If you’re entering into a microeconomics course either in high school or college, then there are a number of things you’re going to want to know. The formulas and equations that go along with the topic are definitely at the top of the list (and the top of this microeconomics cheat sheet). After all, they’re going to be used throughout your courses as well as in any tests you take. In this post, we’ll go over the must know microeconomics formulas.
For those who are just getting into microeconomics, the general high school section is going to be the place you want to start, or possibly the advanced placement area, where you’ll learn about elastic vs. inelastic, and how to calculate elasticity of demand. If you’re getting into the more advanced sections, you might need the IB economics or college sections instead. Throughout all of these sections, we’ll give you a good foundation of what you need to know in order to be fully prepared.
Please note that well microeconomics and macroeconomics are related fields the two are definitely not the same thing. If you’re looking for macroeconomics, you can check out our other article on the topic. For this article, we’re going to be focusing on single factors and effects related to individual decisions rather than those of the whole economy. So, let’s take a look at the formulas you’re going to need to know.
Looking for resources? Check out the best AP Microeconomics review books here. Or if you’re taking Macro, our must know Macroeconomics formulas post here.
General High School Microeconomics
If you’re just getting started in microeconomics, you’re going to need to start out right here. This is going to be a list of all of the basic formulas that are found within the subject and the ones that you’re going to build upon in order to get further along. This is things like how to find total fixed cost and the ATC formula and AVC formula. If you’re planning to continue studying microeconomics in college, you’re definitely going to need these formulas as a foundation.
AP = TP/L
Where AP = Average Product
TP = Total Product
L = Labor
In this equation, you’re actually solving for the average product (AP). You will take the total product (TP) divided by the labor (L) to determine it. This might also be called the average product of labor, and it gives you the average amount of output that you get from a single worker.
MP = DTP/DL
Where MP = Marginal Product
TP = Total Product
L = Labor
This equation solves for the marginal product (MP). You take the change in total product (TP) and divide it by the change in labor (L) to achieve the numerical representation of the extra output achieved when one unit of labor is added with all other input remaining the same.
P = TR – TC
Where P = Profit
TR = Total Revenue
TC = Total Cost
Here we will solve for the profit (P). It starts with the total revenue (TR) minus the total cost (TC). This equation will let you know the amount of money that is gained from a specific item based on the amount that it was sold for and the amount that it was purchased for.
TC = TFC + TVC
Where TC = Total Cost
TFC = Total Fixed Costs
TVC = Total Variable Costs
This equation evaluates the total cost (TC) of a business by adding together the total fixed costs (TFC) and the total variable costs (TVC). From here, you will be able to see all of the money utilized within the business.
AC = TC/Q
Where AC = Average Cost
TC = Total Costs
Q = Quantity
We look at the average cost (AC) of a specific item or purchase within a business. This is done by taking the total costs (TC) and dividing by the quantity (Q) of the item. From here, you will know the amount spent per item.
AFC = TFC/Q
Where AFC = Average Fixed Costs
TFC = Total Fixed Costs
Q = Quantity
If you’re looking at how to calculate AFC, the average fixed costs (AFC) of a specific item or purchase by taking the total fixed costs (TFC) and dividing them by the quantity (Q) of the item. The average fixed costs assume an equal price for all items being accounted for.
AVC = TVC/Q
Where AVC = Average Variable Costs
TVC = Total Variable Cost
Q = Quantity
The average variable costs (AVC) are found when you take the total variable cost (TVC) and divide it by the quantity of output. This equation is used to monitor items where the cost will vary based on the output that is produced.
AR = TR/Q
Where AR = Average Revenue
TR = Total Revenue
Q = Quantity
In this equation, the average revenue (AR) is equal to the total revenue (TR) divided by the quantity of the output. This equation is utilized to determine the amount that each item brings in, adjusting for each item being worth the same value.
D = AR = P
Where D = Demand
AR = Average Revenue
P = Price
The demand (D) for an item is equal to the average revenue (AR) as well as equal to the price (P). In an ideal situation, these items are considered equal.
MR = DTR/DQ
Where MR = Marginal Revenue
TR = Total Revenue
Q = Quantity
Marginal revenue (MR) is equal to the change in total revenue (TR) divided by the change in quantity (Q). In this equation, the marginal revenue is how much is gained by adding an additional item to the situation.
MC = DTC/DQ
Where MC = Marginal Cost
TC = Total Cost
Q = Quantity
Marginal cost (MC) is equal to the change in total cost (TC) divided by the change in quantity (Q). This equation lets us know how much it will cost to add an additional item to the situation, whereas marginal revenue tells us how much will be gained.
MR = MC
Where MR = Marginal Revenue
MC = Marginal Cost
Known as the profit maximization point, this equation shows us that marginal revenue (MR) should equal marginal cost (MC) in order to achieve the best level of profit.
P = ATC
Where P = Price
ATC = Average Total Cost
In order to achieve the breakeven point and how to find average total cost, the price (P) must equal the average total cost (ATC) of the product. This means that how much it sells for must be equal to how much it costs to make.
