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Essential AP Microeconomics Formulas

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### Transcript of Essential AP Microeconomics Formulas. AVERAGE PRODUCT (AP) Essential AP Microeconomics Formulas AVERAGE PRODUCT (AP) TOTAL PRODUCT (TP OR Q)/LABOR (QL) MARGINAL PRODUCT (MP) ΔTP/ΔQL PROFIT TOTAL REVENUE (TR) – TOTAL COST (TC) TOTAL COST TC = TFC + TVCTOTAL FIXED COSTS (TFC) +

TOTAL VARIABLE COSTS (TVC)

Also, TC = Explicit Costs + Implicit Costs AVERAGE TOTAL COST (ATC) TOTAL COSTS (TC) / QUANTITY (Q) AVERAGE FIXED COSTS (AFC) TOTAL FIXED COSTS (TFC) / QUANTITY (Q) AVERAGE VARIABLE COSTS (AVC) TOTAL VARIABLE COST (TVC) / QUANTITY (Q) AVERAGE REVENUE (AR) TOTAL REVENUE (TR) / QUANTITY (Q) IN PERFECT COMPETITION… DEMAND (D) = AVERAGE REVENUE (AR) = PRICE (P) MARGINAL REVENUE (MR) ΔTR / ΔQ (OR ΔTR / ΔTP) MARGINAL COST (MC) ΔTC / ΔQor

ΔTVC / ΔQ PROFIT MAXIMIZATION POINT WHERE MC = MR “BREAKEVEN” POINT WHERE P = ATC SHUTDOWN POINT WHERE P = AVC Utility Maximization occurs when… (MU/P)A = (MU/P)A

Don’t forget the “PER DOLLAR” For Factor Markets (aka inputs) the LEAST COST COMBINATION

occurs when… (MP/P)L = (MP/P)K

Don’t forget the “PER DOLLAR” What is true of MR and TR when Ed is INELASTIC? If Inelastic, MR < 0

TR must be decreasing What is true of MR and TR when Ed is ELASTIC? If elastic, MR > 0,

TR must be increasing For Factor Markets, what determines a firm’s profit-

maximizing hiring decision? Firms will maximize profits by hiring any factor until

MFC = MRP If MU/P for good A is less than MU/P for good B, what should a

rational consumer do? A rational consumer should buy less A and more B until MU/P is

equal for both goods If Marginal Private Benefit (MPB) is less than Marginal

Social Benefit (MSB), what is likely the reason? How could

this be ‘fixed’ A Positive Externality,use a PER UNIT subsidy to

increase output to Social optimal level If Marginal Social Cost (MSC) is greater than Marginal Private Cost (MPC), what is likely the

reason? How could this be fixed? A Negative Externality, use a PER UNIT Tax to decrease output

to the social optimal level If the Gini Coefficient is higher than most countries… what does

this mean? What could a country do to effectively

decrease the Gini Coefficient? 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. What graph will always be both ALLOCATIVELY and

PRODUCTIVELY efficient? A firm in PERFECT COMPETITION – in Long-Run Equilibrium