Economic formulas
1
• Total Revenue TR= P × Q • Marginal Revenue MR= DTR/DQ Q TR MR ∆ ∆ = • Total cost TC=FC × VC • Marginal cost • Average variable cost AVC=VC/Q • Average fixed cost AFC=FC/Q • Average total cost ATC=ATC / Q or ATC = AFC + AVC • Average Revenue P=AR=TR/Q • For a competitive firm, price equals marginal cost. P = MR = MC • For a monopoly firm, price exceeds marginal cost. P > MR = MC • Profit = TR - TC • Profit = (TR/Q - TC/Q) × Q • Profit = (P - ATC) × Q • When MR > MC ê increase Q • When MR < MC ê decrease Q • When MR = MC ê Profit is maximized. • Shut down if TR < VC • Shut down if TR/Q < VC/Q • Shut down if P < AVC • Exit if TR < TC • Exit if TR/Q < TC/Q • Exit if P < ATC • Enter if TR > TC • Enter if TR/Q > TC/Q • Enter if P > ATC P Q Q P AR = × = MC TC Q = = (change in total cost) (change in quantity) ∆ ∆
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Transcript of Economic formulas
• Total Revenue TR= P × Q
• Marginal Revenue MR= DTR/DQ QTRMR∆∆
=
• Total cost TC=FC × VC
• Marginal cost
• Average variable cost AVC=VC/Q
• Average fixed cost AFC=FC/Q
• Average total cost ATC=ATC / Q or ATC = AFC + AVC
• Average Revenue P=AR=TR/Q
• For a competitive firm, price equals marginal cost. P = MR = MC
• For a monopoly firm, price exceeds marginal cost. P > MR = MC
• Profit = TR - TC
• Profit = (TR/Q - TC/Q) × Q
• Profit = (P - ATC) × Q
• When MR > MC ê increase Q
• When MR < MC ê decrease Q
• When MR = MC ê Profit is maximized.
• Shut down if TR < VC
• Shut down if TR/Q < VC/Q
• Shut down if P < AVC
• Exit if TR < TC
• Exit if TR/Q < TC/Q
• Exit if P < ATC
• Enter if TR > TC
• Enter if TR/Q > TC/Q
• Enter if P > ATC
PQ
QPAR =×
=
MC TCQ
= =(change in total cost)(change in quantity)
∆∆
