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Preliminary Econometrics
(Basics on the Use of Mathematics on Economics)
Ace Institute of Management
Executive MBA Program
Course Structure
To understand basic tools needed to solve
mathematical problems related to managerial
economics and macroeconomics
4 Sessions
Session 1: Basic Economic Relations
Session 2: Use of basic calculus
Session 3: Economic application: Microeconomics
Session 4: Economic Application: Macroeconomics
the market
value of the
inputs a firm
uses in
production
TPL or Q
3,000
(no. of (bushels
workers) of wheat)
Quantity of output
1000
1800
2400
500
2800
5
(i) Q = 3L
2,500
2,000
1,500
1,000
3000
(ii) Q = L0.5
No. of workers
(iii) Q = L2
Marginal Product
The marginal product of any input is the increase in
output arising from an additional unit of that input,
holding all other inputs constant.
Q
Marginal product of labor (MPL) =
L
Q = change in output, L = change in labor
Q (bushels
(no. of
of wheat)
workers)
L = 1
1
L = 1
L = 1
L = 1
4
5
Q = 1000
1000
Q = 800
800
Q = 600
600
Q = 400
400
Q = 200
200
1000
1800
L = 1
3
MPL
2400
2800
3000
3,000
(no. of (bushels
workers) of wheat)
MPL
2,500
0
1000
1
2
3
4
5
1000
1800
2400
2800
3000
800
600
Quantity of output
2,000
1,500
1,000
500
400
0
200
No. of workers
TP or Q
APL =
L
Q
(no. of (bushels
workers) of wheat)
MPL
0
1000
1000
1800
2400
2800
3000
1000
1000
900
1000
APL
800
1000
1000
700
600
Total Revenue
Total Revenue = Price x Quantity
TR = P x Q
Incase, P remains constant (eg. Perfectly
competitive market):
TR = f (Q)
1
2
3
4
5
6
Total
Revenue
1.5
3.0
4.5
6.0
7.5
9.0
TR
Average Revenue (AR) =
Q
TR = P x Q
$10
$0
n.a.
$10
$10
$10
$10
Notice that
$20
$10
MR = P
$10
$30
$10
$10
$40
$10
$10
$50
$10
AR =
TR
Q
MR =
TR
Q
$10
$10
$10
$10
$10
15
TR
AR
$4.50
$0
n.a.
4.00
$4.00
3.50
3.50
3.00
3.00
2.50
10
2.50
2.00
10
2.00
1.50
1.50
MR
$4
3
2
1
0
1
16
Learning Exercise-Revenue
Fill in the missing data
Q
0
1
2
3
4
5
6
7
8
9
10
P ($)
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
TR
MR
AR
Learning Exercise-Revenue
Q
0
1
2
3
4
5
6
7
8
9
10
P ($)
10
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
TR
0
9
16
21
24
25
24
21
16
9
0
MR
9
7
5
3
1
-1
-3
-5
-7
-9
AR
0
9
8
7
6
5
4
3
2
1
0
FC
VC
TC
$100
$0 $100
100
70
170
100
120
220
100
160
260
100
210
310
100
280
380
100
380
480
100
520
620
Marginal Cost
Q
TC
0 $100
1
170
220
260
310
380
480
620
MC
$70
50
40
50
70
100
140
MC =
TC
Q
FC
0 $100
AFC
n.a.
100
$100
100
50
100
33.33
100
25
100
20
100
16.67
100
14.29
VC
AVC
$0
n.a.
70
$70
120
60
160
53.33
210
52.50
280
56.00
380
63.33
520
74.29
TC
0 $100
ATC
n.a.
170
$170
220
110
260
86.67
310
77.50
380
76
480
80
620
88.57
A C T I V E L E A R N I N G:
Costs
Fill in the blank spaces of this table.
Q
VC
0
1
10
30
TC
AFC
AVC
ATC
$50
n.a.
n.a.
n.a.
$10
$60.00
80
16.67
100
150
210
150
20
12.50
36.67
8.33
$10
30
37.50
30
260
MC
35
43.33
60
24
A C T I V E L E A R N I N G:
Answers
Q
VC
TC
AFC
AVC
ATC
$0
$50
n.a.
n.a.
n.a.
10
60
$50.00
$10
$60.00
30
80
25.00
15
40.00
60
110
16.67
20
36.67
100
150
12.50
25
37.50
150
200
10.00
30
40.00
210
260
8.33
35
43.33
MC
$10
20
30
40
50
60
25
Profit Function
Profit () = TR - TC
Marginal profit (M) =
P
160
150
140
TR
0
150
MR
150
TC
0
25
55
390
90
110
80
550
600
630
640
MC
25
30
35
130
175
50
290
355
55
60
525
300
350
M
125
100
75
370
-30
285
75
600
0
125
-85
P
160
150
140
130
120
110
100
90
80
70
60
TR
0
150
280
390
480
550
600
630
640
630
600
MR
150
130
110
90
70
50
30
10
-10
-30
TC
0
25
55
90
130
175
230
290
355
430
525
MC
25
30
35
40
45
55
60
65
75
95
0
125
225
300
350
375
370
340
285
200
75
M
125
100
75
50
25
-5
-30
-55
-85
-125
Numerical Exercise
Given the Total Cost function:
TC = 150Q 3Q2 + 0.25Q3
a) Find the Average Total cost function for the above
b) Compute Total, Average and Marginal costs when the
quantity produced are 5,6 and 7.
Ans.:
a) TC = 150 3Q + 0.25Q2
b) Computation
Q
Total Cost Average Cost
Marginal Cost
5
6
7
139.75
52.75
706.25
846
898.75
141.25
141
128.39
Numerical Exercise
Given the following TR and TC functions,
determine the output (Q) that would result in
break-even (zero profit).
TR = 51Q Q2
TC = 625 + Q
Ans: Q = 25
Market Mechanism
Two forces of market: Demand and Supply
Demand: willingness and ability to pay
Law of demand: Qd = f (P) (Inverse)
$5.00
Equilibrium
Price and
Quantity
$4.00
$3.00
$2.00
$1.00
$0.00
Q
0
10 15 20 25 30 35
Answer:
Qd = 20,500,000 500(23000)= 9,000,000
Qs = - 42000000 +2000(23000) = 4,000,000
Shortage = 5 million cars.
Thank You