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Econ-Final Reviewer 98845123
Econ-Final Reviewer 98845123
Stage 1
Stage 2
• Shows the combination of two inputs that the firm should choose
if its CO changes while the prices of inputs remain the same.
• Assumes that the firm can produce two kinds of output from a
given set of inputs.
• The firm’s objective is thus, to find the output combination that
will maximize its total revenue
• The isoresource curve (The product transformation curve) Time Comparison in Decision Making
• Shows the maximum combinations of two outputs that a
Discounting vs. Compounding
firm can produce given its available resources
• Characteristics: Discounting
1. Downward sloping
• is the process of bringing a future value to its present
2. Concave to the origin
value
3. Non intersecting
𝑉𝑛
𝑉𝑜 =
(1 + 𝑖)𝑛
Where: Vo - present value
Vn - future value
i - interest rate
Compounding
𝑇𝑅
𝑌−𝑖 =
𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑌2
Time value of money
• If we lend money we put off the use of that amount for our
own purpose today
• We forego the opportunity to use the money purpose, for some
productive whereas the borrower gains form the money, it is
only fair that we should be compensated for the foregone
income through the payment of interest
Valuing the Future
• t - is the number of years in a period for periodic payments COST AND SUPPLY
Costs of Production
Interest Formulas • refer to the total payments that a firm has to make for the
inputs of production to be able to place good and/service in
Kinds of payments the market.
a. Single sum- money that is received or paid only once
b. Series of payments - if you pay or receive money every year The Concept of Costs
(annual) or every so many years (periodic)
• b.1. terminable - making the payments terminable or finite Alternative Cost Principle
• b.2. perpetual - have no definite end
• When resources are efficiently allocated in the production of
Single sum goods and services, an increase in the production of one
• in finding for the future value of a single sum, the basic product, say Product A, will result in a decrease in the
compounding formulae can be use; quantity produced of the other product, say Product B This
• Vn = Vo (1 + i) n will happen since in order to produce more A, resources that
• Vn = Vo x CF are used to produce Product B will be used to increase the
production of Product A so there is some quantity of Product
• b. Series of payments series of payments is either terminable or B that will be sacrificed in order to increase the production of
perpetual Product A This situation exemplifies the alternative cost
• b.1. To determine the future value of series of terminable principle or the opportunity cost principle
periodic payments made at the end of the period
Present Value
a. Single sum
𝑉𝑛
𝑉𝑂 =
(1 + 𝑖)𝑛
𝑉𝑜 = 𝑉𝑛 × 𝐷𝐹
• b.1. Terminable Payments
Per Unit Costs Curves
• b.1.1. To determine the present value of series of terminable
annual payments • provide the same kind of information as the total costs.
(1 + 𝑖)𝑛 − 1 However, they come in a different form;
𝑉𝑜 = 𝑎 [ ] • Average Fixed Costs (AFC) - are the fixed costs per unit of
𝑖 (1 + 𝑖)𝑛 product at various levels of output
Profit Maximization
Decision criteria
𝐶𝑂 = (𝑃𝑋1)(𝑄𝑋1) + (𝑃𝑋2)(𝑄𝑋2)
𝑀𝑃𝑋1 𝑃𝑋1
=
𝑀𝑃𝑋2 𝑃𝑋2
Optimum output decisions
Comparative advantage