ECO 1000 Lecture Notes - Lecture 3: Exogeny, Equation, Marginal Revenue
Document Summary
Used when changing one thing with all else equal. Models: don"t have to be realistic, has to be useful. Assumption: something say is true, underpinning of model. Opportunity cost: the loss of potential gain from other alternatives when one alternative is chosen. How does the firm set output (as long as they can choose): marginal cost = marginal benefit (mc = mr) Endogenous: inside the system (cause curve to move along the line) Exogenous: outside the system (cause curve to shift) Elasticity: refers to the degree of responsiveness in supply or demand in relation to changes in price. Elasticity of demand () only one that matters for revenue. Elasticity of supply () irrelevant when looking at revenue. Income elasticity of demand: only time elasticity can be negative. *take point above and below equilibrium for the points used. *note: short run things tend to be more inelastic. Long run things tend to be more elastic.
