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A quantifying method of microinvestment optimum

Author

Listed:
  • Albu, Lucian-Liviu
  • Camasoiu, Ion
  • Georgescu, George

Abstract

Amid the controversies around the optimisation criteria and the objective functions when applying mathematical methods in economics, we proposed a method of quantifying a multi-criteria optimum, called critical distance method. The demonstration of this method is exemplified by assessing the investment optimum at microeconomic level (project or company portfolio choice). A hyperbolic paraboloid function of three variables (the recovery time, the investment value and the unit cost) representing a surface of the second degree has been defined. The intersection of the hyperbolic parabola planes identifies the point where the three considered variables have the same value, signifying an equal importance attached to them and revealing the optimum level of their interaction. The distance from this critical point to the origin represents, in fact, the criterion according to which one could choose the most efficient investment alternative. In our opinion, the proposed method could be extended to the study of any economic process.

Suggested Citation

  • Albu, Lucian-Liviu & Camasoiu, Ion & Georgescu, George, 1985. "A quantifying method of microinvestment optimum," MPRA Paper 14928, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:14928
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    File URL: https://mpra.ub.uni-muenchen.de/14928/1/MPRA_paper_14928.pdf
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    More about this item

    Keywords

    microeconomic optimum; critical distance method; portfolio choice; investment alternatives; multi-criteria optimum;

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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