Microeconomic Equations - AP

Accounting π

Total revenue - Explicit costs

Average Fixed Cost

AFC = TFC/Q

Average Product in Regards to Average Variable Cost

AVC = w/((Q/L) = w/AP_L

Average Tax Rate

Average tax rate = Total taxes due/Total taxable income

Average Total Cost

ATC = TC/Q OR ATC = AFC + AVC

Average Variable Cost

AVC = TVC/Q

Conditions of Market Power

MR < P: MRP_m = MR x MP_L < MRP_c

Cross-Price Elasticity

E_x,y = (%𝚫Q_d good X)/(%𝚫 Price good Y)

Economic π

Total revenue - Explicit costs - Implicit costs

Elastic Demand

E_d > 1: %𝚫Q_d > %𝚫P

Excess Capacity

Output potential - Actual output

Income Elasticity

E_I = (%𝚫Q_d good X)/(%𝚫 income)

Inelastic Demand

E_d < 1: %𝚫Q_d < %𝚫P

Least-Cost Rule

MP_L/P_L = MP_K/P_K

Marginal Cost

MC = 𝚫TC/𝚫Q OR MC = 𝚫TVC/𝚫Q

Marginal Cost if Quantity is Changing One Unit at a Time

MC = 𝚫TC = 𝚫TVC

Marginal Product in Regards to Marginal Cost

MC = w/(𝚫Q/𝚫L) = w/MP_L

Marginal Resource Cost

MRC = ∆TC/∆Q

Marginal Revenue Product of Capital

MRP_K = P x MP_K

Marginal Revenue Product of Labour

MRPL = ∆TR/∆Q

Marginal Tax Rate

Marginal tax rate = 𝚫Taxes due/𝚫Taxable income

Midpoint Formula

E_d =(𝚫Q_d/𝚫P)*(P_avg/Q_avg)

Monopolistic Competition Long-Run Equilibrium

P_mc > MR = MC, P_mc > minimum ATC, but 𝛑_mc = 0

Monopoly Long-Run Equilibrium

P_m > MR =MC, P_m > ATC, and 𝛑_m > 0

Perfectly Competitive Long-Run Equilibrium

P = MR = MC = ATC, and 𝛑 = 0

Perfectly Competitive Price-Taking Conditions

MRP_c = MR x MP_L = P x MP

Price Elasticity of Demand

E_d = (%𝚫 In quantity demanded of good X)/(%𝚫In the price of good X)

Price Elasticity of Supply

E_s = (%𝚫 Quantity supplied good X)/(%𝚫 Price good X)

Profit Maximization

𝛑 = TR - TC

Short-Run Profit

𝛑 = q_e x (P - ATC)

Total Cost

TC = TVC+TFC

Total Revenue

Total revenue = Price x Quantity demanded = Total spending

Unit Elastic Demand

E_d = 1: %𝚫Q_d = %𝚫P

Utility Equation

MU = 𝚫TU/𝚫Q

Utility Maximization

MU_x/P_x = MU_y/MU_y = P_x/P_y