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Econ 302 Final
Terms in this set (51)
own price elasticity of demand
IEI > 1 = Elastic
IEI < 1 = Inelastic
cross-price elasticity of demand
E > 0 = Substitutes
E < 0 = Complements
income elasticity of demand
E > 0 = normal good
E < 0 = Inferior Good
Does MKS depend on Budget?
What does linear Utility Function mean?
Perfect Substitutes - Corner Solution
Linear Utility Function: MRS > MKTS
Consume all X and no Y
Linear Utility Function: MRS < MKTS
Consume all Y and no X
The demand curve for petroleum should be..
More elastic in the long run than in the short run
If two goods are perfect substitutes then the indifference curves for those two goods would be
Downward sloping and linear
Sugar can be refined from sugar beets. When the price of those beets falls, (what would happen to the demand or supply)
the supply curve for sugar would shift right
When severe weather destroys a large portion of the coffee crop, what happens to the market for non dairy coffee creamer?
If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for orange juice is
The percentage change in the quantity demanded in response to a percentage change in the price is know as the
Price elasticity of demand
If indifference curves cross, then the assumption of _______ is violated
Indifference curves are conveys to the origin because of the assumption of _______
More is preferred to less
What assumption do perfect complement indifference curves violate?
More is preferred to less
Fred's marginal rate of substitution for Good X with Good Y equals 5, then what happens?
He will give up 5 units of good Y to get the next unit of X
How will a decrease in price affect a firm's revenues?
It depends on the price elasticity of demand
If X and Y are perfect substitutes, which of the following assumptions about indifference curves is not satisfied?
How to find optimal firm size?
Find the minimum point of the long run average cost curve.
How to find the cost minimizing combination?
Find MRTS (MPL/MPK) and set it equal to w/r. Then solve for K and plug into the production function
Where do MP and AP intersect?
They interest at the minimum of AP
Downward Sloping Section of the LAC
Economics of Scale
Upward Sloping Section of the LAC
Diseconomies of Scale
TR - VC
TR - TC
Short Run Profit Maximization Under Competition
MR = MC
Long Run Equilibrium Under Competition
Minimum of AC
How can you tell if a function is short or long run?
Long Run has a fixed cost, short run is all variable
Profit Maximization Under Single Price Monopoly
MR = MC
1st Degree Price Discrimination
Perfect Price Discrimination,. Charging the maximum buying price for each unit of a good. Change all CS to PS
Second Degree Price Discrimination
Charging lower prices for higher ranges of quantites
Third Degree Price Discrimination
Charging different groups of consumers different prices for the same product ex. Student discounts
How to find market demand curve?
Take the two demand function of the different groups of customers and add them up
Two Part Pricing
Charging a fixed fee for the right to purchases a product, plus a per unit charge for each unit purchases ex. Disney
How to find fixed fee for two part pricing?
Find Producer surplus triangle
Find quantity of perfectly price discrimination monopoly
MC = demand curve
3rd Degree Solving
Solve monopoly Twice
In the United States, the airline industry formed a cartel and from 1938 to 1978 was able to maintain prices above the competitive level for interstate flights. Which of the following explains how it was able to achieve this result?
During that time period the federal government mandated high prices for interstate flights through regulations imposed by the Civil Aeronautics Board
T/F Price discrimination is welfare reducing...
False, price discrimination can increase the quantity sold thereby increasing welfare
In long run equilibrium how much profit will a firm earn?
The perfectly competitive firm's marginal revenue curve is..
When a monopolist engages in perfect price discrimination what happens to the demand curve
It is the same has the marginal revenue
When the consumer spends a large portion of her income on a good, demand will be more
At the profit maximizing level of output, what is the relationship between the TR and the TC curves?
They have the same slopes
An increasing cost industry is named because of the positive slope of which curve?
The industry's long run supply curve
Suppose a profit-maximizing firm is able to employ multiumarket price discrimination. MC is constant and the same for both markets.The MR the firm earns on the last unit sold nin the market with the lower price will be________
Equal to the MR the firm earns on the last unit sold nin the market with the higher price
The law of diminishing returns applies to short or long run?
The short run only
If a firm faces a flat demand curves, nit cannot engage in
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