Microeconomics Final Exam Formula and Term Review
Profit
Profit = Total Revenue - Total Cost
Total Revenue = Price x Quantity
Total Cost = Fixed Cost + Variable Cost
Profit = Price x Quantity - (Fixed Cost + Variable Cost)
Total Revenue
Total Revenue = Price x Quantity
Total Revenue = Profit + Total Cost
Total Cost
Total Cost = Fixed Cost + Variable Cost
Total Cost = Total Revenue - Profit
Price
Price = \frac{Total\,Revenue}{Quantity}
Quantity
Quantity = \frac{Total\,Revenue}{Price}
Fixed Cost
Fixed Cost = Total Cost - Variable Cost
Fixed Cost = Total Revenue - Variable Cost - Profit
Variable Cost
Variable Cost = Total Cost - Fixed Cost
Average Total Cost (ATC)
ATC = \frac{Total\,Cost}{Quantity}
Total\,Cost = Quantity \cdot ATC
Quantity = \frac{Total\,Cost}{ATC}
ATC = Average\,Variable\,Cost + Average\,Fixed\,Cost
Average Variable Cost (AVC)
AVC = \frac{Variable\,Cost}{Quantity}
Variable\,Cost = Quantity \cdot AVC
Quantity = \frac{Variable\,Cost}{AVC}
AVC = ATC - Average\,Fixed\,Cost
Average Fixed Cost (AFC)
AFC = \frac{Fixed\,Cost}{Quantity}
Fixed\,Cost = Quantity \cdot AFC
Quantity = \frac{Fixed\,Cost}{AFC}
AFC = ATC - AVC
Utility
Satisfaction individuals get from consuming goods/services.
Marginal Utility
Extra satisfaction from consuming one more unit.
Budget Line
Constraint based on consumer's income; represents possible combinations of two goods they can afford.
Indifference Curve
Visual representation of satisfaction from consuming combinations of two goods; all points on the curve provide the same utility.
Marginal Cost (MC)
Addition to total cost from producing one more unit.
Marginal Revenue (MR)
Addition to total revenue from selling one more unit.
Short Run
Period where businesses have both variable and fixed costs, limiting decision-making.
Long Run
Period where all costs are variable (fixed costs = 0), allowing for more flexible decision-making.
Substitutes and Complements
Complements: Products consumed jointly (e.g., peanut butter and jelly).
Substitutes: Products perceived to fulfill the same need (e.g., bus and car).
Law of Demand
As price decreases, quantity demanded increases (negative relationship).
Law of Supply
As price increases, quantity supplied increases (positive relationship).
Marginal Revenue Product
Change in total revenue from employing one more factor of production.
Marginal Factor Cost
Change in total cost from employing one more factor of production.
Marginal Physical Product
Change in quantity produced from employing one more factor of production.
Elasticity
Price Elasticity of Demand: Sensitivity of quantity demanded to a change in price.
Income Elasticity of Demand: Sensitivity of quantity demanded to a change in consumer income.
Cross Elasticity of Demand: Sensitivity of quantity demanded to a change in the price of related goods (substitutes/complements).
Price Elasticity of Supply: Sensitivity of quantity supplied to a change in price.
Heterogeneous Product
Products in an industry perceived as different from one another.
Homogeneous Product
Products in an industry perceived as basically the same.
Market Structures
Perfect Competition: Many sellers, price takers, no market power, no barriers to entry/exit, homogeneous product, perfect information.
Monopoly: One seller, price setter, much market power, extremely high barriers to entry/exit.
Monopolistic Competition: Many sellers, price setters (some power), low barriers to entry/exit, heterogeneous product, imperfect information.
Oligopoly: Few sellers, price setters (much power), high barriers to entry/exit, can be homogeneous or heterogeneous products, secretive (imperfect information).