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Review Sheet for Test 1

Chapter 1

• Accounting cost, Implicit costs, Economic cost
• Accounting profit / Economic profit
• Normal profit
• Finding derivatives
o For instance how to find marginal benefit (MB) or marginal revenue (MR), marginal cost (MC), etc. • Optimization rule (For instance, how to find output level Q that maximizes total revenue, or total profit) • Marginal analysis

Chapter 2
• Demand function.
• Determinants of demand (or factors that affect demand). • Normal versus inferior goods
• Substitute versus complement goods
• How to determine (solve for) equilibrium price and quantity • Price ceiling and price floor
o Given supply and demand, how to determine excess surplus or excess demand under price ceiling or price floor

Chapter 3

• How to compute price elasticity, cross-price elasticity, income elasticity, etc. • Understand the meaning of each type of elasticity.
• Types of price elasticity of demand (Elastic, inelastic, unit elastic) • Elasticity and total revenue: What happens to total revenue if price changes. (For instance if demand is price elastic, what happens to total revenue if the firm increases its price?) • What is the economic interpretation of each elasticity (For example, what is the meaning of Ed = -3 (own-price elasticity); Exy = 5 (cross-price elasticity); EM = 4 (income elasticity)). • Have a look at some of the examples (Case of AT&T) of elasticity that we discussed in class (See slides). For instance, if cross price elasticity between goods X and Y is 4, and the price of Y increases by 10%, what will be the effect on the demand for X? • How to read a computer printout of a regression estimate • How to interpret the coefficients of the explanatory variables in a regression equation • How to test the overall significance of a regression equation • How to test the statistical significance of...
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