some 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
QP
AR =
×
=
MC
TC
Q
= =
(change in total cost)
(change in quantity)
∆
∆