IMPORTANT FORMULAS AND CONDITIONS

Chapter 5

1.   Optimal Decision Making: MB = MC

2.   Opportunity Cost from a Production Possibility Curve (PPC):

Good X: The slope of the PPC

Good Y: The inverse of the slope of the PPC

Chapter 6

1.   Market Equilibrium:

Q_d = Q_s

2.   Shortage:

Q_d – Q_s

3.   Surplus:

Q_s – Q_d

4.   Total Welfare:

= Consumer surplus + Producer surplus

Chapter 7

1.   Price Elasticity of Demand:

E_d = (%D in quantity demanded of good X)/(%D in the price of good X)

2.   Percentage Change:

%D = 100 × (New value – Old value)/ Old value

3.   Total Revenue:

= Price × Quantity demanded

4.   Income Elasticity:

E_I = (%D Q_d good X)/(%D income)

5.   Cross-Price Elasticity:

E_x,y = (%D Q_d good X)/(%D price good Y)

6.   Price Elasticity of Supply:

E_s = (%D in quantity supplied of good X)/(%D in the price of good X)

7.   Marginal Utility:

MU = DTU/DQ

8.   Utility Maximizing Rule:

MU_x/P_x = MU_y/P_y or MU_x/MU_y = P_x/P_y

9.   Revenue from a Tariff:

= Per-Unit Tariff × Units Imported

Chapter 8

1. Accounting Profit:

TR – Explicit costs

2. Economic Profit:

TR – Explicit costs – Implicit costs

3. Marginal Product of Labor:

MP_L = D in TP_L/D in L

4. Average Product of Labor:

AP_L = TP_L/L

5. Total Costs:

TC = TVC + TFC

6. Marginal Costs:

MC = DTVC/DQ

7. Average Fixed Cost:

AFC = TFC/Q

8. Average Variable Cost:

AVC = TVC/Q

9. Average Total Cost:

ATC = TC/Q = AFC + AVC

10. Marginal Cost and Marginal Product of Labor:

MC = w/MP_L

11. Average Variable Cost and Average Product of Labor:

AVC = w/AP_L

Chapter 9

1.   Profit Maximization Point:

MR = MC

2.   Demand for Firm’s Product (Perfectly Competitive Market):

P = MR = AR

3.   Profit:

P = TR - TC = P × q_e - TC = q_e × (P - ATC)

4.   Breakeven Point:

P = ATC

5.   Shutdown Point:

P < AVC or TR < TVC

6.   Allocative Efficiency:

Produce output q where P_c = MR = MC

7.   Excess Capacity in Monopolistic Competition:

Q_atc – Q_mc

8.   Perfectly Competitive Long-Run Equilibrium:

P = MR = AR = MC = ATC

9.   Monopoly Long-Run Equilibrium:

P_m > MR = MC

Chapter 10

1.   Marginal Revenue Product:

a. Under perfectly competitive price-taking conditions:

MRP_c = MR × MP_L = P × MP_L

b. Under conditions of market power, MR < P:

MRP_m = MR × MP_L < MRP_c

2.   Marginal Resource Cost:

3.   Least-Cost Hiring Rule:

MP_L/P_L = MP_K/P_K or equivalently,

MP_L/MP_K = P_L/P_K

4.   Profit Maximizing Resource Employment:

MRP = MRC

5.   Monopsony Hiring Decision:

MFC = MRP > W

Chapter 11

1.   Socially Optimal Output:

MSB = MSC

2.   Marginal Tax Rate:

= (D taxes due)/(D taxable income)

3.   Average Tax Rate:

= (Total taxes due)/(Total taxable income)