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# Category: Microeconomics

## Microeconomics Profit Maximization: Shutdown Point

Determining the Shutdown Point of a Firm This continues a previous post on profit maximization. The question we want to continue with is when should a firm shutdown? Then answer is when P (price) = AVC (average variable cost)....

## Microeconomics Cost Formulas

Here is a list of some of basic microeconomics formulas pertaining to revenues and costs of a firm. Remember when you’re using these formulas there are a variety of assumptions, namely, that the the firm is...

## Trade Offs and Indifference Curves

Before we talk about choices, preferences, trade-offs and indifference curves, we should briefly look over some key terms. We assume people are rational decisions makers and that there is almost nothing someone is unwilling to...

## Shapes of Indifference Curves

The shapes of indifference curves are smooth with unique tangent at any bundle we have well define marginal rate of substitution (MRS). MRS is undefined if m (slope) = kinked. 1. Strictly convex: Using the example of any 2...

## Intro to Demand Theory – How to Manage Constraints

Welcome to the next section following a discussion on utility and indifference curves (preferences of consumers). We are now into a discussion on demand theory; the previous posts are linked chronologically at the bottom of this...

## Cobb Douglas Function – Demand Theory

In the past installments from DiscussEconomics on demand theory, now we’re venturing into the graphical and mathematical expressions of the Cobb Douglas demand function. Graphically expressed (utility maximizing) with the...

## Demand Theory – Consumer Choice Problem

Normal, Inferior, Neutral, Luxury, Necessary Goods There are three fundamental questions about a consumer’s consumption response: 1. How will demand change for a good i change in response to a increase or decrease in the...

## The Economics of Property Law – Coase Law

Here is an article that deals with Coase laws and the economics of property law. The lack of...

## Utility Functions (Mathematical Representation of Preference)

The following section from DiscussEconomics on microeconomics and preferences discusses the mathematical representation of preference using utility functions. Using utility function : U(x) = U (x1, x2, x3.......xn) (Where U is...

## Introduction to Microeconomics Cost Formulas

Let’s carry on from our introduction into microeconomics with a focus now on how firm’s costs vary with output in the short run (6months to 2 years). Let’s Make an Important Assumption: Prices of inputs are...

## Microeconmics: The Monopoly

Let’s start our introduction to monopolies by offering a definition: An industry comprising of only one firm. Examples include utility companies (gas, electric, water), rail, and cable companies. Reasons for monopoly: (1)...

## Corner Solution – Perfect Substitutes: Demand Theory

Continuing on with demand theory. Previously we discussed the Cobb Douglas function, now we move into perfect substitutes and the corner solution. Here are some factors to keep in mind. 1. Indifference curves must interest one...