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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
Three Tools
• Excel Built-in Solver
• Data Tables
• Conditional Formatting
(Illustrated using profitmaximization)
Profit MaximizationFramework
• Production TechnologyQ=F(X1,X2,…,Xn)
• Prices – Assumptions aboutmarket structure
• Total Revenue (TR), Total Cost(TC), and Profit (!)
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))
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
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
Using the Built-InExcel Solver – Set Up
Using the Built-In ExcelSolver - Launching
Using the Built-In ExcelSolver – Implementation
Using the Built-In ExcelSolver – Convergence
Data Tables – Set Up
Data Tables –Launching
Data Tables -Implementation
Data Table Completed
Conditional Formatting -Launching
Conditional Formatting –Setting ParameterValues 1
Conditional Formatting –Setting ParameterValues 2
ConditionalFormatting Completed
Conditional Formatting& Level Curves – theLevels
Conditional Formatting& Level Curves - Details
Conditional Formatting& Level Curves -Illustrated
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/)
Comments orQuestions
J. M. Pogodzinski
Department of Economics (0114)
San Jose State University
1 Washington Square
San Jose, CA 95192-0114
USA
jmp@pogodzinski.net
excelbook@pogodzinski.com
paper and related materials available athttp://www.pogodzinski.net/MAA_AMS/maa_amsindex.html
(www.pogodzinski.net & click on “MAA-AMS”)
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