2. Undifferentiated (homogenous) products

3. Low barriers to entry

2. Differentiated products (imperfect substitutes)

3. Low barriers to entry

2. High barriers to entry

3. Can be homogenous or differentiated

4. Strategic interdependence, a result of several firms producing all/most of market output

2. Produces product with no close substitutes

3. High barrier/s to entry

Shift of Demand

Changes in demand caused by changes in explanatory variables OTHER THAN OWN PRICE

Changes in Quantity demanded caused by changes in own price

Shift in Supply

Market equilibrium -> set two direct functions equal to each other and solve for price

Market Quantity -> plug price into either direct function

max price set by govt that sellers can charge for a good.

Qualitative forecast

predicts only the direction in which an economic variable will move

2. Activities or variables that determine value of objective function

3. Constraints that might restrict the values of the variables

A* is the variable that is adjusted to maximize the objective function

Marginal Benefit -> change in total benefit caused by incremental change in activity

(MB = Δ in TB/Δ in A or dTB/dA)

Marginal cost (MC) -> change in total cost (TC) caused by an incremental change in the level of the activity.

MC = Δ in TC/Δ in A or dTC/dA (or just take the derivative of TC function)

When do we use deltas

when we use tables (discrete case)

When do we increase activity during a continuous case of net benefit maximization? (derivatives)

if MB > MC (NB will rise since change in TB > change in TC)

When do we decrease activity during a continuous case of net benefit maximization? (derivatives)

if MB < MC

(NB will rise since TC falls by more than TB)

When MR=MC f

Measures responsiveness of consumers quantity demanded to changes in price of a good.

Ep = (Δ in Q/Δ in P) * (P/Q)

TR = P(Q) * Q

P(Q) = firms inverse demand curve

Impact on TR will depend on the relative strength of the two effects (price effect vs quantity effect)

Ep tells us which effect is stronger

Second formula just used to calculate Ep and is derived from the first.

2. length of time consumers have to adjust to a change in price

3. percentage the item takes in the budget

How do you know if a good is a substitute based off general demand function?

If an increase in *PR *causes sales to rise, the goods are substitutes and *d *is positive.

If an increase in *PR *causes sales to fall, the

two goods are complements and *d *is negative.

What does a perfectly competitive firm set equilibrium at?

MR = MC

In order to maximize profits in a perfectly competitive market, firms set **marginal revenue equal to marginal cost**

-> MR = MC

-> MR = Price

-> MC = Price