Intermediate Microeconomic Theory

question

Budget Constraint Formula

answer

M = Px times X + Px times Y

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Slope of Budget Constrain (BC)

answer

-Px/Py or (change in Y / change in X)

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Indifference Curve equals . . .

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the Slope of the Utility Function or ( change in Y / change in X) or - MUx/MUy

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Marginal Rate of Substitution

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How much of one good a consumer is willing to give up to get one more unit of another and stay indifferent.

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Max utility equals . . .

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utility function - λ(budget constrain)

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Price Consumption Curve (PCC)

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holding income and the price of Y/X constant, the PCC for a good X/Y is the set of optimal bundles traced on an indifference map as the price of X/Y varies

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Income Consumption Curve (ICC)

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holding the prices of X and Y constant, the ICC for a good X is the set of optimal bundles traced on an indifference map as income varies

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Elasticity = ε equals . .

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(P / Q) * ( 1 / slope of inverse demand function (ex P = 5 + Q) )

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If | ε | > 1 then . . .

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The change in demand will be greater than the change in price.

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Production function =

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Qf(K,L) K = capital , L = labor

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Demand function

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example
Q = 5 + P, inverse is P = Q - 5

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Leontief production function

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Q = min(aK, bL)
it chooses the smallest input if aK was 7 and bL was 10 it would choose aK or 7

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Production function is analogous to

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the Demand Function is analogous to

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The Indifference Curve is analogous to

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the Isoquant curve is analogous to

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The Budget Constrain is analogous to

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the Isocost curve is analogous to

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Utility Function is analogous to

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the Long run Production Function is analogous to

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Income Consumption Curve (ICC) is analogous to

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the Long run expansion path is analogous to

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Diminishing marginal returns in the short run causes

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and increase in marginal cost

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convex short run production function (SRPF) equals

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increasing marginal returns

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concave short run production function (SRPF) equals

answer

decreasing marginal returns

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if MPL > APL then

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AP is decreasing

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if MPL < APL then

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AP is increasing

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Short run variables:

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Fixed Cost (FC), Variable Cost (VC), Total Cost (TC), Average Fixed Cost (AFC), Average Variable Cost (AVC), Average Total Cost (ATC), and Marginal Cost (MC)

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Long run variable

answer

Isoquant Curve

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Isoquant Slope =

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( change in K / change in L) or - MPL / MPK

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In Cobb-Douglas the exponent

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tells us the returns to scale, x > 1 equals increasing, x = 1, constant, x < 1 decreasing

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Short run cost is

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TC = FC + VC

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Fixed Cost (FC) =

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FC = rK where r is the opportunity cost and K is the capital

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Variable Cost (VC) =

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VC = wL where w is the wage and L is the labor

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Total Cost Graph

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TC/Q

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ATC =

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VC/Q

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AVC =

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FC/Q

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AFC =

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(change in TC / change in Q) or ( change in VC / change in Q)

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Marginal Cost = MC =

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of decreasing marginal returns in labor/capital

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Increase in Marginal Cost is because

answer

TC = rK ( total cost of capital) + wL (total cost of labor)

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TC =

answer

- PL/PK or -w/r or (change in K / change in L)

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Isocost slope is

answer

MPL / PL = MPK / PK ( Marginal unit of production of labor per dollar spent on labor must be equal to marginal unit of production of capital per dollar spent on capital )

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( this might be wrong ) The maximum use of Labor and Capital comes when . . .

