Economics Sem2

# Economics Sem2 - Ch6 Elasticity the percentage change in...

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Ch6 Elasticity: the percentage change in the quantity taken divided by the percentage change in price when the price change is small E= (change in Q/Q)/(change in P/P) If elasticity is greater than 1 – elasticity If elasticity is 1- unitary If elasticity is less than 1- Inelastic Keys for Business: Trademark and Elasticity Responsiveness- when prices are cut Elastic- there is a response if price changes (cheaper = buy more) Unitary- most applicable to perishable goods Inelastic- no response to a price change (brand loyalty) ATC - Why does price go down- because of economies of scale Accounting Profit: business revenue – explicit cost and depreciations Economic profit: business revenue – implicit cost Capital: value of assets The Marginal Approach- profit maximization Output (Q) Price (\$) Total Revenue (TR) Total Cost (TC) AC/Marginal Cost Unit of Profit 1 5.00 5.00 17.00 17.00/- -12.00 2 5.00 10.0 18.50 9.25/1.50 -8.50

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Unformatted text preview: 3 5.00 15.00 19.50 6.50/1.00-4.50 4 5.00 20.00 20.75 5.19/1.25-.75 5 5.00 25.00 22.25 4.49/1.50 +2.75 6 5.00 30.00 24.25 4.04/2.00 +5.75 7 5.00 35.00 27.50 8 5.00 40.00 32.50 9 5.00 45.00 40.50 10 5.00 50.00 52.50 Average Cost (AC) = TC/Q Marginal Cost (MC) = change in TC/change in Q Unit of Profit = TC – Price If a supply demand curve is horizontal, it has been fixed by the market. When MC= MR profit is maximized Income Effect- change in price of a commodity to the real income of the consumers Substitution Effect- Oligopoly- few giant corporations, products are similar but have some differentiations (steel, computers, automobiles), prices are fixed with some fluctuations, heavy advertisement Monopoly Monopolistic Competition-discovered by Edward chamberlain 1935- 100-200 firms, products are differentiated (trade mark, chemical composition, packaging, service),...
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