Calculations Flashcards
Marginal rate of substitution
Differentiate the indifference curve
Marginal utility
U1=∂U(g1,g2 )/∂g1
U2=∂U (g1,g2 )/∂g2
Where U1 is the marginal utility for good 1
Marginal rate of substitution in regards to marginal utility
-U1/U2
Marginal product of labour (MPL)
Differentiating the production function with regard to L.
(∂q/∂L)
∂q/∂K for MPK
Average product of labour (APL)
q/L
Marginal rate of technical substitution (MRTS)
MPL/MPK
Average costs
C/q
Total costs
wL + rK
w = wage rate, r = capital costs
Isocost line equation on a graph where y axis is K and x axis is L
K = C/r - (w/r)L
where C is a fixed level of costs
Optimal point of output
Tangent point between isocost and isoquant lines
Expansion path
Line through optimal points
Profits (basic equation)
π(q) = R(q) - C(q)
profit = revenue at quantity q - costs and quantity q
Marginal revenue, profit and costs
(MR(q), Mπ(q) and MC(q)
dR(q)/dq
same thing for marginal costs and profit
Profit maximising quantity
MR(q) = MC(q)
Abnormal profits
p > ATC
Market price
Intersection between long run supply curves and demand curves
Economic welfare (W)
Consumer surplus + producer surplus
W = CS + PS
Producer surplus (PS)
The area above the market supply curve but below the price
Consumer surplus (CS)
The area below the demand curve but above the price
Deadweight loss (DWL)
The change in welfare at different quantities
Marginal rate of transformation
Slope of the budget line
Budget line
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
