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Microeconomics-formulas-1
Microeconomics – formulas
average cost
If both markets are forced to Q = Q1 + Q2 Exercise 4, Chapter 11
charge the same price
Deadweight loss P > MC Exercise 5, Chapter 11
No deadweight loss P = MC
Deadweight loss formula ½ * (Qc-Qm)(Pc-Pm) Suppose Q*=6; P*= 9; P=15-Q; MC= 3
P > MC
15-Q > 3
Q < 12
DWL = ½ *(12-6)(9-3)
Price discriminaion The monopolist chooses quaniies in
each market, such that marginal
revenue equals marginal cost
If C = a + 5q, MC = 5 (slope)
Consumer Surplus ½ *height*base
Exercise 10 chapter 11
If MC= 0
TC = FC
If you have to compare two Exercise 2 Chapter 12
irms, you usually take MC of
the irm that has a lower MC
Cournot model: irm 1 takes Exercise 2, Chapter 12
irm 2´s output as given and
maximizes proit
Nash equilibrium: when
neither party has an
incenive to switch its
strategy, taken the other
strategy as given
Chapter 13
Dominant strategy: you do
not look at what the other
irm does
Maximin strategy: to
maximize the minimum gain
that can be achieved
The total supply curve for all
of the irms in on industry is
found by horizontally
summing the ive marginal
cost curves
If two irms collude, they Suppose: P=300-3Q
should each produce half the C(Q) = 30Q + 1,5Q^2
quanity that maximizes total
industry proit
q 1,5∗Q2
30 + =270 Q−3,75Q2
2 2
π=300−3 Q¿ Q−2¿
Thus π ´ =270=7,5Q
Q = 36; Q1=Q2=18
Price Discriminaion 1-degree price discriminaion:
price at willingness to pay
(poor, rich,..)
2-degree price discriminaion:
price depends on total Q
3-degree price discriminaion:
group discriminaion (students,
elderly,..)
Income I = pxX + pyY
Increasing RTS Output more than doubles
when inputs double
Decreasing RTS Output less than doubles
when inputs double
Constant RTS Output doubles, when inputs
double
Laspeyres index (Pxt*Xb + Pyt*Yb)/
(Pxb*Xb+PYb*Yb)
Perfect subsitutes U=X+Y Graph: declining straight line
Perfect complements
Normal Uility funcion U = axy
MC in the short term MC = w/ MPL
Cost funcion in the long C(Q)=wL + rK
term
Output eiciency MRS = MRT
Output eiciency in MRTXY = w/r (for all
producion products)
Exchange eiciency MRSXY = PX/PY (for all
consumers)
Eiciency in output markets MRSXY = PX / PY = MCX / MCY
= MRTXY
Marginal social cost MSC = MC + MEC
P = a – b(Q1 + Q2)
Q = Q1 + Q2
1) π 1 = P(Q1,Q2) * Q1 –
C(Q1)
π 2 = P(Q1,Q2) * Q2 –
C(Q2)
3) Similarly maximize π 2
assuming Q1 is ixed:
∂π 2
=0
∂Q 2
<-> Q2* = f(Q1)
Eiciency in producion w MP L
1) (¿
MRTS LK = )
r MPK
MC x
2) MRT =
MC y
(= MR of transformaion = how
much y↓ to ↑x by 1?)
Exchange eiciency Px MUx
MRS XY = =
Py MUy
Eiciency in output markets Px MCx
MRS XY = =MRT =
Py MCy