Introductory Microeconomics Cost Formulas

Posted on 01.03.10 in category Microeconomics

Here is a list of some of the basic microeconomics formulas pertaining to revenues and costs of a firm. Remember when you're using these formulas there are a variety of assumptions, namely, that the the firm is profit-maximizing (making as much money as they can.)

Here are the basic formulas (work out your own algebra to find alternatives):

Average Total Cost (ATC) = Total Cost / Q (Output is quantity produced or 'Q')

Average Variable Cost (AVC) = Total Variable Cost / QAverage Fixed Cost (AFC) = ATC - AVC

Total Cost (TC) = (AVC + AFC) X Output (Which is Q)

Total Variable Cost (TVC) = AVC X Output

Total Fixed Cost (TFC) = TC - TVC

Marginal Cost (MC) = Change in Total Costs / Change in Output

Marginal Product (MP) = Change in Total Product / Change in Variable Factor

Marginal Revenue (MR) = Change in Total Revenue / Change in Q

Average Product (AP) = TP / Variable Factor

Total Revenue (TR) = Price X Quantity

Average Revenue (AR) = TR / Output

Total Product (TP) = AP X Variable Factor

Economic Profit = TR - TC > 0

A Loss = TR - TC < 0

Break Even Point = AR = ATC

Profit Maximizing Condition = MR = MC

Explicit Costs = Payments to non-owners of the firm for the resources they supply.


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  • carolina

    find adverage variable cost and average cost of total cost curve

  • Carolina

    TC=10 + 2Q

  • Hunain.H.Bilgrami

    Thanks for this formulas

  • John

    thanks for the formula

  • creelman hassan

    i have learnt alot from your formulars
    thanks very much
    ma exam is 2moro

  • Kingsleyotchere

    brandi,since total revenue is price by quantity.u can manipulate that to arrive at your price.

  • Mal

    Thank you so much ! This helped me a lot in my economics worksheet ! Tomorrow is my exam ! I would say this is much, much better than my economics sir ! :)

  • Brandi

    Hello, does anyone know how to calculate Price??? is there a formula to use??

  • KoiL

    I've stumbled over your site and see many have praised your usefulness. At the risk of appearing a simpleton on the subject I ask anyone here who has a soul that seeks other more equitable outcomes other than the formula for "an optimal level of output for profit maximization". Why is there not a formula that would equitably hand a producer a profit with a guarantee to the consumer that the price payed was not exorbitant. All things being equal. I believe that a locally produced tomato should be the same price whether it was sold 2 miles up the road from the field it was grown in, or whether it was sold in another country, other than it's true transport costs, and exchange rates. (another area where a Trade Dollar market could exist) I can hear the sheiks of horror from here already, but get this if you can. The simple laws of supply and demand are so easily manipulated in this day and age, and severed well in the day's before container ships and aircraft. In the 21st century with close to 7 billion people alive (which BTW is more than all the people who have ever lived!) it now gives us permanent demand and almost uninterrupted supply. Therefore if demand is a given, and the supply side only a matter of transport costs. Should there not be only one formula added only when the supplier nominates his point of sale. This idea is just to produce and supply at the local level, and force the middle man to wear the costs of distance. Which by a law they could not pass on. An alternative for them would be a contact. Clearing opportunistic behavior. I simply ask why should the market continue to pay $10kg for tomato's up $4kg from 1 bad season just because the bean counters were surprised to witness what the market would bare, and fix it into future pricing. You can't eat money people.

  • annette

    please help variable input of labor. 50 workers are used average product of laboris 50. Marginal product of the 50 worker is 75. wage rate is $80 and the total cost of the fixed input is $500.

    What is th average variable cost
    What is the marginal cost
    What is the average total cost

  • Helen

    how do you find out the coupn rate when you know the bond value and the coupone rate?

  • suzie

    any BASIC info to help me understand introductory economics would be appreciated.

  • suzie

    can you list for me the basic formulas for elasticity?

  • barry econ

    Might be a trick questions in that MR = MC so in this theoretical case if you have MC then you have MR and work backwards.

  • Nus

    Hi, I've been given the ffg infomation and need to find the optimal level of output for profit maximizatio (i.e MR=MC)

    TP TFC TVC
    0 100 0
    1 100 90
    2 100 170
    3 100 240
    4 100 300
    5 100 370
    6 100 450
    7 100 540
    8 100 650
    9 100 780
    10 100 930

    So far this is what I have calculated:

    TC TR MR
    100 0
    190 110 110
    440 220 110
    820 330 110
    1300 440 110
    1950 550 110
    2800 660 110
    3880 770 110
    5300 880 110
    7120 990 110
    9400 1100 110

    And

    MC

    90
    250
    380
    480
    650
    850
    1080
    1420
    1820
    2280

    I still do not know how to solve for MR=MC Mathematicaly.
    Your help will be much appreciated

  • Paul

    Try posting in the forum with your question.

  • Stephan

    I have this problem and can not figure out how to compute. Can you help me to compute?
    Example. output (Q) is given let's say 3, Total Revenue (TR) is 96, and total Cost (TC) is 44. I need to compute marginal revenue and average revenue functions. I can compute the average revenue, but got confused in computing marginal revenue.

    Thank you.

  • HAJEBA

    You are the one where to find required knowledge in economic thinking and I will always visit your website. Thank you

  • then

    If 20q + 8 is the answer then that's just basic calculus off of 10q2 + 8q

  • sanjay

    total cost function of a firm is tc = 1050 + 10qsquare + 8q find the mc of firm when the quantity produced is 15. iam unable to find the solution , mc shows the answer 20q + 8 how it is calculated pls help me.

  • Danielle

    I am having trouble finding the break even point. If i have the following information how do i find it? I have the MC, AVC and AC

  • barry econ

    Are you sure the solution for #1 is correct? If you insert the variable factor it's not TP=50+6-0.5=55.50 but TP=50+6^2-0.5^3^ =

    Is it not?

  • John Anderson

    Hi: I am really having a hard time calculating the total product. The formula above says:
    TP=AP X Variable Factor while
    AP=TP/Variable Factor
    So it's like a catch22 - to calculate TP, you have to know the AP, but to calculate AP, you have to know the TP !!

    Say I have a demand function: Q=50L+6L^2+0.5L^3
    I calculated L=4

    Solution provided =
    For Variable Factor=1, TP=50+6-0.5=55.50, Thus AP=55.50 and MP=55.50 - cool !!

    But for Variable Factor=2, TP=120.00 - How? This is what I don't understand.
    AP=TP/VF=60, and MP=Change in TP value=120-55.50=64.50

    Can you help me understand how to calculate the TP?

    Solution provided for VF=3, TP=190.50, AP=63.50 & MP=70.50
    for VF=4, TP=264.00, AP=66.00 & MP=73.50 and so on.

    Thank you very much for your help.

    Best Regards,

    JD

  • barry econ

    Happy to help, glad they worked for you.

  • Rosa

    you are the best, and very useful, I was having hard time calculating total cost, how to calculate actually but no website could help me beside this, you are the greastes, and thank you and keep on upgrading us,