WORKSHOP AGENDA FOR ADM470.3

JANUARY 2006/ WORKSHOP 470.3

DR. WILLIAM SHINGLETON

REVIEW QUESTIONS

P270-271 8-1 8-7

P392-393 12-4 12-8

PROBLEMS AND EXERCISES

P271-272 8-1 8-7A

REVIEW ANSWERS TO PREVIOUS EXAM

TONIGHT CH 8 AND 12

REVIEW PRICE TAKER

PRICE SETTING FIRMS (EVERYONE ELSE)

DEFINITION

DOWNWARD SLOPING DEMAND CURVES

MARGINAL REVENUE

NO PRICE DISCRIMINATION

USUALLY LARGER

MORE INTERNATIONAL MARKETING

MARGINAL REVENUE

USE STRAIGHT LINE DEMAND CURVES

CONSTRUCTION OF MR CURVE

WHAT DOES NEGATIVE MR MEAN?

MR = P_NEW MINUS ( Q_OLD * PRICE REDUCTION)

ELASTICITY REVIEW

EXAMPLE: SELLING BASEBALL CARDS

 EXAMPLE

Q=1 P=$50 SALES = 1*50 = $50 MR = $50

Q=2 P=$45 SALES = 2*45 = $90 MR = $40

Q=3 P=$40 SALES = 3*40 = $120 MR = $30

OPERATING RULES FOR PRICE SETTING FIRMS

CASE 1... P < AVC FOR EACH QUANTITY

SHORT RUN

BEST Q = 0

NO SHUT DOWN PRICE

LOSS = FIXED COST

LONG RUN

LIQUIDATION

CASE 2... P > AVC FOR SOME QUANTITY

BUT P < ATC FOR EACH QUANTITY

SHORT RUN

CHOOSE Q SUCH THAT MR = MC

LOSS < FIXED COST

SHOW LOSS AREA

LONG RUN

LIQUIDATION

CASE 3... P = ATC FOR ONE Q, P < ATC FOR ALL OTHERS

SHORT RUN AND LONG RUN

CHOOSE Q SUCH THAT MR = MC

PROFIT MARGIN = P - ATC

NO PROFIT AREA/NORMAL PROFIT

CASE 4... P > ATC FOR SOME QUANTITY

SHORT RUN AND LONG RUN

CHOOSE Q SUCH THAT MR = MC

PROFIT MARGIN = P - ATC

MAXIMUM PROFIT MARGIN IS NOT MAXIMUM PROFIT

SHOW PROFIT AREA

PROFIT = P*Q - ATC*Q

 EFFECTS OF ENTRY AND EXIT

MONOPOLY

MONOPOLISTIC COMPETITION

OLIGOPOLY

THERE IS NO SUPPLY CURVE FOR FIRM OR FOR INDUSTRY

REVIEW QUESTIONS

P270-271 8-1 8-7

PROBLEMS AND EXERCISES

P271-272 8-1 8-7A

CHAPTER 12: MACRO MEASURES

THIS BACKGROUND MATERIAL IS USED IN 523 PAPER

MACROECONOMICS/POLICY GOALS

GROWTH OF REAL GDP

DOWN TO 1.1 IN LATEST REPORT

3.5 for 2005

3.3 20 YEAR AVERAGE

REAL VS NOMINAL DATA

NOMINAL ALSO CALLED CURRENT DOLLAR

REAL ALSO CALLED 1998 DOLLAR

INFLATION

3.4 IN LATEST REPORT

3.0 20 YEAR AVERAGE

UNEMPLOYMENT

4.9 IN LATEST REPORT

5.6 20 YEAR AVERAGE

UNEMPLOYMENT

REAL VS NATURAL

REAL ALSO CALLED CYCLICAL

NATURAL INCLUDES

FRICTIONAL, SEASONAL, STRUCTURAL, ...

POSITIVE AND NEGATIVE FEATURES

TARGET IS NOT ZERO

REVIEW QUESTIONS

P392-393 12-4 12-8

EXCHANGE RATE/VALUE OF THE DOLLAR

EXCHANGE RATE

$1.22 PER EURO/$1.30 LAST YEAR

116.28 YEN PER DOLLAR/103.70 LAST YEAR

EXPENDITURE MODEL FOR GDP

C + I + G + X

EQUILIBRIUM

ADJUSTMENT

ROLE OF INVENTORIES

EFFECTIVE DEMAND

FINAL EXAM

YOU WILL CHOOSE 2 OUT OF 3 QUESTIONS.

1. SIMPLE SUPPLY AND DEMAND (MAX = 90)

2. TWO-PANEL SUPPLY AND DEMAND (MAX = 100)

3. PRICE SETTING FIRM (MAX = 100)

ALL QUESTIONS ARE OPEN-NOTE/OPEN BOOK