Hick Method PRODUCER THEORY

Marginal product

𝑥𝑥 ′ = 𝑓𝑓(𝑀𝑀′ ) 𝑎𝑎𝑎𝑎𝑎𝑎 𝑦𝑦 ′ = 𝑓𝑓(𝑀𝑀′ )

→ We get M’ Law of diminishing product→

→ Then we get x’,y’ Marginal Rate of Technical substitution
Cost minimization problem

Slutsky Method

Returns to Scale
Kaldor Method
Find →
Express x’ and y’ in terms of M’ →
Set →
Long run curves & returns to scale

ELASTICITY
Price Elasticity of demand

With DRS LRAC increases as output increases

Income Elasticity of demand Short run curves

Cross-Price elastic of demand

Consumer Surplus

Firm Demand
Perfectly Competitive Firm Profit Maximization Market Supply and Market Equilibrium

Short Run Increase in market supply:

1. Number of firms (means
increase → shift right)
If this situation is satisfied, this part must be deducted from the supply function
2. Change in actor prices wi
(Supply shift to the right)
3. Technological improvement
(MC decreases and supply shift
right)

Market Equilibrium Taxes

t=pd-ps

Perfectly Elastic Supply

Perfectly Inelastic Supply

Long Run Toilet
paper
situatio
n

Subsidies → Lowers the price to buyers and raises to sellers, and raises outputs

S=ps-pd

Price ceiling →
Monopoly
Vaccine SMB > D
Solar panels use Cigarrettes

Rises Falls

Falls Rises

falls falls rises

rises rises falls

Externality

Pollution SMC > S

 Student ID __________

ENGM90011 2019 Page 5 of 5