Elasticity of Demand

Elastic Demand- Demand is sensitive to change, product is not a necessity, there are available substitutes. E>1
ex- Soda, Steak, fur coat

Inelastic Demand- Demand that is not sensitive to a change in price. Product is a necessity, few or no substitutes. E<1
Ex: Gas, insulin

Unitary Elastic- E=1

Step 1- Quantity. New Quantity- Old Quantity/ Old Quantity
Step 2- Price
Step 3- PED % change in quantity/ %  change in price
Total Revenue- total amount of money a firm receives from selling goods and services.
Price x Quantity

Fixed Cost- A cost that does not change no matter how much of a good is produced.    
Ex-Rent mortage, salary


Variable Cost- A cost that rises or falls, depending on how much is produced
Ex- Electricity,

TFC+TVC=TC
AFC+AVC= ATC
TFC/Q=AFC
TVC/Q=AVC
TC/Q=ATC

TFC=AFCxQ
TVC=AVCxQ

MARGINAL COST---NEW COST- OLD TC