Review ARE

# Review ARE - get the back to the initial level of utility...

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00:03 Review Elasticity of substitution Stage II production Return to scale Perfect compeititon Welfare Q=L^.5 K^.5 Elasticity of substitution =d(K/L)/dMRTS*MRTS/(K/L) stage II production -when AP up , MP is above AP -when AP down, MP is below AP -AP and MP cross at MAX AP -start from MAX AP ( or intersction of MP and AP) -end at MP=0 return to scale production fuction F(L,K) IRS*F(2L, 2K) > 2F(L,K) CRS*F(2L,2K)=2F(L,K) DRS*F(2L,2K)< 2F(L,K) Perfect competition

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1. short run production strategy step1 market price step 2 P=MC  q=? step 3 whether P> AVC(q)? 2. when will the firm shutdown? When P < shutdown price (minimum AVC) Welfare CV-Measure how much we would give to ( or take away from ) the consumer to

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Unformatted text preview: get the back to the initial level of utility they had Equivlanet variation Measure how much money consumers are willing to give up ( or be paid) to prevent prices from changing Welfare change for tax Problem 4 Long run cost C=700q-20q^2+q^3 How many will firm produce Step1 determine the min ATC=c/q=700-20q+q^2 Step2 determine q* dATC/dq=-20+2q=0 q=10 what is market price? P=min ATC =ATC (10) =700-20*10+10^2 =600 demand: Q=9000-12P how many firms in the market? Step1 derive market quantities Q= 900-12 * 600=1800 Step 2 determine # of firms 00:03 00:03...
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Review ARE - get the back to the initial level of utility...

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