Econ 1014 Final FRONT - FRONT IS IMPORTANT GRAPHS FINAL...

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Unformatted text preview: FRONT IS IMPORTANT GRAPHS FINAL MICROECONOMICS CHEET SHEET BACK IS VOCAB AND GRAPH EXPLANATIONS 2 GRAN-is mm.“ 10 ,_, CH 6 GRAPHS CH 11 GflAflHS GRAPHS 16-23 + FREE SPACE :Ut - 16The table on the left shows that marginal revenue is the change in total revenue when quantity sold increases by 1 unit. When the quantity sold in- creases lrom 2 units to 3 units. for example, total revenue increases from $32 to $42 so marginal rev- enue, the change in total revenue, is $10. The figure on the right shows how we can break down the change in total revenue into two parts. When the firm lowers the price from $16 to 514, it sells one more unit and so there is a gain in revenue of 514, the price of that unit, but since to sell that ad- ditional unit the firm had to lowerlhe price, it loses 52 on each of its two previous sales so there is a Iii-in ii. 0.... 17To maximize profit, the monopolist produces until MR = MC [point a). Reading down from point a, we find the profit-maximizing quantity, 30 million pills. Read- ing upward from point a, we find the profitemammize ing price on the demand curve. 512.50. Profit is [P — AC) x O. and is given by the green rectangle. The le' and right panels compare a competitive market with a monopo- lized marioet with the same demand and cost curves. Under monopoly, the price increases from Pc to Pm, consumer surplus falls, and profit in- creases. Importantlv, consumer sur- . lus falls by more than profit increas- diHerence is the in in no same demand and cost main-I'll CH 4 GRAPHS curves. Under monopoly. 5 m the price increases from Pc to Pm, consumer sur- plus ialis, and profit in- creases. importantly. cone sumer surplus falls by more than profit increas— esithe difference is the deadweight loss from m 0 ti o p o | v . 21 In the long run, competitive and monop- olisticallv competitive firms produce m where P = AC and earn zero profits. Each firm in monopolistic competition offers a “mu—.- )3 slightly different product and so each firm faces a downwardisloping demand . urve. A5 a result, firms under monopoi listic competition charge prices above marginal cost, they produce a smaller quantity compared with competitive firms and Q‘ is not at mi 'mum average rnrr In rt... ”1". n! rnmv‘nHH-ln fin.“ cost. in the case of competitive rms, each firm produces exactly the same product so there are perfect substitutes for each firm’s products. As a result, the demand curve is perfectly elastic, pro- duction quantity is higher than under monopolistic competition, and output is at the point that minimizes average m...— wulvui—a- is can CH 17 GRAPHS mm Car-Infi— mx’“ .3"; W CH ZSGRAPHS 22 c o s t s m” m“ "a w Note that for comparison we show the K in monopolistic competition output level, CH 10 GRAPHS : . : Q'M.Como and the competitive output 5 .. : level, Q‘Comp ln the right panel. '; ; 22 To maximize utility, choose the quan- a . I .. city of apples and oranges such that 25 3.1:“??- H‘ ' the marginal utility per dollar of II apples is equal to the marginal utility per dollar of oranges, MIL-MIL PA Po sneer-a.- 23 A fall in the price or pizza rotates the budget constraint outward along the hori- zontal ails. The stone of the budget con- i i I - t I r I - Iv " u 'I .. .... n straint is equal to the price ratio, CH 24 ' 1- ran risk-return "admit: Higher re- aswnmutric Intel-madam: when one party to an exchange has more or doc! mzAnv payment system that pairs workers perunit of output. lawman-nit: PG“ turns come at the Brice of higher better Information than the other party" principal—mm problem How A compensation scheme in which payment is based on relative performance. cun- <---- CH 22-25 rlskhw and Hold: The practice of can a principat Inoenlivlze an agent to work In the principal's interest even manhunt The shared collection of values and norms that govern how people buying stocks and then holding when the agent has information that the principal does not? moral hazard Interact in an organization or flrrn. them for the long run, regardless of When an agent tries to expioit an information advantage In a dishonest or what prices do in the short run, ul- undestrable way. _ marginal utility: The change in total utility ironi consuming an additional unit. I fident mat-lieu hypothesis: hie Idem solution: When an alter conveys negative information about the -|minisllln¢ marslnll utility: Each addmonai unit ala good adds less to utility than VOCA B claim that the prices of traded product being ofiered. Z the previous unit. optimal mmflon rule: Rule holdlngthat to maximize utility, assets reflect atl pubiictv available credible: promise is one that the promisor has an incentive to keep. a consumer should allocate spending snthat the marginal utilitiiI perdollarisequal ...
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