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Essential AP Microeconomics Formulas Essential AP Microeconomics Formulas

AVERAGE PRODUCT (AP) AVERAGE PRODUCT (AP)

TOTAL PRODUCT (TP OR Q)/LABOR (QL) TOTAL PRODUCT (TP OR Q)/LABOR (QL)

MARGINAL PRODUCT (MP) MARGINAL PRODUCT (MP)

ΔTP/ΔQL ΔTP/ΔQL

PROFIT PROFIT

TOTAL REVENUE (TR) – TOTAL COST (TC) TOTAL REVENUE (TR) – TOTAL COST (TC)

TOTAL COST TOTAL COST

TC = TFC + TVC TOTAL FIXED COSTS (TFC) + TOTAL VARIABLE COSTS (TVC) TC = TFC + TVC TOTAL FIXED COSTS (TFC) + TOTAL VARIABLE COSTS (TVC) Also, TC = Explicit Costs + Implicit Costs

AVERAGE TOTAL COST (ATC) AVERAGE TOTAL COST (ATC)

TOTAL COSTS (TC) / QUANTITY (Q) TOTAL COSTS (TC) / QUANTITY (Q)

AVERAGE FIXED COSTS (AFC) AVERAGE FIXED COSTS (AFC)

TOTAL FIXED COSTS (TFC) / QUANTITY (Q) TOTAL FIXED COSTS (TFC) / QUANTITY (Q)

AVERAGE VARIABLE COSTS (AVC) AVERAGE VARIABLE COSTS (AVC)

TOTAL VARIABLE COST (TVC) / QUANTITY (Q) TOTAL VARIABLE COST (TVC) / QUANTITY (Q)

AVERAGE REVENUE (AR) AVERAGE REVENUE (AR)

TOTAL REVENUE (TR) / QUANTITY (Q) TOTAL REVENUE (TR) / QUANTITY (Q)

IN PERFECT COMPETITION… IN PERFECT COMPETITION…

DEMAND (D) = AVERAGE REVENUE (AR) = PRICE (P) DEMAND (D) = AVERAGE REVENUE (AR) = PRICE (P)

MARGINAL REVENUE (MR) MARGINAL REVENUE (MR)

ΔTR / ΔQ (OR ΔTR / ΔTP) ΔTR / ΔQ (OR ΔTR / ΔTP)

MARGINAL COST (MC) MARGINAL COST (MC)

ΔTC / ΔQ or ΔTVC / ΔQ ΔTC / ΔQ or ΔTVC / ΔQ

PROFIT MAXIMIZATION POINT PROFIT MAXIMIZATION POINT

WHERE MC = MR WHERE MC = MR

“BREAKEVEN” POINT “BREAKEVEN” POINT

WHERE P = ATC WHERE P = ATC

SHUTDOWN POINT SHUTDOWN POINT

WHERE P = AVC WHERE P = AVC

Utility Maximization occurs when… Utility Maximization occurs when…

(MU/P)A = (MU/P)A Don’t forget the “PER DOLLAR” (MU/P)A = (MU/P)A Don’t forget the “PER DOLLAR”

For Factor Markets (aka inputs) the LEAST COMBINATION occurs when… For Factor Markets (aka inputs) the LEAST COMBINATION occurs when…

(MP/P)L = (MP/P)K Don’t forget the “PER DOLLAR” (MP/P)L = (MP/P)K Don’t forget the “PER DOLLAR”

What is true of MR and TR when Ed is INELASTIC? What is true of MR and TR when Ed is INELASTIC?

If Inelastic, MR < 0 TR must be decreasing If Inelastic, MR < 0 TR must be decreasing

What is true of MR and TR when Ed is ELASTIC? What is true of MR and TR when Ed is ELASTIC?

If elastic, MR > 0, TR must be increasing If elastic, MR > 0, TR must be increasing

For Factor Markets, what determines a firm’s profitmaximizing hiring decision? For Factor Markets, what determines a firm’s profitmaximizing hiring decision?

Firms will maximize profits by hiring any factor until MFC = MRP Firms will maximize profits by hiring any factor until MFC = MRP

If MU/P for good A is less than MU/P for good B, what should If MU/P for good A is less than MU/P for good B, what should a rational consumer do?

A rational consumer should buy less A and more B until MU/P is equal A rational consumer should buy less A and more B until MU/P is equal for both goods

If Marginal Private Benefit (MPB) is less than Marginal Social Benefit (MSB), what is If Marginal Private Benefit (MPB) is less than Marginal Social Benefit (MSB), what is likely the reason? How could this be ‘fixed’

A Positive Externality, use a PER UNIT subsidy to increase output to Social optimal A Positive Externality, use a PER UNIT subsidy to increase output to Social optimal level

If Marginal Social Cost (MSC) is greater than Marginal Private Cost (MPC), what is If Marginal Social Cost (MSC) is greater than Marginal Private Cost (MPC), what is likely the reason? How could this be fixed?

A Negative Externality, use a PER UNIT Tax to decrease output to the social A Negative Externality, use a PER UNIT Tax to decrease output to the social optimal level

If the Gini Coefficient is higher than most countries… what does this mean? What If the Gini Coefficient is higher than most countries… what does this mean? What could a country do to effectively decrease the Gini Coefficient?

High Gini Coefficient means more unequal INCOME DISTRIBUTION. Gov’t could impose a PROGRESSIVE tax High Gini Coefficient means more unequal INCOME DISTRIBUTION. Gov’t could impose a PROGRESSIVE tax or some other policy to redistribute wealth from upper to lower class.

What graph will always be both ALLOCATIVELY and PRODUCTIVELY efficient? What graph will always be both ALLOCATIVELY and PRODUCTIVELY efficient?

A firm in PERFECT COMPETITION – in Long-Run Equilibrium A firm in PERFECT COMPETITION – in Long-Run Equilibrium