Important Formulas

Question 1

Average Cost

Answer 1

AC(q) = TC(q)/q

Question 2

Marginal Cost

Answer 2

MC(q) = ΔTC(q)/q

Question 3

Marginal Revenue

Answer 3

MR(q) = p(q) x (1 – 1/n)

Question 4

Price Elasticity of Demand

Answer 4

N = %Δq/%Δp

Question 5

Lerner Index

Answer 5

(P* - MC(q))/p = 1/n

Question 6

Optimal Price of Expensive Product

Answer 6

Optimal price of expensive product = price of expensive product – (willingness to pay for cheaper product – price of cheaper product)

Question 7

Growth Rate

Answer 7

g = (sales current year – sales previous year)/sales previous year

Question 8

Average Annual Growth Rate

Answer 8

g = n√((1+g1)(1+g2)…(1+gn) ) -1

(1+g1) = year 1, (1+gn) = year n etc.

Question 9

Additional company calculation for H index

Answer 9

(Combined (others) market share/market share of smallest company on chart) x (market share of smallest company on chart)^2

Question 10

Distance Questions: number of consumers visiting a shop (e.g. Coles)

Answer 10

Number of consumers visiting a shop (e.g. Coles) = (indifference location/length of road) x total number of consumers

Question 11

Herfindahl Index

Answer 11

H = (a)^2 + (b)^2 + (c)^2 …

Question 12

Profit

Answer 12

Π = (P – MC) x q

Question 13

Bertrand Equilibrium Simplification

Answer 13

Π1 = (p1 – c1)q1 = (p1 – c1)(a – bp1 + dp2)
Π2 = (p2 – c2)q2 = (p2 – c2)(a – bp2 + dp1)

a – 2bp1 + dp2 + bc1 = 0
a – 2bp2 + dp1 + bc2 = 0

Question 14

Consumer Surplus

Answer 14

CS = willingness to pay – price

Question 15

Value Created

Answer 15

VC = CS + Π

Question 16

Interest Questions:

Answer 16

Π = a + a/(1+ I) + a/(1 + i)^2 …
Π = a x ((1 + i)/i)

a = payoff, i = interest