Managerial Economics

MANAGERIAL ECONOMICS A langrage multiplier is a mathematical approach that is used to combine the quantity that is maximized (Profit) with the functions that describe the output or the constraints functions (Lemaréchal, 2007). The graph in the excel file shows all the possible outcome of profits if a combination of outputs Y1 and Y2 are added together. The graph is used to calculate the maximum and the minimum points through with the combination of commodities Y1 and Y2 can yield maximum profits. The graph shows that maximum benefitis realised when the organisation produces 5.72Y1 and 2.87Y2 in that the langrage multiplier is 0.45 meaning that it is greater than 0, i.e. LM>0.