Pedagogy in Action > Library > Teaching with Simulations > Economics Examples > Using Excel Spreadsheets to Explore Profit Maximization

Using Excel Spreadsheets to Explore Profit Maximization

Teri Riley, Youngstown State University
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This material was originally created for Starting Point: Teaching Economics
and is replicated here as part of the SERC Pedagogic Service.

Summary

Students will use basic excel spreadsheet to examine profit maximization. They will calculate values for TR, TC, MC and profit. They will use this information to determine the profit-maximizing level of output. They will then look at how changes in price and costs will affect the profit-maximizing level of output.

Learning Goals

Students will learn to calculate total revenue,marginal revenue, total cost, marginal cost and profit for a perfectly competitive firm. They will use this information to determine the profit-maximizing level of output.

Context for Use

The Excel spreadsheet can be used during a lecture or students could be given the assignment to complete outside of class.
The activity can be used in either Principles of Microeconomics or Intermediate Microeconomics. Principles students could be given the values for TC. Intermediate students could be given the formula for TC and asked to then use that formula in the spreadsheet to calculate TC.

Description and Teaching Materials

The activity is a simple calculation of TR, MR, TC, MC and profit. Students are asked to determine the profit maximizing quantity.
Excel Assignment on Profit Maximization (Excel 2007 (.xlsx) 13kB Sep28 09)
Questions to accompany Excel spreadsheet (Microsoft Word 2007 (.docx) 11kB Sep28 09)


Teaching Notes and Tips

This is a very basic straightforward activity. Students should be able to look at both the original profit maximization decision and the changed scenario simultaneously. That way it will be easier for students to understand how the change affects profit maximization. The advantage to using the Excel spreadsheets is that it allows an instructor to examine a number of changes in prices and costs without using a lot of class time.

Assessment

The instructor can determine if the student has achieved the learning goals if they can identify the profit-maximizing level of output. They also need to be able to explain why and changes in price, fixed costs and marginal cost will affect the profit-maximizing level of output.

References and Resources

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