Unit 7 The firm and its customers

Question 1

Profit formula

Answer 1

PQ - (F + cQ)

Question 2

Maximising profit

Answer 2

point of tangency between highest isoprofit curve and the demand curve

Question 3

Cost function

Answer 3

C(Q) = F + cQ

Question 4

Avg cost function

Answer 4

C(Q) / Q

Question 5

What is the gap between the Avg Cost and the Marginal Cost function?

Answer 5

fixed cost per unit

Question 6

Price elasticity of demand

Answer 6

measures the responsiveness of consumers to a price change
- steeper DC means the firm can raise the price w/o reducing sales very much (lower elasticity), eg necessary medicine
- flatter DC means Q changes a lot in response to a change in price (high elasticity), eg luxury cars

Question 7

Elasticity equation

Answer 7

= (-P/Q) x (1/slope)

Question 8

Marginal revenue

Answer 8

change in revenue when output increases by one unit

Question 9

What is the zero isoprofit curve equal to?

Answer 9

The avg cost curve

Question 10

Isoprofit curve equal to negative fixed costs??

Answer 10

…

Question 11

Form of isoprofit curve??

Answer 11

AC + k/Q

Question 12

Marginal cost

Answer 12

equals c, the extra money spent to produce 1 more unit

Question 13

When is marginal cost not constant?

Answer 13

…

Question 14

Elasticity > 1

Answer 14

Elastic

Question 15

Elasticity

Answer 15

Inelastic