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Published byAriana Preston Modified over 2 years ago

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Essential AP Microeconomics Formulas

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AVERAGE PRODUCT (AP)

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TOTAL PRODUCT (TP OR Q)/LABOR (Q L )

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MARGINAL PRODUCT (MP)

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ΔTP/ΔQ L

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PROFIT

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TOTAL REVENUE (TR) – TOTAL COST (TC)

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TOTAL COST

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TC = TFC + TVC TOTAL FIXED COSTS (TFC) + TOTAL VARIABLE COSTS (TVC) Also, TC = Explicit Costs + Implicit Costs

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AVERAGE TOTAL COST (ATC)

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TOTAL COSTS (TC) / QUANTITY (Q)

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AVERAGE FIXED COSTS (AFC)

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TOTAL FIXED COSTS (TFC) / QUANTITY (Q)

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AVERAGE VARIABLE COSTS (AVC)

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TOTAL VARIABLE COST (TVC) / QUANTITY (Q)

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AVERAGE REVENUE (AR)

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TOTAL REVENUE (TR) / QUANTITY (Q)

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IN PERFECT COMPETITION…

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DEMAND (D) = AVERAGE REVENUE (AR) = PRICE (P)

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MARGINAL REVENUE (MR)

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ΔTR / ΔQ (OR ΔTR / ΔTP)

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MARGINAL COST (MC)

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ΔTC / ΔQ or ΔTVC / ΔQ

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PROFIT MAXIMIZATION POINT

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WHERE MC = MR

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BREAKEVEN POINT

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WHERE P = ATC

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SHUTDOWN POINT

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WHERE P = AVC

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Utility Maximization occurs when…

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(MU/P) A = (MU/P) A Dont forget the PER DOLLAR

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For Factor Markets (aka inputs) the LEAST COST COMBINATION occurs when…

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(MP/P) L = (MP/P) K Dont forget the PER DOLLAR

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What is true of MR and TR when E d is INELASTIC?

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If Inelastic, MR < 0 TR must be decreasing

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What is true of MR and TR when E d is ELASTIC?

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If elastic, MR > 0, TR must be increasing

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For Factor Markets, what determines a firms profit- maximizing hiring decision?

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Firms will maximize profits by hiring any factor until MFC = MRP

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If MU/P for good A is less than MU/P for good B, what should a rational consumer do?

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A rational consumer should buy less A and more B until MU/P is equal for both goods

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If Marginal Private Benefit (MPB) is less than Marginal Social Benefit (MSB), what is likely the reason? How could this be fixed

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A Positive Externality, use a PER UNIT subsidy to increase output to Social optimal level

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If Marginal Social Cost (MSC) is greater than Marginal Private Cost (MPC), what is likely the reason? How could this be fixed?

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A Negative Externality, use a PER UNIT Tax to decrease output to the social optimal level

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If the Gini Coefficient is higher than most countries… what does this mean? What could a country do to effectively decrease the Gini Coefficient?

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High Gini Coefficient means more unequal INCOME DISTRIBUTION. Govt could impose a PROGRESSIVE tax or some other policy to re- distribute wealth from upper to lower class.

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What graph will always be both ALLOCATIVELY and PRODUCTIVELY efficient?

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A firm in PERFECT COMPETITION – in Long-Run Equilibrium

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