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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 (QL)**

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MARGINAL PRODUCT (MP)

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ΔTP/ΔQL

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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 Don’t 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 Don’t forget the “PER DOLLAR”**

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**What is true of MR and TR when Ed 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 Ed is ELASTIC?**

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**If elastic, MR > 0, TR must be increasing**

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**For Factor Markets, what determines a firm’s 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**

High Gini Coefficient means more unequal INCOME DISTRIBUTION. Gov’t 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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