CH6 Pricing, Costs, & Profits Flashcards Preview

Managerial Economics > CH6 Pricing, Costs, & Profits > Flashcards

Flashcards in CH6 Pricing, Costs, & Profits Deck (22)
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1

marginal value & what its used for

value that consumers place on items/products
to determine how much to consume

2

demand curve

tells you how much consumers will purchase at any given price

3

first law of demand

consumer purchases more as price falls

4

What happens when the marginal value of consuming a product increases?

the value of each item reduces the more you consume

5

consumer surplus

difference between total value & amount paid

6

As price declines, what happens to consumer surplus?

the difference between total value & amount paid increases

7

aggregate demand curve

added up individual demand curves
the relationship between price and the # of purchases made

8

As price falls...

quantity increases

9

If MR > MC, then you should

sell more & reduce the price

10

If MC > MR, then you should

sell less & increase price

11

What does marginal analysis tell us?

tells us where to price or how many units to sell

12

How do we estimate MR

measure quantity responses to past price changes
how much consumers would buy in response to price changes

13

Price Sensitivity equation

e = %change quantity demanded / %change Price

14

Price Sensitivity

how sensitive demand is to a change in price

15

When is a demand curve elastic?

when quantity changes more than price

16

When is a demand curve inelastic?

when quantity changes less than price

17

If demand is elastic then (e) must be

more than 1

18

if demand is inelastic then (e) must be

less than 1

19

Why is price elasticity always negative

because quantity and price move in opposite directions

20

What is the relationship between price and revenue

when price falls, revenue increases

21

If items are elastic what happens to revenue?

price increase - revenue decrease
price decreases - revenue increases

22

If items are inelastic what happens to revenue

price increases - revenue increases
price decreases - revenue decreases