ch01-1 - 1 Microeconomics, 2 Microeconomics, 2 nd nd...

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Unformatted text preview: 1 Microeconomics, 2 Microeconomics, 2 nd nd Edition Edition David Besanko and Ronald Braeutigam David Besanko and Ronald Braeutigam Chapter 1: Analyzing Economic Problems Chapter 1: Analyzing Economic Problems 2 Microeconomics is the study of the economic behavior of individual economic decision-makers such as consumers, workers, firms or managers. This study involves both the behavior of these economic agents on their own and the way their behavior interacts to form larger units, such as markets. 3 Example: The Railroad Industry in the US 74.9% of all freight, 1929 39.8% of all freight, 1970 1970s: poor profits, bankruptcies, inability to invest 1980s: loosened regulation and union rules improved profitability 4 Analysis of this issue requires Microeconomic tools. Who are the actors who need to know something about Microeconomics? Policy Makers Managers Union Leaders Lendersand beyond! 5 1. Models are simplificationslike maps Resemble reality Understandable Appropriate scale 6 Example: World-wide market for unprocessed coffee beans, December, 1997 Price per pound Quantity, pounds Supply (P,W) 7 Example: World-wide market for unprocessed coffee beans, December, 1997 Price per pound Quantity, pounds Supply (P,W) Demand (P,I) 8 2. Elements of Models Specifying the Choices/Alternatives 9 Definition : The Opportunity Cost of a resource is the value of that resource in its best alternative use. Example: $100 in facilities yields $800 Revenue $100 in R&D yields $1000 revenue Opportunity cost of investing in facilities = $1000 Opportunity cost if investing in R&D = $800 Note : Opportunity cost depends on how we specify alternatives. 10...
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This note was uploaded on 04/03/2008 for the course ECONOMICS 211 taught by Professor Dastan during the Spring '08 term at Rutgers.

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ch01-1 - 1 Microeconomics, 2 Microeconomics, 2 nd nd...

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