THEME 3 Flashcards
What is the main objective of a firm?
Maximise profit
Revenue is equal to…
R=P*q
(Revenue=R, Price=P, q=quantity)
What’s the link between elasticity of demand and elasticity of revenue? (La formule)
Er=1+Ep
Er gives the percentage change revenue in response to a ___% change in price.
1%
If the Montreal Canadiens raise the price of tickets for hockey games and
realize that this increase leaves revenue unchanged, then the demand for
hockey tickets is… (elastic/inelastic..)
Unit elastic
Where is the revenue maximizing portion located on the graph?
On Ep=-1
INELASTIC: How does the revenue change with price ?
They move together (⬆️P>⬆️R)
UNIT ELASTIC: How does the revenue change with price ?
When price changes, revenue stays the same.
ELASTIC: How does the revenue change with price ?
Price and revenue move in opposite directions (⬆️P>⬇️R or ⬇️P>⬆️R)
What characterize economic decision making ?
The past is irrelevant and decision making is foward looking.
What is «recoverable accounting cost»
Only recoverable accounting cost are considered. Do not consider sunk costs, because we should ignore what we can’t change.
What is «Opportunity cost»
Must be considered when taking decisions…
What is «economic costs»
Costs that are relevant to decision making.
A new restaurant realizes that its popularity exceeds its
expectations. Extend hours is a short or long run decision?
Short run.
A new restaurant realizes that its popularity exceeds its
expectations. Hiring more staff is short or long run decision?
Long run.
