Microeconomics Cost Formulas

Here is a list of some of 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 total cost formulas, average variable, marginal cost, and more, (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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