Utility
What is the definition of utility?
satisfaction or happiness received from the consumption of goods and services
Where do we find our profit maximizing quantity?
Where MR=MC
*or where MR>= MC.... never where MC>MR
what are the equations for
1: Total cost
2: Average Total Cost (both of them)
3: Average Variable Cost
4: Average Fixed Cost
1: TC= FC+VC
2: ATC=TC/Q AND ATC= AFC+AVC
*the second equation can be expanded writing out the equations for AFC and AVC
3: AVC= VC/Q
4: AFC= FC/Q
What is the definition of Elasticity?
What is the definition of Price Elasticity of Demand?
how responsive one variable is to a change in another variable
A measure of how responsive quantity demanded is to a change in price
Which of the following is an Explicit Cost?
A: using a spare room in your house as an office
B: Paying Employee Salaries
C: Foregone salary to start your own company
D: Lost interest after taking money out of a savings account
B: Paying employee salaries
what is the equation for marginal utility
change in total utility/change in quantity
How do we know if we are making a profit?
How do we know if we are taking a loss?
Profit= Price>Average TOTAL cost
Loss= Price < Average TOTAL cost
What are the equations for
1: Marginal Cost
2: Marginal Revenue
3: Marginal Utility
4: Marginal utility per dollar
4: Total Revenue
1: MC=change in TC/change in Q
2: MR= change in TR/change in Q
3: MU=change in utility/change in quantity
4: MU/$= MU/Price or income
5: Total revenue= Price x Quantity
what is the equation for price elasticity of demand?
what is the equation for percent change?
(Percent change in quantity demanded)/(percent change in price)
percent change=(new-old)/old
Which of the following is an implicit cost?
A: Paying Rent for an office space
B: Paying a utility bill
C: Time off work for a vacation (assuming no PTO)
D: Cost of transporation
C: Time off work for a vacation----foregone wages
MU= change in TC/Change in Q
(16-10)/1=6
How do we know if we stay open in the SHORT RUN?
How do we know if we shut down in the SHORT RUN?
Stay Open= Price>Average VARIABLE cost
Shut down= Price<Average VARIABLE cost
If a firm is producing 50 units with an average total cost of $16, what is the total cost?
ATC= TC/Q
TC=ATC x Q
16 x 50=800
What numbers tell us if an elasticity coefficient is inelastic, elastic, or unit elastic?
inelastic= <1
Elastic= >1
Unit elastic= 1
*remember to take the absolute value of all answers
Is depreciation on machinery an implicit or explicit cost?
Implicit cost
If marginal utility at quantity 2 is 18, and total utility at quantity 1 is 20, what is the total utility at quantity 2?
*Draw a little chart if that helps you!
MU=change in TU/Change in Q
20+18=38
In perfect competition, how do we find the price?
Marginal Revenue=Demand, Average Revenue, Price
MR=DARP
If the total cost of producing 90 units is $2005, and the marginal cost of the 91st unit is $15, what is the average total cost of producing 91 units?
MC=change in TC/Change in Q
TC91=TC90+MC
2005+15=2020 (total cost for producing 91 units)
2020/91= 22.20
If the percent change in price for a water bottle is equal to 5, and the percent change in quantity demanded is equal to 15, what is the price elasticity of demand? Is this elastic or inelastic? Why?
15/5=3
Elastic because the ABSOLUTE VALUE of the price elasticity of demand is greater than 1
Accounting profit= Revenue-explicit costs
$20,000-$15,000=$5,000
If total utility at quantity 1 is 15, and total utility at quantity 2 is 20, what is the marginal utility at quantity 2?
What is the marginal utility per dollar at quantity 2 if we have 10$ to spend?
*make sure you know how to find what bundle of products maximizes utility
MU=change in TC/Change in Q
20-15=5
MU/$= MU/price or income
5/10=.5
In Imperfect Competition (monopolistic competition, monopolies, oligopolies) how do we find the price?
Step 1: Find the profit maximizing quantity of output
step 2: See what the demand curve reads at that quantity
When output is 50, average variable cost is 15, average fixed costs are 4, what is the total cost of production?
ATC= AFC+AVC
4+15=19 (ATC)
ATC=TC/Q
TC=ATC*Q
19*50=950
When the price of a OSU basketball ticket is 50$, the quantity supplied is 13,000; when the price falls to 40$, the quantity supplied is 11,000. What is the price elasticity of supply? Is this elastic or inelastic? Why?
Percent change in quantity supplied= ((11,000-13,000)/13,000)x100=-15.39%
Percent change in price= ((40-50)/50)x100=-20%
-15.39%/-20%=.7695
inelastic because the ABSOLUTE VALUE of the price elasticity of supply is less than 1
If implicit costs total $70,000; explicit costs total $150,000; revenue is $200,000; what is the economic profit?
Economic profit=Revenue-(implicit+explicit costs)
$200,000-($70,000+$150,000)=-$20,000