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  1. P=20-.5Q; TC=5+10Q
    What can be done here?
    • You can find the Q*
    • You can Find P* 
    • and even Profit Level!
    • 1) P*Q and then get the dirivitive to find Q*
    • 2) Plug in Q* into P and get P*
    • 3) Now that we know both TR and TC get Image Upload 1
  2. Sensitivity Analysis
    We change the parameters of the model and determine how the firm optimal decision changes
  3. Determinants of Demand
    • Concumer Preference
    • Consumer Expectations (Conditions about future)
    • Income
    • Price of Related Goods
    • Size of the Market
  4. Intercepting Coefficients  
    Tells us how much the dependent variable changes in response to one unit chagne in the independent variable
  5. Elasticity
    A measure of the sensitivity of one variable in response to a change in another. Specifically it is the % change that will occur in one variable in response to a 1% change in another
  6. Price Elasticity
    Image Upload 2
  7. Ep < -1
    • Elastic 
    • Consumer is Price sensitive
    • The curve is flatter
    • Between the top and the Unit Elastic point on the chart
  8. -1<Ep<0
    • Inelastic
    • Consumer is not price sencitive
    • Curve is steeper
    • Between Unit Elastic and the bottom of the chart
  9. Determinants of Demand Elasticity
    • Availability of close substiutes (more subs, more elastic)
    • % of income devoted to the purchase
    • How necessary the good is (more essential the more inelastic it is ->  gas, medicne, etc
    • Time frame considered (overtime other options develop)
  10. Cross Price Elasticity
    Shows how quantity demanded responds to change in the price of another
  11. The mark up equation is
    • Image Upload 3 
    • OR
    • Image Upload 4
  12. Price Discrimination
    • Conditions for:
    • 1) Distinguishing between consumers types, demographiscs, etc
    • 2) Can prevent arbitrage (Selling amongs consumers)
  13. Second degree Price Discriminatoin
    Different Price depednig on Quantity
  14. Third degree Price Discrimination
    Charging different Price to different segment of the market for the same product
  15. First Degree Price Discrimination
    Offering different price to different consumer according to their willingness to pay
  16. Using Mark Up rule:
    MC=5 Ep1= -1.6;
    Image Upload 5 
  17. Regression Analysis
    • 1) Develop a theory that explains economic behavior
    • 2) Collect Data
    • 3) Estimate the effectivness of the regression equation
    • 4) Analize and interprate
    • 5) Compare results and hypthesys
  18. Confidence Intervals 
    95% will be within 2 Standard Deviation of the sample mean
  19. Ordinary least Squares (OLS)
    method to run regression. Finds the line that best fits the data
  20. Goodness of Fit Measure (OLS regression)
    R^2 statistic ( 

    • Image Upload 6 (basically it's Image Upload 7
    • TSS= Image Upload 8
    • Image Upload 9
  21. If SSE=0
    • No Unexplained Varations 
    • Image Upload 10
  22. SSE=1
    Doesn't fit the data at all
  23. Adjusted Image Upload 11

    Image Upload 12
  24. F-Statisics
    • Ratio between explained vaiation to unexplained variation
    • Image Upload 13
    • High values implies that the module is explaining something
    • Low values ... the other way around
  25. Critical Value (F-distrivution)
    Table based on (k-1), (n-k) degrees of freedom for specific confidence level
  26. Significance F
    • The probability of getting the f-stat value if the Null Hypothsis is true
    • Low Sig Fs - better chance of it being true (regression)
  27. How to Reject Null Hypothysis
    • if F-Stat < Critical Value
    • if Significant F > 1 - confidence level
  28. Possible issues w/ Regression Results
    • 1) Size of sample - less thena 32 not good represenattive
    • 2) Equation Specification - if lenier is used but the relationship isn't liner
    • 3)Omited variable 
    • 4)Multicolinarity - occurs when two or more independent varianles are close related or highly corrilated
    • 5)Simiultinaty and Identification - Observed prices and quantity are result of Supply and Demand
    • Bias in the Data
  29. Data Souce
    • 1) Consumer survey (Sampple Bias, Responce Bias, Responce Accuracy - not knowing 100% how one would actually behave)
    • 2) Consumer Experiments - reduces respoce accuracy bias
    • 3) Contrilled Market Studies - Real world data, short term demand picture
    • 4) Uncontrolled Market Data - gathering available market transaction data (available, cheap; problem w/ similarity)
  30. Cross secion Data
    Spans one time period, they tend to have a lot of variables
  31. Time Sieries Dat
    Spans mulitiple time presiods, few variables
  32. If demand becomes more elastic profit mazimizing price will 
  33. If variable cost increases, the marginal cost curve will
  34. If demand decreases, profit maximizing price will 
  35. the T-stat tsts the null hypothesis that 
    of the coefficient could be 0, tbad to see if the coeffiecnt is statisitcally significant
  36. Olygopoly
    • Few Large firms
    • Homogeneous or Heterogenous
    • Imeded Entry
    • Economies of Scale / High Start up cost
  37. Olygopoly Priceing Strategy
    Not streight forward
  38. Advertising Strategy (Olygopoly)
    Lot's of advertising, depends on industry
  39. Duopoly
    Olygopoly with two firms
  40. Walfare is maesured in
    Consumer Surplus
  41. ASsumptions under perfect competition
    • Large number of buyers and sellers
    • Easy entry and exit
    • Firms produce Homogenious products 
    • Perfect information
  42. Through a numerical example, they show how an airline would appropriately price their tickets.  Why is it that in the case of airlines, ticket prices are determined by maximizing revenues and not profits?
    Because all costs of production are fixed, which makes profit maximization and revenue maximization equivalent.
Card Set:

Managerial Econ CSULB
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