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). This is the output where firms are...

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 profit-maximizing (making as much money as they can.)...

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 trade for correct compensation....

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 bundles on (A & B) the indifference...

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 post. Demand theory wants to explore...

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 assumption well-behaved preferences. The...
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