Formulas

Question 1

Profit Maximization (Labour)

Answer 1

Choose quantity of labour at which the value of the marginal product (Price x Marginal Product of Labour) equals the wage.

P x MPL = W

Divide both sides pf the equation to get:

P = W/MPL

And we know that Wage divided by Marginal Product of Labour equals MC, therefore,

P = MC

So,
(P x MPL = W) = (P = W / MPL) = (P = MC)

Question 2

Percent Change Formula

Answer 2

PC = ((New value - Old Value) / Old Value) x 100

Question 3

Price Elasticity of Demand

Answer 3

Percent change in quantity / percent change in price

Used when determine how a price will change quantity demanded

Question 4

Income Elasticity of Demand

Answer 4

Percent change in quantity / percent change in income

Used when determining how much quantity of demand changes depending on income

Question 5

Cross Price Elasticity of Demand

Answer 5

Percent change in quantity demanded of good A / percent change in price of good B

Measures the quantity demanded in response to another goods price change

CPED > 0 = substitutes

CPED < 0 = complements

CPED = 0 = unrelated or independent

Question 6

Total Cost

Answer 6

Total Cost = Fixed Cost + Variable Cost

Question 7

Average Total Cost

Answer 7

Average Total Cost = Total Cost / Quantity

The cost per unit

Question 8

Marginal Cost

Answer 8

Marginal Cost = Change in Total Cost / change in quantity

Question 9

Utility and Consumer Choice

Answer 9

Utility is the satisfaction a consumer gets from using a good or service

Consumer Choice is the decision making through which individuals allocate their resources

Question 10

Profit Maximization (Perfect Competition)

Answer 10

Marginal Revenue = Marginal Cost

Question 11

Profit Maximization (Monopoly)

Answer 11

Marginal Revenue = Marginal Cost

Question 12

Game Theory

Answer 12

Each game involves payoff, each player wants to maximize their payoff

Prisoners dilemma - people acting in their own self interest end up in a worse situation because of it

Nash Equilibrium - a situation where both people are happy because changing would make them worse off

Question 13

Short Run or Long Run

Answer 13

If marginal revenue is greater than average variable cost they will stay open in the long run, a firms fixed costs determine a lot

Is marginal revenue is less than average variable cost a firm may consider shutting down

If a firm is covering fixed costs they will stay open

Question 14

Economies and Diseconomies

Answer 14

Economies of Sale - increasing scale of production lowers the average cost per unit.

Diseconomies of Sale - increasing scale of production raises the average cost per unit

Question 15

Minimum Efficient Scale

Answer 15

Level of production where a firm is making the lowest average cost per unit

Beyond efficient scale the firm will experience diseconomies

Question 16

Profit Vs Losses

Answer 16

If the intersection of marginal cost and marginal revenue is above average variable cost, it is making positive profit. The profit is the distance between average total cost and price (marginal cost curve)

If the intersection of MC and MR is below average variable cost the firm is making losses

The firm is breaking even when the intersection of MR and MC are on the average variable cost curve

Question 17

Supply and Demand Curves

Answer 17

Demand Curve
Quantity Demanded = a (intercept, quantity demanded when the price is zero) - b (the slope of the demand curve) x P (the price of the goods)

Supply Curve
Quantity Supplied = c (intercept, quantity supplied when the price is zero) + d (the slope of the supply curve) x P (price of goods)

Question 18

Find equilibrium of supply and demand

Answer 18

Set the demand and supply curve equations to be equal to eachother

a - b x P = c + d x P