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change in LTC / change in Q

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( idk what LMC is ) LMC equals

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LTC / Q

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( idk what LAC is) LAC equals

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constant returns to scale

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if LMC = LAC

answer

decreasing returns to scale

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if LMC > LAC

answer

increasing returns to scale

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if LMC < LAC

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Price x Quantity

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Total Revenue (TR)

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FC + VC

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Total Cost (TC)

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TR ( P times Q) - TC ( ATC times Q)

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Economic Profit equals

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MC(dTC/dQ) = MR(dTR/dQ)

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Max Economic Profit when

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1. Standardized Product
2. Price Takers
3. Free entry/exit
4. Reflect information / all info is know

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Characteristics of a Perfect Competitive Market

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( may be wrong) the market, demand

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Price under PC comes from ___, while the price from a monopoly comes from ____

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the price

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Under PC the Marginal Cost equals

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MR or dTC/dQ or MC

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Slope of the TC equals

answer

MC = MR (price in PC)

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perfect competition GRAPH

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we are even or making profit

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Economic Profit is maximized when

answer

1. Exclusive Control over a product
2. Economies of Scale
3. Patents
4. Network Economies ex facebook
5. Government Licenses and Patents

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If TR - TC >= 0

answer

study of strategic decision making

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Monopoly Conditions

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Best Response Analysis
Nash equilibrium
Backward induction ( Rollback Analysis)

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Marginal Revenue of a PC GRAPH

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Open Access:
1. Common Pool Resource Dilemma
2. Public Good
Asymmetric Information: One party has more information than the other.
"Lemons Problem" , example: used car market
Moral Hazard:
example: With insurance people might fake things, like with life insurance, they might lie that they do not smoke to pay less.

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total revenue of a PC GRAPH

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An open access Market Failure: There is a public resource that is
1. Non-excludable (everyone can use it)
2. The good is non-rivalrous

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marginal revenue of a monopoly GRAPH

answer

An open access Market Failure:
1. Non-excludable (everyone can use it)
2. Rivalrous

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total revenue of a monopoly GRAPH

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Higher wages (decrease),
Higher prices for new materials (decrease)
Expectation of higher prices (decrease)
Bad Weather (decrease)
Improved technology (increase)
Lower interest rates (increase)
Increase in number of firms (increase)
Good weather(increase)

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Game Theory is

answer

Price of complement falls (increase)
Income rises, normal good (increases)
Population grows (increase)
Price decrease expected (increase)
Tastes shift in favor (increase)
Price of substitute falls (decreases)
Income rises, inferior good (decreases)
Income decline expected (decrease)

question

some terms for game theory

answer

1. Convexity in preferences
2. Transitive Preferences
3. Completeness (They know what they want)
4. More is better

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Types of Market Failures

answer

Plug M, Px, and Py into M = Px times X + Py time Y, solve, then slope is change in Y over change in X or -Px/Py

question

Common Pool Resource Dilemma

answer

Plug MUx,MUy, Px, and Py into the equation MUx/Px = MUy/Py, you should consume the good with the bigger number as you prefer that good.

question

Public Good Dilemma

answer

Plug the wanted amount of utility into the Utiltiy Function example : want 20 units of utility, utility function U = x + 2y -> 20 = x +2y -> y = -1/2x + 10

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Determinates of Supply

answer

The supply function is upward sloping because it represents the different levels of price that sellers are willing to sell as some are willing to sell at higher prices than others.

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Determinates of Demand

answer

When | ε | < 1 there is a greater change in price than demand, and when | ε | is > 1 there is a greater change in demand than price.

question

Characteristic of Rational Actor

answer

Use M , Px, and Py to make budget constraint, plug that and utility function with lambda and find derivative of each. Then set lambda = lambda and plug answers into the derivative of lambda

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How to graph Budget Constraint

answer

Given Market Demand ex: P = 66 - 2Q, plug in Q1 + Q2 for Q, then plug that into TR = P times Q. Then fine MR ( dTC/dQ) and set that equal to MC and solve for Q1/Q2. Then that is the Best Response Function Company 1 and Company 2 since they are identical. Then plug one of the BRF into the other and Solve for a Q, that is the quantity that should be produced, then Plug Q into the production function to find the total price.

question

Solve for Marginal Utility in equilibrium conditions

answer

Same as Cournot but once you find the opponet firms Best Response Function you plug it into the Objective Function then solve again like Cournot Model.

question

Graph Utility Function

answer

oligopoly model in which one firm sets its output before other firms do

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Why is the supply function upward sloping

answer

Set the Market Demand Function equal to the MC and some for Q then divide by 2 in order to find each firms Quantity produced.

