Summary all managerial economics b formulas

Cato Sluyts

General in short:

Profit = Total Revenue - Total Cost or = (p – ATC) x Q
TR = P(Q)
TC = market value of inputs used for producing the output

Economic Profit = TR - opportunity cost
Account Profit = TR - explicit costs,
thus EP < AP

Production Function: Q = f(k,l)
• - K = capital
• - L = labor
• - Q = output

Average product = total output/ total input
𝑄/
Average product of labor → AP𝐿 = 𝐿
𝑄/
Average product of capital → AP𝐾 = 𝐾
△𝑄/
Average marginal product of labor → 𝑀𝑃𝐿 = △𝐿
△𝑄/
Average marginal product of capital → 𝑀𝑃𝐾 = △𝐾
∂𝑄/
Infinitely small change in: Labor → 𝑀𝑃𝐿 = ∂𝐿
∂𝑄 /
Capital → 𝑀𝑃𝐾 = ∂𝐾

Fixed and Variable Cost
Total cost → TC(Q) = fixed cost + variable cost (Q)
Average cost → ATC = 𝑇𝐶/ 𝑄 → total cost quantity of output produced
Average fixed cost → AFC = 𝐹𝐶/ 𝑄 → fixed cost quantity of output produced
Average variable cost → AVC = 𝑉𝐶/ 𝑄 → variable cost quantity of output produced
Marginal Cost → MC = △𝑇𝐶/ △𝑄 → change in total cost / change in quantity output produced
Infinitely small change in Q → MC = 𝑑𝑇𝐶/ 𝑑𝑄


Average Revenue → AR = 𝑇𝑅/ 𝑄 = p
Marginal Revenue → MR = △𝑇𝑅/△𝑄 = 𝑑𝑇𝑅/ 𝑑𝑄


MR > MC → increase production
MR < MC → decrease production
MR = MC → production level is optimal and profit is maximized

𝑀𝑃𝐿 /
MRTS = 𝑀𝑃𝐾 (slope of isoquant)
𝑃𝐿 / 𝑀𝑃𝐿 / 𝑃 𝑀𝑃𝐿 / 𝑀𝑃𝐾
MRTS = 𝑃𝐾 or 𝑀𝑃𝐾 = 𝐿 /𝑃𝐾 or 𝑃𝐿 = 𝑃/𝐾 (least-cost input)