A quantifying method of microinvestment optimum

Lucian Albu (), Ion Camasoiu and George Georgescu

MPRA Paper from University Library of Munich, Germany

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.

Keywords: microeconomic optimum; critical distance method; portfolio choice; investment alternatives; multi-criteria optimum (search for similar items in EconPapers)
JEL-codes: B21 B23 C02 C61 G11 (search for similar items in EconPapers)
Date: 1985-01
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