Introduction to basic Economics Formulas

One of the important tasks in economics is the evaluation of alternatives to  determine which best satisfies given objectives or goals. In order to do this it is  often desirable determine cause and effect relationships and to quantify variables. Mathematics is a powerful tool that aids both these tasks. It is impossible to do  economic analysis without some elementary understanding of basic math tools.

Mathematics is a very precise language that is useful in expressing causal  relationships between related variables. Since microeconomics is the study of the  relationships between resources and the production of goods that are used to  satisfy wants, mathematics is indispensable. When decisions are made about the  allocation of resources, it is desirable to be able to express how a change in one  input will alter the output and ultimately change the utility of individuals.

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

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.

3 thoughts on “Introduction to basic Economics Formulas

  1. Stanford Ong October 27, 2012 at 3:24 pm Reply

    thank you so much :D:D i think i can pass my exam now!!!

  2. sukh January 10, 2014 at 3:01 pm Reply

    i love u frnd, thx 4 sugst

  3. ali May 29, 2014 at 4:35 pm Reply


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