FOMULA FINANCE

Important Microeconomic Formulas

Total Product = Quantity (Q)
Average Product (AP) = Total Product (Q) / Labour (L)
Marginal Product (MP) = Change in Total Product / Change in Labour
Profit = Total Revenue (TR) – Total Costs (TC)
Profit = (Average Revenue – Average Cost) x Quantity
Total Revenue (TR) = Price (P) x Quantity (Q)
Total Costs (TC) = Total Fixed Costs (TFC) + Total Variable Costs (TVC)
Total Cost (TC) = Average Cost (AC) x Quantity (Q)
Average Cost (AC) = Total Costs (TC) / Quantity (Q)
Average Fixed Costs (AFC) = Total Fixed Costs (TFC) / Quantity (Q)
Average Variable Costs (AVC) = Total Variable Costs TVC) / Quantity (Q)
Average Revenue (AR) = Total Revenue (TR) / Quantity (Q)
AR = P = Demand (Dd)
ATC = AC = TC/Q = TFC+TVC/Q
AFC = TFC/Q ;
Marginal Revenue (MR) = Change in Total Revenue / Change in Quantity
Marginal Cost (MC) = Change in Total Cost / Change in Quantity = ∆TC/∆Q, ∆TVC/∆Q
Explicit Costs = Payments to non-owners of the firm for the resources they supply.

Profit Maximization Quantity Level: Marginal Revenue = Marginal Cost( MR =MC)
Price celling : P= MC

Breakeven Point: Price = Average Cost
Break Even Point = AR = ATC
Shutdown Point: Price = Average Variable Cost

Key Steps To Profit Analysis

1. Marginal Revenue = Marginal Cost to find Quantity Profit Maximization
2. From Quantity go up to the Average Revenue Curve to find Price
3. From Quantity go up to the Average Cost Curve to find Cost
4. Draw Profit Rectangle between the Average Cost Curve & Average Revenue Curve  AR > AC = Profit / AC > AR = Loss / AR = AC = Breakeven

Total Product (TP) = AP X Variable Factor
Economic Profit = TR – TC > 0
A Loss = TR – TC < 0