Unit 7 & 8 Summary

Abbr	Word	Equation
TR	total revenue	$=P\times Q$
TC	total cost	the market value of the inputs a firm uses in production
$\Pi$	profit	$=TR-TC=(P-ATC)\times Q$
	accounting profit	$\Pi$
	economic profit	$\Pi-\text{implicit costs}$
TP	total product produced
L	number of inputs
MP	marginal product (per input)	$=\frac{\Delta Q}{\Delta L}$
AP	average product (per input)	$=\frac{Q}{L}$
TFC	total fixed cost
TVC	Total variable cost
TC	Total cost	$=TFC+TVC$
MC	marginal cost (per output)	$=\frac{\Delta TC}{\Delta Q}$
AFC	Average fixed cost	$=\frac{TFC}{Q}$
AVC	Average variable cost	$=\frac{TVC}{Q}$
ATC	average total cost	$=AFC+AVC=\frac{TC}{Q}$
AR	average revenue	$= \frac{TR}{Q}=P$
MR	Marginal revenue (per output)	$=\frac{\Delta TR}{\Delta Q}=P$

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• when MR > MC, the firm should produce more goods
• when MR < MC, the firm should produce less goods
• when MR = MC, the firm is maximizing profit

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• The firm would shut down in the short run if P < min AVC
• A firm will exit an industry if P < min ATC
• A firm will enter an industry if P > min ATC

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Last update: November 6, 2021
Created: November 6, 2021