Cost min

Question 1

Equation of the isocost curve?

Answer 1

x2 =c2/w2 - w1/w2 (x1)

Question 2

Where is the optimal choice on an isocost?

Answer 2

Lowest possible isocost curve

Question 3

What’s the tangency condition in a cost minimisation problem?

Answer 3

• w1/w2 = - MP1/ MP2 (TRS)
  slope isocost = slope isoquant
  where MPi = dY/dXi

Question 4

What does a firm choose in a competitive market?

Answer 4

Only x1 not the price - price taker

Question 5

What would happen if a firm in a comp. market would choose to sell at a lower than market price.

Answer 5

It would capture the entire market but still make less revenue since it can sell indefinitely many goods at market price.

Question 6

What’s the formula for profit?

Answer 6

π = pY-c(y)

Question 7

What’s the formula for marginal cost?

Answer 7

dc(y)/dY

Question 8

What’s the condition for profit max in a competitive market?

Answer 8

p = mc(Y)
mr = mc(Y)

Question 9

What’s special about the price and marginal revenue in a perfectly competitive market?

Answer 9

They are the same

Question 10

What’s the firms’ supply curve in a perfectly competitive market?

Answer 10

The MC curve above AC

Question 11

What’s the short run shut down price in a perfectly competitive market

Answer 11

p < AVC
Firm chooses not to produce (y=0)

Question 12

What’s the producer surplus in a perf. comp. market?

Answer 12

Py - Cv(y) = producer surplus

Question 13

What’s the long run shut down condition in a perf. comp. market?

Answer 13

p < AC(Y)

Question 14

What’s the thing about Average costs in the long run

Answer 14

AC = AVC because all costs are variable in the long run

Question 15

What does market demand consist of?

Answer 15

Sum of all individual demands

Question 16

What’s the formula for elasticity?

Answer 16

E = p/q x dq/dp
point x slope

Question 17

Where on a perfectly linear demand curve is E = 1

Answer 17

The midpoint

Question 18

What’s the elasticity above the midpoint of a linear demand function?

Answer 18

Elastic

Question 19

What’s the elasticity below the midpoint of a linear demand function?

Answer 19

Inelastic

Question 20

Math Def of elastic demand

Answer 20

E > 1

Question 21

Math Def of inelastic demand

Answer 21

E < 1

Question 22

What’s the formula for revenue?
And it’s first differentiation?

Answer 22

R = p x q(p)
dR/dp = q(P) (1+E)

Question 23

If demand is elastic what does that mean for revenue?

Answer 23

E < -1
Price increases, revenue falls

Question 24

If demand is inelastic what does that mean for revenue?

Answer 24

0 > E > -1
price increases, revenue increases

Question 25

What does Pareto efficient mean?

Answer 25

No mutually beneficial gains from trade are available

Question 26

What's a quantity tax

Answer 26

A tax per unit sold

Question 27

Math Def of a quantity tax

Answer 27

Pd = Ps + t Price paid by buyer = Price received by seller + tax

Question 28

What's understood as the legal incidence?

Answer 28

Ps = Pd + t

Question 29

What's the Equilibrium condition with a per unit tax?

Answer 29

D(Pd) = S(Ps) D(Pd) = S(Pd + t)

Question 30

Burden of a tax on Buyers?

Answer 30

Pd - P*

Question 31

Burden of the tax on sellers

Answer 31

P* - Ps