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### 50 Cards in this Set

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 expected wealth xbar = x1a1+x2a2+... U(x1,x2,...;a1,a2,...) a1*v(x1)+a2*v(x2)... certainty equivalent wealth v(x^CE)=U(x1,x2;a1,a2) x^CE=v^-1(U(x1,x2;a1,a2)) amount of wealth willing to take rather than face the lottery risk premium xbar - x^CE difference between expected wealth and certainty equivalent wealth production function q=f(l,k) short run production function q=f(l,k0) average product APl=f(l,k)/l=q/l amount of output per l marginal product mpl=dq/dl change in output from an additional l relation between MP and AP MP passes thru any local max or min of AP AP=MP at max or min marginal rate of technical substitution MRTS=MPl/MPk=-Dk/Dl rate at which k can be subbed for l at a constant q cost minimization equation min wl+vk s.t. f(l,k)=q minimal cost at a given q MPl/MPk = w/v conditional factor demands lc(w,v,q), kc(w,v,q) think Hicksian demand HOD-0 in w and v cost function C(w,v,q)=wlc+vkc lowest possible cost of producing q think expenditure: HOD-1 in w,v average cost C(q)/q marginal cost DC/Dq relation between average and marginal cost AC is always approaching MC short run cost SC(q)=vk0 + VC(q) short run average cost SAC(q)=SC(q)/q variable cost VC(q)=wlc average variable cost AVC(q)=VC(q)/q cost per unit excluding fixed cost short run marginal cost SMC(q)=DSC/Dq cost of producing next unit relation between SMC and SAC SMC(q)=SAC(q) at min point of SAC short run profit maximization max pi = pq-wl-vk st q=f(l,k0) max pi = pq-SC(q) shutdown condition if pq=u solve for hicksian demand utility function, du/dx / du/dy dE/dpx HOD-0 in prices expenditure E(px,py,u)=px*xc+py*yc HOD-1 in prices minimum income required for utility u Shephards Lemma dE/dpx = xc Roy's Identity x*=-dV/dpx / dV/dI normal good consume more as income rises dx*/dI > 0 inferior good consume less as income rises dx*/dI < 0 compensating variation E(px1,py,u0)-E(px0,py,u0) how much it would take at new price to return to original utility equivalent variation E(px1,py,u1)-E(px0,py,u1) how much you would pay to not face to price change in the first place inter-temporal endowment: (I0,I1) vert int: I1+(1+r)I0 hor int: I0+I1/(1+r) 1st degree price discrimination charge each person their reservation value- captures entire demand 2nd degree price discrimination charge fixed fee plus price per unit 3rd degree price discrimination different prices for different groups