Key Takeaways
Lesson Description
Key Takeaways
• Firms maximize profit where marginal revenue equals marginal cost.
• Costs include fixed costs, variable costs, and total costs.
• Perfectly competitive firms are price takers.
• Marginal cost eventually rises because of diminishing marginal returns.
• Firms continue operating in the short run if price covers average variable cost.
Must Know Equations
Profit = Total Revenue − Total Cost
Average Total Cost = TC ÷ Q
Average Variable Cost = TVC ÷ Q
Average Fixed Cost = TFC ÷ Q
Marginal Cost = ΔTC ÷ ΔQ
Must Know Vocabulary
Fixed Cost
Variable Cost
Marginal Cost
Average Total Cost
Marginal Revenue
Profit Maximization
Perfect Competition
Price Taker
AP Exam Focus
• Calculate production costs.
• Determine profit-maximizing output.
• Draw cost curves.