EC260 Microeconomics Provided Equation Sheet For Midterm 2 PDF

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Summary

Some possibly useful equationsIsocost line:C ̄=wL+rKTangency/ marginal condition for cost minimization:M RT S= w rMarginal rate of technical substitution of labour for capital (in absolute value)M RT S=M PLM PKMarginal productivities:M PL= df(L, K) dL, M PK=df(L, K) dK Costs: given a cost functionC(...

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Some possibly useful equations Isocost line: ¯ = wL + rK C Tangency/ marginal condition for cost minimization: w MRT S = r Marginal rate of technical substitution of labour for capital (in absolute value) MPL MRT S = MPK Marginal productivities: df (L, K) df (L, K) MPL = , MPK = dK dL Costs: given a cost function C(q) = V C(q) + F , where V C is variable cost and F is fixed cost we have dV C(q) dC(q) = dq dq V C(q) AV C(q) = q F AF (q) = q C(q) AC(q) = = AV C(q) + AF q Relationship between costs and production: w MC = MPL w AV C = APL Profit maximization: for revenue R(q), the profit maximizing level of production q ∗ (condiMC(q) =

tional on producing a positive amount) must satisfy MR(q ∗ ) = MC (q ∗ ) Shut down if: R(q ∗ ) < V C(q ∗ ). The present value P V of amount F V received t periods into the future, given interest rate i is PV =

FV (1 + i)t 1...