- Total Profit = (P-ATC) x Q
- Profit for 1 unit = (P-ATC) x 1
- TR = (P x Q)
- Allocative Efficiency = (MC = D) or (P = MC) also called Socially Optimal Level/Quantity or Socially Efficient Quantity
- Marginal Revenue is negative = inelastic section of Demand curve.
- Marginal Revenue is positive = elastic section of demand curve.
- Zero Economic Profit = (P = ATC)
- Positive Economic Profit = (P > ATC)
- Losses(P < ATC)
- Profit Max = (MR = MC)
- Max Revenue = (MR = 0) where TR is maxed.
- Break-even = (P = ATC)
- Unit Elasticity = (MR = 0)
- Inelasticity = (MR < 0) or negative
- Elasticity = (MR > 0) or positive
- Demand curve is above MR, why?
- Economic Profit = TR - explicit - implicit
- If you raise your price and TR (decreases) you are in the elastic section of Demand curve
- If you lower your price and TR (increases) you are in the elastic section of the Demand curve
- If you raise your price and TR (increases) you are in the inelastic section of the Demand curve
- If you lower your price and TR (decreases) you are in the inelastic section of the demand curve
- If demand shifts, what happens to P, Q, & MR?
- Positive Accounting Profits = (covering explicit costs)
- Opportunity Cost = implicit costs (implicit costs include entrepreneurs payment to self)
- (MC > P) = (MSC > MSB) = Society has enough units of this product (Overproduction)
- (P = MC) = Allocative Efficiency (MSB = MSC)
- (MC < P) = (MSB > MSC) = (P > MC) = Society values more of this product (Underproduction)
- Accounting Profit + Explicit Cost = Total Revenue
- Accounting profit - implicit costs = Economic Profit
- Economic Profit = TR - explicit + implicit costs
- Accounting profit = TR - explicit costs
- Total Revenue - explicit costs = Accounting Profit
- Monopoly is the industry thus it has a downward sloping demand curve
- MR is less than Price(Demand) - for every level of output (except the first), why? - the lower price applies not only to the extra output sold but also to all prior units of output.
Tuesday, November 4, 2014
Monopoly 9 - AP exam necessities
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