AP MICROECONOMICS EQUATIONS

Total Revenue (TR)

Total Revenue (TR) is calculated as Price (P) multiplied by Quantity (Q).

Marginal Revenue (MR)

Marginal Revenue (MR) is the change in Total Revenue divided by the change in Quantity.

Average Revenue (AR)

Average Revenue (AR) is calculated by dividing Total Revenue by Quantity.

Profit

Profit is defined as Total Revenue minus Total Cost.

Economic Profit

Economic Profit is the Total Revenue minus the sum of Explicit Costs and Implicit Costs.

Accounting Profit

Accounting Profit is the Total Revenue minus Explicit Costs.

Marginal Cost (MC)

Marginal Cost (MC) is the change in Total Cost divided by the change in Quantity.

Profit Maximizing Condition

The profit-maximizing condition occurs when Marginal Cost (MC) equals Marginal Revenue (MR).

Allocative Efficiency

Allocative Efficiency is achieved when Price equals Marginal Cost (MC).

Productive Efficiency

Productive Efficiency occurs when Marginal Cost (MC) equals Minimum Average Total Cost (ATC).

Economic Efficiency

Economic Efficiency is when Total Welfare equals the sum of Consumer Surplus and Producer Surplus.

Supply and Demand Equilibrium

Equilibrium occurs when Quantity Supplied equals Quantity Demanded.

Demand at Equilibrium

At equilibrium, Marginal Revenue is equal to Price.

Marginal Social Cost (MSC)

Marginal Social Cost (MSC) is equal to Marginal Private Cost (MPC) plus External Costs.

Consumer Surplus

Consumer Surplus is calculated as Maximum Price Willing to Pay minus Market Price.

Producer Surplus

Producer Surplus is the difference between Market Price and Minimum Price Willing to Accept.