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What do different levels of elasticity mean

answer

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How to maximize utility

answer

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Cournot Model Steps:

answer

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Stackelberg Model Steps:

answer

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Stackelberg Model Definition

answer

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question

Bertrand Model Steps:

answer

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1 of 77

question

Budget Constraint Formula

answer

M = Px times X + Px times Y

question

Slope of Budget Constrain (BC)

answer

-Px/Py or (change in Y / change in X)

question

Indifference Curve equals . . .

answer

the Slope of the Utility Function or ( change in Y / change in X) or - MUx/MUy

question

Marginal Rate of Substitution

answer

How much of one good a consumer is willing to give up to get one more unit of another and stay indifferent.

question

Max utility equals . . .

answer

utility function - λ(budget constrain)

question

Price Consumption Curve (PCC)

answer

holding income and the price of Y/X constant, the PCC for a good X/Y is the set of optimal bundles traced on an indifference map as the price of X/Y varies

question

Income Consumption Curve (ICC)

answer

holding the prices of X and Y constant, the ICC for a good X is the set of optimal bundles traced on an indifference map as income varies

question

Elasticity = ε equals . .

answer

(P / Q) * ( 1 / slope of inverse demand function (ex P = 5 + Q) )

question

If | ε | > 1 then . . .

answer

The change in demand will be greater than the change in price.

question

Production function =

answer

Qf(K,L) K = capital , L = labor

question

Demand function

answer

example
Q = 5 + P, inverse is P = Q - 5

question

Leontief production function

answer

Q = min(aK, bL)
it chooses the smallest input if aK was 7 and bL was 10 it would choose aK or 7

question

Production function is analogous to

answer

the Demand Function is analogous to

question

The Indifference Curve is analogous to

answer

the Isoquant curve is analogous to

question

The Budget Constrain is analogous to

answer

the Isocost curve is analogous to

question

Utility Function is analogous to

answer

the Long run Production Function is analogous to

question

Income Consumption Curve (ICC) is analogous to

answer

the Long run expansion path is analogous to

question

Diminishing marginal returns in the short run causes

answer

and increase in marginal cost

question

convex short run production function (SRPF) equals

answer

increasing marginal returns

question

concave short run production function (SRPF) equals

answer

decreasing marginal returns

question

if MPL > APL then

answer

AP is decreasing

question

if MPL < APL then

answer

AP is increasing

question

Short run variables:

answer

Fixed Cost (FC), Variable Cost (VC), Total Cost (TC), Average Fixed Cost (AFC), Average Variable Cost (AVC), Average Total Cost (ATC), and Marginal Cost (MC)

question

Long run variable

answer

Isoquant Curve

question

Isoquant Slope =

answer

( change in K / change in L) or - MPL / MPK

question

In Cobb-Douglas the exponent

answer

tells us the returns to scale, x > 1 equals increasing, x = 1, constant, x < 1 decreasing

question

Short run cost is

answer

TC = FC + VC

question

Fixed Cost (FC) =

answer

FC = rK where r is the opportunity cost and K is the capital

question

Variable Cost (VC) =

answer

VC = wL where w is the wage and L is the labor

question

Total Cost Graph

answer

TC/Q

question

ATC =

answer

VC/Q

question

AVC =

answer

FC/Q

question

AFC =

answer

(change in TC / change in Q) or ( change in VC / change in Q)

question

Marginal Cost = MC =

answer

of decreasing marginal returns in labor/capital

question

Increase in Marginal Cost is because

answer

TC = rK ( total cost of capital) + wL (total cost of labor)

question

TC =

answer

- PL/PK or -w/r or (change in K / change in L)

question

Isocost slope is

answer

MPL / PL = MPK / PK ( Marginal unit of production of labor per dollar spent on labor must be equal to marginal unit of production of capital per dollar spent on capital )

question

( this might be wrong ) The maximum use of Labor and Capital comes when . . .

