microeconomics key equations

average total cost

• tells you how much profit/loss you’re making

• = total cost / quantity

average variable cost

• = total variable cost / quantity

average fixed cost

• = total fixed cost / quantity

marginal cost

• tells you how much you produce

• = change in total cost / change in output

profit

• = total revenue - total cost

• how to find it using the graph

  • find the quantity by finding where MC = MR

  • look at the demand line for that quantity, down till the ATC of that quantity

  • that box creates the box for profit

• = (price - ATC) x output

consumer surplus

• on a graph: below the demand curve, above the price (equilibrium)

• = ½ base x height

producer surplus

• on a graph: above the supply curve, below the price (equilibrium)

• = ½ base x height

deadweight loss

• = ½ base x height

elasticity

• = % change in quantity / % change in price

• % change = [(new number - old number) / old number] x 100

least cost rule

• = MPL / PL = MPC / PC

• marginal product of labour / price of labour = marginal product of capital / price of capital

  • when this is true, you maximise your output while minimising your cost

• talks about the idea of hiring workers and machines/capital

utility maximising rule

• = MUA / PA = MUB / PB

  • when the utility per $ spent for one thing you’re consuming = the utility per $ spent for the other thing you’re consuming, is when you’re maximising your utility

marginal utility

• = change in total utility / change in quantity

• marginal utility falls as quantity increases, due to the laws of diminishing margin utility

• tells you the additional satisfaction you get from consuming something again