a−bQ*=c+dQ*a minus b cap Q raised to the * power equals c plus d cap Q raised to the * power Q*cap Q raised to the * power
If the result is , the good is "Elastic" (people are very sensitive to price).
= The choke price (the price at which quantity demanded drops to zero).
Used to calculate exact equilibrium points and elasticity. microeconomics with simple mathematics pdf
If demand is , raising the price increases total revenue. Total revenue is maximized at the exact point where 4. Consumer Choice Theory and Utility Maximization
The most fundamental concept in microeconomics is the trade-off, mathematically represented by the concept of opportunity cost. This is best illustrated through the Production Possibility Frontier (PPF). Using simple geometry, the PPF plots the maximum possible output combinations of two goods an economy can achieve when all resources are fully and efficiently employed. On a graph, the vertical axis might represent capital goods and the horizontal axis consumer goods. The downward slope of the curve represents the trade-off: to produce more of one good, one must produce less of the other.
A supply curve represents producers' willingness to sell a good at various price points. A linear inverse supply curve is expressed as: P=c+dQscap P equals c plus d cap Q sub s Qscap Q sub s = Quantity supplied. a−bQ*=c+dQ*a minus b cap Q raised to the
Using the above examples: $$100 - 2P = 10 + 3P$$ $$100 - 10 = 3P + 2P$$ $$90 = 5P$$ $$P^* = 18$$ Plug $P^ $ back into either equation: $$Q^ = 100 - 2(18) = 64$$ Price = $18, Quantity = 64 units.
Every firm, regardless of market structure, maximizes profit where . Profit ( ) is calculated as Total Revenue ( TRcap T cap R ) minus Total Cost ( TCcap T cap C π=TR−TCpi equals cap T cap R minus cap T cap C TR=P×Qcap T cap R equals cap P cross cap Q Perfect Competition
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The most common tool in introductory microeconomics. Demand and supply curves are almost always depicted as straight lines. You'll need to calculate slopes, intercepts, and the points where two lines (demand and supply) intersect. This is the foundation of market equilibrium analysis.