Lecture 6- Application- Profit Maximisation

Question 1

What functional relationship is implied by a “chicken elasticity of eggs”?

Answer 1

The way the quantity demanded is dependent on the price at which the good is sold at (price elasticity of demand) where qD=f(price or p or x)
… similarly the number of eggs produced depends on the number of chickens, i.e. EGGS = f(CHICKENS)

Question 2

When a question asks you to state the quantity and price at which a firm will produce at, what must you assume?

Answer 2

The firm is a profit maximiser and … will produce when it (pi) is maximised