question

How do you find the optimal L and K in a basic cobb douglas function

answer

MPL/MPK = w/r, then switch into terms of Q for the cost function

question

How do you find the optimal L and K in a basic perfect subs/linear function?

answer

If MRTS>w/r, then K

**=0, if MRTS<w/r, the L**=0, if MRTS=w/r, any comboquestion

How do you find the optimal L and K in a basic perfect compliments problem?

answer

Same amount of K and L for each, so you use as much as you can

question

Cobb Douglas: Convex or Concave? What does this say about MRTS?

answer

Convex, diminishing MRTS means value of K compared to L decreases

question

What does it mean if w/r = 2?

answer

2 units of K are equal to 1 unit of L

question

What are Isoquants, How are they presented on the graph? What is their significance?

answer

Different combos of L & K that create the same quantity. Their slope is -MRTS. Help find optimal L and K

question

What are Isocosts, How are they presented on the graph? What is their significance?

answer

Different combos of L & K that impact the same cost. The slope is -w/r, tangent to MRTS. Help to find optimal L and K

question

What is opportunity cost

answer

The loss you faced doing one thing over the other

question

What is the first order condition?

answer

Setting the Δ of a function = 0 to find the critical point. This is why MR is set = to MC

question

What is the constraint line? What is its relevance?

answer

The constraint line indicates opportunity cost and the line in which your loss is the same. It helps to find the optimal choice of production when the point is on the constraint line and the level curve is tangent

question

How do you find the constraint line?

answer

You will be given a y= function and a comparative function. Isolate x1 and x2 in comparative. x1 will give the slope of the constraint line. The y function gives the level curve

question

How do you find the constraint line used in perfect compliment functions?

answer

Set x1=x2 and isolate x2. Then check to make sure values of x1 and x2 check out, and its on a kink. Once done, make sure point is also on constraint line.

question

What is a level curve?

answer

It is the Δ of x1/ Δ x2. When the slope of the level curve=the slope of the constraint line, it is the optimal mix

question

How is finding optimal mix different in linear functions?

answer

It can be anywhere on the constraint line, as the level curve is constant.

question

What occurs in economies of scale? How can you tell by looking at an equation or graph?*

answer

AC is decreasing

question

What occurs in diseconomies of scale? How can you tell by looking at an equation or graph?*

answer

AC is increasing

question

What are the different equations to find profit?

answer

Rev-Cost

q(p-AC)

pq-VC-FC

VP-FC

q(p-AC)

pq-VC-FC

VP-FC

question

What is the equation to find short-run costs? Marginal Cost? Average Cost? Marginal Profit? Marginal Revenue? Price?

answer

C=FC+q(VC)

ΔC/Δq

C/q

MR-MC

MR=p

p=ΔR/Δq

ΔC/Δq

C/q

MR-MC

MR=p

p=ΔR/Δq

question

What does area between MR and MC represent?

answer

Variable Profit (Without FC included)

question

What does area below MR represent?

answer

Total revenue (pq)

question

What is the second order condition?

answer

For a q to be a max, MR=MC, MR is increasing, and the point is above the minimum AC

question

What is the learning curve?

answer

Firms have the advantage by being in the business longer, as their production is running smoothly.

question

If MR>MC what do you do?

answer

Increase the q

question

If p<AVC, what do you do?

answer

Shutdown

question

What does area below MC represent?

answer

Variable Cost

question

How do you find the Supply Curve?

answer

Switch MC around to isolate q.

question

What is Market Supply?

answer

The supply function multiplied by however many firms there are.

question

What is elasticity? How do you find elasticity of Supply?

answer

The %change in y resulting from a %change in x. ΔSupply(p/q)

question

How can you find VC, min AVC, and AC from C

answer

C= 10q+.2q^2

VC= 10q+.2q^2

AVC= 10+.2q

min AC= 10

VC= 10q+.2q^2

AVC= 10+.2q

min AC= 10

question

What is Producer Surplus?

answer

Producer Surplus is the difference between market price and the lowest producers could sell the product for. PS=VP

question

What is Consumer Surplus?

answer

Consumer Surplus is the difference between market price and the highest a consumer would pay for the product.

question

What is Competitive Input Demand and when is it used?*

answer

Profit= pq-(wL+rK+FC)

question

What is the term if elasticity>1? <1? =1?

answer

elastic, inelastic, and unit elastic

question

What is the Cost function in terms of FC and VC? What is it for cost minimization in a Cobb Douglas

answer

C=FC+VC(q)

C=wL+rK

C=wL+rK

question

What is the MRS

answer

The slope of an indifference curve

question

What is Variable Profit on a graph? Profit? Consumer Surplus? Producer Surplus?

answer

VP=PS on a graph, first triangle under MC. Profit is the rectangle under p. CS is the top triangle in Supply and Demand.

question

How can you tell if a good is normal or inferior? How do you calculate elasticity?

answer

...

question

What is a normal good? Inferior good?

answer

Normal - as Income goes up so does consumption. Inferior - as Income goes up consumption goes down

question

How can you tell if price is too high or low using demand and supply

answer

If Supply>Demand, price is too high. Vice versa

question

What is deadweight loss

answer

Total surplus that is lost when not operating at equilibrium

question

What does supply show? Demand?

answer

Supply - what it costs to produce a good. Demand - price willing to be paid by consumer

question

What is efficiency? Total surplus?

answer

Efficiency is the operation at equilibrium. Total Surplus is what both consumers and producers gain at the production point.

question

What is implied in long term equilibrium?

answer

efficient outcome (no DWL) firms earn 0 profit, adjust inputs freely

question

What is said about Variable Profit if it is above AVC

answer

It is positive

question

What is the budget line

answer

...

question

in utility function if PX/PY<MRS?

answer

If MRS>, y=0

question

If demand is inelastic what happens to CS? Elastic

answer

Inelastic hurts more, price changes less (necessity like medicine) and therefor consumers lose more when they can't purchase, higher utility. If elastic, it matters less to them and CS goes up.

question

If the supply and demand curves for a product both decrease, then equilibrium:

answer

...

question

If supply is inelastic what happens to CS? Elastic

answer

Elastic it rises, inelastic it falls.