C02 - Mathematical MethodsReturn

Cournot was a French mathematician, philosopher and economist, said to be one of the most important predecessors of neoclassical economic theory. He belongs among the pioneers in econometrics and mathematical economics. He is also highlighted for creation of market prices, the demand function and the basis for marginalist firm theory. He was unacknowledged in his lifetime.

In the paper, marginal analysis and linear programming are described and then compared as two independent theoretical approaches to production theory. Although marginal analysis dominates economic literature, we argue that linear programming is an equivalent theory with some advantages and, of course, some disadvantages in comparison to marginal analysis. Marginal analysis will be a more suitable choice if we assume continuous changes and perfect substitution in production and unlimited capacities of production factors. On the other hand, linear programming describes production as a combination of a finite number of available technologies with limited capacities of production factors. However, the best choice is likely to combine both the approaches to complement one another. It is a paradox that many economic students know linear programming from operational research or management science courses, but they have no notion that linear programming is also one of the basic tools of quantitative economic analysis.

Business processes take place in an environment of complex systems that consist of many interrelated elements with stochastic and dynamic characteristics. Simulation and management methods were developed to cope with such complexity. Simulation and management methods are interdependent disciplines that were developed relatively separately, but we argue that simulation can serve as a tool for implementation of specific management methods, and at the same time, simulation and operational research represent the methodological foundation for many modern management methods.