ECON midterm

Total economic cost equation

Total Economic Cost= Explicit Cost + implicit Cost

Accounting profit equation

Accounting profit= Total revenue - Explicit costs

Economic profit equation

Economic profit= Total revenue - EC( Explicit cost + Implicit cost)

Percentage change equation

%change x= x2-x1/x1 x100

Midpoint method equation

Q2-Q1/ (Q1+Q2)/2 // P2-P1/(P1+P2)/2

Buyers gain equation

Buyer Surplus (Gain) = buyers willingness to Pay - Price Paid

Sellers gain equation

Seller gains= Price - Willingness to sell

Total gains from trade equation

-total surplus is the sum of consumer surplus and producer surplus in a market

-Total gains= Buyers gain + Sellers gain

Total revenue equation

TR= Price x Quantity

Marginal Revenue

Marginal revenue= Change in TR/ change in quantity sold

Change in revenue equation

Change in TR= TR2- TR1

Linear demand equation

Qd=a - bP

A= The vertical intercept, representing the quantity demanded when the price is 0

B= how much the quantity demanded changes for each unit change in price. It is negative

P= The price of the good

Market Demand equation

-horizontal sum of individual demands at a given price

Inverse demand equation

P= a-Q/b

Total cost

TC= Fixed cost + variable cost

Fixed cost equation

Fixed Cost = Total Cost - (Variable Cost per Unit X Quantity)

Average fixed cost equation

AFC= FC/Q

Average variable cost equation

AVC= VC/Q

Average total cost equation

ATC=TC/Q

Or ATC= AFC+AVC

Marginal cost equation

MC= change in TC/Change in Q

Shortage equation

Shortage= Qd- Qs

Surplus equation

surplus= Qs- Qd

price taker condition

P= MR

Profit maximizing output

P= MC

Short Run shutdown Rule

P < AVC →shutdown

Short run production rule

P_>AVC

Long run exit rule

P< ATC → exit

Profit maximizing condition

MR=MC

Total social cost

TSC= total private cost + Total external cost

Total external cost equation (For constant external cost per unit)

TEC= Marginal external Cost x Q

Private market outcome

MB=MPC

-Marginal Benefit equals Marginal Private Cost

Socially efficient outcome

MB= MSC (marginal social cost)

Pigouvian tax

-A government fee placed on market activities that cause negative externalities

t= MEC (marginal external cost

Total tax payment equation

T= Tax rate x Q

Price discrimination rev from group A

TRa= PaQa

Price discrimination rev from group b

TRb= PbQb

Price discrimination total revenue

TR= TRa+TRb

Price discrimination revenue difference

change TR= TRdiscrimination - TRuniform

Price taker

-A seller that cannot influence the market price

• Market determines the price

• The firm accepts that price as given

• The firm decides how much to produce and sell

EX- Agricultural products such as wheat/corn/soybeans

-Price taking firms usually don’t see each other as direct rivals

What does it mean if a product is homogeneous?

-Buyers see sellers products as essentially identical

T/F market clearing price is the equilibrium price

-True

Marginal revenue equalization

-firm maximizes profit or efficiency by changing prices across customers or markets until the extra revenue from the last unit sold in each place is the same

Economic dumping

-When a company exports a product to another country at a price lower than its normal value, its price in the home market, or its cost of production

Monopsonist

-A buyer whose purchases affect the price it must pay

Open market

-Most sellers are free to enter

• Few barriers to entry

• Entry is relatively easy

• Competition is easier to develop

Restricted market

-Entry is possible but more costly or difficult

• May require: licenses, taxes or tariffs, quotas, special regulations

Closed markets

-Only selected sellers are allowed to operate

• Exclusive rights

• legal monopoly

• Entry prohibited for others

Monopoly rent

-A payment above cost is obtained because of competitors are restricted from entering or serving the market

• Entry restriction → Higher price → Protected gain

Protected monopoly

-A stronger meaning is a seller protected from competition

• May happen bc: legal rights, patents/licensees, gov restrictions, or barriers preventing entry

Cartel

-A group of sellers that manages to act jointly as if they were one large firm

• Many members cheat, total output rises, the market price falls, and the cartel becomes unstable

Price searchers

-Choose both what to sell and how to sell it

-They have some control over the price of its product because it sells a differentiated or unique good rather than an identical good

Scarcity

-Human wants and needs are infinite, while the resources available to satisfy them are limited

-There are not enough resources (such as land, labor, capital, time, and raw materials) to produce everything people desire

T/F “free good” means something for which a zero price is charged?

-False

-A free good is naturally abundant, limitless in supply, and requires zero opportunity cost or scarce resources to produce (such as sunlight or breathable air in open spaces)