Business strategy Flashcards
Week 3
What three things does a producer have to decide?
What price to set?
What quantity to produce?
When to enter and exit the industry?
The firm’s demand is perfectly elastic at what price?
At a market price.
What is the elasticity of demand?
This is how responsive the quantity demanded is to the change in price.
More responsive = more elastic.
What is the accounting profit?
Total revenue - explicit costs
What is economic profit?
Total revenue - total cots (including implicit costs)
What is Marginal Revenue (MR) ?
MR is the change of total revenue from selling an additional unit.
MR= change in TR/change in quantity
What is Marginal Cost (MC)?
The change in total costs from producing an additional unit.
MC= change in TC/change in quantity
Formulas for profit
Profit = TR - TC
(PxQ) -(TFC+TVC)
Profit = (P-AC)xQ
When MC is less than AC, what is it?
Loss
When MC is greater than AC, what is it?
Profit
When will firms enter an industry
When P > AC
Firms will exit an industry when
When P < AC
What is price discrimination?
Selling of different products to different customers.
What is arbitrage?
Taking advantage of price differences for the same good in different markets by buying low in one market and selling it high in another.
