Intermediate Microeconomics
Price and Costs Extra Question
1. Please fill in the following table. The only variable costs are labor hours. Please compute to
two decimal places.
Cost of labor
Cost of capital
Capital
Labor
10
1000
0
Marginal
Average
Total
F
What happens to the demand for a good when the price changes?
Would you buy more or fewer apples if the price goes up?
What if you grew apples?
What if your wage went from
$10 to $100
Would you work more or less?
Substitution effect
+
Income effect
=
Tota
Endowment NBundle- What
you get today and tomorrow (living paycheck
to paycheck)
t
N
N
Expected
Expected Value- E X
Future Value- FV ( M 1 : t , r ) M 1 1 r
p u(M ); p 1
X
p
E U (M )Utility i i
i
i
i
i1
i 1
i1
Intertemporal Rate of Substitution- Slope
Normative Theory |Completeness- We can rank all possible outcomes of goods and services (There are multiple
indifference curves) x f y; x, y X |Transitivity- Were consistent in our preferences (Indifference curves cannot
intercept) If x ff y and y z then
Average Product of Labor Quantity/Labor
Short Run Average Total Cost FC+VC/Q
Marginal Product of Capital- Q/ K
Marginal Product of Labor- Q/ L
Optimal Capital/ Labor Mix- MPL/MPK=w/r
Shut-Down Condition- P=MC<AVC
Long Run Average Variable Cost- rK optimal