Analysis of Demand and Marginal Analysis
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| What does the demand curve show? | Variations in price and quantity. | |
| What happens to the demand curve if income rises? | The demand curve shifts outward/to the right. | |
| What happens to the demand curve if income falls? | The demand curve shifts inward/to the left. | |
| What is the shape of a demand curve for prestige products? | An inverted C. | |
| Define price elasticity for demand (Ep). | A measure of the sensitivity of demand to changes in price. | |
| |Ep| = ? | [(q2-q1)/(p2-p1)] * (p1/q1) | |
| If |Ep| > 1, then demand is... | elastic | |
| If |Ep| = 1, then demand is... | unitary | |
| If |Ep| < 1, then demand is... | inelastic | |
| If demand is elastic, then small changes in price result in _______ changes in quantity. | big | |
| If demand is inelastic, then big changes in price, result in ______ changes in quantity. | small | |
| AVC = | TVC/Q | |
| AFC = | TFC/Q | |
| Give an example of a fixed cost. | Rent | |
| Give an example of a variable cost. | Raw materials | |
| Define marginal cost. | The extra cost a firm incurs when it produces 1 more unit. | |
| Define marginal revenue. | The extra revenue a firm earns when it sells an additional unit. | |
| What is the relationship between MR and MC when profit is maximized? | MR = MC | |
| When is total revenue maximized? | When MR = 0. | |
| TR = ? | P * Q | |
| Break-even Quantity = ? | TFC/(P-AVC) | |
| Quantity at Desired Profit Level = ? | (TFC + Desired Profit)/(P - AVC) |
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