question
shifts in demand are caused by what
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changes in any variable besides own price
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movements along demand curve are caused by what
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changes in own price
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a slope parameter has a direct relationship to demand when
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its sign is positive
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a slope parameter has an inverse relationship to demand when
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its sign is negative
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price ceilings often cause
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shortages
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price floors often cause
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surpluses
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what is a qualitative forecast
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forecast that predicts only the direction in which a variable will move
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what is a quantitative forecast
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forecast that predicts the direction and magnitude of change of an economic variable
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what would the change in price of a good do to demand
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cause a movement along the demand curve
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two types of optimization
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unconstrained and constrained
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what is unconstrained optimization
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an optimization problem in which the decision maker can choose the level of activity from an unrestricted set of values
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what is constrained optimization
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an optimization problem in which the decision maker choose values for the choice variables from a restricted set of values
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two types of choice variables
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discrete and continuous
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what is a discrete choice variable
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a variable that can only take specific integer values
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what is a continuous choice variable
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a variable that can take any value between two end points
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the optimal level of activity A* is the level that maximizes what
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net benefit (NB)
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how to calculate net benefit
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TB - TC
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if MB>MC, activity should be _________________ until
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increased; MB = MC
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by how much would an additional $100 in fixed costs change the optimal level of activity
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zero. fixed costs don't affect A* because they don't affect MB or MC because the derivative of a constant is zero.
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if Ep > 1, demand is
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elastic
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if Ep < 1, demand is
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inelastic
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if demand is elastic, TR will ______________ when price decreases
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increase
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if demand is unitary elastic, TR will _______________ when price decreases
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not change (assuming a small change in P)
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if demand is inelastic, TR will _______________ when price decreases
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decrease
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demand is unitary elastic when Ep =
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1 (or -1)
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if demand is elastic, MR is (greater than/less than) 0
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greater than
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if demand is inelastic, MR is (greater than/less than) 0
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less than
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when demand is elastic, the _____________ effect dominates
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quantity
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when demand is inelastic, the _____________ effect dominates
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price
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in the long run, which inputs are considered fixed
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none. in the long run, everything is variable
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how do you know if a decision is a short-run or long-run one
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if capital is being changed, it's long run. if not, it's short run
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when MP > AP,
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AP is increasing
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when MP < AP
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AP is decreasing
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at what point does AP reach a maximum
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when MP = 0
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for a perfectly competitive firm, P =
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MR
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AVC and ATC are at their minimum where
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they intersect SRMC
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if AVC and ATC are rising, what do we know about MC
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it is above AVC and ATC
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if AVC and ATC are falling, what do we know about MC
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it is below AVC and ATC
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equation for MC
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w/MPl
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how to calculate AVC
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w/AP
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when MP is increasing, ______ is decreasing
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MC
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when AP is increasing, ______ is decreasing
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AVC
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for the first output, MC =
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AVC
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in a perfectly competitive market, MR =
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P (MR curve is P curve)
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a firm should shut down if
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P < AVC, or TR < TVC
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the shutdown price is equal to
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minumum AVC
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where is a price-taking firm's supply curve graphically
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it is the portion of MC curve above AVC, because for anything below AVC output is zero
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Level of output that maximizes total profit occurs at a ____________ level than the output that maximizes profit margin
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higher
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where is long run competitive equilibrium found graphically
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the intersection of LMC and LATC
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at the optimal combination of K and L, what is equal
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the marginal product per dollar is same for both inputs (K/total $ spent on K)
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what is the expansion path
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the optimal ratio of K and L that should be maintained as K and L are increased to produce more output
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what are economies of scope
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when the joint cost of producing two or more goods is less than the sum of the separate costs for single-product firms to produce the two goods
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what is the Marginal Rate of Technical Substitution equal to
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absolute value of the slope of the isoquant
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what does market power mean, and who has it
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it means the ability to raise price without losing all sales; any firm with a downward sloping demand curve
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how is market power related to demand elasticity
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less elastic = more market power
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what does the Lerner Index tell us
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the greater the amount by which P exceeds MC, the smaller the elasticity
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where is profit-maximizing output for a monopolistic firm
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intersection of MC and MR
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what is third-degree price discrimination
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the price setting firm is able to identify and separate a market into two (or more) submarkets and charge a different price for the same good in each submarket
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where, graphically, is MR negative for a monopolistic firm
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below midpoint of MR curve
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other way to calculate elasticity
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P/(P-A) *details in ch 12 dup tech question 5 solution
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what is marginal analysis
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analyzing relationship between MR and MC, and the way that the relationship impacts the situation
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at what point would a monopolist want to stop raising price
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when demand is no longer inelastic (usually stopping where MR = MC)
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what kind of decisions made by an oligopolist affect the profits of its competitors
answer
ALL decisions that affect its profits
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