Managerial Econ review sheet

Managerial Econ review sheet - 2 Perfect complements Budget...

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Managerial Econ – Formula/Concept Sheet Taxes – no matter whether tax is on consumer or producer, the end final equilibrium outcome is the same. Imposed on the customers, demand shift . On sellers, supply shift Elasticity: Price Elasticity of demand (point elastisticity): = EPD PQ∙dQdP If many substitute goods are available, then demand is price elastic. Arc Elasticity : = - - ED Q2 Q1Q1P2 P1P1 Income Elasticity of Demand: = EY YQ∙dQdY Consumer Behaviour Complete (rank market baskets/bundle), Transitive (eg. I like A->B, B->C, C->A), prefer more to less (non- satiation). Indifference curve always slope downward, cannot cross each other, further from origin = better MRS (Marginal Rate of Substitution) – Measured by slope of indifference curve. – how willingly people trade 1 gd for the other – MRS decreases as we move along the curve…. diminishing MRS 1.) Perfect Substitutes
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Unformatted text preview: 2.) Perfect complements. Budget line constraint - = + Ybudget PGood1X PGood2Z To find intercepts on graph: YPGood1 and YPGood2 Budget linear line: =-B YPGood1 PGood2PGood1Z The slope indicates the rate at which the two goods can be substituted without changing the amount of money pent and so is called the marginal rate of transformation (MRT). Slope of InDifference curve = Slope of budget line MRS = MRT Utility Maximization: = MUGood1PGood1 MUGood2PGood2 Average Products of Labor (APL) and Capital (APK): = APL QL = APK QK Marginal Products: =∂ ∂ =∂ ∂ MPL Q L keep K fixed MPk Q K keep L fixed Diminishing Marginal Product of Labour – overcrowding of workers MRTS (Marginal Rate of technical Substitution) – Slope of the ISOQUANT - MPLMPK Returns to Scale Eg. = . . Q 10L0 4K0 5 Easy check. Exponents: 0.4+0.5=0.9<1 Decreasing Returns to scale....
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