**Study Guide for MT1**

Summer 2015

Tatyana Deryugina

FAA 501

DIVERSIFICATION Formulas ▯ Elastic demand j"j > 1 Return to Scale Utility Maximization Problem (UMP) ▯ Inelastic demand j"j < 1 - captures how e▯ciently production can be scaled up max x;yu(x; y)s:xp x y p y ▯ mx; y ▯ 0 ▯ Unit Elastic demand j"j = 1 Constant Return to Scale - a > 1 F(aK, aL) = aF(K, L) Increasing Return to Scale a > 1 F(aK, aL) > aF(K,L) Consumer decision theory ▯ Gi▯en Good " > 0s