2. & 3. Cost Formulas & Elasticity of Demand

Total Cost (TC):

$$\text{TC = FC + TVC}$$

Total Variable Cost (TVC):

$$\text{TVC} = \text{Unit Variable Cost (UVC)} \times Q$$

Marginal Cost (MC):

$$\text{MC} = \frac{\Delta \text{TC}}{\Delta Q}$$

Price Elasticity of Demand Equation (E):

$$E = \frac{\% \Delta \text{ Quantity Demanded}}{\% \Delta \text{ Price}} = \frac{(Q_2 - Q_1) / Q_1}{(P_2 - P_1) / P_1}$$

Define |E| > 1: Elastic

A small change in price causes a big change in how much people buy

Define |E| < 1: Inelastic

price changes do not change buying habits much; good for necessities

Define |E| = 1: Unit elastic

price and demand change by the exact same percent