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ECON501 Review Sheet

ECON501 Review Sheet - AVC P< Consumer surplus(CS The...

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ECON501 Review Sheet Equilibrium condition in a market: s d Q Q = Elasticity of demand: P P Q Q E d d d = Elasticity of supply: P P Q Q E s s s = Indifference curve=bundles of goods yielding the same level of utility when consumed; the slope of an indifference curve is the MRS at that point Marginal Rate of Substitution between good X and good Y (MRS) Y X MU MU = Consumer’s Optimality Condition: Y X Y X XY P P MU MU MRS = = Isoquant=combinations of inputs yielding the same level of output; the slope of an isoquant is the MRTS at that point Marginal Rate of Technical Substitution (MRTS) between input X and input Y Y X MP MP = Firm’s optimality condition: Y X Y X XY P P MP MP MRTS = = Cost Identities: TVC MC Q TFC TC Q TVC AVC Q TFC AFC TVC TFC TC = - = = = + = Profit = Total Revenues – Total costs TC PQ - = π Short-run shutdown condition: a firm shuts down in the short-run whenever
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Unformatted text preview: AVC P < Consumer surplus (CS): The benefit consumers receive when they purchase units for less than they are willing to pay for them Calculating CS: )) ( ) (( ) ( 2 1 price m equilibriu units zero demand consumers which at price quantity m equilibriu CS-× = In a perfectly competitive market, firms choose their quantity such that MC P = Expected value of a bet with two outcomes X and Y = ($ value of X)(Probability of X) + ($ value of Y)(Probability of Y) Note: (probability of X) + (probability of Y) = 1 Expected utility of a bet with two outcomes X and Y = (utility of X)(probability of X) + (utility of Y)(probability of Y)...
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