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ProfitMaximization and
Level Curves:Applying Excel Data Tables, Conditional
Formatting, and the Solver
byJ. M. Pogodzinski
Department of EconomicsSan Jose State University
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Three Tools
• Excel Built-in Solver
• Data Tables
• Conditional Formatting
(Illustrated using profitmaximization)
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Profit MaximizationFramework
• Production TechnologyQ=F(X1,X2,…,Xn)
• Prices – Assumptions aboutmarket structure
• Total Revenue (TR), Total Cost(TC), and Profit (!)
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Closed-Form Solution ofthe One-Input Profit-Maximization Problem
• Assume one input (labor) inproduction - Q=A_La
• Profit maximization –maxL !(L) = P_A_La - w_L
• First- and second-orderconditions yield optimal laborinputL* = (w/PAa)(1/(a-1))
![Page 5: Profit Maximization and Level Curves - SIGMAAsigmaa.maa.org/ql/_meetings/jmm2006/1014-P1-404-slides.pdfProfit Maximization and Level Curves: Applying Excel Data Tables, Conditional](https://reader034.vdocuments.net/reader034/viewer/2022042712/5f964ab756f64c456574510d/html5/thumbnails/5.jpg)
Profit MaximizationIllustrated
Total Revenue & Total Cost
0
10
20
30
40
50
60
0 10 20 30 40 50
Labor Input (L)
Ou
tpu
t (Q
)
Total Revenue(Reference)
Total Cost(Reference)
Total Revenue
Total Cost
Optimal Input Level
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Changes in theOptimal Solution
Total Revenue & Total Cost
0
10
20
30
40
50
60
0 10 20 30 40 50
Labor Input (L)
Out
put (
Q)
Total Revenue(Reference)
Total Cost(Reference)
Total Revenue
Total Cost
Optimal Input Level
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Using the Built-InExcel Solver – Set Up
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Using the Built-In ExcelSolver - Launching
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Using the Built-In ExcelSolver – Implementation
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Using the Built-In ExcelSolver – Convergence
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Data Tables – Set Up
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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 ParameterValues 1
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Conditional Formatting –Setting ParameterValues 2
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ConditionalFormatting Completed
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Conditional Formatting& Level Curves – theLevels
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Conditional Formatting& Level Curves - Details
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Conditional Formatting& Level Curves -Illustrated
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Excel Books
Pogodzinski, J. M., Using Microsoft® Excel inIntroductory Macroeconomics, Pearson Prentice-Hall, 2005 (accompanying Excel files can bedownloaded from:http://www.prenhall.com/pogodzinski/)
Pogodzinski, J. M., Using Microsoft® Excel inIntroductory Microeconomics, Pearson Prentice-Hall,2005 (accompanying Excel files can be downloadedfrom: http://www.prenhall.com/pogodzinski/)
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Comments orQuestions
J. M. Pogodzinski
Department of Economics (0114)
San Jose State University
1 Washington Square
San Jose, CA 95192-0114
USA
paper and related materials available athttp://www.pogodzinski.net/MAA_AMS/maa_amsindex.html
(www.pogodzinski.net & click on “MAA-AMS”)