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Econ notes week 5

by: Sydney Clark

Econ notes week 5 Econ 110

Sydney Clark
GPA 4.0

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Profits and elasticity
Econ Principles and Problems (ECON 110)
Class Notes
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This 6 page Class Notes was uploaded by Sydney Clark on Friday September 30, 2016. The Class Notes belongs to Econ 110 at Brigham Young University taught by Kearl in Winter 2016. Since its upload, it has received 72 views.


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Date Created: 09/30/16
Econ notes week 5 *IMPORTANT*   The lower the price, the higher the consumption  2 relative Prices : o 1.) Price of hard stuff o 2.) Price of beer o Relative prices can sometimes be subtle  o Buy the higher grade because of preference  Determinants of behavior o 1.) Relative Price, Own price o 2.) Price of other goods o 3.) income o 4.) transaction Cost o 5.) expectations o 6.) taste/ preferences  Not a predictor of behavior (wishy­washy)  o Direction P     Q       o Size magnitude of change in Q(∆Q) o Elasticity of demand  (own price elasticity)  Develop a measure to distinguish  E= %∆ Q / %∆P  E>1=elastic  E<1= non­elastic/inelastic  E=1 = unitary elastic  1.) %∆Q, %∆P  2.)  o “Arc estimate” o  3.)  o (P, Q) not equal to slope  “point slope estimate”  4.) Total revenue (total expendatures)A  *QA o TE o IF when P      TE   E<1 o IF when P      TE      E>1  5.) Substitution  o Demand is a picture of substitution o Elasticity is a quantitative measure of substitution  Elasticity=  o 1.)Own, P∆ o 2.) x price elasticity  +substitute  ­complement o 3.) income elasticity of demand  +normal goods  ­inferior good  1  law of demand o P    QTS  D  nd  *VICE VERSA*  2  Law of demand o Own E    with time  Suppliers: People who have goods and want money o Supply isn’t fixed  Case1) Goods have to be procedures  Case2) No production, but broad inventory o Ex: stock market  Assume o 1.) Firms are profit maximizers  Choose level of production so MB=MC  MR=MC  Benefit of firm: Revenue  o 2.) Perfect competition  Firms are price takers NOT price makers  o 3.)Short run:  Period of time of AT LEAST one of the inputs a firm uses is “fixed”  Output  K, L  diminish and return o K=fixed capital o L= labor  The only way you can change the “fixed” is by putting more  variable in  Marginal Revenue o o TR=P*times q o o o o “fixed” =diminish and return o As Q  MC  Aa profit maximizing output are they actually making $? o Profits (π)P = TR­TC divides all by Q o At P* is π>0??? Look at AC NOT MC  Cost  Total cost  Profit o Profit per unit of output =  P­ATC (Average total costs)  π >0 IF p*>ATC  π=0 IF p* =ATC  π<0 IF p* < ATC


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