Calculations

Question 1

Marginal rate of substitution

Answer 1

Differentiate the indifference curve

Question 2

Marginal utility

Answer 2

U1=∂U(g1,g2 )/∂g1
U2=∂U (g1,g2 )/∂g2

Where U1 is the marginal utility for good 1

Question 3

Marginal rate of substitution in regards to marginal utility

Answer 3

-U1/U2

Question 4

Marginal product of labour (MPL)

Answer 4

Differentiating the production function with regard to L.
(∂q/∂L)

∂q/∂K for MPK

Question 5

Average product of labour (APL)

Answer 5

q/L

Question 6

Marginal rate of technical substitution (MRTS)

Answer 6

MPL/MPK

Question 7

Average costs

Answer 7

C/q

Question 8

Total costs

Answer 8

wL + rK

w = wage rate, r = capital costs

Question 9

Isocost line equation on a graph where y axis is K and x axis is L

Answer 9

K = C/r - (w/r)L

where C is a fixed level of costs

Question 10

Optimal point of output

Answer 10

Tangent point between isocost and isoquant lines

Question 11

Expansion path

Answer 11

Line through optimal points

Question 12

Profits (basic equation)

Answer 12

π(q) = R(q) - C(q)

profit = revenue at quantity q - costs and quantity q

Question 13

Marginal revenue, profit and costs

(MR(q), Mπ(q) and MC(q)

Answer 13

dR(q)/dq

same thing for marginal costs and profit

Question 14

Profit maximising quantity

Answer 14

MR(q) = MC(q)

Question 15

Abnormal profits

Answer 15

p > ATC

Question 16

Market price

Answer 16

Intersection between long run supply curves and demand curves

Question 17

Economic welfare (W)

Answer 17

Consumer surplus + producer surplus

W = CS + PS

Question 18

Producer surplus (PS)

Answer 18

The area above the market supply curve but below the price

Question 19

Consumer surplus (CS)

Answer 19

The area below the demand curve but above the price

Question 20

Deadweight loss (DWL)

Answer 20

The change in welfare at different quantities

Question 21

Marginal rate of transformation

Answer 21

Slope of the budget line

Question 22

Budget line

Answer 22

The set of combinations where pX + pY = M

where:
pX is the price of good X
pY is the price of good Y
M is consumer’s income