Chapter 2 - Economic Optimization
Chapter 2 ECONOMIC OPTIMIZATION
QUESTIONS & ANSWERS Q2.1 In 2004, the second-largest U.S. long-distance telephone company eliminated about 2,000 jobs at four call centers in Colorado, Iowa, Kansas, and South Carolina. "MCI must continue to revamp its cost structure to better position the company for future success," a company spokesperson said. Does this decision reflect an application of the global or partial optimization concept? Explain. ANSWER MCI=s decision to scale back employment at four call centers is a reflection of partial optimization because its decision alternatives were constrained by past decisions. The complexity of a completely integrated decision analysis approach--or global optimization--sometimes confines its use to major planning decisions. For many day-to-day operating decisions, managers often employ much less complicated partial optimization techniques. Partial optimization abstracts from the complexity of a completely integrated decision process by concentrating on more limited objectives within the firm's various operating departments. For example, the marketing department is usually required to determine the price and advertising policy that will achieve some sales goal given the firm's current product line and marketing budget. Alternatively, a production department might be expected to minimize the cost of a specified quantity of output at a stated quality level. In both instances, the fundamentals of economic analysis provide the basis for optimal managerial decisions. Q2.2 AThe personal computer is a calculating device and a communicating device. Spreadsheets incorporate the best of both characteristics by allowing managers to determine and communicate the optimal course of action.@ Discuss this statement and explain why computer spreadsheets are a popular means for expressing and analyzing economic relations. ANSWER When tables of economic data are displayed electronically in the format of an accounting income statement or
QUESTIONS & ANSWERS Q2.1 In 2004, the second-largest U.S. long-distance telephone company eliminated about 2,000 jobs at four call centers in Colorado, Iowa, Kansas, and South Carolina. "MCI must continue to revamp its cost structure to better position the company for future success," a company spokesperson said. Does this decision reflect an application of the global or partial optimization concept? Explain. ANSWER MCI=s decision to scale back employment at four call centers is a reflection of partial optimization because its decision alternatives were constrained by past decisions. The complexity of a completely integrated decision analysis approach--or global optimization--sometimes confines its use to major planning decisions. For many day-to-day operating decisions, managers often employ much less complicated partial optimization techniques. Partial optimization abstracts from the complexity of a completely integrated decision process by concentrating on more limited objectives within the firm's various operating departments. For example, the marketing department is usually required to determine the price and advertising policy that will achieve some sales goal given the firm's current product line and marketing budget. Alternatively, a production department might be expected to minimize the cost of a specified quantity of output at a stated quality level. In both instances, the fundamentals of economic analysis provide the basis for optimal managerial decisions. Q2.2 AThe personal computer is a calculating device and a communicating device. Spreadsheets incorporate the best of both characteristics by allowing managers to determine and communicate the optimal course of action.@ Discuss this statement and explain why computer spreadsheets are a popular means for expressing and analyzing economic relations. ANSWER When tables of economic data are displayed electronically in the format of an accounting income statement or