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Demand curve
answer
Quantity consumers will consume at each possible price
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Isoprofit curve
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Shows different ways to achieve a certain profit
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Relationship between demand curve and isoprofit curve
answer
Demand curve = feasible frontier (MRT)
Isoprofit curve = indifference curve (MRS)
Isoprofit curve = indifference curve (MRS)
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Marginal Cost (2 things)
answer
Cost of producing 1 additional unit of output (∆C/∆Q)
Slope of the total cost function at any point
Slope of the total cost function at any point
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Relationship between AC and MC
answer
When AC > MC the AC curve is downward sloping
When AC < MC the AC curve is upward sloping
When AC < MC the AC curve is upward sloping
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Economic profit equation
answer
Revenue - cost - opp cost of capital
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Normal profits
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0 economic profit
Thus the rate of profit = opp cost of capital
Thus the rate of profit = opp cost of capital
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Profits (3 equations)
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TR - TC; PQ - CQ; Q*(P - AC)
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Isoprofit curves slope down when
answer
P > MC
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Profit margin
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P - MC
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Slope of isoprofit curve equation
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(P - MC)/Q; Profit Margin/Quantity
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How to determine price on an isoprofit curve
answer
At Q1: (P1-AC1)*Q1 = profit
At Q2: profit = Q2*(P2-AC2)
At Q2: profit = Q2*(P2-AC2)
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If you know (Q,P) and profit, how do you calculate AC
answer
profit/Q = P-AC
question
marginal revenue
answer
the additional income from selling one more unit of a good
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Relationship between MR, MC and Profit
answer
When MR = MC profit is maximized
When MR > MC you should increase Q
When MR > MC you should increase Q
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