P = AVC
Where P = Price
AVC = Average Variable Cost
The shutdown point comes into effect when the price (P) is equal to the average variable cost (ATC). This is the point where the price an item is sold for is only equal to the average of the variable costs to produce it.
Advanced Placement Microeconomics
If you’re in an advanced placement course, your microeconomics formulas are going to be a little bit more sophisticated than someone who is in the general high school session. With this section, we’re going to focus on those more advanced formulas, but make sure that you’re looking at the general high school section above as well. You’ll need to know the formulas from both of these areas to get through, and you’ll find plenty of elasticity formulas and an income elasticity formula in here.
ED = (%DQD)/ (% DP)
Where ED = Elasticity of Demand
QD = Quantity Demand
P = Price
The price elasticity of demand (ED) is calculated by taking the percent of change in the quantity demanded (QD) divided by the percent of change in the price (P). If the result is greater than 1, the result is elastic. If it is equal to 1, it is unitary, and if it is less than 1, it is inelastic.
ED = [(DQD)/ (sum of Q/2)] / [(DP)/ (sum of P/2)]
Where ED = Price Elasticity of Demand – Midpoint
QD = Quantity Demand
Q = Quantity
P = Price
In order to determine the midpoint of the price elasticity of demand (ED), the change in quantity demanded (QD) is divided by the sum of the quantity (Q) divided by 2 to get the numerator. The change in price (P) is divided by the sum of the price (P) divided by 2 to get the denominator. The numerator is then divided by the denominator.
PE = (%DQS)/ (%DP)
Where PE = Price Elasticity of Supply
QS = Quantity Supplied
P = Price
In the price elasticity of supply equation, the price elasticity of supply (PE) is equal to the percent of change in the quantity supplied (QS) divided by the percent of change in the price (P).
PE = [(DQS)/ (sum of QS/2)] [(DP)/ (sum of P/2)]
Where PE = Price Elasticity of Supply
QS = Quantity Supplied
P = Price
In order to determine the midpoint of the price elasticity of supply (PE), you must take the change in quantity supplied (QS) divided by the sum of the quantity supplied (QS) divided by 2. This provides the numerator of the equation. Next, take the change in price (P) divided by the sum of the price (P) divided by 2. This equals the denominator of the equation. The numerator is then divided by the denominator.
XED = (%DQD)/ (% DP)
Where XED = Cross Elasticity of Demand
QD = Quantity Demanded
P = Price
In this equation, we look at how to calculate cross point elasticity or the cross elasticity of demand (XED), which equals the percent of change in the quantity demanded (QD) divided by the percent of change in the price (P).
YED = (%DQD)/ (% Dincome)
Where YED = Income Elasticity of Demand
QD = Quantity Demanded
The income elasticity of demand (YED) equals the percent of change in the quantity demanded (QD) divided by the percent in change of income.
MP = DTP/DLabor Input
Where TP = Total Price
The marginal product (MP) is equal to the change in total price divided by the change in labor input. This provides the result of how much a change in input can increase the cost.
College Microeconomics
For those who are starting college microeconomics, it’s definitely going to be important for you to look at these formulas. They’re going to focus on the more advanced things you’ll be learning as you continue your education forward and you start working on areas that are more complex. Here you’ll find things like the cost of production formula, point elasticity formula, and midpoint method formula.
MPL = DQ/DL
Where MPL = Marginal Product of Labor
Q = Quantity
L = Labor
The marginal product of labor (MPL) is equal to the change in quantity divided by the change in labor. This reflects just how much more quantity is produced when additional labor is utilized.
APL = Q/L
Where APL = Average Product of Labor
Q = Quantity
L = Labor
The average product of labor (APL) is equal to the quantity (Q) of a product produced divided by the labor (L) that is used. This provides an equal ratio of how much time each item takes to produce.
MRP = (DTR)/ (DQS)
Where MRP = Marginal Revenue Product
TR = Total Revenue
QS = Quantity
The marginal revenue product (MRP) is equal to the change in total revenue (TR) divided by the change in quantity sold (QS). This equation provides the optimum number of products needed within a business.
MRC=DTC/DQS
Where MRC = Marginal Resource Cost
TC = Total Cost
QS = Quantity Sold
The marginal resource cost (MRC) is equal to the change in total cost (TC) divided by the change in quantity sold (QS). In this equation, we are able to determine the additional costs associated with the additional units sold.
Each of these sections is going to help you with preparing for your microeconomics courses from high school through college. Hopefully, they’re going to make it a whole lot easier for you to create a cheat sheet that will get you moving and help you with all of the tests you’re going to be taking as well. Plus, you’ll know things like how to calculate average variable cost and how to calculate average total cost.
Did you find this helpful? Still need help? Check out the best AP Microeconomics review books write up here. Or if you’re taking Macro, our must know Macroeconomics formulas post here.
