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Price elasticity= percentage change in quantity/ percentage change in price

Price elasticity= (Q2-Q1)/(Q2+Q1)/2 ÷ (P2-P1)/(P2+P1)/2

Cross elasticity= percentage change in quantity/ percentage change in price

Cross elasticity= (Q2-Q1)/(Q2+Q1)/2 ÷ (P2-P1)/(P2+P1)/2

Income elasticity= percentage change in quantity/ percentage change in income

Income elasticity= (Q2-Q1)/(Q2+Q1)/2 ÷ (I2-I1)/(I2+I1)/2

Price elasticity:

Number = Infinite (Perfectly elastic)

Number < 1 (elastic)

Number = 1 (unit elastic)

Number > 1 (inelastic)

Number = 0 (Perfectly inelastic)

To increase revenue:

For elastic (decrease price)

For inelastic (increase price)

Determinants of Price Elasticity of Demand:

Substitutability: (A lot of substitutes “elastic”), (few substitutes “inelastic”)

Proportion of income: (High proportion “elastic”), (low proportion “inelastic”)

Luxuries versus necessities: (Luxuries “elastic”), (necessities “inelastic”)

Time: (More time “elastic”), (less time “inelastic”),

Cross Elasticity of Demand:

Positive Number (Substitute)

Negative Number (Complementary)

Number = 0 (independent)

Income Elasticity of Demand:

Positive Number (Normal good)

Negative Number (Inferior good)

MU = ΔTU/ΔQ

Utility Maximizing Rule 1: MUA/PA = MUB/PB

Utility Maximizing Rule 2: I= PA×A + PB×B

AR = TR/Q

MR = ΔTR/ΔQ

MR= AR = P

Profit Maximization or Loss minimization: MR=MC

Break-even point: normal profit, total revenue = total, MR=MC=ATC

Shutdown point: MR=MC=AVC

Short run supply curve: P exceeds min. AVC

TOTAL PROFIT = Total revenue - Total cost

Total revenue = Price × quantity

Total cost = ATC × quantity

TC=FC+VC

FC=TC-VC

VC=TC-FC

AFC= FC/ Q

AVC= VC/ Q

ATC= TC/Q

ATC= AFC+AVC

MC= ΔTC/ΔQ= (TC2-TC1)/(Q2-Q1)