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University of Toronto Scarborough
Economics for Management Studies
Victor Yu

Primer Basic Microeconomic PrinciplesThis chapter reviews basic of microeconomic concepts that we will use in this courseThese include costs demand and its relationship to revenues pricing and output choice by a profitmaximizing firm perfect competition and game theoryTotal cost functions are used to give an idea of the relationship between total costs and output produced in a given time period The total costs are a function of fixed and variable costs Marginal costs refer to the rate of change of total cost with respect to output In general the relationships are as followsWhen average cost is a decreasing function of output marginal cost is less than average costWhen average cost neither increases nor decreases in outputbecause it is either constant independent of output or at a minimum pointmarginal cost is equal to average costWhen average cost is an increasing function of output marginal cost is greater than average costThe difference between economic and accounting costs should be clear as accounting costs emphasize the historical costs and are designed to serve an audience outside the firm such as lenders and equity investors Business decisions require economic costs which take opportunity costs into account when making these decisions In order to determine profits demand curves must be taken into account since demand is the relationship between price and quantity Price elasticityindicates of how quantity change based on changes in the price Ifis less than 1 demand is considered to be inelastic whereas quantities greater than 1 indicate elastic demand Features of the pr
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