ECONOMICS

Question 1

UTILITY OF DEMAND FORMULAS

Answer 1

w = MRS = MUh/MUi = BC = Px/Py

budget constraint –> I= PxX+PyY

MUx= partial derivative of x in utility function (excluding y)

Question 2

ELASTICITY OF DEMAND

Answer 2

Ed=(dQ/dP)*(P/Q)

OPTIMAL POINT = -1

Question 3

PRODUCTIVITY

Answer 3

MPL=marginal productivity = dq/dL

APL= Average Productivity= q/L

AP follows MP = intersection is where AP has its direction change.

MP = AP @ inflection point

Question 4

SHORT RUN COSTS

Answer 4

STC = STFC (rk) + STVC (wL)

SMC = dSTC/dq

SAC = STC/q = SAFC + SAVC

SAVC = STVC/q

SAFC = STFC/q

Question 5

ISOQUANT

Answer 5

w/r=MPL/MPk @ optimal point

ISOCOST = TC/r (K intersect) & TC/w (L intersect)

TC = rk+wL

Question 6

MONOPOLY

Answer 6

(PQ)-(ACQ) = profit
MR=1/2 Demand
MR = SMC @ Optimum
Market demand = firm demand curve

ASSUMPTIONS: 1 firm, Heterogeneous product, barriers to entry

Question 7

MONOPOLISTIC COMPETITION

Answer 7

ASSUMPTIONS: Large number buyers/sellers, full information, no barriers, heterogeneous product (differentiated)

MR=MC (best you can do) = profit maximization - no matter what type market structure is)
AC*Q=TC
SMC = Supply
when; P = SAC = 0 profit

Question 8

PERFECT COMPETITION

Answer 8

P=MR=MC @ optimal

ASSUMPTIONS: agents are price takers, homogeneous product, full information, no barriers.

profit between P/MR and AC (average of STC)

MR/P>AC = profit
MR/P@AC = B/E
AC>MR/P>AVC= profit<0
MR/P