Type text here
P$3 X 4 = 12
P$6 X 5= 30
12+ 30 = $42
logical or mathematical relation
also known as price line
consumer choice theory
or income approach
Budget line - shows the combination of two products that a consumer can afford to buy with a given income .
$2
$1
P $2
P$1
PXQX + PYQY
2X 6 + 1X 0 = 12
2 X 5 + 1 X 2 = 12
shows real income
Opportunity cost
What are the factors that may effect budget line ?
parallel shift
pivotalshift
No chnage in
no change in price
No change in income
fall in price
increase in price
12/2=6
12/4=3
real income falls due to rise in price level or inflation
$5
$2
purchasing power falls
if price increase
2y:px
2y:1x
12x = 24y
1x =24/12 y
1x = 2y
CD line
1y:px
1y:0.5x
6x= 12y
1x= 12/6y
1x= 2y
AB line
if price decrease
opportunity cost
it is a technique for explaining how choices between two products/alternatives are made .
slope negative
convex
satisfaction
level
will
be
equal
isoquant
Tangent means - a straight line that touches a curve.
inferior good - ( demand falls when the consumer's real income rises.)
Normal good - ( demand rise when the consumer's real income rises.)
equal consumption
backward bending
1x 6 = 6 shirts
2x 9=18 Trousers
downward sloping
due to fall in price of trouser
if S.E is grester than I.E - inferior good
if I.E is greater than S.E - Giffen goods
TP= maximumat F
MP = 0
fall - stay positive
MP = 0 AT 6th unit
MP negative at 7th init
=TP/L
tangent
AP - Maximum
shows total cost
remain the same for the entire isocost line
shows total ouptut remains the same
nagative slope
convex to origin
no twol isoquant will intersect
given up capital units to increase labour units
isocost - total cost line
tangent
productive efficiency st Eo
total ouput
due to change in one factor
300-100=200
200/100X100
=200%
SRTC
TC=TFC+TVC
25
45
Short run
TC/Q= TFC/Q+TVC/Q
ATC=AFC+ AVC
ATC- AVC=AFC
100
50
33.3
25
T
TC/Q=TFC/Q+ TVC/Q
ATC = AFC+ AVC
ATC-AFC=AVC
TANGENT AT RAY 3
OPTIMUM LEVEL OF PRODUCTION
LOWEST AVC
TANGENT TO TC
ATC
VERTICAL DISTANCE
INCREASING RATE
DECREASING RATE
Analyse and evaluate the
features .
L: O- Analyse and evaluate the main characteristics of perfect competition .
rice $6
$5
=D
$4
might not able to cover cost
$5
e.g- rice - wheat -
Chapter 6
AC=AR
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T
P=AR=MR=D
P
=D - Perfectly elastic
P=AR=MR=D
= AR= D
6-10-2020
=P
Explicit - expenses
implicit - opportunity cost
normal profit- TR=TC
tangent
max profit at Q2
still generates marginal profit
total profit maximisation output
Perfect competition is a form of the market in which there is a large number of
buyers and sellers and where homogeneous product is sold at a uniform priceA price taker
firm means that it has to accept the price as determined by the .forces of market demand and market supply.
Firm's demand curve under perfect competition is a horizontal straight line parallel to X-axis.
Under perfect competition, AR is constant for a firm. Hence, AR = MR.
AR= AC
AR is greater than AC
AR is less than AC
Loss
abnormal profit
AR > AC
AC>AR
AR=MR=P=D
AR=MR=P=D
AR=MR=P=D
AR=MR=P=D
cease production at P1
AVC>AR
LOSS
Po
Qo
loss
AR>AC
AR=AC
Reduce price
AR=AC
Conclusion
mid point
P= AR
MR will not be equal to AR
MR is less than AR
Downward sloping
profit maximisation MR=MC
at Eo
AR=AC
satisficing - reach minimum target
satisfying - satsify all stakeholders
1.Traditional frim's Thoery
Examples of direct costs are direct labor, direct materials, commissions, piece rate wages, and manufacturing supplies.
Examples of indirect costs are production supervision salaries, quality control costs, insurance.
non - price demand factors
1REASON
2
3
4
2.Managerial Theory
3.Behavioral Theory
The definition of a rule of thumb is a generally accepted guideline, policy or method of doing
something based on practice rather than facts.
?
In perfect competition, any profit-maximizing producer faces a market price
equal to its marginal cost (P = MC).
link to market failure
Analyse and evalaute that is
is always bad for the consumer .
link to inelastic or elastic demand and revenue
INELASTIC DEMAND
Profit maximisation
Profit maximisation
link to AS economics
willing to pay
able to pay
loss- AC > AR
A sunk cost refers to money that has already been spent and which cannot be recovered.
?
SUPER NORMAL PROFIT
Economic efficiency= Productive & allocative efficiency
minimum AC
X- efficent
what a society desires”
P=
Perfect competition
P
P=MC
rise in real income lead to fall in working hours . shows negative relationship
reading
individual labour supply curve
market supply curve always upward sloping
positive realtionship
Perfect competition market
wage taker
perfectly elastic
reading
extra power point notes
Product market
marginal physical product