Advertisement

Important Microeconomic Formulas

Total Product = Quantity (Q)
Average Product (AP) = Total Product (Q) / Labour (L)
Marginal Product (MP) = Change in Total Product / Change in Labour
Profit = Total Revenue (TR) – Total Costs (TC)
Profit = (Average Revenue – Average Cost) x Quantity
Total Revenue (TR) = Price (P) x Quantity (Q)
Total Costs (TC) = Total Fixed Costs (TFC) + Total Variable Costs (TVC)
Total Cost (TC) = Average Cost (AC) x Quantity (Q)
Average Cost (AC) = Total Costs (TC) / Quantity (Q)
Average Fixed Costs (AFC) = Total Fixed Costs (TFC) / Quantity (Q)
Average Variable Costs (AVC) = Total Variable Costs TVC) / Quantity (Q)
Average Revenue (AR) = Total Revenue (TR) / Quantity (Q)
AR = P = Demand (Dd)
Marginal Revenue (MR) = Change in Total Revenue / Change in Quantity
Marginal Cost (MC) = Change in Total Cost / Change in Quantity


Profit Maximization Quantity Level: Marginal Revenue = Marginal Cost

Breakeven Point:  Price = Average Cost

Shutdown Point:  Price = Average Variable Cost


Key Steps To Profit Analysis

Marginal Revenue = Marginal Cost to find Quantity Profit Maximization
From Quantity go up to the Average Revenue Curve to find Price
From Quantity go up to the Average Cost Curve to find Cost
Draw Profit Rectangle between the Average Cost Curve & Average Revenue Curve ( AR > AC = Profit / AC > AR = Loss / AR = AC = Breakeven