answer

change in LTC / change in Q

question

( idk what LMC is ) LMC equals

answer

LTC / Q

question

( idk what LAC is) LAC equals

answer

constant returns to scale

question

if LMC = LAC

answer

decreasing returns to scale

question

if LMC > LAC

answer

increasing returns to scale

question

if LMC < LAC

answer

Price x Quantity

question

Total Revenue (TR)

answer

FC + VC

question

Total Cost (TC)

answer

TR ( P times Q) - TC ( ATC times Q)

question

Economic Profit equals

answer

MC(dTC/dQ) = MR(dTR/dQ)

question

Max Economic Profit when

answer

1. Standardized Product
2. Price Takers
3. Free entry/exit
4. Reflect information / all info is know

question

Characteristics of a Perfect Competitive Market

answer

( may be wrong) the market, demand

question

Price under PC comes from ___, while the price from a monopoly comes from ____

answer

the price

question

Under PC the Marginal Cost equals

answer

MR or dTC/dQ or MC

question

Slope of the TC equals

answer

MC = MR (price in PC)

question

perfect competition GRAPH

answer

we are even or making profit

question

Economic Profit is maximized when

answer

1. Exclusive Control over a product
2. Economies of Scale
3. Patents
4. Network Economies ex facebook
5. Government Licenses and Patents

question

If TR - TC >= 0

answer

study of strategic decision making

question

Monopoly Conditions

answer

Best Response Analysis
Nash equilibrium
Backward induction ( Rollback Analysis)

question

Marginal Revenue of a PC GRAPH

answer

question

total revenue of a PC GRAPH

answer

An open access Market Failure: There is a public resource that is
1. Non-excludable (everyone can use it)
2. The good is non-rivalrous

question

marginal revenue of a monopoly GRAPH

answer

An open access Market Failure:
1. Non-excludable (everyone can use it)
2. Rivalrous

question

total revenue of a monopoly GRAPH

answer

question

Game Theory is

answer

question

some terms for game theory

answer

1. Convexity in preferences
2. Transitive Preferences
3. Completeness (They know what they want)
4. More is better

question

Types of Market Failures

answer

Plug M, Px, and Py into M = Px times X + Py time Y, solve, then slope is change in Y over change in X or -Px/Py

question

Common Pool Resource Dilemma

answer

Plug MUx,MUy, Px, and Py into the equation MUx/Px = MUy/Py, you should consume the good with the bigger number as you prefer that good.

question

Public Good Dilemma

answer

Plug the wanted amount of utility into the Utiltiy Function example : want 20 units of utility, utility function U = x + 2y -> 20 = x +2y -> y = -1/2x + 10

question

Determinates of Supply

answer

The supply function is upward sloping because it represents the different levels of price that sellers are willing to sell as some are willing to sell at higher prices than others.

question

Determinates of Demand

answer

When | ε | < 1 there is a greater change in price than demand, and when | ε | is > 1 there is a greater change in demand than price.

question

Characteristic of Rational Actor

answer

Use M , Px, and Py to make budget constraint, plug that and utility function with lambda and find derivative of each. Then set lambda = lambda and plug answers into the derivative of lambda

question

How to graph Budget Constraint

answer

question

Solve for Marginal Utility in equilibrium conditions

answer

Same as Cournot but once you find the opponet firms Best Response Function you plug it into the Objective Function then solve again like Cournot Model.

question

Graph Utility Function

answer

oligopoly model in which one firm sets its output before other firms do

question

Why is the supply function upward sloping

answer

Set the Market Demand Function equal to the MC and some for Q then divide by 2 in order to find each firms Quantity produced.

question

What do different levels of elasticity mean

answer

undefined

question

How to maximize utility

answer

undefined

question

Cournot Model Steps:

answer

undefined

question

Stackelberg Model Steps:

answer

undefined

question

Stackelberg Model Definition

answer

undefined

question

Bertrand Model Steps:

answer

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