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24 Cards in this Set

  • Front
  • Back
6 steps to decesion making
1.problem
2.objective
3.alternatives
4.consequences
5.decide on choice
6.subject to decesion to ongoing review
private sector decesisons
private sector firms maxamize their value
public sector decesions
more complicated due to multiple and conflicting objectives
total revenue(TR)
= Price * Quantity PQ
Cost(C)
function of quantity f(Q)
profit
TR-TC
what Q do you produce at in marginal analysis
where MR = MC
demand is function of (11)
1.P= price
2.P subs S= price of substitute
3.P sub C= price of compliment
4.Y= income
5.P raised to O= price of comp
6.A= advertising
7.A raised to O= advertising of comp
8.N= population
9.C sub p= consumer preference
10.P sub E = price expectations
11. taxes
Elasticity (E sub P)
(% Change in Q) / (% change in price)
elasticity
1.Ep < -1 = elastic
2.-1 < Ep < 0 = inelastic
3.Ep = -1 unitary elastic
relationship between elasticity and TR
Ep < -1(elastic) and P goes up then total revenue will go down
all functions of demand shifts D except for what
price...which moves it along the demand curve
optimal pricing
P = [Ep/(1+Ep)](MC)
-which means that optimal markup depends on the elasticity
t-statistic
want this great than 2 so we can say that its different than zero
-the coefficient / standard error
R-squared
goodness of fit line. the higher the better.
F-statistic
also a goodness of fit test that moves with R-squared
-R-squared / (1 - R-squared)
production functions
Q = f(L,K,M)
-labor
-capital
-material
production in the SR
only one input can be changed, which is usually L
productions in the LR
all inputs can vary
the production process can have(3)
1.increasing returns to scale
2.decreasing returns to scale
3. constant returns to scale
MPsubL...marginal product of labor
(change in Q)/ (change in L)
MRPsubL...marginal revenue product of labor
(MR)/ (MPsubL)...this shows what hiring one additional labor will do
TC of budget line
(PsubL*L) +(PsubK*K) straight line budget constraint
to minimize cost set with budget constraint
(MPsubL)/(MPsubK)...the most output given out budge constraint