Chapter 1
What is the profit maximizing rule of output?
MR = MC
What is the inverse demand function of Qd = 25 - P/2?
P = 50 -2Qd
Assume the demand for a given product is 2, what does this indicate about consumer's elasticity?
Elastic demand, consumers are relatively sensitive to price changes
What is the time Value of Money?
Money received sooner is more valuable than money received later.
Assume a demand and supply function are:
Qd = 50 - 2Q
Qs = 4Q +20
What is the market equilibrium?
Equilibrium price: 40
Equilibrium Quantity: 5
50 - 2Q = 4Q +20
Q = 5, plug into either equation
Qd = 50 - 2(5) = 40
A given demand function is: Qxd = 100-10Px -3Py +5M. Are good x and y substitutes or complements?
Complements
"-"3Py = complements
Generally accounting profits are larger than economic profits because economic profits include...?
explicit AND implicit costs
Assume the input costs to make a car decreases, what happens to Equilibrium price and quantity?
Equilibrium price: decreases, Equilibrium quantity: increases
A given demand function is: Qxd = 2000-5Px +4Py +6M. Is good x a normal or inferior good?
Normal Good
"+"6M = normal good
Calculate the Present Value of a firm if there is a cash flow of $100 per year and an interest rate of 6%. Growth rate is 4%.
PV = π (1+I)/ (I-g)
PV = 100 * [(1 + 0.06)/ (0.06-0.04)]
Answer = $5300
Assume a supply and demand function are:
Qd = 25 - P/2
Qs = P/4 - 5
What is the surplus or shortage if there is a price ceiling of $30?
Shortage of 7.5 units
Qd = 25 - (30)/2 = 10 units
Qs = (30)/4 - 5 = 2.5 units
10 units - 2.5 units = 7.5 units
Qd > Qs = shortage
*Reference Regression Printout. Evaluate how good this model is.
Significance F shows probability that the data fit the model by chance. in this case we were lucky by 0.12%.(0.001 < 0.05 means we reject Null Hypothesis and assume there is a relationship) It is likely that this is a good model.
TB(Q) = 3000Q - 8Q2
TC(Q) = 100 - 2Q2
At what level of Q are net benefits maxamized?
Q = 250
MB = 3000 - 16Q
MC = -4Q
MB = MC
Solve for Q
Assume we are given a demand function: Qdx = 25 - P/2. Suppose that the price of good x is $8. What is the consumer surplus?
Consumer surplus = $42
First find inverse demand: P = 50 -2Q
Qd when P = 8, Qd = 25 - (8/2)
Qd = 21
CS = 1/2 (b*h) -> 1/2 (21)(50-8) = $441
In a given market the are two goods, good x and good y. Assume the demand for good x decreases by 4% and the price of good y increases by 2%. What is the Cross Price elasticity of demand between the two goods and what is their relationship?
Compliments, CPed = -2
CPed = % change in Qdx/ % change in Py
-4/2 = -2
-/+ < 0 = compliments