be careful to recognize when it is an input problem
Post on 08-Jan-2018
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Be careful
to recognize
when it is
an INPUT problem
If a monopolist increases price, and as a result, TR increases… what is Elasticity?
Or with a twist… If a firm increases output, and and as a
result, TR increases… what is Elasticity?
Hint: always picture it on a graph, and remember the TR Test rules.
If MR > 0 … Elastic … TR still increasing
If MR = 0 … Unit Elastic … TR is maximized
If MR < 0 … Inelastic … TR is decreasing
Remember … If you spend your budget and (MU / P)A = (MU/P) B You have maximized your utility
Tip … if they are NOT equal, you want to buy more of the one that has a HIGHER MU/P
Quantity Marginal Cost
Total Fixed Cost
0 -- 201 30 02 20 03 25 04 30 0
Given a table such as this… What is the AVC producing 2 units? What is the ATC of producing 3 units? What is AFC producing 4 units
Example (all numbers refer to daily production of bikes by a typical firm:
TFC = $400 Average product of labor/day = 50 units Q = 50 units Labor costs (aka wage rate)= $80 per
worker
What is Average Total Cost per bike
MC decreases rapidly, then increases (nike)
ATC and AVC initially decrease, but then increase (but never touch)
AFC will always decrease, but never reach zero (TFC/Q)
MR will decrease (below D=AR=P)… unless it is Perf.Comp (where all these are horizontal)
If a perfectly-competitive firm that wishes to maximize profits in the short run is producing a quantity of 1000 units at a point where: › price is $36, Average total cost is $45,
Marginal cost is $42, and Average variable cost is $15… What, if anything, should they do with P and Q to maximize profit?
Can you instantly spot…
Allocative Efficient Socially Optimal
Productive Efficient Fair Return Price
P=MC P=MC
P=ATCmin P=ATC
Your scores are scaled to the AP (good news)… because AP Tests are DIFFICULT (not so good news). That is why the average AP student only gets 55-60% correct. › Unit 1(4-8 questions)› Unit 2 (9-12 questions)› Unit 3 (5-8 questions)› Unit 4 (7-10 questions)› Unit 5 (15-18 questions)› Units 6&7 (12-15 questions)
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