Chapter Six Definitions. Elasticity = Responsiveness Elasticity - percentage change in Y / percentage change in X Elasticity is a Ratio Price elasticity of demand - a measure of responsiveness of quantity demanded to changes in price.
2. Does not impose ceteris paribus.
((Q2-Q1)/((Q2+Q1)/2)) / ((X2-X1)/((X2+X1)/2))
Problems: 1. Does not impose ceteris paribus
a. The Gift exchange hypothesis
b. Worker turnover
c. Worker quality
Perfect competition -------------------------------Monopoly
1. The number of firms is large.
Barriers to entry - social, political, or economic impediments that prevent other firms from entering a market.
3. The product is homogenous (i.e. no product differentiation).
As a result: A perfectly competitive firm is a price taker.
Proof of the Shut-Down Point
TC = TVC + TFC
TC = ATC*Q
Profit = PQ – ATC*Q
Profit = [P – ATC]*Q
If P = ATC then economic profit is zero.
P > MC
MR = MC
P = ATC = MC
High 40,40 100, 10
Low 10, 100 60,60