optimization is constrained
by substitution
This method transforms a constrained optimization problem into an
unconstrained optimization problem by solving the constraint equation for one
decision variable and then substituting this value into the constrained
optimization equation.

Example :

• Constraint function  X + Y = 20
• Profit function 

Calculate the optimal profit?

Constraint functionOptimal profit function with constraints

X + Y = 20 2 2

X = 20 - Y
=− 4 𝑋 − 5 𝑌 2− 𝑋𝑌 +100
2
𝑋 +120 𝑌
=− 4 (20 − Y ) −5 𝑌 − ( 20 − Y ) 𝑌 +100 (20 − Y)+120 𝑌
=− 4 (400 − 40 Y+ Y¿¿ 2)− 5 𝑌 2 −20 𝑌 +𝑌 2 +2000 −100 Y+ 120 𝑌 ¿
2 2 2
=−1600+ 160 Y − 4 Y − 5 𝑌 −20 𝑌 +𝑌 +2000 −100 Y+ 120 𝑌
2 2 2
=− 4 Y − 5 𝑌 +𝑌 − 20 𝑌 +160 Y −100 Y+ 120 𝑌 + 2000 −1600
2
 =− 8 Y + 160 Y + 400
16
 Optimization
constrained by
substitution (2)
Profit Functio

To maximize optimization without the above constraints, we must derive the

equation, namely:

=
−16 Y =− 160
unit
Next, substituting the value Y = 10 units into the constraint equation, the
calculation is as follows:
X + Y = 20
X + (10) = 20
X = 20 10
X = 10 unit

17
 Optimization
constrained by
substitution (3)
Based on the calculation above, it can be seen that the company
will obtain optimal profits when the company sells 10 units of
product X and 10 units of Y product. Then the optimal profit to be
obtained is as follows:
 =− 4 𝑋 2 −5 𝑌 2 − 𝑋𝑌 +100 𝑋+120 𝑌
2 2
 =− 4 (10) −5(10) −(10)(10)+100 (10)+120( 10)
 =− 400 −500 − 100+1000+1200
 =1200

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 Optimization is constrained
by the Lagrange multiplier

Example :
method

• Constraint function  X + Y = 20
Calculate the optimal profit?
Constraint function
Lagrange Function
X + Y = 20 2 2
=− 4 𝑋 − 5 𝑌 − 𝑋𝑌 +100 𝑋 +120 𝑌
X + Y 20= 0 )

Next, find the partial derivatives of L with X, Y dan and set equal to zero, so
that:
==0

= =0

==0

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 Constrained optimization
with Lagrange multipliers
(2)
Next, = dikurangi oleh = + = 0

100 − 8 𝑋 −𝑌 + =0
120 − 𝑋 −10 𝑌 + =0
−
− 20 − 7 𝑋 +9 𝑌 = 0
Next, multiplying the constraint function (X + Y − 20) by the number -7, so
X + Y 20 = 0
the calculation is as follows:
7 X + (10) 20 = 0
X 10 = 0
X = 10 unit
16 Y
-

Y
Y

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 Constrained optimization
with Lagrange multipliers
Based on the calculation above, it is(3)
known that the company sells 10 units
of product x and 10 units of product Y. So the next step is to find the
constraint value

= =

OR −(10) −10(10)+ 120+ =0

=−10 =−10

21
 Constrained optimization
with Lagrange multipliers
(4)
Based on the calculation above, it can be seen that the company will obtain
optimal profits when the company sells 10 units of product X and 10 units of
Y product. Then the optimal profit to be obtained is as follows:

 =− 4 𝑋 2 −5 𝑌 2 − 𝑋𝑌 +100 𝑋+120 𝑌
2 2
 =− 4 (10) −5(10) −(10)(10)+100 (10)+120( 10)
 =− 400 −500 − 100+1000+1200
 =1200

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 TASK
1. Calculate the maximum profit !

• 0

2. Calculate the maximum profit !

3. Calculate the maximum profit !

• Fungsi keuntungan 
• Fungsi kendala  X + Y = 20
4. Calculate TC AFC AVC AC MC and draw it !
Q TFC TVC TC AFC AVC AC MC

0 60 0

1 60 20

2 60 30

3 60 40

4 60 55

5 60 70

6 60 80
THANK YOU