ECO301

ch5: Consumer Uncertainty

compare the expected utility from a gamble E[U] to the consumers utility of receiving the expected value of the gamble for sure U(E[I]) terminology
certainty equivalent the amount of money without any uncertainty that would yield the same utility as the gamble The risk premium is the maximum amount of money (expected income) that a riskaverse person is willing to pay to avoid taking a risk.

Arrow-Pratt measure of risk aversion Actuarially fair: words, the revenue of the insurance company is exactly the same as its expected payments for all the claims on the policies (costs)

Welfare
The compensating variation: is the additional income that would be necessary to return the consumer back to the original indifference curve, given the higher prices

equivalent variation is the change in income that would be equivalent to raising the price, staying at the original, low price

for normal. inferior is opposite

CH7
def

cost minimization

profit maximization

or

ch8: Competitive Market

def
perfectly competitive markets: Large number of buyers and sellers, same product monopolistically competitive markets: Large number of buyers and sellers, features some product differentiation oligopoly: is a market where a few large firms control a significant part of the market. monopoly: is a market with one seller.

profit maximization:

zero profit: ATC is min shutdown: TR < TVC OR, P < AVC OR, AVC is min

Long run
zero profit because more firms enter the market: MC = ATC