Economics

• The supply and demand model is based on key assumptions such as focusing on a single market, identical goods, identical prices, and many producers and consumers.
• In a market where consumers view different varieties of the good as essentially interchangeable, all goods sold in the market sell for the same price, and everyone has the same information.
• In a market with many producers and consumers, factors that influence demand include price, consumer tastes, the number of consumers, prices of other goods (substitutes & complements), consumer income or wealth, and demand curves.
• Demand curves are the relationship between quantity of a good demanded and its price (other factors constant).
• The mathematical representation of a demand curve is CS/poundl5 - the lower the price, the greater amount of consumers will buy.
• A demand choke price is the price at which quantity demanded equals 0.
• The vertical intercept of an inverse demand curve is the quantity of a good at which quantity demanded equals 0.
• Price shifts in demand curves occur due to changes in any non-price factor that affects demand.
• The demand curve facing a firm in a perfectly competitive market is perfectly elastic at the market equilibrium price.
• Perfect competition is characterized by three key assumptions: firms don't have the choice about what price to charge, perfectly competitive firms are called price takers, and price is determined solely by supply and demand.
• A firm's short run supply curve for a perfectly competitive market is the portion of the marginal cost curve above the average cost curve.
• In a perfectly competitive market, marginal revenue equals market price, MR = MP.
• If profit is negative, should a firm shut down?
• At prices below average cost, a firm shuts down, quantity supplied equals a, and the supply curve is the y-axis.
• A perfectly competitive firm maximizes profit when it produces the quantity of output at which marginal cost of production equals market price.
• Perfectly competitive markets are important to study, even if rare in real life, because they are the most efficient markets to goods sell at their marginal costs, firms produce at their lowest cost possible, and consumer and producer surplus is at its largest.
• A supply curve is the relationship between quantity of a good supplied and its price (other factors constant).
• The mathematical representation of a supply curve is CS/pound155 - the higher the price, the fewer tomatoes consumers will buy.
• A supply choke price is the price at which quantity supplied equals 0.
• Marginal Rate of technical substitution is the negative of the slope of the isoquant, representing the rate at which the firm can trade input X for Input Y, holding output constant.
• In the long run, diminishing marginal product doesn't play that big a role, because the firm can adjust its capital level to its labor level.
• The long-run production function is represented as f (k,2), where K is not fixed.
• Production in the short run is illustrated with fixed k = 4.
• Graphical analysis can be used to represent Marginal Product.
• Diminishing marginal product is a reduction in the incremental output obtained from adding more labor.
• The firm's cost-minimization problem is represented by isoquants, which are curves representing all the combinations of inputs that allow a firm to make a particular quantity of output.
• Average product is total quantity of output divided by number of units of input used.
• Production functions can be represented in the form a = f(k,L), where k is the quantity of capital and L is the quantity of labor.
• Mathematical representation of Marginal Product is Ma = - f.
• Marginal Product is the additional output that a firm can produce by using an additional unit of an input, holding the others constant.
• The most common form of production function is Cobb-Douglas production function: a = Lk *6.2.
• Dis economies of scope are more expensive to produce together, represented by a positive Scope.
• Diseconomies of scale are represented by an upwardsloping long-run ATC curve.
• SMTC: SATC = minimum - the long-run MC curve intersects the short-run MC curve exactly at the point where labor is cost-minimizing for quantity of output.
• Economies of scope = the simultaneous production of multiple products comes at a lower cost than if a firm made each product separately and then added up the costs.
• Long-Run Marginal cost curves - a short-run marginal cost curve always crosses its corresponding short-term ATC curve at the minimum of the ATC curve.
• Diseconomies of scale - Total cost rises at a faster rate than output rises.
• Economies of scope are cheaper to produce together, represented by a negative Scope.
• To quantify: SCOPE = FTC(q.,0) + TCC0.021] - TCCOn Q2.
• Economies of scale - Total cost rises at a slower rate than output rises.