Exam 1 Review

# Exam 1 Review - AAE 320 Exam 1 Review Paul D Mitchell Goal...

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Unformatted text preview: AAE 320 Exam # 1 Review Paul D. Mitchell Goal Explain what to expect for exam Overview topics on exam Give idea of how to study What to Expect Organization & format similar to last year Mostly problems that test your knowledge of major concepts Few other questions: maybe true false or short answer? Look at last year's exam on the class page for example format and questions Topics We have covered three main topics 1) Economically optimal input use with a single input production function 2) Economically optimal input use with a multiple (2) input production function 3) Cost Economics: opportunity cost and economically optimal output level Examined economically optimal input use in tabular and functional forms Economic problem: Choose x to maximize = pf(x) rx Optimality condition: VMP = r or MP = r/p Tabular Approach: TB #1 and #2, Problem Set #1 Question 1 Calculus Approach : TB #3 and #4, Problem Set #1 Question 2 Single Input Production Single Input Production You will want to know calculus, as there will be a problem like TB #4, or Problem Set #1 Question #2 See Calculus review on homepage, plus notes and TB #3 Remember: set up problem, find FOC, solve for input X, check SOC, then find output and net returns/profit. Multiple Input Production Examined economically optimal input use in tabular and functional forms Economic problem: Choose x and y to maximize = pf(x,y) rxx ryy Optimality conditions: VMPx = rx and VMPy = ry, Ratio of MP's = Marginal Rate of Technical Substitution = Slope of Isoquant = Y/ X Y/ X = rx/ry plus MPx/MPy = rx/ry Multiple Input Production Know how to find economically optimal input combination Tabular approach: MRTS = input price ratio (TB #6, Problem Set #1 Question 3) Calculus approach: (TB # 7, Problem Set #1 Question 4 Partial Derivatives review: TB # 5 Remember: set up problem, find FOC's, solve for inputs X and Y, check SOC, then find output and net returns/profit. Cost Economics We covered three topics within cost economics 1) Opportunity cost and economic profit 2) Different types of cost functions and their relations: TC, VC, FC, ATC, AVC, MC 3) Economically optimal output condition: p = MC, connection with min ATC, min AVC, profit and supply Opportunity Cost How to calculate opportunity costs (Problem Set #2 Question 1) What it means if economic profit is positive, zero, or negative Using economic profit for decision making: TB #8, Problem Set #2 Question 1 Know the definitions (TC, MC, etc.) and how to draw them in proper relations (see class overheads, plus old exam) Know how to calculate them in Tabular form and how to identify economic optimum in table (TB #11, Problem Set #2 Question 3) Interpretation: = pQ C(Q), so p = MC defines max which is supply curve, but have lower limits: min ATC, min AVC (see class overheads, plus old exam) Use calculus to maximize = pQ C(Q) (Problem Set #2, Question 4) Cost Functions Don't Forget Don't forget about the first few lectures! Last year's exam had some true/false that tested basic knowledge of these materials Wisconsin Agriculture Strategic Management What it takes to be great How to Study Know the Think Breaks and the Problem Sets and how to work these types of problems from memory Read over or do from memory the old exam from 2007 (and 2006) Exam will focus on the optimality conditions and their use to make decisions on input use/output production, with a few question on the material covered in the first lectures Email/call me with questions, we can meet in my office if needed ...
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