Terms and concepts

Price elasticity is the ratio between the percentage change in the quantity demanded (Qd) or supplied (Qs) and the corresponding percent change in price.

The price elasticity of demand is the percentage change in the quantity demanded of a good or service divided by the percentage change in the price.

The price elasticity of supply is the percentage change in quantity supplied divided by the percentage change in price

We can usefully divide elasticities into three broad categories: elastic, inelastic, and unitary. An elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. Elasticities that are less than one indicate low responsiveness to price changes and correspond to inelastic demand or inelastic supply. Unitary elasticities indicate proportional responsiveness of either demand or supply,

Profit = Total Revenue – Total Cost

Total Cost = Implicit Cost + Explicit Cost

Fixed Cost (FC): Cost that are spent and cannot be changed in the period of time under consideration.

Variable Cost (VC): Costs that change as output changes.

Total Cost = Fixed Cost (FC) + Variable Cost (VC)

Average Total Cost or Average Cost (ATC): Is just the cost of producing a unit of a product. Let Q be the quantity supplied or produced. As its name suggest, it is calculated as

ATC = TC/Q = (FC + VC) / Q.

Average Fixed Cost (AFC): Is just the fixed cost involved in producing a unit of a product.

AFC = FC / Q.

AVC = VC / Q.

TC = FC + VC

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  Pure monopoly is a market structure in which one firm is the sole seller of a product or service (for example, a local electric utility). Since the entry of additional firms is blocked, one firm constitutes the entire industry. The pure monopolist produces a single unique product, so product differentiation is not an issue.
  
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  Oligopoly involves only a few sellers of a standardized or differentiated product, so each firm is affected by the decisions of its rivals and must take those decisions
  into account in determining its own price and output
  
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