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